Thank you. Good morning. I'd like to first of all thank you for your kind introduction. I want to thank both the U.S.-China Business Council and AmCham Beijing for all that your members are doing to strengthen and improve the ties between China and the United States.
Trade between our countries is already one of the world's most important economic relationships and it will one day be, most likely, the world's largest economic relationship. We place a high value on ensuring that our commercial partnership continues evolving in a constructive way.
The United States draws significant benefits from our commerce with China. Our consumers gain additional choices and many American companies are operating profitably in China.
AmCham's latest business climate survey shows that two-thirds of the responding companies have expanded the range of products and services they offer in China.
I'm here this week to lay the groundwork for additional forward momentum. I'd like to thank my Chinese counterparts for hosting my visit. I've met with Chinese officials to ensure that we can use the upcoming JCCT to achieve results--to achieve tangible outcomes that we can come back and communicate to you.
I know that leaders in China are determined to expand opportunity to people living in the Chinese interior. I have traveled to Chongqing to learn more about the challenges facing the Chinese economy and how the economy continues to evolve towards one that is driven more and more by market forces.
As you know, President Bush and this Administration believe that free and fair trade spreads prosperity and promotes peace and stability. We recognize that economic cooperation between China and America has benefited both our countries and we look forward to additional progress.
Today China and the U.S. have a mature relationship. There is a lot of positive news and there are always points of disagreement. Our job is to tackle those issues constructively and we seek to resolve those issues through candid, honest dialogue the way you would in any other mature relationship.
It is important for our colleagues in China to recognize that the voices in the United States calling for protectionist policies are very real. And, there is real protectionist and isolationist sentiment creeping up, evolving, emerging in our country. That is not good for trading relationships around the world. So, our partners can actually help us. They can help us drive back those protectionist sentiments and convince the American people that the worst thing that we can do for our economy is to apply protectionist policies.
As all of us here understand, an erosion of trade between our countries would have a negative impact on the U.S. economy and it would have even greater consequences for progress in China. We cannot allow that to happen.
I know that China's leaders are attempting to extend the rapid economic growth taking place in coastal China to the interior of the country. They are mindful of the millions of workers in rural areas who are hoping for greater opportunities and who want a piece of the prosperity that they see in other parts of the country. That goal raises a question: What policies offer the best path to national competitiveness and a strong economy? We have found--this is our experience--that protecting ideas and allowing market forces to direct our economy are two of the most reliable means to expand prosperity.
Like many countries, the level of government intervention within the U.S. economy has varied over time. We have found that the less that there is government intervention, the stronger the economy can be. The less the government intervenes, the more the economy grows. We have found that time and time again throughout our history and every time we challenge that basic concept, once again we find that the answer is not to let our government allocate our capital. The more business has more capital to allocate and consumers have more of their own money to spend, the better off the economy is.
Sustainable comparative advantage within an economy is developed by entrepreneurs, innovators and by small businesses, after their ideas are tested by the power of competition in the marketplace.
Many of America's most dynamic and innovative companies were started in garages, in dorm rooms, in workshops, in small factories, on a dining room table, coming up with some new ideas. None of them emerged from the pages of a governmental industrial policy. Not one of our large corporations was created by the government. Not one of our large businesses was ever able to enter new markets and create new products because of an idea that came out of Washington.
The proper role of government, we believe, is to create the right conditions for growth. These conditions include: Other areas that have helped our economy: As you know, there are three issues that always dominate our discussion about trade with China: Lowering those impediments and barriers to China's economic progress would be good for our relationship, and it would make progress toward China's goals of greater prosperity and social harmony.
Few emerging economies will have a larger influence than China over the global economy during the 21st Century. Today, exports supply 40 percent of China's gross domestic product and the U.S. market has made us China's number-one customer.
The U.S. has accounted for a large part of China's economic growth and during that time, hundreds of millions of people have been lifted from poverty in China.
