Zhang Xiaoqiang: Keynote Speech Delivered by CCIEE Executive Vice Chairman Zhang Xiaoqiang on China-US Trade and Investment

Dear Prime Minister Goh Chok Tong,

Dear Chairman Zeng Peiyan,

Distinguished guests,

Good afternoon! It is my pleasure to attend this international seminar on Sino-US relations. Sino-US relations are one of the most important bilateral relations in the world. The economic and trade cooperation between China and the US is the “ballast stone” and “stabilizer” of Sino-US relations. For more than a year, the Sino-US Economic and trade cooperation has been disrupted by non-economic factors, and Sino-US economic and trade frictions have become important uncertainties affecting global economic growth. In addition, the frictions are likely to spread to such areas as finance, technology, and cultural exchanges. Chairman Zeng Peiyan just pointed out that this trend of “decoupling” is extremely harmful. I would like to take this opportunity to make three points on China-US trade and investment.

First of all, we should take a comprehensive view of the achievements of the 40-years’ economic and trade cooperation between China and the United States.

In the past 40 years, China-US economic and trade relations have made great progress. The areas of cooperation have been continuously expanded, and the level of cooperation has been improved, forming a highly complementary and mutually beneficial relationship.

According to China’s statistics, the Sino-US trade in goods exceeded US $630 billion in 2018, the trade in services exceeded US $125 billion, and the two-way direct investment totaled nearly US $160 billion. The United States is China’s largest trading partner and largest export market. According to US statistics, China is the third-largest export market and the largest source of imports for the United States. The continuous development of bilateral economic and trade cooperation is the choice of enterprises and markets in the two countries, and truly reflects different development stages, industrial structures, technological advancement and comparative advantages of the two countries.

For example, General Motors(GM) of the United States set up a factory in China to be closer to parts suppliers and consumers. Last year, the sales volume of GM in China reached 3.64 million, greatly exceeding the sales in the United States, accounting for 43% of its global sales (8.4 million). In order to take full advantage of the complete industrial supporting system and skilled workers in China, American electronic product manufacturers such as Apple, Hewlett-Packard and Dell work closely with Foxconn to form the world’s largest assembly base of mobile phone and notebook computer. The clustering also attracted relevant Japanese and South Korean companies to participate and formed a win-win pattern for large-scale electronic product production and international trade. The economic and trade cooperation between the two countries has improved employment, consumption and living standards of the peoples, as well as the development of Asia and the global economy.

Secondly, we should take a fair view of the US foreign trade deficit.

The US trade deficit has a long history, which is closely related to factors such as the dominance of the US dollar in the international monetary system, low US savings and high consumption, and the transfer of US manufacturing to overseas. In simple terms, the world needs to use and reserve the US dollar. At the same time, the US savings have been lower than investment for a long time and it needs to be balanced by the trade deficit. Over the years, the share of the US manufacturing industry has been declining, and has now fallen to only 11% of GDP. The US needs a large amount of imports to meet the demands of consumers and industries due to insufficient domestic production capacity. These factors have made the US trade deficit continue to grow, reaching US $891 billion in 2018, a record high.

Theoretically, the US can have a trade deficit with many countries. However, China has become a major trade surplus country with the United States based on the conditions of economic globalization and international industrial division of labor. I want to emphasize that this is mainly a market-driven result. In particular, this is because of that multinational companies dominate production internationalization and global distribution of value chains. The manufacturing of the final product is mainly located in China and thus, the trade surplus is recorded under China. In fact, most of the profits are made by multinational companies.

In addition, the intermediate product trade has grown rapidly in the past ten years and consequently, many intermediate product manufacturing countries have also obtained a large amount of trade gains. However, many of these trade gains have been included in China’s trade surplus since the trade statistics use country statistical model. If calculated with the “Trade in Value Added statistical method”, a more scientific method recognized by the World Trade Organization and the OECD, China’s trade surplus with the United States can be reduced by at least 40%.

In addition, attention should be paid to trade in services. The US’s total trade surplus in services in 2018 has reached US $270 billion, and it also has an annual surplus with China, which was $49 billion last year. This is the industrial advantage of the United States. As China continues to open up its service industry, the scale of China-US service trade will become larger and the United States will gain more benefits from it.

Thirdly, we should fully understand the importance of the expanded two-way investment between China and the United States.

In recent years, the transformation of China’s economic structure has increased the willingness of enterprises to “go global” and the overall foreign investment has maintained a steady growth. In 2018, the overseas investment made by Chinese enterprises was 130 billion dollars, an increase of 4.2% over the previous year. The United States is an important destination for China’s business investment. Due to the protectionism, economic and trade frictions and increased review on foreign investment, it has become very difficult for companies to invest in the United States since 2017. According to statistics from the US Company Rhodium Group, China’s direct investment in the United States dropped from 46 billion in 2016 to 29 billion in 2017, and fell sharply to only 5 billion dollars in 2018.

In contrary to the US, China is actively building a sound business environment for foreign investment, and continue to open up its market. According to the “World Investment Report 2019” released by UNCTAD: the total FDI made by foreign companies in China rose by nearly 4%, reaching about $140 billion despite the decline in global foreign direct investment in 2018. According to data from China’s Ministry of Commerce: China’s utilization of foreign capital increased by 3% year-on-year, about 101 billion US dollars from January to September this year. The investment made by US companies has also increased in recent years. The US car-maker Tesla invested $2.5 billion in its new energy vehicle plant (Shanghai) in the first phase and has started trial production in October. According to a report released by the Research Institute of the Ministry of Commerce this month, the return on investment of American companies in China in 2018 reached 11.2%, which is 2.3 percentage points higher than the global average. On October 24, the World Bank released its latest global business environment report: the ranking of China continues to improve significantly, from 46th last year to 31st. The survey of the US-China Business Council shows that more than 80% of US-funded companies see China as an important market. At the same time, the deeper opening of China’s capital market has also attracted rapid growth in securities investment. According to data from the State Administration of Foreign Exchange, the net inflow of China’s securities investment in 2018 exceeded US $100 billion.

Expanding the two-way investment between China and the United States is the right choice for both sides. The United States needs huge investment in the fields of energy, industrial manufacturing and transportation infrastructure, and Chinese companies are willing to expand investment in the United States. The United States should not require China to ease market access for foreign companies while increasing restrictions on Chinese companies’ investment in the United States and abusing national security. China has a huge domestic market, a strong industrial chain, and huge room for economic growth. We welcome US companies to invest in a wide range of fields, including finance, manufacturing, medical care, culture and creativity. We hope to expand two-way investment between China and the US-based on the principles of equal treatment, fairness and openness.

Ladies and gentlemen,

Protectionism and unilateralism are inconsistent with the trend of economic globalization and harm regional and global growth. In this era of interdependence, expanding cooperation and achieving a win-win outcome are our only options. I sincerely hope that China and the United States can adhere to principles of equality and mutual respect, reach arrangements on trade and investment relations that are in the interests of the people and market expectations so as to promote a stable China-US economic and trade cooperation.

Thank you very much!