Hon. Professor Alan Sykes,
Ladies and Gentlemen,
Thank you very much for inviting me to today's event. It is indeed a great pleasure and honor to offer my humble views before such a distinguished audience at such a distinguished university.
First of all, I want to commend the organizers of this event for their efforts in strengthening the academic and professional exchanges between China and the US. I believe the conference will help attendees from both sides gain a better understanding of legal practices and interactions in our two countries.
China-US relationship is believed to be one of the most important, dynamic and complex bilateral relationships in the world. Today, I would like to focus mainly on four questions:
Question One: What are the implications for China's entry into the WTO?
This year marks the 10th anniversary of China's accession to the WTO. November 10th, 2001 is certainly an extremely important and memorable date. After 15 years of tough and protracted negotiation, China became the full-fledged member of the organization. China's WTO membership is an important part of the country's reform and opening-up program launched in the late 1970's, and is deemed as a revolutionary step in its economic restructuring.
Just a decade ago, anxiety about "foreign wolves coming to China" plagues many Chinese companies, particularly state-owned enterprises. Just a decade ago, some WTO members doubted whether China could abide by the organization's rules and fulfill its commitments. 10 years into the regime, China has made vast and in-depth commitments in opening its market to the rest of the world, with the areas covering agricultural, manufacturing and service sectors. In service sector alone, 100 sectors have been opened up for international trade and investment. China's average duty rate has dropped from 15.3 present to 9.8 percent at present. The past 10 years has proved to be one of the best periods for China's development, during which China has been prospering with rest of the world: Chinese companies have not been eaten by "wolves"; they instead learned to "dance with the wolves" in a nice manner. The WTO Director-General Pascal Lamy assessed China's fulfillment of its commitments as "A+ (A Plus)", which is a full recognition of the country's efforts.
The WTO membership serves as a catalyst to China's economic growth.
In 2001, China's foreign trade volume was USD510 billion ranking the 6th in the world. In 2010, it amounted close to $3 trillion, ranking 2nd in the world. In the past 10 years. China's exports and imports have grown by 4.9 times and 4.7 times respectively with a two-fold increase in its GDP. China's GDP has jumped up to $6 trillion in 2010 from about 1 trillion by 2001. The country's GDP per capita has increased to $4,000 in 2010 from $ 800 in 2001.
Today, China is a not only the largest manufacturing center in the world, but also the largest consumption market on earth. Take automobile manufacturing and sales for example, in 2010, both car sales and production topped 18 million units, ranking first in the world for two straight years, breaking the world record of annual sales of 17 million units, established by the U.S. way back in 2000.
The Chinese middle class is growing steadily. Last year, the number of Chinese with annual income falling into the range between $10,000 and $60,000 reached roughly 300 million, almost the total population of the US. The growing number of middle class means growing market for various high-end imported commodities: Buick cars, Coach bags, red wine from Napa and Sonoma valley and almond from Central Valley California, I Pad 2 from Silicon Valley, soybeans from Illinois, you name it. As a matter of fact, nearly all the US top brands have come into China Market.
In the legal sphere, the WTO membership has had far-reaching impact on China's economic reforms. It prompted China to create a market economy based on the rule of law. It helped to make the rule of law an essential element in the country's economic system. It was against this background that China's commitment to international rules and practices arising from the WTO accession negotiations has become an integral feature of China's economic reform process. As China has committed itself to making its domestic laws and regulations consistent with WTO rules, it started an extensive clean-up of its existing legal system: 6 state laws concerning foreign business and investment have been amended, 1150 government regulations reformulated and 800 abolished. As legal reforms have accelerated hand-in-hand with the accession to the WTO, China's economic reform process has entered a new stage hallmarked by emphasis on the rule of law and the importance of making laws consistent with international practice.
In the last 10 years, the Chinese government has made great efforts to educate its people about WTO rules and regulations. WTO training programs were undertaken both for government officials and business people; Just in the first 5 years after China got into the WTO, more than 2 million government officials participated in the training courses on market economy management. And this training program is still going on. Nowadays, there are 124 mid-level government officials studying the market economy (or MPA course) in American universities, including Stanford.
The WTO membership has helped the Chinese people learn many fresh concepts from the rest of the world. They have learned the meaning of Win-Win games. They have learned "Fairness, Impartiality and Public Accountability" should be the 3 key principles to manage the economy. They have also learned how to claim Chinese company's proper rights through WTO legal procedure. In the negotiation with other parties, Chinese governments and businesses gradually got familiar with the WTO rules. They have recognized the importance of being a responsible player in the globalized world.
