Before the state visit by Chinese President Jiang Zemin to the US in late October, 1997. Li Daoyu , Chinese ambassador to the US, gave an exclusive interview on Sino-US relations to the correspondent of CHINA INFORMATION magazine. Excerpts of the interview follow:

China-US Relations

Question: Ambassador Li, as you know, different views have emerged in the discussion on Sino-US relations. Some argue that with the end of the cold war China has lost strategic value to the US. So they are pessimistic about Sino-US relations. How do you view the current and future Sino-US relations?

Ambassador Li: We strongly believe that a healthy Sino-US relationship not only serves the fundamental interests of our two great nations, but also holds the key to peace and stability in the Asia-Pacific region and the world as a whole. So, China regards its relationship with the US as one of the most important bilateral relationships in the world. There are many reasons for us to be optimistic.

It's true that the world situation has changed fundamentally in the 90s. But today, the needs for our two countries to stay engaged is increasing, not decreasing; and the potential for both countries to cooperate is expanding, not dwindling. We share vast common interests at least in the following areas:

-- As two major powers in the world and permanent members of the UN Security Council, China and the US shoulder the common responsibility in maintaining global and regional peace and security.

--We share the same goal and have been cooperating very well in preventing the proliferation of weapons of mass destruction, especially in such cases as NPT, CTBT and CWC.

--Both countries want to see peace and stability in the Asia-Pacific and other regions, especially the Korean Peninsula, Southeast Asia and South Asia. Both have a stake in advancing the Middle East peace process and maintaining stability in the Persian Gulf. Both take part actively in the Asean Regional Forum on security.

--With the globalization of the world economy and emergence of regional trading groups, both countries require closer cooperation in finance, investment and trade. Both countries have an interest in ensuring the healthy development of APEC.

--Both countries face the common challenge to combat international crimes, international terrorism, drug trafficking, illegal immigration and environmental pollution.

We are happy that, thanks to the joint efforts from both sides, China-US relations have improved a lot recently. High-level official exchanges have increased steadily. Bilateral trade and economic relations are on the upswing. Military-to-military exchanges have made headway. At present, both sides are making preparations for the state visits to be exchanged between President Jiang Zemin and President Clinton this year and next, and are determined to work closely together to ensure the success of these visits.


China-US Economic Cooperation and Trade

Question: In today's Sino-US relations, what do you think is the most important factor which pushes the relations forward?

Ambassador Li: There are so many very important factors which can be seen as driving forces or corner stones of our relations. Strategic interests in peace and security should be given high priority. Here I want to illustrate another factor, the economic and trade ties.

With the rapid growth of China's economy, our bilateral trade and economic cooperation has boomed. Trade figures of the both sides show that over the past 19 years Sino-US bilateral trade grew more than 18% annually on average. Today China is the No. 4 trading partner of the US, and the US the No. 2 trading partner of China. Figures from the Chinese Customs indicated that in 1996, our bilateral trade reached 42.8 billion dollars, while figures from the US side showed it was 63 billion dollars.

China is also one of the fastest growing markets for US exports. Between 1990 and 1996, US exports to China grew by more than 16% a year on average, far exceeding the overall US export growth in the period.

In terms of investment in China, the US is the largest by country. The US has committed 35 billion dollars to China market with a paid-in volume of over 14 billion dollars. So far, US-funded projects and ventures have exceeded 22,000. More than 200 of the Fortune 500 American industrial companies have been involved in various types of cooperation in China and generated impressive returns.

The bilateral trade development is mutually beneficial and complementary to the economies of the two countries. China is a developing country with low labor costs, but with capital constraint and relatively under-developed science and technology. The US is a developed country with abundant capital and highly advanced technologies, but with high labor costs.

The sustained growth of Sino-US trade has played an active part in the economic development and creation of jobs in the two countries. For China, its import of products from the US help its economic development and modernization. For the United States, US-China trade supports over 200,000 high-wage, high-skill American jobs and tens of thousands of jobs in US consumer goods companies, retail establishments, ports, and transportation and shipping companies. And bilateral trade development has created at least 1 million jobs for the US industry and service sectors.

Looking ahead, if both countries keep working closely together, there are even brighter prospects for the development of our trade and economic cooperation. China's total imports from 1997 to 2000 will hit 700 billion US dollars. Without doubt, this means greater opportunities for our American partners. More importantly, it means hundreds and thousands of new jobs can be created as a result of your increased exports to China.

Question: There is a big difference in calculating Sino-US trade balance, why?

Ambassador Li: It's true that Sino-US trade has been in favor of China in recent years, but the size of the US deficit has been largely overstated by the US side.

According to Chinese figures, China enjoyed $ 10.53 billion surplus in 1996, but the US figure was $ 39.52 billion. There are several causes of big differences in calculating Sino-US trade balance. I think the major causes are:

Firstly, the US import statistics has ignored entrepot trade and value added from entrepot trade. Under Chinese statistics, 60% of Chinese exports to the United States are conducted through entrepot trade via a third place, mainly the Hong Kong region. According to US information, 80% of Chinese exports get into the US through a third place. It is obvious that the added value created at the third place after the goods have left China should not be calculated as exports from China. The average rate of value-adding of Chinese exports to the US via the Hong Kong region was 40.7% in the past two years, which was far above the re-export value-adding rate under general circumstances. The value adding rate of some of the major re-exported commodities, such as toys and knitwear, even exceeded 100%. The US side, however, calculated the added value created in Hong Kong region's entrepot trade as imports from China and thus greatly over-calculated its import value from China.

