Thank you for that kind introduction. Welcome to Update 2005.
This afternoon I’d like to discuss the state of trade between China and the United States and what we are doing to keep our economic relations moving forward.
President Bush rightly describes the U.S. relationship with China as cooperative, onstructive, and candid. As China emerges as a larger presence on the world stage, our relations are growing more complex. We are managing a broad range of bilateral, regional, and global issues. The economic relationship is a central piece in this puzzle.
The foundation for any strong trading relationship depends on certain core principles:
First, although frictions are inevitable in any trading relationship, there should be equal market access for both parties. Foreign companies must be able to trust that commitments to reduce tariffs and non-tariff barriers will be honored.
Second, laws and regulations must promote fair competition between domestic and foreign participants. Regulations must be enforced. As an example, intellectual property rights must be respected. For advanced, knowledge-based economies like the United States, the most important factor of production is often ideas. IPR protection for U.S. brands and innovative technologies has never been more important—going forward, it will only be more so.
Third, economic decisions within a country must be driven by free market forces, not political considerations. Private enterprises should not rely on government subsidies. And monetary policy should respond to market forces.
Fourth, countries should be governed by the rule of law. Clear rules and effective enforcement of those rules is essential.
Finally, high-tech trade depends on mutual confidence that sensitive exports will not be diverted to end uses that threaten national security.
We have learned from experience that when these elements are present, U.S. businesses thrive in overseas markets. Nowhere are these principles more important than in our relationship with China. When measured by size, unmet needs, or the complementary nature of our economies, China offers great promise for American business—under appropriate terms of trade.
However, many people doing business in China feel that Chinese policies do not live up to the key principles I listed.
President Bush seeks a balanced, accountable, and equitable trade relationship. One that allows both the American and Chinese people to profit and prosper. Today, the Administration has concerns about a number of areas.
Let me give you an update:
The costs of production are subsidized for some Chinese goods. State-controlled banks make loans to state-owned-enterprises that are never paid back. Strict capital controls force China’s wage earners to deposit their savings in the state banks. Highly competitive U.S. businesses face restrictions in the Chinese market: industries like banking, insurance, agriculture, and direct sales. Two-thirds of all the phony goods seized by U.S. Customs Officials came from China. We know that 90 percent of the software sold within China was pirated. And, despite some recent progress, market forces often don’t control economic decisions. China’s currency valuation does not yet adequately respond to market forces. This artificially increases Chinese exports and suppresses imports.
These factors contribute to our trade deficit with China. Some in China contend that our trade deficit would evaporate if the U.S. relaxed our export controls. But the tiny percentage of trade blocked by export license denials is little more than a rounding error. Make no mistake: U.S. export controls don’t create our trade deficit.
So, from the standpoint of the United States the economic relationship with China trade needs improvement. Without improvement, there is a risk of restrictions on commerce between our countries. That would be unfortunate given the amount of progress that China has made and the amount of money U.S. businesses have invested in China.
In the 27 years since China opened to the global economy and began market reforms, hundreds of millions of people have climbed out of poverty. In the last 10 years, the number of state controlled firms has been cut in half. The private sector is growing rapidly.
In the 1970s, the private sector accounted for virtually none of China’s GDP. Now the private sector produces well over half of China’s GDP, according to the OECD. And China is now growing at nine percent per year.
China’s economic development has had a positive impact on our trade relationship. As Chinese living standards rise, Chinese demand for American goods and services is also rising.
China is now the sixth largest market for U.S. exports and America’s third largest trading partner overall. Last year, U.S. companies exported $42 billion worth of merchandise and services to China.
China is among the fastest growing major overseas markets for U.S. manufactured goods. U.S. exports of computers, electrical equipment and other electronic products to China increased by 20 percent between 2002 and 2003, topping $7 billion. Chemicals exports grew 24 percent to $3.7 billion over the same period.
Chinese growth is creating jobs and opportunities at home, and new partnerships between our companies. American workers and companies are benefiting from the increased purchasing power of China’s 1.3 billion consumers.
The opportunities that our multinationals are taking by doing business with China are leading to more American jobs and greater shareholder wealth in America.
We often see our relationship described in one-dimensional terms. Many forget about the investment our companies are making in China; investment that now totals $50 billion.
