Ladies and Gentlemen,
It’s a great honour and privilege to speak at the first annual event to celebrate the 6th anniversary of the China General Chamber of Commerce – U.S.A.
Since its founding in 2005, the General Chamber has fulfilled its mission to serve its members and to serve as a bridge between Chinese and American business communities. I want to congratulate the General Chamber for its good work and its contribution in advancing trade and economic ties between China and the United States.
This year marks the 40th anniversary of the reopening of relations between China and the United States. In the last four decades, despite ups and downs, with the shared commitment and joint efforts from the leadership, governments and people of all walks of life in both countries, China-US relationship has surged ahead and has come a long way. Today, China-US relationship has become one of the most important and dynamic relationships in the world.
A prominent feature of today’s China-US relations is the interconnectedness between our two economies.
We are now each other’s second largest trade partner. Last year, our bilateral trade reached 385 billion US dollars. China has been the third largest and the fastest growing export market for the US. Over the past decade, US exports to China increased by 468%, while its exports to other countries increased only by 55%. The US continues to be the No. 1 source of foreign direct investment for China, and China has become the biggest foreign creditor for the US.
China-US business ties have brought tangible benefits to the peoples in both countries.
It is estimated that between 2001 and 2007 alone, US export to China brought about 2.5 million new jobs to the US. According to a Morgan Stanley report, 4-8 million US jobs are closely associated with China-US trade. For example, in 2010, the US toys retail sector employed about 140,000 people. Among this, about 120,000 jobs are created by imports from China.
Chinese high quality yet inexpensive commodities saved a lot of money for American consumers, over 600 billion dollars in the past 10 years. One study shows that trade with China has boosted economic growth and lowered inflation rate for the US. This means an increase of around 1,000 dollars in real disposable income for every US household each year.
In January this year, President Hu Jintao paid a successful state visit to the United States. Among the many results that came out of the visit, the most meaningful was the shared commitment that President Hu and President Barack Obama have made in the Joint Statement, that the two sides will work together to build a cooperative partnership based on mutual respect and mutual benefit. The two presidents also recognized the vital importance of building a comprehensive and mutually beneficial economic partnership. This has laid the groundwork, and it depends on both sides to work together to make it happen.
In my view, as we build this economic partnership, we should focus on the following three priorities:
First, as the two largest economies in the world, we should work together to promote world economic recovery and global financial stability.
Currently, both China and the United States are undertaking massive efforts to restructure our economies. The core of China’s 12th Five-Year Plan is to transform the mode of economic development and expand domestic consumption. The US is also striving to jumpstart its economy through revitalizing American manufacturing, strengthening infrastructure and expanding export. It is in our common interest to continue to support each other’s economic restructuring.
Our two countries have had productive consultation and coordination within the framework of G20 in coping with the financial crisis since 2008. We have worked closely at the G20 Summit in Cannes and the APEC Economic Leaders’ Meeting in Hawaii to promote world economic recovery and growth and international financial stability.
Second, I see great potential in advancing mutual trade and investment.
China is now intensifying efforts to expand domestic demand, so that the economy will be driven by consumption, investment and export in a more balanced way. In the next 5 years, consumption in China will be growing at a fairly fast pace, and the total import is expected to reach more than 8 trillion US dollars. This will provide further opportunities to farmers, manufacturers, and workers in the US and other parts of the world.
Currently, US export to China only accounts for less than 7% in China’s total import. This is not compatible with the status of the overall bilateral relationship and China’s demand for import. The question is: To what extent is the US ready to fully utilize the potential Chinese market?
One related issue is the need to ease control of high-tech products to China. The proportion of US high-tech products in China’s overall high-tech import has been declining considerably, from 18.3% in 2001 to just 7.1% in 2010. If the US had been able to maintain its 18.3% share in 2010, it would have meant an increase of 46 billion dollars of its export to China.
By 2020, China will have a 600 billion US dollars market for civil aviation, integrated circuit, machine tools and other products. Most of these products fall under the export control regime. If current practices continue, many US businesses will see opportunities easily lost.
As far as investment is concerned, there is a growing interest among Chinese investors to come and invest in the US, but Chinese investment in the US is not growing as fast as it should. Among the 317 billion US dollars that Chinese companies have invested abroad by the end of 2010, only about 5 billion, or 1.5%, was made in the US.
