Remarks by C H Tung at The Economic Club of New York on 11 April 2012 | CHINA US Focus

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Remarks by C H Tung at The Economic Club of New York on 11 April 2012

Tung Chee Hwa
April 22, 2012
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Ladies and Gentlemen,

       Good Afternoon. I am very honored to be here among distinguished members and guests of the Economic Club of New York. Throughout its long history, this club has always provided a wonderful forum for serious discourse about global affairs, and so I am delighted to be able to speak to you about something that I am passionate about, and that is the relationship between the United States and China. China is my country, and I want her to succeed. The United States was my home for nine years. I have great admiration for the American people. And I believe the US-China relationship is the most important international relationship today.

The fact is the world we live in has entered a post-cold war era in which ideological differences have given way to a whole new set of issues. Indeed, if the 20th Century was shaped by conflicts of the great powers, the 21st Century will be shaped by how we, the human race, can successfully take on the challenges of energy security, climate change, food sufficiency and scarcity of natural resources, all of which are issues critical to sustainable development and economic growth. Beyond those challenges, the world continues to face the threat of nuclear weapons proliferation, transnational terrorism and localized conflicts. There is also an urgency to improve global efforts on epidemic prevention and drug trade eradication. Four years since the global financial crisis of 08, there is still a need for common efforts to bring about global financial stability and economic recovery. Fiscal responsibility must be restored, and global imbalances must be addressed.

Indeed, never before has the world been faced with so many transnational challenges coming together all at the same time. To successfully overcome these challenges, multilateral cooperation, particularly by the major powers, is crucial. China and the United States not only have a foundation for broad cooperation, but they also shoulder very important common responsibilities.

Let me take this opportunity to talk to you about US-China relationship. 40 years ago, President Nixon visited Chairman Mao Zedong in Beijing, and the two leaders began a journey together for our future. Since then 8 United States presidents and 4 generations of Chinese leaders have devoted their wisdom, courage and energy to improve US-China relations. In these 40 years, despite ups and downs, the relationship between the two countries has been  on the whole moving steadily forward.

Where is the relationship today? Since President Obama became the president of the United States, the presidents of the United States and China have met each other 11 times. In the various meetings, President Obama had been quoted as saying that, “the United States welcomes a strong, prosperous and successful China that plays a greater role in world affairs.” President Hu had been quoted as saying that, “China welcomes the United States as an Asia Pacific nation that contributes to peace, stability and prosperity in the region.” They jointly stated that, “both countries would take concrete actions to steadily build a partnership to address common challenges.”

       They have also made the important point that: “The two countries believe that to nurture and deepen bilateral strategic trust is essential to US-China relations in the new era.”

       Building trust is indeed important but unfortunately it is not an easy undertaking. One is the largest developing nation in the world, while the other is the most powerful nation in the world. Their histories and cultures are different, and they are at different stages of development. In fact China does not know the US well, and the US understands China even less. This makes it difficult to build strategic trust. Therefore I hope to take this opportunity to talk to you about what is happening in China today

What Has Been Happening in China

When the republic was founded in 1949, political institutions were just starting to be formed. People were hungry. There was little organized education, no health care and no means of social security. The country was bankrupt. Indeed, the Chinese people had endured a century of government mismanagement, political instability, constant civil war and warfare imposed by other countries.

The China of today is a very different place, particularly since Deng Xiaoping’s policy of reform and opening up 34 years ago. Since that time a market economy has been introduced, and modern physical infrastructure has been built. A free and compulsory 9-year education has been introduced for all school-aged children. Health care and social security have been made available. Above all, 1.3 billion people have moved from abject poverty to a much improved livelihood.

In these 34 years, a closed Chinese society has become open. Indeed, there has been an unprecedented expansion of individual freedoms – freedom of thought, and freedom to pursue economic opportunity.

China’s Unique Development Path

Many people, inside and outside China, have tried to understand how this has been achieved. Some point to visionary leadership and effective policy-making. Others point to China’s commitment to globalization and her pursuit of science and technology to improve her global competitiveness. These are indeed some of the reasons for success.

But, to me, the real reason for China’s success is because the Chinese people and her leaders have chosen a unique path of development that meets her needs.

How can we describe this development path? Economically, it is about reform and opening up, and it is about developing the right mix between the market economy and the planned economy. Politically, it is about developing China’s unique form of democracy that is consistent with her needs at her current stage of nation building. Internationally, it is about the continued pursuit of a policy of peaceful development around the world.

Economic Development Path

Let me elaborate further on these points. Economically, while much has been achieved, in the past 34 years, the unbalanced nature of growth has increased income disparity between the rich and the poor, between urban and rural populations, and between coastal and inland regions. This growth has also created huge environmental challenges. There is an urgent need to address climate change. New drivers of economic growth need to be developed.

