Together, Let Us Build an Even Brighter Future
For China-US Relations in the New Era
New York, 22 September 2010
Dr. Henry Kissinger,
Ambassador Carla Hills,
Mr. Muhtar Kent,
Secretary Gary Locke,
Ladies and Gentlemen,
Dear Friends,
I want to begin by quoting a line from a poem of Tang Dynasty: "Over the sea grows the moon bright; We gaze on it far, far apart." Today is China's traditional Mid-Autumn Festival, also known as the Moon Festival. And it is a distinct pleasure for me to meet with so many friends, both old and new, here in this beautiful evening. I wish to thank the National Committee on US-China Relations, the US-China Business Council and other friendly organizations for your thoughtful arrangements. I would also like to thank all the friends present for your abiding commitment to stronger China-US relations and closer friendship between the Chinese and American people.
Time flies. The first ten years of the 21st century will soon be behind us. This has been a decade in which our two countries have made steady progress in improving and deepening bilateral ties, a decade in which we have worked side by side in meeting challenges, and a decade in which our practical cooperation has brought benefits to both sides. I have been to your country three times in these ten years. Each trip has deepened my understanding of America and its people, and prompted more reflections on China-US ties.
The world has experienced dramatic changes in the past ten years, but China-US relations as a whole have maintained momentum of steady growth with no big fluctuations. Since President Obama took office, President Hu Jintao and President Obama have had several meetings. The two sides issued the China-US Joint Statement, in which we agreed to build a positive, cooperative and comprehensive China-US relationship for the 21st century and a partnership to address common challenges. This has charted the course for the growth of our relations in the new era. Coming back to New York, a city that has gone through so much but always brims with vitality, I cannot help thinking about the difficult days at the beginning of the international financial crisis. The fall of Lehman Brothers and the financial crisis of AIG cast dark clouds over the international financial market, and the subsequent global financial crisis caused a rapid shrinking of China's external demand and notable slowdown in economic growth. In the face of extreme difficulty, the Chinese government adopted a highly responsible approach. We stepped up macroeconomic policy coordination with the United States, and the two sides jointly worked for positive outcomes at the G20 Summits. What we did together contributed significantly to the economic recovery of our own countries and the world at large. China and the United States have conducted effective cooperation on a range of major global and regional hotspot issues. I remember vividly that last December, when the climate change conference in Copenhagen came into a stalemate, our two countries worked in close coordination and together with other parties, we made possible the Copenhagen Accord, and moved forward the international process of addressing climate change. Last April, President Hu Jintao attended the Nuclear Security Summit in Washington and played an important role in advancing international cooperation in this field. I would also like to mention that in the aftermath of the massive earthquakes that hit Wenchuan and Yushu and of other natural disasters in China, the American government and people offered us selfless help. The Chinese people will never forget what you did for us.
China-US economic ties have grown rapidly in the last ten years. We are now each other's second largest trading partners. Bilateral trade grew from US$80.5 billion in 2001 to US$298.3 billion in 2009, and US exports to China increased by 2.6 times in this period. American paid-in direct investment in China has exceeded US$60 billion. And our cooperation in energy, the environment, science and technology, education and culture has been deepening.
True, our relationship has not always been plain sailing. But it is heartening to note that dialogue and cooperation have been the main feature of our relationship. Our common interests far outweigh our differences and the call for friendly relations is always louder than those jarring noises. Facts have fully demonstrated that China and the United States are not rivals in competition but partners in cooperation. We both stand to gain from cooperation and lose from confrontation. Our relations will move forward if we have mutual trust and backward if we harbor mutual suspicion. On the way forward, our two countries must work hand in hand, and go through thick and thin together - This is not only my hope but also my conviction, and the conclusion I have come to by reviewing the last ten years of our relations.
Ladies and Gentlemen,
With the rapid growth of China's economy and the continuous increase of the size of its economy and trade, the international community is paying more attention to China, and also showing more anxieties. Let me give you some recent examples. Some people have posed this question: Given the fact that China's exports are now bigger than Germany's, its foreign exchange reserves are the world's largest and its GDP will soon surpass that of Japan, is China still a developing country? Others have asserted that China's environment for foreign investors is worsening and they ask: Is this a sign that China is changing its reform and opening-up policy? Still others have asked: Now that China is getting stronger and also tougher, will China continue to follow the path of peaceful development? Before answering these questions, I would like to quote President Woodrow Wilson, who once said that "Comprehension must be the soil in which shall grow all the fruits of friendship." Let me show you with specific facts that the basic reality of China being a developing country remains unchanged, our basic policy of reform and opening-up remains unchanged and our commitment to peaceful development remains unchanged.
