China Center for International Economic Exchanges

Persistently Developing the China-US Economic and Trade Reciprocal Relationship
Date:Jul 03,2012    Author:Zeng Peiyan    Source:CCIEE

Persistently Developing the China-US Economic and Trade Reciprocal Relationship

by Mr. Zeng Peiyan

(Chairman of China Center for International Economic Exchanges)

It has been forty years since China and the US resumed their bilateral communication. In addition, this year, is also a new historical starting point for China-US cooperation partnership. In this January, President Hu Jintao visited the US, and held talks with President Obama. The two leaders reached consensus on developing a mutual-respect and reciprocal China-US partnership. Under the context of economic globalization, and post international financial crisis, the international situation has undergone complex and profound changes, therefore it has become more important than ever to jointly push forward the China-US partnership, further strengthen bilateral dialogue and exchanges, enhance mutual understanding and strategic trust, and fully implement the reciprocal economic and trade relationship.

I. A long history of friendship between China and the US will not be disturbed by any difficulties or setbacks as a sound China-US economic and trade relationship is fundamentally beneficial to people of both countries.

In 1784, the US trade ship named "Empress of China" made the inaugural voyage to China, which started the history of China-US economic and trade exchanges. In the middle of the 19th century, tens of thousands of Chinese workers joined American people in developing the East-West railway artery in the US. Over sixty years ago, the American and Chinese people came together to fight against fascist invasion, and made the decisive victory in "World War II". In early 1970s, President Nixon visited China, which re-opened the door of China-US relations. In 1979, while visiting the US, Mr. Deng Xiaoping, the chief architect of China reform and opening up, said that the Pacific Ocean must be a tie linking both great nations instead of an obstacle separating each other.

Now, across the vast Pacific Ocean, the annual China-US bilateral trade volume has increased from $2.4 billion in 1979 to over $300 billion in 2010, with an increase of 120 times. Both countries have become the second largest trading partners for each other. There have been over 60,000 American enterprises investing in China, with a $65 billion total amount of investment. The Chinese-hold U.S. Treasury bond has been over $1 trillion, making China the largest holder of U.S. Treasury bonds. Currently, there are 120,000 Chinese studying in the United States, and more than 20,000 American studying in China. There are over three million of tourists traveling between China and the US ever year, with more than 110 passenger flights traveling across the Pacific Ocean every week and, seven to eight thousands of people shuttling between the two countries every day.

Moreover, the two countries have established economic and strategic dialogue mechanism at the state level and various types of dialogue and communication at all levels. The two sides have signed over 30 inter-governmental cooperation agreements, and established more than 60 dialogue and cooperation mechanisms covering politics, diplomacy, military, culture, education, science and technology, etc. There have been 35 pairs of sister provinces and states and 145 pairs of sister cities between the two countries. The link between them has never been so close.

In retrospect, the China-US economic and trade relation has met certain obstacles, but the pace of economic and trade cooperation between the two countries can never be hindered. On basis of reciprocity, cooperation and exchange have always been the main feature of China-US economic and trade relationship. As significant impacts of the two big countries on international community, we shall develop a better, more stable and predictable China-US relationship, especially the China-US economic and trade relationship, which are in line with the fundamental and long-term interests of both countries, conducive to establishing a new order of international economic governance under new circumstance, and conducive to peace, stability and prosperity of Asia-Pacific region and the world. History has continued and will continue to prove that the decision of Chinese and US leaders on developing China-US partnership is entirely correct, and that this is a strategic choice following the historical trend.

II. China-US economic and trade relationship is an important cornerstone for bilateral relationship. However economic cooperation and collision coexist, , so we must manage the China-US economic and trade relationship appropriately, and the two sides should acquire more common interests through cooperation and exchanges.

Today, the US is the world’s largest economy and the largest importer, China is the largest developing country and the largest exporter, and China-US economic and trade relationship is characterized by complementarily and reciprocity. Nowadays, , the US and China have an economy aggregate that accounts for one third of the world’s overall volume, and a total trade that accounts for one fifth of the world’s overall volume, and the China-US economic and trade relationship has been gaining more and more global influence.