The WTO membership has not only benefited China itself, but also brought huge dividends and development opportunities to its trading partners and investors from all over the world.
Ten years ago, on the eve of the 2001 slowdown, the world economy was expanding at a rate of close to 5% and China accounted for just over one tenth of that growth. Last year, as the world bounced back from the worst recession since the Great Depression, and growth was once again close to 5%, China contributed almost 50% of global growth. In the past decade, China imported about 700 billion US dollar's worth of merchandise every year on average, creating about 14 million jobs for the exporting countries and regions. In 2010, China became the world's second largest importer, with a total import value of over 1.4 trillion U.S. dollars, accounting for 10 percent of the world's total. As the WTO pointed out in its 3rd review on China's trade policies, China is 'playing a constructive role in stimulating the global demand and stabilizing the world economy'.
Question 2: How is China-US economic and trade relations faring since China's accession to the WTO?
As the largest developing country and the largest developed country respectively, China and the U.S. are highly complementary in economy. And their interests are interwoven ever more closely since China's entry into WTO.
China and the US are now each other's 2nd largest trading partner. China is the 3rd largest export market of the U.S. in 2010 compared with the 9th largest in 2001. In 2010, the bilateral trade grown to $385 billion from less than $2.5 billion in 1979, a 150-fold increase, which means we did the job of 1979 in just 2.5 days. In the past 10 years, US exports to China have grown by 3.3 times, much faster than the U.S. exports to other countries (up 29% over the same period). And over the past 3 years, China has been the fastest growing export market of the US, which created 1.3 million jobs in this country. Now, China appears on the list of top 5 export markets in 40 states out of 50. Consumer goods from China and agricultural and hi-tech products from the U.S. are very popular in each other's market, setting for the bilateral trade a good example with mutual benefits and win-win outcomes.
We also have made significant investment in each other's country. By the end of 2010, the US has made nearly 60,000 projects with total investment of nearly $65 billion in China, making it No. 1 source country of FDI for China. The same statistics show that China has thus far made about $5 billion investment in the US, covering manufacturing, science and technology, clothing, agriculture, food, tourism and other sectors. It is also worth to mention that the largest contribution to the global profits of many US firms comes from the Chinese market. According to China Business Report 2010 – 2011 by AmChan-China, in 2010, 87% of American firms have recorded sales growth, which is 40% and 10% higher than the figure in 2009 and 2008, respectively. In terms of profits, 79% of American firms reported profits, which is 14 % and 9% more than the ratio in 2009 and 2008, respectively. Even during the most difficult time of the financial crisis, more than 70% of the US companies were still making profits in China.
We also see an increasing number of Chinese and American tourists traveling to each other's country. Since the signing of Approved Destination Status agreement in 2007, the total number of Chinese tourists to U.S. has jumped to about 1 million in 2010, spending over $5 billion in the United States. About 2 million American tourists visited China last year.
Another way of understanding how closely we are economically linked is to take a quick look at the business relations between China and the 5 states that my consular jurisdiction covers: China is the largest trading partner for Oregon and Washington, the second largest for Alaska, the third largest for California and Nevada.
As China continues to expand its domestic markets and opens wider to the rest of the world, it will present more and more opportunities for American businesses and consumers. As far as I know, GE will invest more than 2 billion U.S. dollars to sharpen its R&D in China with establishing several new innovation centers and joint ventures; P&G has announced that it will in five years add extra 1 billion U.S. dollars of investment in China; Starbucks has confirmed that their coffee shops in China will increase to as many as 1,500 by 2015; Ford Motor said they would further expand their production. The list can go on and on. American Chamber of Commerce even paints a rosier picture for us: For the next 30 years or so, revenue of American-invested enterprises in China will reach $ 1 trillion annually; exports from the US to China of $ 1 trillion annually; Chinese FDI in the US of $ 1 trillion, cumulative over the 30-year period up to 2039.
Question 3: What are the outstanding issues in developing China-US economic and trade relations? How can we better address these issues?
In these days, trade imbalance, RMB exchange rate, Intellectual Property Rights (IPR) Protection are three hot issues.
●China-US trade imbalance
In 2010, China's trade surplus with the US totaled 181.3 billion US dollars. Why is there a huge US trade deficit with China?