I. The basic fact that China is a developing country remains unchanged. Through efforts over the past 61 years, especially the last 32 years since reform and opening-up, profound changes have taken place in my country. From 1978 to 2009, China's GDP grew by 9.9% annually, its per capita GDP increased by over 12 folds, and the Chinese economy became the third largest in the world. China's foreign trade during this period rose from US$20.6 billion to US$2.2 trillion, the second largest in the world. Infrastructure in China, including transportation and telecommunications networks, improved markedly and the industrial development rose to a much higher level. The output of many important industrial and agricultural products was among the highest in the world.
And we are the number one producer of cereal, meat, cotton, steel, coal, cement and television sets. Education, science and technology, culture, health and other social undertakings enjoyed dynamic growth. The population of rural poor was reduced by 214 million and poverty incidence rate dropped from 30.7% to 3.8%. By mainly relying on its own efforts, China has made the historic leap from mere subsistence to moderate prosperity. This is the most magnificent and glorious chapter in the history of human development and represents China's major contribution to the world development.
But China remains a developing country. Our per capita GDP is a mere US$3,743, one-thirteenth of what you have here in the United States and one-eleventh of that of Japan. In fact, we are behind 100 countries in terms of per capita GDP. China faces a widening gap between the cities and rural areas and between different regions. Till this day, we still have over 700 million people living in the countryside. Their average annual net income is only US$750 and their annual personal consumption expenditure is less than US$600. According to our own standard, we have tens of millions of people living below the poverty line, and the number swells to about 150 million if measured by the UN standard. In some outlying and poorly-endowed mountainous villages, there is still no access to electricity and no guarantee of drinking water for people and their livestock. In Gansu Province, where I worked for many years, villagers have to build cellars to collect rainwater. In some drought-plagued places where the water cellars have never been full for years, the locals have to haul water from miles and even dozens of miles away And this phenomenon is common among rural villages in northwest and southwest China. China has a labor force of nearly 800 million, roughly the sum total of all labor force in the developed world. This has put the government under constant and enormous pressure to create jobs. In recent years, we have put in place a basic social security system, but the old-age insurance program in cities is still rudimentary and its rural version has only started. The level of China's science and technology and education in general is not high, and free nine-year compulsory education has been made available to all children only recently. The development of industries is very uneven in China, where the relatively advanced aerospace industry exists alongside the vast medium- and low-end general manufacturing industry, not to mention the primitive farming, pasturing and handicraft industries. China's further development is constrained by resources, energy and environmental bottlenecks. Our per capita resources availability is low: the arable land and fresh water available to a Chinese is only two-fifths and one-third of the world's average. To sum up, the difficulties and problems that we face in development is unparalleled in the world today in both magnitude and complexity, and we really have a long way to go before we can achieve modernization.
II. China's commitment to reform and opening-up as a basic state policy has not changed, and will not change. China today is a fully-open market economy. Thanks to three decades of reform and opening-up, we have achieved the historic transition from a highly-centralized planned economy to a dynamic socialist market economy and from a closed and semi-closed country to one that fully embraces the world. We have freed people's mind, mobilized the enthusiasm and ingenuity of billions of Chinese and unleashed productivity. China owes its development and progress to reform and opening-up. And to meet the goal of turning China into a prosperous, democratic, culturally-advanced and harmonious modern country, we must continue to rely on reform and opening-up. Within just a few decades, China has covered a historical journey that took some developed countries two or three centuries. We may expect that all the difficulties and problems developed countries ran into in their process of industrialization, urbanization, developing the market economy and pursuing international businesses will also show up in China, only in a more concentrated and acute fashion. To meet these challenges, we have no other choice but to further reform and open up. And that is why we will never waver in our commitment to reform and opening-up. It is something crucial to the future and destiny of China and the Chinese people.
Now, I would like to turn to some issues in China's opening-up that I know are foremost in people's mind.
