--Speech at the Luncheon of the City Club of Cleveland

(January 18, 2008)

Zhou Wenzhong, Ambassador

Madam President,

Ladies and Gentlemen,

Thank you, Madam Lee Friedman, for your kind words. It is a pleasure to attend the luncheon hosted by the City Club of Cleveland and meet with all of you.

I wish to take this opportunity to share with you my views on the development in China and China-US economic and trade relations. I will make the following four points.

First, in the globalized economy, China and the United States are increasingly interdependent, with the stability and growth of their economies holding the balance for the world economy.

Peace and development are the main themes of our times and economic globalization the most prominent trend. Globalization has driven up international trade and transnational direct investment, leading to accelerated flow of resources on a global scale and increasing interdependence of all the countries in the world.

The United States is the biggest developed country in the world. China is the biggest developing country. Both countries are major driving forces in the globalization process. China's economy has been growing continuously and rapidly for three decades since we began reform and opening-up. This allows it to serve as an important engine for the prosperity in the Asia-Pacific region and for the growth of world economy. In 2006, US GDP was 11.4 trillion dollars and China's was 2.65 trillion dollars. The World Bank statistics show that between 2003 and 2005, the US economic growth contributed to 29.8% of world GDP growth, ranking first, while China contributed to 13.8%, ranking second. China's contribution to world GDP growth in 2007 is estimated at 16%. Economic stability and growth in China and the United States is of great significance to the economic growth and prosperity of the whole world.

At the same time, every move in our economies is affecting world economic growth. The repercussions and uncertainties caused by the secondary mortgage debt crisis in the United States have a profound impact on the world economic prospects. We are in the same boat. Any economic problem in one country will not only hurt the other country but also affect the world economy in a profound way.

Clearly, globalization has ruled out the possibility of glorious isolation for either of our countries. We both must take a global and overall view of our respective economic development and our economic and trade ties, commit ourselves to greater international cooperation, approach economic and trade issues appropriately through dialogue and consultation, and avoid imposing sanctions or resorting to trade protectionist practice.

Second, China's economy is expected to continue to grow steadily and offer enormous opportunities for all the countries of the world, including the United States.

With 11% growth rate, China's economy sustained rapid growth in 2007. At the same time, there are a number of acute problems, such as the need to slow down the trend toward overheating and the pressure for price rises. There is doubt among some people whether China will be able to sustain rapid growth this year.

Sensing its responsibility toward the people of China and the world economy, the Chinese Government is taking vigorous measures to stabilize and develop China's economy.

The 17th Party Congress held last October set forth a blueprint and program of action for China's modernization in the coming years. China will thoroughly apply the Scientific Outlook on Development, continue the reform and opening-up policies, enhance social harmony, strive to quadruple the per capita GDP of the year 2000 by 2020 and build a moderately prosperous society in all aspects. This has raised the bar for Chinese economy, namely increasing the per capita GDP to 3,500 US dollars by 2020, which is 500 dollars higher than the target set forth by the 16th Party Congress.

Last month's annual Central Economic Conference outlined China's economic tasks for this year. On the whole, China will concentrate on transforming the development pattern and improving the socialist market economy and strive for sound and rapid growth through improving and strengthening macro-regulation, promoting reform, opening-up and innovation, optimizing the economic structure, increasing the quality of growth, achieving substantive energy conservation and emission reduction, and paying greater attention to livelihood improvement and social harmony.

To be specific, the most important task is to improve and implement macro regulation and control policy to ensure steady and rapid economic growth.

-- The primary task of macroeconomic control is to prevent the economy from overheating and the current price rises from evolving into "evident inflation". The key words are controlling the total volume, stabilizing the prices, adjusting the structure and ensuring the balance.

-- Efforts to rationalize the scale of fiscal spending and optimizing its structure should continue so as to increase spending on social security, public health, education and housing by a relatively big margin.

-- Monetary policy should play a greater role in macro-control. There will be stricter control on credit volume and growth in the interest of better regulation of domestic demand, balanced international payment and financial stability and security.

-- New projects will undergo stricter procedure to avoid investment rebound and ensure rational economic growth rate.