American has also benefited from trade with China. U.S. exports to China grew by 20 percent last year which built on 22 percent growth from the year before. China continues to be one of our fastest growing trading partners. U.S. companies are investing billions of dollars in China.
Although there is an enormous upside for companies doing business here, the reality of trade with China continues to fall short of the tremendous potential that this country has.
There can be no avoiding the fact that the U.S.-China trading relationship is burdened by a $202 billion trade deficit. We would like to see China lighten the load by continuing on the path of reform and delivering results on commitments.
China is now in a position to be a responsible stakeholder in the global economy and not just a participant like so many others. China is not just one more trading partner. China is not just one more WTO member. China is at a stage and at a size and at a point of influence that it needs to graduate to be a responsible stakeholder of the global trading community and a very important stakeholder of the global trading community.
Although China's tariffs have fallen as China implements its WTO commitments, U.S. and other foreign companies still face a wide array of barriers here in China.
Those barriers include industrial policies and technical standards that put imports at a disadvantage as they shelter and protect domestic industries.
This is especially problematic for the information technology sector. Government procurement policies, we believe, support favored domestic sectors.
For example, the Chinese government recently announced that it will give preferential treatment to products containing the Chinese infrastructure or WAPI standard in purchasing decisions. This will give Chinese products a huge advantage.
The lack of transparency in the Chinese regulatory system and weak law enforcement place U.S. and other foreign companies at a disadvantage. Chinese companies, by contrast, gain advantage through their government connections.
Regulations also restrict market access in telecommunications. Foreign companies are required to invest $241 million before being allowed to provide basic telecommunications services. I understand that's 24 times more than the average country.
The bottom line is that our companies still don't have the access that they were promised under the terms of China's WTO commitments.
Subsidies are another growing problem. China's state-owned enterprises gain a significant edge through extensive and nontransparent subsidies.
It's hard to judge the full scope of this problem because China still hasn't submitted to the WTO a complete list of all the subsidies present in its economy.
We know that, in sectors like steel, Chinese state-owned companies are extended loans by state-owned banks which are never repaid. This trend is creating overcapacity in the Chinese market and we know that there is no such thing as a healthy market with overcapacity. Overcapacity will always lead to some dysfunction.
In keeping with its emergence as a major trading country, China, we believe, has a responsibility to ensure that other foreign companies and U.S. companies have full and fair access to the Chinese market, and part of that responsibility includes protecting ideas and commercial innovations in China.
Ironically, the most compelling reason for China to create a secure business environment for intellectual property is in its own best interest.
Last year, a million new patent and trademark applications were filed in China. The winds of economic freedom are stirring innovators and entrepreneurs across this country. These ideas and products deserve to be protected. And, I should say here, that there are two very important events we have seen over the past recent months. One is that Vice Premier Wu Yi has taken on intellectual property rights, and has taken a very strong leadership position and we believe that's the best thing that can happen.
The way to make progress on intellectual property is not by having a foreign government nitpick on tactical and clerical moves that we believe the Chinese government should make. We believe the way to really make progress is by having a champion in the Chinese government that is willing to take a stand and is willing to take a leadership position and who has the will and the determination to make this an important part of the Chinese market. We believe that exists and we believe at the very top of the Chinese government, Chinese officials want to make this an environment that is friendly to intellectual property. In China's recent five year plan they've identified a goal to make China an innovation society which is the right goal at the right time. And it shows foresight, it shows vision. And now what we'd like to see and what China needs to show, is that they are committed to that vision. That is the next logical step for a market place in an economy that has grown that manufacturing low-cost items and being an export market. The next clear step is to innovate and innovate here in China; have a stake in intellectual property; have Chinese brands; have Chinese patents; have Chinese copyrights. That's clearly where the Chinese government is going and we are extremely supportive of that. We will work with Chinese government officials to help them in that quest. And, there is a lot of work to be done.
