Remarks by David L. Aaron on his visit to China and Hong Kong

Remarks by David L. Aaron on his visit to China and Hong Kong

David L. Aaron _*

Washington, D.C., May 6, 1998

Speeches and Transcripts: 1998

Thank you Chairman Jessup for inviting me to report on my recent visit to China and Hong Kong and to offer my thoughts on U.S. commercial policy toward these economies in the lead up to the Summit.

I had not been in Beijing since 1978 when I accompanied VP Mondale to China to support negotiations to normalize relations. Following that trip, I sat with President Carter in the White House as Deng vividly described his vision of China’s future. Two decades later, I can tell you that it only takes a few days in China to appreciate the great foresight our leaders shared back then.

Although differences remain, I came to realize during my visit, as did Secretary Albright and Ambassador Barshefsky during their visits, that senior level dialogue now occurring in the period between both Summits is producing encouraging results and advancing an important common agenda.

Secretary Albright said at the conclusion of her visit last week that the dialogue we now enjoy with China is “... a product of change and a generator of change.” Concepts and ideas like the rule of law, transparency, predictability, respect for the environment, and market access clearly are moving China, and our overall economic dialogue, in a more positive direction. I believe the most important challenge in our relationship is to encourage China’s leadership to base its reform efforts on these concepts.

With this in mind, today, I would like to focus on three elements of my trip. First, I would like to give you a glimpse into my dialogue with Chinese leaders and report on the accomplishments of my visit. Second, I want to share with you my view on the strategic choice China must now make in its reform efforts. Third, I will discuss where I think our commercial relations are headed in the lead up to the Summit.

Dialogue on the Deficit and Results of the Visit

I was one of the first U.S. officials to meet with China’s new senior economic lineup following the National People’s Congress. I spent most of my time with my Chinese counterparts in Beijing and Shanghai discussing how our growing trade deficit and China’s reform agenda are related and how a more open China can be a positive force for change on both fronts.

Our deficit, $50 billion last year, has increased more than five-fold since 1990. It cannot continue on its current path. It is followed very closely by the people of the United States, the Administration, and particularly the Congress. It is unsustainable.

In my discussions of this issue with Chinese economic leaders, there was mercifully little argument over the data as we had in the past. The surge of the U.S.–China trade deficit is clear from their numbers as well. China’s trade data shows that since 1985, China’s exports to the United States have grown at an average annual rate of 25 percent, while China’s imports from the United States have grown at an average annual rate of only 10 percent. U.S. data shows almost exactly the same trends. If left unattended, this growing imbalance in our trade relationship will have a somber impact on overall U.S.–China relations.

From their statements, it seems that the Chinese economic leadership has begun to appreciate that increasing imports from the United States is in both our countries’ interest. This is an encouraging change in sentiment. However, we must see real and sustained progress, both in terms of more immediate U.S. export sales and more lasting commitments, in the WTO.

While progress was made during my visit, and that of Ambassador Barshefsky and Secretary Albright, I am less encouraged by what we have in hand today. China will have to make a much greater effort in advance of the Summit if our commercial relationship is to contribute to a successful outcome.

My visit was a useful step in that direction. I witnessed nearly $200 million in signings, including more than $170 million in contracts for U.S. power generation, information technologies, and air conditioning equipment, and more than $25 million in investments for a U.S.–Shanghai based food venture.

The mission also was instrumental in significantly opening China’s $50 billion cellular communications market to U.S. based technologies (CDMA—Code Division Multiple Access) and in encouraging China’s State Council to reject recent proposals which would have further limited insurance investment in China.

I also advocated on behalf of dozens of exporters interested in billions of dollars of projects. In support of these and thousands of other U.S. exporters who seek a more lasting foothold in the China market, I emphasized the importance of improving the business climate by eliminating restrictions, making rules less arbitrary and procedures more transparent.

My Chinese counterparts made clear to me that economic reform was their principal preoccupation. Overhauling debt-ridden state enterprises, introducing sweeping banking reforms, slashing the government bureaucracy, and creating an adequate social safety net for the millions left unemployed are tasks of unprecedented proportions. The potential impact on unemployment (18 to 19 million unemployed in urban areas and 100 unemployed in the countryside) and other potential challenges to China’s social safety net make Premier Zhu’s plan a serious gamble.

Only Mao’s radical campaigns—the Great Leap Forward in the late 1950s or the Cultural Revolution in the mid-1960s—compare in scope and impact. But those convulsions were aimed at, indeed required, isolating China from the world. This revolution is aimed at bringing China more fully into the world, a circumstance that makes the ultimate outcome of current reforms all the more important for bilateral, regional and even global relations.