-- Efforts will be taken to effectively rein in the runaway price hike, encourage the production of grain crops, edible vegetable oil, meat and other basic necessities or commodities in short supply, improve the reserve system, enhance predictability in price regulation, strengthen price monitoring and market supervision, and improve and implement measures to offset the price rises of basic living necessities for the low-income families.

Investment contributed to 49.9% of China's economic growth in the first three quarters of 2007 and consumption only 35.7%. To address the structural dilemma of excessive increase of investment and relatively inadequate growth of consumption, the Central Economic Conference concluded that we must balance investment and consumption and balance domestic demand and external demand, and that encouraging domestic demand is fundamental. As the next step, China will continue to focus on encouraging individual consumption, especially in rural areas, while at the same time accelerate the restructuring of income distribution and increase the income level and spending power of low-income rural and urban residents.

China's trade total was 2.17 trillion US dollars in 2007, with import reaching 955.8 billion dollars. As China continues to intensify macro-regulation and encourage domestic demand, its economy is expected to sustain steady growth this year. Total import is expected to be over one trillion US dollars in 2008 and exceed 1.2 trillion by 2010. This means enormous opportunities for mutually beneficial cooperation with the world, the US included.

Third, the mutually beneficial and win-win economic cooperation and trade between China and the United States have brought huge benefits to the peoples of our countries.

Both China and the United States have significant influence in the world. China-US relationship has become one of the most important state-to-state relationships. Thanks to the concerted efforts of both countries, this relationship maintained overall stability and continued to make new progress in recent year.

Economic and trade ties are part and parcel of China-US relationship. Based on the apparent economic complementarity and the broad basis for cooperation, China-US economic cooperation and trade have developed rapidly. This is an interdependent, mutually beneficial and win-win relationship that will help both our two countries to develop together.

In 2007, China-US trade hit a new record of 302.08 billion dollars, which was over 120 times as much as the trade volume when our countries established diplomatic relationship (2.4 billion dollars). China is America's second largest trading partner and vice versa. China is also a major and fastest growing export market for the United States, while the United States is China's biggest export market and sixth largest source of import.

US total goods export increased by 32.6% in the period from 2000 to 2006. Its export to China alone grew by 341% in the same period.

With accumulated paid-in investment in China exceeding 56 billion dollars, funding a total of 54,595 projects as of the end of November 2007, the United State continues to be China's biggest source of foreign investment. At the same time, direct investment from China in the United States also continues to increase.

China-US trade and economic cooperation have brought real benefits to the two countries and peoples. According to the estimation of Morgan Stanley, about 4 to 8 million job opportunities in the United States are related to trade with China. The quality yet inexpensive products from China satisfied the consumer demands in the United States and saved the consumers roughly 600 billion dollars in the past decade.

US direct investment in China is not only contributing to China's economic growth but also bringing huge profits for US companies. In 2006, US companies realized over 80 billion dollars sales in China. With a profit total of 10 billion dollars, the return on investment ratio is 17%. A survey by US-China Business Council published in October 2007 showed that 83% of the US companies find their China-based operations profitable, 85% recorded revenue increase and two thirds indicated their China-based operations had an equal or higher profitability rate than the company's global rate.

Some people accuse China of taking away American jobs by exporting to the United States. But the fact is, US unemployment rate in recent years has been round 4.5%, the lowest in history. Although 3 million manufacturing jobs were gone between 1996 and 2005, 15 million new jobs were created in the same period in the service sector, which accounts for 80% of the US economy. With the energy, pollution and labor intensive production lines moved to other parts of the world, the United States is bound to import relevant products, whether they are from China or not. This is a result of international division of labor in the process of globalization.

Fourth, China and the United States should handle their differences and frictions through dialogue and consultation to ensure continuous and healthy development of their economic and trade relations.

There are issues in our trade relations. The growing protectionist sentiments and the tendency to politicize economic and trade issues are especially worrisome. The US Congress has introduced nearly 50 China-related trade protectionist bills concerning Chinese currency exchange rate, IPR protection, trade imbalance, product quality and food safety. Such moves are of great concern to China.