In China’s 12th five-year plan, which is a plan of policy priorities and goals for the next five years, many initiatives were suggested to address these issues. By enforcing massive increases in minimum wages for workers, by improving farmers’ income, by designing a better social security network for farmers, and by an ambitious development plan for the Western region where economic development and incomes lag behind, China is not only reducing the wealth gap, but she is also creating conditions for increases in domestic spending.

The rural population, whose livelihood is agriculture, still accounts for around 50% of the total population, or about 650 million people. Massive urbanization therefore will continue. In the meantime, the need for rural areas to build infrastructure, to provide better education, social security and health care, and to introduce advanced technologies in farming are all pressing tasks being undertaken.

Given China’s burgeoning middle class, domestic consumption will become an important driver of the economy. Moreover, the service sector economy will be greatly expanded. Furthermore, by investment in leading-edge industries, such as renewable energy, new generation information technology, high-end equipment manufacturing, biotechnology, and etc., China is restructuring her economy toward a more modern industrial base.

In sum, in addition to exports and fixed asset investment, domestic consumption, service sector economy expansion, continued urbanization, rural renewal and further industrialization will be the engines for growth and job creation for the future.

Political Development Path

Now, let me talk to you about the political aspect of China’s unique development path. Despite China’s success over the past 34 years, her challenges are enormous. China is a country with 20% of the world’s population, but only 7% of the world’s arable land, and is not rich in natural resources. She needs to create 12 million new jobs every year. With a per capita GDP of USD 5,500, ranking 90th in the world, she still needs to bring people out of poverty, and improve livelihoods on a massive scale, and in the shortest time possible. For this to be achieved, social stability is crucial. This is China’s challenge. China needs to develop a political development path consistent not only with her culture and history, but also with her current needs for nation building.

In developing democracy, China always puts people at the center of governance, with an emphasis on transparency, accountability, rule of law, and the protection of legal rights of all her citizens.

Development of China’s democracy is being institutionalized. Today democracy consists of what we call electoral democracy, as embodied in the National Peoples Congress, and consultative democracy, as embodied in the Chinese Peoples Political Consultative Conference (or, the CPPCC). These two organizations play an increasingly active role in making the voice of the people heard, in monitoring the work of the government, and in providing checks and balances to the government. The CPPCC has a particularly important function in building nationwide consensus before national policies are formulated, turned into law and implemented.

The decisive role of the Communist Party in leading China successfully forward needs to be recognized. In evolving from a revolutionary party to the governing party, the Party is becoming more democratic.  Decisions are made collectively following extensive public consultation and debate. Term limits and retirement age are imposed on government officials. Appointments and promotions are based on merit, but will also take into account the views of the people.

This path of political development has been successful, and has received the support of the people. To be sure, there are many areas where improvement still needs to be made, such as government waste and corruption and the level of competence of local government officials. These needs are being tackled with priority.

International Relations

Let me now say a few words about China’s pursuit of a path of peaceful development, a strategic choice made by China for the following reasons.

First, since the launch of her reform and open-door policy, it is increasingly recognized that China’s interests and that of the world have become more and more intertwined and mutually dependent. Therefore, for China’s own future, she needs a stable and peaceful international environment.

Second, during the age of colonialism, countries waged war to conquer and colonize other countries in order to spread their sphere of influence, and secure overseas natural resources, labor and markets. That brought wealth to the conquering countries, but misery to those conquered. Today, due to globalization, we can achieve a win-win situation amongst nations through trade, commerce and investment. Indeed, prosperity is much better shared today around the world. China is therefore determined to pursue the path of peaceful development globally.

Third, the path of peaceful development is very much a part of Chinese culture, values and lessons of history. Throughout her history, renowned Chinese philosophers such as Laotse and Mencius, warned against war and the burden that would be inflicted in waging wars. Sun-Tsu, whose book on military theory, The Art of War, a classical Chinese military treatise written 2,500 years ago, also stressed the importance of avoiding war, as the best option for a country. The famous British philosopher Bertrand Russell observed the consistent commitment to peace of China. 90 years ago, Russell wrote in his book, The Problem of China, “Although there have been many wars in China, the natural outlook of the Chinese is very pacifistic.”

The history, culture and values explain China’s choice of a peaceful path of development today. The following are key facts about China’s foreign and defense policies:

1.         China is committed to an independent foreign policy. China strongly adheres to the five principles of peaceful coexistence.

            i. Mutual respect for each other’s territorial integrity and sovereignty,

            ii. Mutual non-aggression,

            iii. Mutual non-interference in each other’s internal affairs,

            iv. Equality and mutual benefits, and

            v. Peaceful Co-existence.