First, on China's trade surplus vis-a-vis the United States. I want to make three points. First of all, we do not seek a trade surplus. China's continuous trade surplus did not start until in 1994, and in most of the ensuing years it was within 3% of our GDP. And it was not until 2005 that the growth in surplus began to accelerate. We have long adopted measures to expand domestic demand and increase imports as the way to address the trade surplus. This is particularly true since the outbreak of the international financial crisis when we introduced unprecedentedly aggressive measures to expand domestic demand. Our trade surplus plummeted by 34% in 2009, and dropped a further 42.5% in the first half of this year. It now takes up 2.2% of our GDP, well within the internationally accepted level. I should like to point out that while China runs a surplus in processing trade, we have a deficit in general trade.While we run a surplus in trade in goods, we have a deficit in trade in services. And China's trade surplus in the last ten years comes mainly from processing trade and foreign-invested enterprises. American and other foreign-invested companies in China have been the main beneficiaries of China's exports. 1 came across a study by three researchers from the University of California on iPod's value added structure three years ago. According to the study, a 451-part iPod is sold at US$299 in the United States. American companies and workers get the lion's share of the value added - US$163, of which US$80 goes to Apple Inc., US$75 to the distributor and retailer, and US$8 to the parts and components manufacturer. Japan gets US$26, and China earns only US$4 of processing fee. Yet, when an iPod is exported to the United States, US$150 is added to China's surplus against the United States. As a matter of fact, both China and the world can benefit from Chinese exports: they create jobs in China, generate profits for multinational corporations and provide nice and inexpensive products to the consumers of importing countries. My second point is that the high unemployment in the United States is not caused by China's trade surplus. Most of our exports are labor-intensive, low-value added consumer goods. You stopped making many of these products long ago. Even if you do not import them from China, you have to import them from somewhere else. I don't think you will resume the production of these products in the US simply for the sake of creating jobs. To redress trade imbalances between China and the United States, our two countries must work together. And it is even more important to approach the issue of trade balance from a global and multilateral perspective. China will continue to increase imports from the United States while the United States should recognize China's market economy status, relax export control against China and take concrete moves to promote free trade. My third point is that in addition to trade in goods, China and the United States can also benefit from two-way investment and trade in services. Over the years, the United States has invested in nearly 60,000 projects in China. In 2008, the sales volume in China by US-invested companies totaled US$146.7 billion, their exports stood at US$72.2 billion, and they made a profit of nearly US$8 billion. On our part, as is known to all, we are one of the largest holders of US Treasury bonds and the number of Chinese-invested enterprises in the United States is also rising fast.
Second, on the RMB exchange rate. This is an economic issue and as such, it must not be politicized. Some people try to link the RMB exchange rate with China's trade surplus, claiming that China has gained a competitive advantage by keeping the RMB exchange rate artificially low. In fact, there is no necessary linkage between the two. Take the United States for example. For over 90 years from the 1870s to the 1970s, the United States ran a trade surplus. Then it got into a deficit, and the deficit grew bigger and bigger. Obviously, this shift in the balance of trade was not the result of changes in the dollar's exchange rate. In the case of China, while we run a surplus with the United States and Europe, we have a deficit with Japan and the Republic of Korea. It is clear that to a large extent, the trade imbalances between our two countries cannot be blamed on the RMB exchange rate. China has always been highly responsible regarding the RMB exchange rate, and it is necessary to put this issue in a historical context. Measured by the Bank for International Settlement indices, RMB's real effective exchange rate appreciated by as much as 55.2% between January 1994 and July this year, while other major currencies all depreciated noticeably: the US dollar, euro and Japanese yen were down by 2.5%, 3.8% and 19.5% respectively. We have kept the RMB exchange rate basically stable at an adaptive and equilibrium level since the outbreak of the financial crisis, while many other countries have depreciated their currencies by a big margin. Our effort has greatly contributed to global economic and financial stability and the recovery of the world economy. On 19 June this year, we further advanced the reform of RMB exchange rate regime by reaffirming the need of adjustment on the basis of market supply and demand with reference to a basket of currencies, and enhanced the flexibility of the exchange rate. This represents a positive effort made by China despite the tremendous difficulties it faces. There is no basis for a drastic appreciation of RMB. I wish to point out that we will continue with exchange rate reform, for this is in China's long-term and fundamental interests. At the same time, we will take active and effective measures to conduct structural reform, expand domestic demand, especially consumer spending, and promote a more balanced BOP account.
Third, on China's investment environment. I wish to stress here that the investment environment in China has indeed changed. It is becoming more standardized, more transparent and more favorable to investors with strategic vision. By the end of last July, paid-in foreign investment in China topped US$1 trillion. And for 18 years in a row, China has attracted more foreign investment than any other developing country. Foreign-invested companies have become an important part of the Chinese economy. The advanced technologies and managerial expertise they bring to China have had a profound impact on every sector of the Chinese economy and society and accelerated China's integration into the global economy. Foreign companies, for their part, have benefited greatly from China's open market. Even at the height of the financial crisis, their operations in China were in good shape, and many became the bright spot and profit center in the global business of their parent companies. The 2010 China Business Climate Survey released by AmCham-China early this year shows that 71% of US companies in China were profitable in 2009 and 91% were optimistic about the outlook in the next five years. By sharing with you the above information, I'm not suggesting we can be complacent. Instead, we will continue to improve foreign-related economic laws, regulations and policies, abide by WTO rules and offer a stable, transparent and predictable investment environment. All enterprises registered in China according to Chinese laws enjoy national treatment, and we give them equal treatment in terms of indigenous innovation product accreditation, government procurement and IPR protection. We sincerely welcome American businesses to actively participate in China's reform and opening-up and share the opportunities and benefits of China's prosperity and progress.