The rapid development of bilateral economic and trade relationship has brought significant benefits to enterprises and people of both countries. According to statistics by a US investment bank, from 1996 to 2003, China merchandise exporting to the US has helped the US consumers save more than 600 billion dollars in spending, and helped the US manufacturers reduce production costs and access to a huge profit and, indirectly, helped the US government control inflation. Goods from the US have also contributed to China’s economic development, and flourished the Chinese market.

Of course, the China-US economic and trade relationship also meets some controversial issues. On one hand, there are some contradictions and problems to be addressed; and, on the other hand, there are a number of traditional and outdated theories and concepts which are still utilized to measure the contemporary economic phenomena, thus leading to wrong conclusions. A Chinese idiom called "Ke Zhou Qiu Jian" means that taking measures without attention to the changes of circumstances, the result must be wrong. Under the context of economic globalization and world multi-polarization, economic and trade relationship between countries should be viewed from the perspective of development and non-zero.

Regarding the China-US economic and trade, the most concerned issue is the trade imbalance, as the US on the deficit side and China on the surplus side. On this issue, we should make objective and rational analysis. Regarding the China-US trade imbalance, in addition to the differences in statistical standards of two countries and the over-estimation of the US trade deficit to some extent, the most important reason is their differences in aspects such as development stages, factor endowments and economic structures. The US has completed the process of industrialization, its industrial structure is advanced, it has had a bigger proportion of service economy, and its major advantage lies in the high-end products and services. However, China is in the process of urbanization and industrialization, conducting  industry transformation and capital accumulation from developed countries and, with a large number of low-cost labors available, developing processing industries and has become a "world factory." The US national savings rate is very low, and there is a lot of credit over-consumption; while China is in the stage of accumulation and construction, with high savings rate and low consumption rate. All these differences in development stages, factor endowments and economic structures lead to the following features of China-US trade: surplus in China’s processing trade and deficit in China’s general trade; and surplus in China’s goods trade and deficit in China’s services trade. This is the common performance of all fast-growing countries at certain stage, e.g., the US had over 88 years of trade surplus, and Germany and Japan also had decades-long trade surplus. In addition, these are other important reason for the US trade deficit issues such as that the US advantageous high-tech products are under export controls to China, the US dollar as the main international reserve currency provides liquidity for the world, etc.

There are some voices in the US that urges the rapid appreciation of RMB to ease the China-US trade imbalance. We know the existence of employment pressure of the US, but this view is biased, and questionable. The histories of Germany and Japan have shown that, in the golden age of economic growth, the currency appreciation of a country functions a little in regulating the balance of trade. At present, China's export enterprises have a profit margin of only 2% to 3%, and the over-rapid appreciation of RMB will lead to rapid closure of a large number of export enterprises, result into unemployment problem, and cause social instability. If Chinese economy and society encounter serious problems, this will be a huge shock to the world economy, not conducive to the US economic development.

In China-US trade and investment fields, some protectionist practices against China are emerging. For some time, the US Government has repeatedly launched anti-dumping, countervailing and special safeguard investigations against Chinese products, and imposed high punitive tariffs; and, hindered the Chinese enterprises’ investment in the US, with anti-trust and national security reviews. These are very inadvisable. In the context of economic globalization, the protectionist policies and import restrictions, if any, can hardly guide traditional manufacturing industry back to the U.S., and such a return is also unrealistic for the US due to its condition of natural resources. By doing so, the US will have to seek to the substitution among other developing countries, and this would make no contribution in solving the US trade deficit and employment issues.