It requires joint efforts from both sides to enhance mutual investment. We have worked, and will be working to improve our legal framework, strengthen IPR protection, and provide a favorable and level playing field for foreign businesses in terms of indigenous innovation and government procurement.
On the part of Chinese investors, they need to know more about US laws, regulations, investment environment and corporate culture in order to make the right investment decisions.
It is important that the US side takes similar steps to provide an open and friendly environment for Chinese investment which can contribute to the US economy and employment. Investment coming from China, including those from the state owned enterprises which are public listed companies and operating under market rules, should be viewed in a more positive light.
Third, we need to further enhance sub-national cooperation.
Local communities are the main players and beneficiaries in China-US economic and trade relations. In the past decade, 47 out of 50 states in the US have seen a three digit, in some cases even 4 digit growth in their export to China. There is great potential for sub-national cooperation.
This summer, when the first China-US Governors Forum was held in Salt Lake City, the two sides signed over 20 cooperation agreements, with a total value of 3 billion US dollars. The second Forum was held in Beijing last month, with more agreements and MOUs signed between the two sides. We should make good use of the Forum and other sub-national mechanisms to promote economic and trade cooperation.
Our economic and trade relationship is so big and expanding so fast that it is only normal to have problems. These economic problems should be addressed as economic problems through such dialogue and consultation mechanisms as the Strategic and Economic Dialogue and the Joint Commission on Commerce and Trade.
We recognize that there is trade imbalance between China and the United States. The trade imbalance is caused by a combination of factors, including the structural trade and investment differences, divergent patterns of saving and consumption, and the international division of labor, rather than an issue of the RMB exchange rate. In fact, the RMB has appreciated by nearly 30% since July 2005. However, between 2005 and 2011, the US unemployment rate increased from 5.1% to 9%. This proves that RMB appreciation alone will not help to reduce the unemployment rate in the US.
It is also important to know that China’s trade with the rest of the world is moving toward greater balance. China’s trade surplus is declining on a yearly, even monthly basis. Between January and October this year, China’s imports grew by 5 percentage points faster than exports, and China’s trade surplus was down by 16%. In the same period, the trade surplus accounted for less than 1.4% of China's total GDP. Even if the inflow of the capital account is included, China’s current account surplus is less than 3% of the GDP, much lower than 5.1% in the same period last year. In general, China’s trade is basically balanced, and China’s balance of international payment is within a reasonable range.
Facts have shown that the managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies is in line with China’s realities, and is conducive to international economic and financial stability and development. We will continue to progressively promote the reform of the RMB exchange rate regime, and make the exchange rate more flexible in a self-initiated, gradual and controllable manner.
We do not believe that legislation is the appropriate mechanism by which to address the currency issue. Because to invoke protectionist measures will only push China and the US toward the brink of a "trade war," which is exactly what we should avoid when confronted with a sluggish world economy and international financial instability.
China and the US are working closely on many important regional and global issues, from traditional security and development areas to newly emerged issues such as anti-terrorism, non-proliferation, climate change, energy and environmental protection; from addressing the global financial crisis and facilitating world economic recovery to the realization of the UN Millennium Development Goals.
While it is true that China has achieved remarkable growth in the past decades, it is still a developing country. Although China’s economy is now the second largest in the world, it is far closer to the third than to the first. Our GDP is just over 40% of that of the United States, and per capita GDP is 1/10 of that of the United States. There is clearly a long way to go, and there are enormous challenges and problems ahead.
China has taken the path of peaceful development, and will remain committed to it. We will stick to the reform and opening up policy and continue to work hard to ensure a balanced and sustained growth and to improve the living standards and basic rights of the Chinese people.
What has happened has proved and will continue to prove that China’s peaceful development is an opportunity, not a threat. It not only brings real benefits to the Chinese people, but also contributes to the welfare of the people of the rest of the world.
Together, China and the United States account for about one third of the world economy, one quarter of the world population and one-fifth of international trade. In this era of globalization, and given the size and the degree of interconnectedness of the two countries, China and the US can be regarded as a community of interests. The success of one relies greatly on the success of the other.
Such new realities require new thinking. If people continue to look at each other with the cold war mindset, China and the United States will be drawn into confrontation and conflict. It is imperative to shift from the old way of thinking and frame China-US relations from a strategic and long-term perspective.
China-US relationship is not and should not be a zero-sum game relationship. If we work together as true partners, we can both emerge as winners. We can create a new model of relationship between the biggest developing country and the biggest developed country to peacefully co-exist and prosper together.