You may argue long and hard about the reasons. As I perceive, there are at least 3 main reasons leading to our trade imbalance:
Reason one: It is the result of international division of labor against the backdrop of globalization. For over half a century, globalization led by developed countries has concurred with the continued shift of US industries toward high-end manufacturing and modern services while traditional, labor-intensive industries have gradually migrated offshore, first to Japan, Korea and Taiwan with which the US began to run huge trade deficits. After China's reform and opening-up in the late 1970's, these industries were then shifted to the mainland where labor costs were even lower. China imported raw materials and semi-finished goods from Japan, Korea and Taiwan, and after processing and assembling, exported the finished goods to developed countries in America and Europe. As a result, China's deficits with neighboring economies grew concurrent with its surplus with the US. In the same period, however, Asia's share in total US trade deficit did not rise significantly. For instance, in 2009 China's deficit with Japan, Korea and Taiwan combined was USD 147.1 billion, a figure even larger than its USD 143.4 billion surplus with the US. Transnational corporations including American ones play a leading role in shaping this trade chain. Given the present international division of labor, traditional manufacturing industries would hardly return to the US even if imports from China were restricted, and the US would have to turn to other developing countries for import replacement.
Reason two: Export control against China exacerbates the trade imbalance. The US has practiced export control policy against China for many years, involving 2400 different products in 10 categories. Rigid control has forced many Chinese users away from the US and to buy from others. China's hi-tech import increased rapidly in recent years, but US share dropped from 18.3% in 2001 to 7.5% in 2009, even less than what India has exported to China. If the share in 2001 is used as a benchmark, US companies had lost at least USD 33 billion worth of export opportunities in 2009. According to relevant Chinese chambers of commerce, by 2020 China's import demand on integrated circuits, machine tools and civil avionics alone will reach over USD 600 billion. But many of these products are subject to US export control. Therefore the trade imbalance does not reflect the true competitiveness of the two countries because competitive US products cannot be freely exported to China.
Reason Three: China and the US uses different methods for calculating trade. There are some misalignments in trade statistics that both sides are currently working together to reconcile.
Here, I want to emphasize that China has never pursued surplus in trade. In fact, in recent years, we have done a lot of things to try to balance our bilateral trade by increasing imports from the US. Every year, we send large trade delegations to this country for massive purchase. The most recent one is the deal worth $45 billion on the margins of President Hu Jintao's state visit to U.S. this past January, supporting up to 235,000 U.S. jobs.
I also need to point out that China's trade surplus with the US exists only in the trade in goods. As for the trade in services, China has a big deficit. The trade surplus in goods comes mostly from processing trade and foreign-owned enterprises, including US companies in China. As you know, 1/3 of the American businesses in China are export-oriented. Take the statistics of 2008 as example, they reported $146.7 billion in total sales, 77.2 billion in exports, and 8 billion in total profit. In contrast, Most of China's exports to the US are labor-intensive or low value-added products that the US manufacturers no longer produce. For example, the selling price of IPOD Touch 32 GB is $299, while the Chinese manufactures only earn $4 for processing. For the past decade, good-quality but inexpensive imports from China have saved American consumers $600 billion ($60 billion annually), keeping the US inflation rate down by at least 1%.
● RMB exchange rate
China implements a managed floating exchange rate regime and has always taken a highly responsible stance on the issue of the Yuan exchange rate, which should be viewed in a historical perspective. According to the statistics based on the Exchange Rate Index of the Bank for International Settlement, as of January 1994, the exchange rate of the RMB has appreciated by a massive 55% whereas some major currencies have depreciated. In July 2010, a further step was taken to reform the RMB exchange rate regime. Since then, the RMB has appreciated by 3.5% in real terms against the US dollar and during the same period, China's trade surplus with the US has kept rising by a large margin. China runs a surplus in trade in goods but a deficit in trade in services, a surplus in processing trade but a deficit in general trade, and a surplus with the US and the EU but a deficit with the ROK, Japan and ASEAN. China's trade surplus totaled 183.1 billion US dollars in 2010, of which 181.3 billion dollars was gained from the United States, meaning the China-US trade imbalance has nothing to do with the currency, as China barely had a surplus with other trading partners. So, I think these facts show that the imbalance is caused by the trade structure, rather than the exchange rate.