China and the US are the world’s two largest economies today and, between the two countries, 'cooperation benefits each other, conflict hurts each other." The development of China-US economic and trade relationship is in line with the fundamental interests of the people of both countries, and it is also of great significance in promoting global economic growth and stability. We hope that the US government, economic academia and related enterprises can abandon those outdated theories and mindsets, re-sort and examine the problems in China-US economic and trade relationship and, on basis of the principle of "mutual respect and reciprocity ", promote bilateral economic and trade for development, together with China side. From a macro perspective, the two countries should strengthen the coordination of economic policies, and speed up the adjustment of their economic structures. China government puts forward the transformation of economic development mode, takes the expanding of domestic demands as a long-term strategic policy, and enhances the role of domestic demand, especially consumer demand in economic stimulus. The US should promote rational consumption and increase savings rates, so as to make the growth of consumer demand more sustainable. In trade, the US should adjust the technology and high-end product export policy, reduce the export restrictions against China, make full use of its advantages, and aim at needs of Chinese market to actively expand exports to China, and this is the truly effective way to reduce its trade deficit with China. Meanwhile, China shall also be committed to improve relevant laws and regulations, strengthen IPR protection, and create a better environment for the U.S. technology export. Both sides should also encourage the role of comparative advantages, and support the mutual investment. China always welcomes American enterprises to invest in China and develop together with Chinese enterprises, and hopes that the US fairly treats Chinese enterprises and their investment there. Chinese investment in the US is only about one twentieth of the US investment in China, which is not commensurate with the development needs of economic and trade relations between the two countries. China has had some excellent enterprises whose financial and technical strength is considerable, willing to make investment in the US. China investment will not only cover the gap of construction funds in certain domains of the US (such as infrastructure, etc.), but also be conducive to the development of related industries and the employment of local residents.

In my opinion, some people fail to realize that the nature of China-US economic and trade relation lies in mutual benefit and win-win, and some of the biased voices are magnified. As to develop partnerships, the two countries shall deal with the problems as friends, adopt the new vision and way in dealing with each other, cherish the hard-won existing good relationship, and avoid the deterioration of China-US economic and trade relationship. In short, we shall continuously explore new areas, paths and measures for cooperation between the two countries, form more consensuses on cooperation, and find out more common interests, and this is the most reasonable choice.

III. China lags far behind the US and China will focus on solving our own problems. The rapid development of China will bring new opportunities and welfare to the US and the world.

For the past 30 years, China has firmly taken the road of reform and opening up, and has made remarkable achievements. We have not only solved the problem of food shortage and significantly reduced poverty, but also regarded bring people a better life as its governance objective. Currently, more than 90% of the people have access to health insurance, and our average years of schooling increases to nine years. Over the past five years, despite of the impact from international financial crisis, Chinese economy has maintained rapid growth, our average annual real growth rate of GDP reaches up to 11.2% and, in 2010, our GDP ranked the second in the world. The gap of economy scale between China and the US is narrowing down, and Chinese economy aggregate has increased from one-fifth to two-fifth of that of the US.

As a whole, Chinese economy becomes bigger, and living standard is much better than before, and perhaps China economy scale will be closer to that of the US. It must be acknowledged, however, that China still lags far behind the US, just like two boxers of different heavyweights. Chinese population is more than four times of that of the US, and the per capita income is only 9% of that of the US; according to the standard of the United Nations, China has 150 million people living in poverty, with a per person living expense of less than $1; China’s per capita GDP ranks after the hundredth in the world, while both the US GDP and per capita GDP top the world.

China still faces many significant challenges and problems, including long-term issues such as lack of resources, getting aged before getting rich and urban-rural gap, etc., as well as urgent issues such as transformation of economic development pattern, environmental pollution, inflation pressure and other large challenges. Regarding the quality of economic development, people’s living standards, and enterprise capacity of innovation, there is a considerable gap between China and the US. Therefore, China’s first task is self-development, i.e., solving the deep-seated contradictions and the practical problems encountered in economic development. As a big country with 1.3 billion people, the solution of the people’s food, clothing, housing and transportation is itself a contribution to the world. Our goal is to reach the level of moderately developed countries by the middle of this century, so we must focus on self-development, and on protecting and improving people’s livelihood. This is the governance rhetoric and objectives the CPC and the Chinese government have always adhered to.