            Central to China’s foreign policy is to build a peaceful world that provides shared prosperity for all.

2.         China will increasingly assume its fair share of global responsibility, while at the same time, seek to shape a friendly relationship with all her neighbors.

3.         China supports the centrality of the United Nations in matters affecting world peace and security. She is committed to addressing international disputes in a peaceful manner.

4.         China will not repeat the error of history, whereby power led to hegemony, and hegemony plunged the world into disaster and conflicts.

5.         China has peacefully addressed long-standing boundary issues with 12 of its neighbors on land. China is determined to find negotiated solutions to territorial and maritime disputes with neighboring countries, including the South-China Sea, East-China Sea and on the West Asia subcontinent.

You may ask why China is investing so much in her military. The fact is, her military expenditure, at approximately 1.5% of GDP is comparatively low by any standard. It should be noted that China has no overseas military bases. Indeed China’s military expenditure is defensive in nature. Of course China recognizes that in order to pursue peace, she needs deterrent to prevent war.

The economic, political and international relations development path has given us, as a nation, a way to move forward. This way forward is full of uncertainties and challenges, but given China’s impressive achievements over the last 34 years, I am optimistic China will succeed in her objectives.

Sino-US Economic Relationship

Ladies and Gentlemen,

Now I would like to take this opportunity to talk specifically about economic and trade relations between the United States and China, which is bonding us ever closer together.

Let’s take a look at the benefits that our two countries have enjoyed over the last 34 years of China’s reform and opening. For China, her GDP has grown to over US$7 trillion by 2011, a one hundred thirty times increase as compared to 1978. China’s international trade has grown to US$3.6 trillion by the end of 2011.  In which case, the increase has been over 100 times. And more importantly, millions and millions of people have become employed, and many more have been lifted out of poverty.

Those are tangible benefits, but we should not overlook the intangible benefits. The inward flow of capital from abroad brought with it a great deal of knowledge and know-how, from better management skills and principles of corporate governance to an array of new skills for our people, from an appreciation of the market economy to the virtues of seeking ways to open new markets.

Culturally, the Chinese people’s freedom to pursue economic opportunities is being turned into reality. Today the Chinese private sector accounts for over 60% of GDP, and 80% of the work force. Many of these private sector companies are in the small-medium sector

It should be noted that the beginning of China’s reform and opening coincided with the establishment of formal relations between the United States and China 34 years ago. Indeed throughout this period, the United States has been one of China’s most important economic and trade partners. From that perspective, the United States has contributed a great deal to China’s success.

Let me now talk about how China’s economic activities have benefited the United States in the past. But first of all I need to address views prevailing in some quarters in the United States that China’s economic progress is a threat to the United States’ well being. This is not true.

It has been advocated in the United States that persistent high unemployment rate of the recent past is because of imports from China. This is not true. The fact is before June 2008, and for a long time, unemployment rate in the US was at around just over 5%. But by early January 2009 it has grown suddenly to over 10%. This sudden increase is not because of China but because of the global financial crisis and the subsequent recession.

Furthermore, most of the goods China makes and imports to the United States are from jobs American workers do not want. If China does not make them, the goods will probably be made in Indonesia, Vietnam, Bangladesh, etc.

With regard to the value of the Renminbi, the last four years has seen a 20% appreciation in the currency, and Chinese workers in the manufacturing sector have also received substantial salary increases. These factors, together with increased imports from the United States and the rest of the world, have caused the trade and current account surpluses in China to rapidly diminish. The appreciation of the Renminbi is having its effect.

I note that since the financial crisis of 08, people of the United States seem to have lost confidence in yourselves. You see persistent high level of unemployment, stagnant economy and also stalemate in Washington. Indeed this economic downturn has more profound impact than any other crises since the 1930s depression. But many of us who see from afar have every confidence in the United States to overcome these difficulties soon. The fact is the United States has competitive advantages over all the other countries in the world. United States excels in tertiary education, in the development of science and technology, in being innovative. United States, more than any other nations on earth, attracts talents to your shores, while at the same time your demographic is getting younger. United States has abundance in energy, in water and in raw materials generally. United States can be a breadbasket for most of the world. These competitive advantages will be there for decades to come. Together with your entrepreneurship, creativity and ability to achieve sensible compromise eventually in Washington, long-term sustainable economic growth is only a matter of time.

Let me now talk about the tangible benefits US gets from the economic relationship with China, especially since China joined the WTO.

The inexpensive products imported into the US from China has kept inflation low, saving the average American household $1,000 each year, according to an Oxford Economics study. China’s investment of its surpluses into US treasury bonds has also lowered interest rates in the United States.