Chinese consumers are growing up with brands as familiar to us as Coke, Pepsi, Wrigley, Motorola, and Pantene shampoo. From a global perspective, China’s growth is also paying dividends. The global economy is driven by the dynamic growth in China and the U.S.
And although serious deficiencies remain, we see real progress in the fairness of our trading relationship. It has often taken strong advocacy by the Administration, but China is changing. Let me give you a few examples:
Since joining the WTO in 2001, China’s average tariffs have dropped from 41 percent to six percent and U.S. exports have grown over 80 percent. This July, China made very specific commitments to protect intellectual property rights. When President Hu met with President Bush this September, he reaffirmed these commitments, pledging that China will step up its efforts to protect intellectual property, and enhance enforcement efforts. And China recently took an important first step toward a flexible, market-based currency. While this was just the first step, Chinese authorities have said that they intend to continue these reforms.
The Bush Administration has taken action to make progress on important issues for U.S. companies and workers—and China is responding.
President Bush has said the best policy is engagement—engagement over protectionism.
We will continue aggressively opening markets in China and continue to emphasize to the Chinese leadership that these reforms are in China’s own interest.
Here are a couple of examples:
We will strengthen our focus on intellectual property protection and enforcement. This is a key signal for the U.S. about China’s level of commitment—results will show us they are serious.
Progress here will also reward Chinese entrepreneurs and innovators, as Chinese companies create more sophisticated products. Last year, for the first time, the majority of patent applications filed in China came from Chinese inventors. It is in China’s own interest to encourage domestic innovation.
Treasury Secretary Snow is encouraging China to make currency reforms—a key element needed to put our trading relationship on an even keel. While meaningful progress has been made this year on currency, continued reforms are needed.
And financial market liberalization is also critical—not just to increase sales of services by U.S. firms, but also to increase the buying power of Chinese businesses and individuals.
Finally, let me reiterate, that we encourage China to increase confidence that sensitive dual-use exports will not be diverted to inappropriate end-uses. Secure trade is vital to increasing U.S. high-technology exports to China.
For our part, we must reaffirm our commitment to free trade on fair terms.
In spite of the inherent friction that arises in any relationship, we cannot retreat from the global marketplace. We cannot shrink from the vast challenges involved in trading with China! We cannot withdraw from the world economy because competition is heating up!
We are a nation of optimists and innovators. The President believes that American workers can compete with anyone on fair terms. Our challenge as a free-trading democracy is to sustain support for open markets when trade friction builds pressure to retreat from free trade.
New trade barriers would do great damage to the U.S. and to the global economy. We must reject the medieval medicine offered by the economic isolationists!
Protectionism failed in the past; these policies will fail us again if new trade walls rise up on the old, antiquated, protectionist foundations.
We ask that China become a responsible stakeholder in the international economic system, by aligning its economy with market-based principles. The main reason for China to embrace free markets and transparency is because doing so is strongly in her own interest.
Our relationship continues to trend in the right direction, proving that engagement is better than closed borders. We recognize that China has enormous challenges to address. There are still 160 million Chinese living in poverty. The Chinese economy is still roughly one-seventh the size of the America economy. For those reasons, Chinese leadership faces
a big decision.
Will they accelerate market reforms at a pace that will produce more progress, or will they postpone reform, increase frustration in the United States, and risk the enormous progress they’ve made?
I believe that the Chinese leadership is determined to make progress and that they will accelerate the pace of their reforms. And by moving further toward market forces, they will strengthen one of the 21st century’s most important economic relationships.
As I conclude my remarks, I want to emphasize that our economic engagement produces benefits that transcend financial statements. Men and women doing business in China are introducing the democratic values of transparency, rule of law, and respect for property rights and individual freedom across Chinese society.
The private sector role should never be overlooked. When a new factory opens, a new plant, or a new store-front: Those entrepreneurs are assuming the risk, investing the money, creating the jobs, and making a difference.
Many men and women that compose China’s younger generation have attended American universities. Their understanding of the global economy is a powerful asset for China's society.
The United States stands on the path that leads to freedom, prosperity, and stability. We ask China to join us on this path, to strengthen our trade and our partnership to serve both of our national interests and the interests of the world community.