China's economic development will bring new opportunities to global economy instead of cause problems or troubles to other countries and areas, and it is the chance for global economic development. The recent Fourth
Session of the Eleventh NPC Standing Committee adopted the outline of "Twelfth Five-Year" plan of national economic and social development. The next five years will be another critical period for China’s development. China’s economic development will further focus on development quality, and pay more attention to the people’s livelihood. At the same time, in China, more than 10 million of rural population will migrate to urban areas every year. At this rate, China's urban population will grow by 200 million people by 2030, and will overtake the total sum of all urban populations of the US, Europe and Japan. The rural population migrating into cities each year will enable China to continuously release strong market demands. Within the next five years, China’s import and export volumes are estimated to be doubled, i.e., in 2015, China's imports will reach $ 3 trillion, and the annual total logistics will increase from 125 trillion Yuan this year to 180 trillion Yuan.

Regarding the Chinese market, the speed and potential of changes often go beyond expectations. Take the automobile market as an example --- the goal under the "Eleventh Five-Year" plan is that, by 2010, the production in domestic auto market should reach eight million vehicles, but the actual auto production and sales have both overtaken eighteen million vehicles. Among them, 70% of the vehicles are foreign brands, or produced by joint ventures in China. Last year, China became the largest market of GM. This shows that the final outcome of China economic development is shared by the Chinese as well as foreign investors, and that the US enterprises have shares the benefits from China economic development.

Some US enterprises wonder whether there are new business opportunities in China, and whether there will be changes of China's foreign investment policy. Here, we shall use a set of survey data released by the US-China Business Council, for the purpose of illustration. In the past five years, more than 80% of US enterprises in China have been profitable; last year, 88% of US enterprise in China had a profit margin that was higher than the average profit margin of global investment of the US, and many of such enterprises became the largest contributors to its global profit. It is understood that many of such enterprises are planning to expand investment and business scale.

At present, China's total retail sales of social consumer goods account for 4% of the world overall volume. Five years later, this proportion is likely to reach about 10%. If coupled with the process of urbanization, improvement of productivity, establishment of social security system and other factors that release market potential, this proportion will be higher than 10%. Therefore, in the future, China will not only be a "world factory", but also a "world market", and China will continue to be the most economically active and most promising area in the world. We welcome more American enterprises to invest in China, and encourage Chinese enterprises to invest in the US, and the two sides should enhance the cooperation efforts in such domains as equipment manufacturing, electronic information, infrastructure, environmental protection, biomedicine, new energy, aerospace, smart grid and modern service industry. Between the US and China, a closer and reciprocal economic and trade relationship will bring even greater benefits to both sides.

Since last year, China has issued the policies to further improve the utilization of foreign investment, but there are some doubts among some foreign enterprises including the American investors. I think this is unnecessary. China accords with international practice to improve the management methods of foreign investment, and implements the equal treatment towards domestic and foreign enterprises. This not only indicates that our policies on opening up and foreign investment will not be changed, but also that our utilization of foreign investment and other foreign cooperation will become more standardized, mature and advanced.

IV. Under the new trends of world economy, the two countries shall strengthen cooperation and, on basis of long-term vision and innovative thinking, establish the China-US non-governmental dialogue and cooperation mechanism, so as to realize multi-level, multi-angle, and multi-form communication and coordination.

At present, under the theme of globalization and multi-polarization, the world economic pattern is undergoing profound and complex changes, and the global economic recovery still faces many uncertainties and, recently, international politics and economy encounter some new problems and challenges, all of which further require the two sides to strengthen cooperation. For example, the Japanese earthquakes influence the world economy and industry, and may bring the changes of future industry patterns and the adjustment of international trade layout; the volatile situations in the Middle East and North Africa influence the international politics and economy, and lead to price turbulence of international bulk commodities; regarding global financial risks, debt risks and inflation risks, as well as other major challenges, how to accelerate the establishment of a new order of international economic governance; and, how to maintain the healthy economic development in emerging economies, so as to achieve the balanced development of global economy.

China’s development requires a favorable external environment, and the future of China is increasingly closely linked with the destiny of the world. The US needs to dispel the doubts about China's development. Our cultural traditions and values determine that China is taking a road of peaceful development. Our cultural genes are inclusive, and the Cold War mentality leads to the "China Threat Theory" which is not correct. A Chinese sociologist ever said that "everybody cherishes his or her own culture/values, and if we respect and treasure others’ culture/values, the world will be a harmonious one." This means that a man shall not only appreciate beauty he creates, but also appreciate the beauty created by others, so there shall be common ground, mutual understanding, and tolerance, so that the world will be better. In other words, everyone may become pretty, all of us can be pretty, and this is the philosophy of Chinese people.