Given the speed, scale and scope of the growth of China-US economic cooperation and trade, issues and frictions are hardly avoidable. This relationship is mutually beneficial and win-win in nature. Cooperation is the mainstream and frictions are tributaries. Our two countries should adhere to the principles of development, equality and mutual benefit, and give full play to such mechanisms as the Strategic Economic Dialogue or SED, the Joint Commission on Commerce and Trade or JCCT, the Joint Economic Commission and the Joint Science and Technology Commission. Dialogues on an equal footing and good-will consultation should be the right approach to address trade frictions and explore new areas of mutually beneficial cooperation. Trade protectionism or politicizing trade issues should never be an option. The history of China-US economic and trade relations repeatedly reminds us that dialogue and consultation work better than confrontation and accusation. Taking restrictive measures against normal trade will only end up hurting the interests of both sides.

SED is an important platform for China and the United States to discuss comprehensive, strategic and long-term economic issues and explore rational solutions to hot issues.

Last month, China and the United States held the Third SED and the 18th annual conference JCCT, which were both successful. The two sides focused on "seizing the opportunities and dealing with the challenges of economic globalization" and achieved a host of important outcomes through fruitful discussions. A total of 14 agreements and memorandums were signed, including an agreement on food and feed safety, anther one on drug and medical products safety and a memorandum on facilitation of Chinese tour group to the United States. In addition to these, the two sides also reached 31 understandings on cooperation in 8 areas ranging from financial services, product quality and food safety, energy and the environment, to transparency, investment, rebalancing growth and China's market economy status. These agreements and understandings provide fresh impetus to the development of China-US economic and trade relations.

I wish to reiterate that China takes US trade concerns very seriously. We will continue to adopt vigorous measures to increase our import from the United States, step up IPR protection, improve the currency exchange rate formulation mechanism, increase market access for financial services, and ensure export product quality and food safety. It is hoped that the US side will make corresponding and positive effort likewise and, especially, abandon trade protectionist practice and relax the export control against China. We hope the US side will work with us to safeguard our mutually beneficial and win-win economic and trade ties.

Ladies and Gentlemen,

I am pleased to note that the State of Ohio has increasingly substantial exchanges and cooperation with China. In 1979, Ohio became the first US state to establish a sister relationship with a Chinese province when it entered into sister relationship with Hubei Province. Cincinnati and Liuzhou City of China also maintain a sister city relationship. Export from Ohio to China was 1.3 billion US dollars in 2006, which was 39% more than the previous year. Between 2000 and 2006, Ohio's total export increased by 44% and its export to China increased by 346%. China is now Ohio's 4th largest export market. Ohio has set up trade offices in Hong Kong and Shanghai. Over 190 Ohio companies, such as Goodyear, Eaton Corp, and P&G, have seen generous return on their investments in China.

The Ohio State University, where there are 1,000 Chinese students, enjoys cooperative relationship with over 20 Chinese universities. Its Chinese Flagship Program has considerable attraction.

Here, I am pleased to announce that the Office of Chinese Language Council International, or "Hanban", has approved the establishment of a Confucius Institute in the Cleveland State University. I am sure this decision will give the Chinese language education and culture exchange with China here in Ohio and Cleveland a strong push. As China continues to develop and open up to the world, the exchanges and cooperation with Ohio will surely reach a new height.

Ladies and Gentlemen,

The year 2008 is an important year for China, for the United States and for the relationship between our two countries. This year, China will mark the 30th anniversary of its reform and opening up endeavor and host the Olympic Games and the Paralympics in Beijing. For the United State, it is a year of general elections. The communiqué on establishing diplomatic relations between China and the United States turns 30 years old. As the new year sets in, China-US relationship faces both important opportunities for further development and challenges that require appropriate countermeasures. The impact of the election politics in the United States on China-US relationship deserves special attention.

I believe that our countries should approach our relations from the strategic height, unswervingly implement the important understanding between our leaders that China and the United States are both stakeholders and constructive partners, and further strengthen high-level exchanges, strategic dialogues and cooperation in various fields. We should also respect and accommodate each other's concerns, handle the Taiwan question appropriately and in the spirit of the three Sino-US joint communiqués, oppose and forestall "Taiwan independence" activities and safeguard peace and stability in the Taiwan Straits. In this way, I am confident that we are capable of making greater progress in advancing the constructive and cooperative China-US relationship.

Thank you.