Again, I want to stress what we desire to achieve is a balanced and sustainable trade, not a surplus at all. Our goal is to put in place a managed, floating exchange rate regime based on market supply and demand and with reference to a basket of currencies. China will gradually increase the flexibility of the RMB exchange rate and keep the RMB basically stable at an adaptive and equilibrium level. An unstable RMB will lead to instability in enterprises, in employment and in the society. Should things go wrong in the Chinese economy and society, it would bring disaster to the rest of the world.
●Intellectual Property Rights Protection
On the issue of IPR protection, I want to say, China takes it very seriously. We do so, not because of outside pressure, but out of our own need to build an innovative nation and upgrade our economy. China has no reason to fail in IPR protection, especially considering the need to protect the interests and rights of customers and enterprises who paid taxes to the government.
As a matter of fact, China has made intellectual property protection a national strategy, and has drafted four IPR laws and issued 19 sets of rules and regulations concerned during the past three decades.
Not only does China have anti-piracy and anti-counterfeiting laws and regulations, but it has also conducted official crackdowns and successfully prosecuted several counterfeiters.
The most recent one is China's 9-month crackdown on infringements of intellectual property rights and counterfeiting, launched in October in 2010. As of the end of last year, the crackdown has resulted in the report of about 16,000 cases of infringement and counterfeiting, the confiscation of 15 million U.S. dollars, and the arrests of over 4,000 suspects involving cases that were worth 2.3 billion Yuan.
For the first two months of the campaign only, China sentenced 303 criminals to prison in 221 legal cases.
Having said that, we are not blind to the problems we have. I know that intellectual rights infringement is still rampant in some areas in China. However, the Chinese government stands firm on IPR protection. People are increasingly aware of the importance of IPR protection. China is a developing country with 1.3 billion people and millions of firms, it takes time, patience and understanding for China to optimize its IPR protection.
The differences we have, of courses, are not limited to those 3 issues. It is only natural, since our two countries differ in history, culture, customs, political traditions and level of development. The important question we need to ask ourselves is this: How can we transcend those differences, work together for a sustained and sound China-US economic relationship?
I believe we need to commit ourselves continuously to the following things:
Firstly, we should continue to view and handle China-US relations from a strategic height and a long-term perspective. With the rapidly changing and complex international landscape as we enter the new century, China and the US encounter more demanding challenges and shoulder growing common responsibilities. Both sides should properly handle differences and problems whenever they occur. It is important to address them on the basis of the principle of mutual respect and equality and in the spirit of consultation on an equal footing and seeking common ground while shelving differences.
Secondly, we must implement the consensus we have reached on bilateral economic and trade cooperation. By leveraging such channels as China-U.S. Strategic and Economic Dialogue (the day after tomorrow, the 3rd S&ED will take place in Washington DC.) and China-U.S. Joint Commission on Commerce and Trade can we expand cooperation, release conflicts and enhance the mutual trust between our two sides.
Thirdly, we must expand the interest convergences of our economic and trade cooperation. As you know, not long ago, China adopted its 12th Five-Year Plan. The core of the Plan is to transform the break-neck, winner-takes-all and no-matter-the-cost model of growth into one that is resources saving and environmentally sustainable. We are glad to see that the US is also changing its high spending, low savings mode of growth. I believe that the economic restructuring that both our countries are experiencing can offer real opportunities for expanding our economic and business ties. We should support the restructuring efforts of each other and explore cooperation in such areas as clean energy, energy conservation and emission reduction, environmental protection, infrastructure and modern services industry. As China's economy is increasingly driven by expanding domestic demand, China's ability to import will increase considerably. It is estimated that this year, China's domestic market will exceed $ 2 trillion, far more than its total export.
Fourthly, we must continue to promote the mutual facilitation of the investment and trade. China will consistently improve the policy transparency and the level of facilitation in the investment and trade, protect the legal rights and benefits of US investors in China. Meanwhile, it is important that the U.S. ease those unnecessary restrictions against Chinese enterprises' investment in the U.S.
Question 4: Is China's economic development a threat to rest of the world?
Some say China's economic development has posed a threat to rest of the world.
Before I elaborate further, let us take a look at the true picture of China.
After 6 decades of development, tremendous changes have taken place in my country. Particularly, over the past three decades, China's GDP has registered an average annual growth rate of 9.8%, 3 times faster than that of the world economy over the same period. The size of China's economy has jumped to 2nd largest in the world. The material wealth we are producing per day is more than that in the whole year of 1952, the year I was born.
