tv Tonight From Washington CSPAN September 27, 2011 8:00pm-11:00pm EDT
>> other the next hour or so in this panel. i was trying to think what's the framing theme of this conference and the series of panels, and what came to mind was one of the commentaries that was written this in the wake of the tenth anniversary of 9/11. and one commentator said that the historians will write about the last decade having three very important words. not war on terror, but made in
china. in a way, that is the question that we're addressing in this panel and in the rest of the day. chinese leaders, of course, stress that they're still a developing country, 150 million people live on less than a dollar a day, the per capita gdp is one-tenth the u.s. level. and that is, of course, true. but i think we all know that the last 30 years of reform and opening up have brought a revolution to that country and bring a harbinger of enormous be change for the world. a harbinger because there's another revolution coming. i noticed 400 million more people moving to the cities under the new five-year plan, over 50,000 miles of highway, 90,000 kilometers of high-speed rail, millions into higher education and billions devote today clean tech -- devoted to
clean tech. it was interesting, in the daily brief that was published yesterday -- one of the eight briefs that comes out every day under the oa brand -- on nanotechnology in china it pointed out that by next year in ppp terms chinese research in nanotechnology will exceed the u.s. level. so this is a veritable second revolution really. i think on this panel we're going to try and bring some light to what's driving those changes. in henry kissinger's recent book which, mark, as you referred to, he reminds us of the chinese concept of chi, the art of understanding matters in flux x. in this panel we're going to try and understand the nature of that flux, the flux in personnel was, of course -- because, of course, 2012 isn't just an american presidential election,
it's a key transition for chinese leadership. chinese leadership which knew the cultural revolution, but not the founding revolution. new leadership which was born into an isolated china but comes to leadership in an age of a connected china, and a leadership whose children are global citizens, educated at universities around the world. so we'll try and bring out the flux in personnel. the flux in policy too. many of you will have studied the new five-year plan that was published in march. i was in beijing just after it was published, and different phrases were used by chinese leaders; a new chapter, a new phase. but the underlying message, i think, was absolutely clear. the next 30 years are going to be govern inside a different way than the last 30 years with substantive shifts. the speed of growth given less prominence than the quality of growth, domestic consumption
emphasized in contrast to an export dependence and, obviously a shift from saving to welfare that's going to be very important to the chinese economy. i think one of the most remarkable things about the chinese leadership, one of the most impressive things is how self-critical they are. this is not a country blind to the enormous challenges it faces. economic inequality has a very significant role this new five-year plan, although the attempt to tackle it. second, the issue of environmental sustainability. the, i think seven of the 12 national targets in the five-year plan relate to low-carbon development. i hope i can say i look forward to the day when the u.s. has 7 of its 12 national targets relating to low-carbon development. i mentioned i was in china in march. it's often a question outsiders ask, how deep has the rhetoric
in a particular area permeated the system. and so i was asking myself about the rhetoric on low carbon. when i went to a reception at the british embassy for fellows who are being given time in the u.k. or had time in the u.k. to work on low-car boon issues -- carbon issues and a man who's the head of the climate change unit of the chinese central bank. well, how come the central bank has a climate change unfortunate unit? and he said, well, we're obviously concerned about food crisis. there's an obvious link between food crisis and climate change, so of course the chinese central bank is interested in climate change, and they said, doesn't every bank have one? and i thought that spoke to a very interesting depth with the low-carbon issue. and third big challenge, political stability, which is the overriding concern and which i think it would be wrong to gloss over. i just wanted to make three points that i think, three final
points that will, i think, emerge in the discussion that's going to be led by daniel and by elizabeth this morning. the first is about innovation in the chinese economy. the political significance of the phrase one china is obvious, but if you look at china economically, there are many chinas. cities and regions making their own way, making their own relationships and using some freedom to develop distinctive paths forward. i hope one of the things we can tease out is how broad is that pluralism within the chinese system. secondly, the issue of partnerships. at the annual conference last week, a very senior chinese energy leader said that the lesson for the chinese leadership was that partnerships were the way forward. and i hope we can explore what business partnership really means and to what extent is it a
two-way street, not just a one-way street. and the third issue that speaks to my interests as a politician and diplomat, and that's the question of international cooperation. my belief is that the chinese leaders are concerned about the weakness of international multilateral systems at the moment. there's an article in reuters today about the power vacuum on the international stage. and i think that is of concern to chinese leaders. in the traditional realms of foreign policy, security, etc., there is great caution about setting precedent for anything that looks like external interference into internal affairs. but i do sense on issues of the international economy, there is a chinese willingness, even hunger to engage more proactively, and i think that we're going to see over the next five years much more significant chinese engagement on g20 issues to try and stabilize the global