One study projects that if China simply cut its software piracy rate from 90 percent down to 80 percent, it would generate $6.5 billion in tax revenue. And, it would create 2.6 million jobs here in China.
We would like to see the Chinese government do more to step-up enforcement. We don't doubt China's significant new efforts. However, as we have said, our focus is results. And, ultimately, it will have to be the results that show the programs are working.
It is an unfortunate sign that many American companies that once saw China as such an incredible opportunity and now what we are beginning to sense, and a lot of it is because of the intellectual property environment, that there is a bit of a mixed assessment.
These barriers create challenges to achieving the Administration's goal of presiding over a period of progress and increasing cooperation between the U.S. and China. There is nothing more that the President wants in relation to China-U.S. relationships than to preside over a period of growth, a period of prosperity, a period of cooperation, a period of collaboration, a period of harmony.
China's leaders have also talked about achieving greater progress. And, as we have mentioned very clearly to them, the progress that we have made--the tremendous progress we have made, and the fact that we have been able to grow to be China's number one customer and all that we have done together--can be put at risk by the rising level of trade tension within the U.S. government.
Maintaining support for trade within a democracy requires cooperation from our trading partners. Today we would like to see greater cooperation from China, so that support for free trade can be maintained in our country.
If China chooses to open sectors presently closed to competition from U.S. companies, if China chooses to ensure that all of the software used within the government sector is legitimate software, if China chooses to clamp down seriously and have aggressive enforcement of IPR and make it very clear that it will not tolerate IPR infractions, then we can continue to create positive momentum and we can continue to build what is clearly the most important economic relationship of the 21st Century.
In areas like, telecommunications, information technology, services, and direct sales, China has a real opportunity to deliver results quite quickly.
Progress would greatly strengthen those who propose a free and fair trading relationship. If we stand still and not make the progress that we so desire, that will strengthen the hand of those who want to make the United States a protectionist economy. And, think about what that would do to China's economy if China's number -one customer all of a sudden decided to be protectionist and all of a sudden decided to isolate itself from the rest of the world and not trade as much as it does today and, frankly, not buy as much as it does today. It would be devastating for China's economy and, frankly, an impact to China's economy would hurt the whole world. So, we have to work together. We have to work hard to avoid falling into an era of protectionism. We've worked too hard. We've gone too far down the road of globalization to all of a sudden take a turn toward isolationism.
Over the long-term, the biggest beneficiaries of those results will be the Chinese people themselves. Creating a safe climate for intellectual property and a more open and transparent marketplace is squarely in China's own vested interest.
We all want to see further stability and trust in the relationship between China and the United States. We hope that China continues to embrace market forces.
We hope China continues down the road of reform. We think this is the best for China's people and this is the best way of creating prosperity and the best way of maintaining harmony within this great country.
This is truly an historic moment. And, we are here today at a time when, over the next three to four weeks, the President of China and the President of the United States will meet in Washington for very important talks. There are choices to be made, as always in life. We can either go forward. We can create prosperity. We can give. We can choose to pursue situations where we have to give a little to gain a little, where we have to give up some things to gain some things. But it is clearly a maturing relationship that shows that both sides truly want to cooperate. The other alternative would be to drift backwards and put at risk the social harmony and expanded prosperity in China. No one wants that. So we need to work together to avoid that.
As China and the United States work on these issues, we need to show everyone in both countries that we have the wisdom to do what is right for our people. We have a wonderful opportunity to show that this is truly the relationship of the 21st Century and that China and the U.S. can work together as key stakeholders in a global community, a global community that we both help steer together, and not a situation of constant confrontation. No one wants that. And we have the opportunity over the next several weeks to take our relationship to the next level and to prove, not just to the people in China, not just to the people in the United States, but to prove to the whole world that China and the United States have a lasting relationship which will have an enduring impact on the lives of people all over the world.
I want to thank all of you for everything that you are doing to make that possible. Thank you very much.
Source: U.S. Department of Commerce