Secondly, the US statistics of its exports to China have been under-estimated by neglecting re-exports. The amount of re-exports to China via the Hong Kong region included in the US statistics of its exports to China was only about a quarter of that included in Hong Kong's statistics. In 1992 and 1993 respectively, about 1.8 billion US dollars and 2.3 billion US dollars worth of US exports to China, through entrepot trade via Hong Kong, were not included in the US statistics of its exports to China.

Thirdly, the US method in determining the origin of goods also leads to the discrepancies in the statistics of the two sides. The judgment of the origin of ordinary imported goods is usually based on the declaration by importers. Goods determined as originating in China are recorded as imports from China, regardless of whether they are actually exports via a third place or whether the goods have acquired added value in that third place. Some imports which have been recorded by the US as imports from China should, most probably, be recorded as imports from other third countries or regions. Experts of both sides acknowledged that further studies are needed on the issue of determination of origin.

I would like to point out that as its economy grows, China will open its market still wider and increase its imports from the US. At the same time, the US government should further liberalize its control over technology export and credit lending to China so as to create better conditions for the entry of American products into China's market.


China Not Posing Threat to Anyone

Question: Some people have a logic that as its economy and national strength grow, China is bound to pursue external expansion, and therefore they call for containment against China. What do you think of this argument?

Ambassador Li: Since the collapse of the former Soviet Union, some people are interested in finding a new "enemy" for the US. They are spreading the "China threat" theory. According to their argument, China has replaced the former Soviet Union as the main threat to the United States. Others predict that China and the United States will move towards confrontation, even conflict. These views could not be more wrong.

A review of China's history shows China does not have a tradition of expansion. On the contrary, in the modern history, it was the victim of repeated foreign aggression, domination and bullying. China has never occupied a single inch of foreign soil, nor has it stationed a single soldier abroad.

It's worth noting that China's defense policy is completely defensive in nature. Its defense spending is the lowest among the big countries in absolute terms. In per capita terms as well as in terms of the share of the GNP, it is among the lowest in the world. According to statistics, the 1996 defense budget of the United States exceeded 260 billion dollars, averaging 996 dollars per American. China's defense spending was only 8.7 billion dollars and 7 dollars per Chinese. China is even no match for Japan, India or South Korea when it comes to defense expenditure.

What China desires most is a peaceful international environment, so that it can focus on economic development and improve the life of its 1.2 billion people. Because of this, China has firmly adhered to an independent foreign policy of peace and worked to maintain and develop friendly relations and cooperation with other countries.

Even if it becomes stronger in the future, China will never pursue aggression and expansion, still less will it seek hegemony. This, as a matter of principle, has been written into China's Constitution. In practicality, China's large population requires all its resources to be devoted to its economic development.

The so-called "China Threat" theory was fabricated by people with a cold war mentality. I believe the American people will pass a correct judgment.


Handling Properly Differences and Taiwan Issue

Question: In the development of Sino-US relationship, there have always been some differences, and even disputes. Then, how can the negative impact of the differences and disputes in Sino-US relations be reduced?

Ambassador Li: It's not surprising that we have different views on some issues, because we are living in a diverse world and we have different social systems, cultures, historical backgrounds and levels of development.

As for the differences, they can be resolved on the basis of mutual respect, non-interference in each other's internal affairs and equal consultations. And if some differences cannot be resolved for the time being, the two sides can seek common ground while reserving differences. Since the leaders of our two countries were able to find ways to manage our differences 25 years ago, why cannot we do it now?

In fact, to manage the bilateral differences and build a healthy Sino-US relationship, in my opinion, we must always remember: The foundation or framework for China-US relations is the three Sino-US Joint Communiques. These international agreements between China and the US set forth a series of basic principles such as mutual respect for sovereignty and territorial integrity, equality and mutual benefit and non-interference in each other's internal affairs. These are the guiding principles for handling our bilateral relations. As facts have shown these years, whenever these principles were strictly observed, our relations sailed rather smoothly; conversely, they suffered setbacks.

Among the problems in our relations, the Taiwan question is the most sensitive and important one. There is only one China in the world and Taiwan is part of China's territory. The successive US Administrations since President Nixon have also made explicit and solemn commitment to the "one China" policy. The US Government has pledged in the three Sino-US Joint Communiques that it "recognized the Government of the People's Republic of China as the sole legal government of China, and it acknowledged the Chinese position that there is but one China and Taiwan is part of China." It's our hope that these commitments will be honored.

Up-Coming Visit by Chinese President Jiang Zemin

Question: The most striking event in Sino-US relations this year will be the state visit to the US by Chinese President Jiang Zemin in late October. As the ambassador of the People's Republic of China, what's your expectation for this visit?

Ambassador Li: During Chinese President Jiang Zemin's meeting with President Clinton in Manila last November, they agreed that Jiang would make a state visit to the US this year, and that Clinton would visit China next year.

President Jiang Zemin's upcoming visit will be the first Chinese head of state's visit to this country in 12 years, representing the beginning of a new development stage in Sino-US relations, and will mark the restoration of highest level visits between the two countries.

Exchanging visits and having direct contacts between top leaders of the two countries will help deepen our mutual understanding and will surely contribute to jointly establishing a long-term and healthy relationship of cooperation toward the 21st century.

Moreover, during this visit, President Jiang will have the opportunity to meet American people from all walks of life, conveying to them the feelings of friendship and the good wishes of the Chinese people.

Now, both sides are making earnest preparations for the visit. I am confident that, thanks to our joint efforts, President Jiang's visit will be a success with substantial results.