economy. i hope we can explore that as well. however, the significance of those three issues, i don't think there's any other place to start than the facts and figures and analysis of the chinese economy today and tomorrow. and we couldn't have two better introducers, really, for that discussion than rosen and elizabeth. they're going to speak for about ten minutes each, and then we're going to have a little conversation up here, and then we're going to open it up to you in the audience and very much hope you'll contribute questions and comments as well. so i'm going to start by asking dan rosen to introduce the topic. thanks very much, indeed. >> terrific. and i'm going to use a few slides here, if i k. -- if i ca, to get us started. great. so good morninging. it's a pleasure to be here, especially at the front end of what is going to be a loaded day of terrific conversation around
the topic of china and the world economy. really that's the topic of our panel to get started. and it was so critical to have david as the moderator, otherwise our topic would be global china, new master of the american economy. and that would be just utterly untenable way to kick off. so really it is a global impact, um, that we're here to look for. i'm going to, um, highlight three themes in terms of how china is impacting the world economy, what that looks like. i'm going to touch on china in terms of consumption in the world, in terms of production in the world and in terms of investment flows in the world. but before i get to those three specific points, i'm going to set the table a little bit with a few basics on what's going on in china and what it means. this is the slide that gives rise to the question, is china the new master of the world economy in some way or another? what it shows us is china's
headline gross domestic product over the past decades, as recently as 1995 china was no bigger than brazil in headline gdp terms. as recently as 2000, china was still half the size of germany in gdp terms. as recently as 2005 or so, china was just two-thirds the size of the japanese economy. that's just a few years ago. it's the slope of this curve, extraordinary rapidity with which china's headline gross domestic product has boomed up past these pure competitors of china in days only recently gone by that become the world's second largest economy. that forces us to ask, is this a totally different sort of economic story than we've ever known before? and what are its implications in the near term? so new master, practice. but as -- perhaps. but as one says in britain, maybe the young masters have arrived at the table.
we're not spirally in our -- entirely in our maturity yet when we talk about china's position in the world economy today. after all this exceptional nominal growth, china's still 9% of a $62 trillion global economy. still some considerable distance to go in terms of being on a par with, say, the united states or with an increasingly integrated europe as well. and even in the decade ahead as china moves toward parity with the united states, we won't be able to forget that the average chinese today is just half as well off as the global average earthling, let alone americans and europeans who, as david pointed out, are ten times per capita as well off as chinese are today. in terms of important functional compare to haves such as china as an outbound direct investor
around the world, while we're talking about a nation that's 21% of all the people on earth, we're talking about a nation that's just 3.5% of global outbound direct investment flows which are a true indication of globalization. exporting with the help of the walmarts of the world and others is one thing. actually being invested in a significant way in the united states and be europe, which i'm going to come back to in a couple minutes, is a very different thing. marks a very different and more shan't level of globalization. but the fact that china still has a long way to go isn't exactly the bad news. it's the good news. it means there's a tremendous amount of built-in, structural growth before us that unless china comes off the rails is likely to deliver most of the growth we see in the world economy in the years ahead. this is the quarterly xdp -- gdp growth performance of china in recent years. there have been some very
pronounced, bearish bets about what was going to happen to china's economy over the past few years that have turned out to be bad bets. in fact. china has managed to continue to deliver quarter after quarter, world-beating gdp growth right through some of the most traumatic events that the world economy has seen in a century. so really we have to take stock of that, give that credit and do our best to understand what it is that contributes to this extraordinary growth. if this stays on track, and i think when we get to liz i'm probably going to agree that it is a pretty cat risk -- political risk to china rather than economic which are most likely to get in the way of these dramatic 2030, 2050 scenarios, china being the biggest economy in the world coming true. no nation has ever done that without adjustments to the political system such as are hard to imagine china being able
to manage over the next couple years. but it can't be done in the next ten years, raise some fundamental questions about china's ability to keep delivering growth that looks like this. this is china, china's share of marginal global growth. so of all the new growth in the world economy, how much of it is just coming out of china versus the rest of the world? that blue line there used to be -- you know, is us, it's where we used to be. the united states used to be an outsized chunk of marginal global growth. the basis of activity is great, it means whatever i expected to make yesterday i have a chance of making again this year. but this terms of growth opportunities on a planet with more and more people and higher and higher expectations, that means new economic activity at the margin. and with europe and the united states in the crisis years here, dipping down to negative factors in global growth activity, china and india went through the roof.