With the rapid growth of China's economy, the living standards of average Chinese have also been greatly improved. China's GDP per capita has surged by 64 times; about 250 million Chinese in rural areas have been taken out of abject poverty since 1980, which means China has contributed 70% of world poverty alleviation. The average life expectancy of the Chinese people has increased from 35 years in the 1950s to 73 years. The illiteracy rate reduced from 80% in 1949 to 3.5%. China has managed not only to feed 22% of the world's population with only 7% of the earth's arable land, but also to improve the livelihood of 1.3 billion people from poverty to overall well-off as a whole.
We are proud of what we have achieved so far, but we know only too well where our country stands now. Some of you may be familiar with my Premier Wen Jiabao's remarks: in China, any small problem can grow into a huge one if multiplied by 1.3 billion, and a big achievement can only become too tiny once divided by that number. China's GDP per capita is still ranked around 105th in the world, only 9% that of the US. The number of people with a disability in China stands at 84 million, slightly larger than the population of Germany. Each year, we need to provide jobs to 24 million people, more than the population of Australia. 150 million are still living in poverty, nearly the population of Mexico. 10 million Chinese have not yet had access to electricity, almost the population of Belgium.
So, China is still a developing country. The problems and challenges we encounter, in terms of both scale and complexity, are rarely seen in any part of the world. For us, there is still a long way to go and much to do.
As many friends have pointed out, China's development is indeed an opportunity, rather than a threat for the whole world. For several reasons:
First, China's success in running its own affairs and enabling its 1.3 billion people to feed themselves is a historic contribution to the development and well-being of mankind. An example can be compelling: every year, Chinese, on average, consume 150 million tons of rice whereas world grain market can only supply less than 100 million tons. What would happen to this world if all Chinese flocked to the world grain market for purchasing rice?
Second, China's development serves as a strong force for world peace and development. For example, whether during the 1998 Asian Financial Crisis or 2008 global Financial Crisis, China played an important role in stabilizing the International Financial System by maintaining the basic stability of RMB exchange rate despite the daunting difficulties it was facing. China was among the first to stabilize and recover in the wake of the international financial crisis, and became a leading driver of world economic recovery. Another example: China takes climate change very seriously. It is one of the earliest countries that adopted the National Plan for coping with Climate Change, and the largest country in reducing energy consumption and the discharge of major pollutants. From 2005 to 2010, by reducing energy consumption alone, China has saved 630 million tons of standard coal, equivalent to cutting emissions of 1.5 billion tons of CO2. China has witnessed the fastest growth in the adoption of new energy and renewable energy. The installed capacity of hydropower increased by more than 2 times from 2000 to last year, ranking no. 1 in the world. The annual production capacity of solar energy accounts for over 30% of the world's total, also No. 1 in the world. China has the largest area of man-made forests of all countries. According to statistics by the UN Food and Agriculture Organization, during the last 10 years, the world man-made forest has grown by 2.8 million hectares each year, of which 1.5 million hectares in China, contributing over 50% of the world's total. So far, China also provided assistance to over 120 countries and cancelled debts for 49 heavily –indebted poor countries, and least developed countries. China has sent 6, 000 officers and solders to 15 task sections of the UN. China is the largest provider of peacekeepers among the five permanent members of the UNSC. In addition, China has actively involved in the settlement of global and regional hotspot issues such as nuclear non-proliferation, counter-terrorism, the DPRK and the Iranian Nuclear issues.
In an increasing globalised world, China will not be able to achieve stability and prosperity without the rest of the world. And the rest of the world not, without China. No matter how the international landscape evolves, China will remain committed to peaceful development, the win-win opening-up strategy, and the independent foreign policy of peace. So, China will not become a challenger or saboteur to the existing international system and regime; rather, China is committed to be a constructive participant and cooperator to help make this world a better place to live. China, for now and for many, many decades to come, has neither the willingness nor the capacity to challenge the US, because we know it is not in our interest and it is not a right thing to do. As President Obama reiterated: ' the US welcomes a strong and prosperous China that plays a greater role in world affairs', China also welcomes the US playing a more constructive role for peace, stability and development in the Asia-pacific and the world.
Ladies and Gentlemen!
For the last 10 years since China's entry to the WTO, tremendous changes have taken place both in China and in the world. China would not become where it is today without the support of people of all walks of life in China and friends all over the world. As academians and professionals, your inputs would be extremely valuable for China's development. We are very happy to work with you to further promote the development of China-US relations in the days ahead.
Thank you for having me.