And unlike the turmoil of earlier eras, a fundamental requirement of these reforms is a measure of tranquillity in international relations. Hence China’s leaders are determined to achieve better relations with the United States and a positive Summit.

Strategic Choice

The United States supports this reform effort because we believe it will create a China that is a stronger partner for both peace and prosperity. But as it pursues reform, China faces a critical strategic choice. There are two paths to reform. On the one hand, China can implement economic reforms domestically but resist further opening its economy to the world.

This is the system that Japan, Korea, and other countries in the region were following until recently. This system enjoyed a thirty-year reign in Asia but has left many economies in shambles.

For those still favoring this approach, openness is seen as antithetical to reform. It is driven by fear that competition from imports and foreign investment will exacerbate dislocation, particularly unemployment. But this option will slow reforms as it has done throughout Asia, not hasten them.

On the other hand, China could make openness the ally of reform. China’s reform program is based on the realization that government control and direction of economic enterprises is inimical to growth and progress. It is prompted by the recognition that competition is the antidote to bureaucratic inefficiency. So is this only true for the domestic economy? Clearly not.

What American businesses want and what I advocated with Chinese officials will further support reform. With a more open climate for imports and investment, China can spur economic growth, create new jobs, and improve the business climate. Greater market access for foreign goods and services and a more open environment for foreign investment are essential stimulants to achieve the domestic restructuring, the efficiency, the job generation, and the growth China seeks from reform.

Beijing, Shanghai, and China as a whole need only look south to Hong Kong to observe that market openness, good governance, and respect for the rule of law, are the qualities that have enabled it to prosper as well as weather Asia’s financial storm. Drawing from principles that have made Hong Kong’s economy so successful is essential for China’s future. Hong Kong’s unwavering faith in open markets has been reaffirmed. Its experience has proven that sound economic and fiscal policies are the only path to continued prosperity, even in times of regional turmoil.

Lead-up to the Summit

Many quarters of the Administration are forging ahead with what will be important contributions to the Summit and future relations overall. To support these initiatives, we at Commerce are actively mapping out a blueprint to advance commercial engagement, which was first laid out by Secretary Daley and former Chinese Minister of Foreign Trade and Economic Cooperation Wu Yi. The blueprint was conceived last October under the 11th session of the U.S.–China Joint Commission on Commerce and Trade (JCCT).

In Beijing, I had the distinct pleasure of co-hosting the first sub-ministerial review in the JCCT’s fifteen year history. We reached agreement on an ambitious fall program which includes seminars in project finance, standards, testing and certification, commercial law and other areas. To follow-up the Summit, Secretary Daley will host the new MOFTEC Minister Shi for the 12th session of the JCCT in Washington. We also are working on broader aviation, housing, infrastructure, and insurance initiatives, all of which have important implications for the Summit.

Our WTO and broader economic discussions have also intensified in recent weeks. Following her visit, Ambassador Barshefsky reported that she was pleased with the overall tone and seriousness displayed by the Chinese and believes that we have reestablished momentum. Similarly Secretary Albright was encouraged by the WTO discussions and a broad range of economic issues as a result of her dialogue with Premier Zhu. Each emphasized that measures a given country is asked to undertake as part of the WTO are consistent with the wider reforms China is now pursuing.

It is clear that we are making progress. However we need to do more on matters dealing with industrial and agricultural tariffs, distribution, professional, financial and telecommunications services. We need to redouble our efforts to foster basic WTO principles such as national treatment, non-discrimination, state trading and transparency. All of these are indispensable elements of a sound commercial package.

And so during the next month, we will intensify our economic dialogue. As agreed upon at our last summit, a Chinese energy delegation will meet early next week with officials from the Office of the Vice President and the Departments of Commerce and Energy to flesh out the details of the Energy and Environment Initiative. CEA Chairman Yellen is now in Beijing to discuss macroeconomic issues. And on May 26, Secretary Rubin will co-chair the U.S.–China Joint Economic Commission in Washington, D.C. He will be addressing many of the economic and banking issues of greatest concern to China’s reform minded leadership.

Conclusion

U.S.–China commercial relations have often been one of the few rays of sunshine on a sometimes clouded horizon. Cooperating on IPR enforcement, pressing forward on greater market access and transparency, and collaborating on commercial projects helped sustain a continuing dialogue. Today, the burgeoning trade deficit has come to dominate our commercial relationship. China will have to make a greater effort to improve this part of our relationship if it is not to cast a shadow on an otherwise brighter future.

The Summit provides an important opportunity, as do China’s reforms. These reforms are being undertaken in the most open climate in the history of the People’s Republic. Success will be realized only by even greater openness—benefiting both the U.S. and China, and solidifying our commercial relations well into the future.

*: David L. Aaron is the Commerce Under Secretary for International Trade Back.