III. China's abiding commitment to the basic principle of peaceful development will remain unchanged. The Chinese people love peace most and have a time-honored tradition of valuing and upholding peace. Passed from one generation to another, this love for peace is now in our blood. China owes its progress and development to the peaceful international environment, and will continue to need such an environment to bring about new development. China is a staunch force for world peace and faithfully fulfills its international obligations and responsibilities. In recent years, China has played an increasingly important role in promoting the settlement of regional hotspot issues, advancing international and regional cooperation and taking part in the UN peace-keeping operations. China pursues a policy of good-neighborliness and partnership towards its neighbors, under which we seek to strengthen amicable relations and practical cooperation with surrounding countries and call for peaceful resolution of differences through dialogue and consultation. China has been providing assistance to other developing countries to the best of its ability. A few hours ago, I attended the UN high-level plenary meeting on the MDGs and announced at the meeting the new measures China would take to promote the attainment of the MDGs worldwide. I can say in a responsible way that the notion that "a strong country will inevitably seek hegemony" contradicts both China's cultural tradition and the trend of global development. It will never be China's choice. China will not threaten anyone, or harm the interests of anyone. China wants to be a good friend and good partner of all countries and hopes to work with the rest of the international community to build a harmonious world of lasting peace and common prosperity.
Ladies and Gentlemen,
China and the United States are the world's largest developing and developed countries respectively. Our relationship has gone far beyond the bilateral scope and taken on global significance. Under the new circumstances, our interests are closely interconnected, our mutual needs are expanding, and the friendly exchanges between our peoples are deepening. The noble cause of world peace and development and the long-term well-being of our peoples require us to pursue positive, cooperative and comprehensive growth of China-US relations in the new era. And to do that, we must make sustained efforts in the following aspects.
- First, enhance strategic mutual trust. Trust is the very foundation of friendship and cooperation. It is a seed that will take root, sprout, blossom and bear fruits, eventually growing into a towering tree. The deeper the mutual trust we have, the greater the space of our cooperation will be. China and the United States should always view each other in a positive light, take active steps to advance dialogue and cooperation in every field, and keep to the right direction of bilateral relations. We should maintain the momentum of high-level interactions and intensify dialogue, exchanges and cooperation in the political, economic, military-to-military, scientific, technological and other fields.
- Second, respect each other's interests. It is not possible for China and the United States to see eye to eye on each and every issue. We should seek common ground while reserving differences. And when differences arise, it is important to handle them properly. So long as both sides honor the principles enshrined in the three joint communiques and the China-US Joint Statement, and truly respect each other's core interests and major concerns, we will be able to remove all interferences and hurdles and achieve the sound and steady growth of our relations. China is firm in upholding its sovereignty, security and development interests. Taiwan and Tibet-related issues concern China's sovereignty and territorial integrity and involve China's core interests. The Chinese people will make no compromise on these issues. The past few years have seen sound interactions across the Taiwan Straits. Such a situation has not come easily and should be cherished. China hopes that the United States will abide by its relevant commitments, handle the Taiwan question in a prudent and appropriate way, and support the peaceful development of cross-Straits relations with concrete action.
- Third, intensify mutually-beneficial cooperation. The very purpose of advancing China-US relations is to serve the people of our two countries. We should, under the principle of mutual benefit and win-win results, deepen cooperation in economy and trade, science and technology, education, agriculture, food safety, counter-terrorism, non-proliferation and law enforcement, and at the same time explore new areas of cooperation, including infrastructure development, aviation and space. We must let our people get real benefits from our cooperation, for only in this way can China-US relations win the support of the people and make constant headway.
- Fourth, expand people-to-people exchanges. Greater exchanges between the people can serve as a bridge of understanding and friendship between our two countries. We should continue to carry out various forms of exchanges between local authorities, business communities, cultural entities, educational institutions, think tanks and media organizations. This will help the people of our two countries learn more about each other and show greater understanding for each other, and encourage more people to become active supporters of China-US relations. We should step up exchanges between our young people to lay a solid foundation for our long-term friendship. China welcomes more American friends to come to China for visits or sightseeing and hopes that, through more contacts with Chinese people, they will get a full picture of China.
Ladies and Gentlemen,
Benjamin Franklin, one of the founding fathers of this country, once said, "He that can have patience can have what he will." With patience and perseverance, we can stop any difficulty from holding back the progress of China-US relations. Let us join hands to remove any obstacle or interference that may stand in our way and usher in a bright future for China-US relations in the new era.
Thank you.