Since the past decade, US exports to China have risen at an astonishing pace, doubling the amount at about every four years, a trend that is set to continue. China has actually replaced Japan as the third largest importing nation of American goods, after Canada and Mexico. By 2011, total export from the United States to China has reached 103.9 billion USD. If the trade continues to grow at such a pace, total export value by 2016 will be over 200 billion dollars, creating 800,000 additional jobs in the United States.

The enormous Chinese consumer market presents a tremendous opportunity to American businesses. Brand name American companies such as Proctor & Gamble, Federal Express, UPS, KFC, McDonalds, Ford, General Motors, Wal-Mart, and many others operate freely in China, winning substantial market shares and becoming household names. Apple’s iPad sale in China is doing very well, second to the United States in terms of sales. You can see the Chinese market is wide open for US businesses. Furthermore, it is estimated that one in five employees at the US headquarters of these companies are responsible for supporting their international divisions, such as those in China. In this way, additional jobs are created in the United States.

Of course, in any broad economic and trade relationship between two large and vibrant economies, there will always be conflicts of one kind or another. While some may be based on exaggerated or erroneous contentions, some issues are real. The most common of these conflicts are US complaints about IPR protection, RMB currency valuation, government procurement agreement as it relates to indigenous innovation and the role of State-owned Enterprises in the economy. Chinese complaints are about US export control on high-tech products, limitation of Chinese investment to the US and China’s market economy status. These issues need to be addressed. Some needs to be better understood, others can only be resolved with time.

The Coming Ten Years

The benefit the two countries have enjoyed since China’s reform and opening has been substantial. But let us look at the next 10 years. What will the economic and trade relationship between our two countries bring?

In the next 10 years, China’s reform and opening will be broader and deeper in all respects. Its economy will be driven by domestic consumption and by the expansion of the service sector. Value-added and innovative manufacturing will be emphasized, and science and technology will be relied upon. Together with urbanisation and rural renewal will be the drivers of economic activities.

The United States will be going through a restructuring of her economy, with greater emphasis on energy independence, investment in education, science and technology, renewal of infrastructure, and a determined effort to reduce the federal deficit.

The fact is the two countries’ economies continue to be very complementary. For instance, China needs to import large quantity of corn, soybeans and wheat, while the United States pays farmers not to farm. China needs imports of beef and pork, as well as chicken, of which you have ample supply potential. Evidently there is huge scope for expansion in agricultural trade between the two countries.

China and the United States are the largest consumers of energy; Both countries are devoting enormous amounts in renewable energy research. We should pool our efforts together to achieve results in the shortest time possible. How the use of such intellectual property should be compensated has somehow to be worked out, but through cooperation we can accelerate a breakthrough, which after all, is of huge benefit to the two countries and the world at large.

China’s demand in the service sector is at a very early stage of development. The US has the most developed service sector in the world, and the opportunities for US businesses in China in this respect are enormous.

The Chinese manufacturing sector is moving up the value-chain, with emphasis on innovation and technology. The US manufacturing sector is the leader in this area, there is great opportunity for the US to participate in this development and thereby gain access to the vast Chinese market.

China imports large quantities of high-tech products from around the world. The United States has restricted many such exports to China, but this has not stopped China from buying from other countries. Up to now, the United States has not lifted these restrictions, thereby depriving US businesses of such opportunities in China.

The total number of visitors from China to the United States as tourists stands at 1 million in 2011. 50 million Chinese tourists have travelled around the world every year, and the number continues to grow rapidly. Many would have liked to come and visit the United States. The United States needs to open up the market for Chinese tourists. It is estimated that every Chinese tourist, during a two-week visit to the US, would spend 6,000 USD. For every 1 million tourist, it will create 100,000 jobs directly and indirectly.

China is a nation of savers, therefore although China has huge domestic needs, China still has ample surplus capital to export. Chinese capital would want to seek her way into the United States. This is not only a vote of confidence in the U.S. Economy.  These investments can create millions of jobs in the United States and as well as increased U.S. exports to China.

I am confident that, in the coming 10 years, the new economic direction of both countries will create sweeping new opportunities that will add to, if not multiply, the enormous benefits they enjoy today. I see remarkable potential on any of the above topics.

China and the US economies are very much complimentary. In light of all this, I cannot help but conclude that the United States and China share a symbiotic, mutually beneficial and inextricably linked economic relationship that both countries benefit from greatly. This relationship is not a zero sum game. A vigorous America is good for China, and a successful China is good for America. Through trade and commerce, let us build a stronger bond between the United States and China not only to the people of both countries, but to the world at large.

       Thank you.

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