The world under globalization and multi-polarization is more and more like a big boat for all human beings, and this boat may encounter some challenges from time to time, predictable or not. These challenges cannot be handled solely by any single country, which requires all countries to strengthen cooperation and exchanges, especially the two big countries of China and the US. It can be said that, under the increasingly complex international situation, no country can independently steer this boat. World governance requires the participation of more countries that undertake their due responsibilities, and share the fruits of world economy development.

Under the trend of globalization, more and more countries want the improved global governance, and the improved response to common problems and risks. China and the US, as two major countries, are bearing a number of shared responsibilities. The China-US relationship have, to certain extent, gone beyond the scope of bilateral relations, as it has a significant impact on political and economic stability, regionally and globally. There is a Chinese saying that "all depend on human efforts." China and the US, as well as our great people are filled with wisdom and justice. As long as the two sides strengthen dialogues, enhance mutual trust, expand mutual exchanges and deepen cooperation, there will be no hard problems or big difficulties.

Under the evolving international pattern, as well as the unceasing development and changes of China and the US, how can the healthy and stable China-US relationship step into a new historical period? Along with the establishment of the high-level inter-governmental economic and strategic dialogue mechanisms, it is needed to strengthen the non-governmental dialogues and exchanges, which is in line with the fundamental interests of both peoples. We shall work together to build the new platform and mechanism for dialogues, and this is the strategic choice that follows the trend of the age, not an expedient measure. We shall continue to strengthen the contacts between think tanks, entrepreneurs, research institutions, scholars and civil organizations of two countries and, from an all-round perspective, understand the concerns, positions and appeals of each other, so as to promote the China-US economic and trade relationship and the overall relationship for stable and healthy development. To solve the more future-oriented problems, we not only need the governmental efforts, but also the understanding and support of peoples of both sides, as well as more non-governmental exchanges that enhance consensus, understanding, trust and win-win.

The establishment of China-US non-governmental dialogue channels and platform is an essential part for developing partnership between the two countries, as well as the urgent requirements for us to achieve the common strategic interests; the urgent requirements for us to solve and eliminate mutual misunderstanding, particularly those non-governmental misunderstandings, and thus form consensus between the peoples of the two large countries; the urgent requirements for us to strengthen the communication and coordination on major international and regional issues, and promote the establishment of a more rational framework of global governance; and the urgent requirements for us to actively promote the comprehensive China-US relationship for continued development, and innovate for new ideas, new mechanisms and new initiatives on China-US relationship development. Moreover, during the non-official dialogues, the two sides may face fewer restrictions, the thought will be more active, and the exchanges may be more frank. Through such dialogue, ideas may collide with each other, we may communicate different views with each other, some views can form a consensus, we may acquire in-depth understanding and thorough knowledge of the concerns of each other, and there may be solutions found out for certain issues, so it is a very good form of dialogue.

There are more than 2,000 think tanks in the US, and this is an important manifestation of its national competitiveness, especially its soft power. The China Center for International Economic Exchange (CCIEE) is committed to, on basis of in-depth study, proposing advises to the government, so as to provide intellectual support for national decision-making. We have worked with some of the foreign agencies for initial cooperation, have conducted attempts of non-governmental dialogues and exchanges, and have achieved certain results. CCIEE is willing to create the platform for China-US non-governmental and entrepreneur dialogues, and make it an important channel for exchange of ideas, as well as an important channel for both sides to reach consensuses. We also hope that American friends will work hard to inform the Congress, academia and enterprises about the fact, and help develop the China-US economic and trade relationship.

The 21st century grants the world human-beings with a noble historical mission that is to maintain world peace, promote common development, and create a brighter future of mankind. Standing at such a new historical starting point, we shall enhance mutual trust and communication, explore new ways of exchange, enrich the contents of cooperation, conduct practical and effective implementation of works, and contribute our wisdom and strength to the development of China-US reciprocal economic and trade relationship, and develop a harmonious world with lasting peace and common prosperity.

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