now we're reverting back to what the longer term pattern should look like. it's not the extraordinary contribution that china was responsible for in the midst of the crisis, but it's not where the oecd was the most important horse pulling the cart and china was the next most. we're now looking at china as the most important contributor to global growth going forward. so three themes, now, to consider as we work through the topic of china in our lives in our pollty here today. and the first is china as a consumer of stuff. my colleague at the peterson institute has suggested that china might eclipse the united states within a decade. and if we were to measure china always in ppp terms -- purchasing power parity -- indeed, we see just a few years from now we can start talking about china crossing the united states in terms of its global weight. but consider that china with its currently 9 or 10% headline
gross domestic product growth, that's growth in a mostly industrial economy. not in a consumer economy. so if we only look at china and the united states as consumers, consumer shares, we still have out to 2025, 0 30, 2035 for china to become as large a chunk of global consumption as the united states is in the world. so depending on which part of economic activity we're looking at, we may have a longer wait to crown china as the new master in any given component. on the production side of what firms do this world economy, chinese -- china inc., if you will, made in china as david underlined it has absolutely been the most exciting story in global production of the past two decades or three decades, let's say. but let's remember that what china does is only in the middle of the production chain, if you will. what's described by that red line there is what china inc.
does. it manufactures stuff. now, in a modern economy the lion's share of value that's created isn't in the manufacturing process anymore. it's upstream of manufacturing where we anticipate how consumer needs are going to be different tomorrow than they are today. and innovation in order to meet those future demands. and an increasingly carbon-constrained world. it's going to be about transrming our -- transforming our energy systems in a way china is not a heavyweight on, and we'll come back and talk about that in many ways. likewise, on the other side of the factory, downstream. much of the value in this laptop isn't the manufacturing and assembly that went into it, it's the brand value that i see intel sticker here, i see a windows sticker, i see the latitude name on this machine. this is where most of the value in this machine is created. and be that's downstream of what china inc. does today.
it'll do it tomorrow, but it won't be able to do it overnight. and increasingly it's going to do it by going out and investing around the world in technologies that china hasn't been able to do well it and in companies and economies where china is not well represented to date. so the third theme i want to put on the table for our discussion is china's outbound, direct investment. taking off from an extremely, extremely small base. here we have chi niece investment in -- chinese investment in north america in green and europe in blue. both of them are very small numbers compared to the value of investments in these continents, but clearly, now, going through an inflection. we are living at exactly the moment in which chinese firms are ready to come across and be stakeholders in our communities. and that brings with it extraordinary opportunities and also tensions and challenges that our politicians and our firms are actively working to meet today.
it's not just in one or two little industries getting cherry picked off east. it's in -- either. it's in manufacturing and services. high-tech and in low-tech. one of the most active areas for chinese investment in dollar terms is in electric utility which duke is right in the center of this story of extraordinary surprise and chinese readiness to be an investor in an industry like that in the united states today. this is what chinese outbound direct investment looked like in the u.s. in 2003. just a handful of deals in a handful of states. and, unfortunately, too many people here in washington think that this is where the story is today. this is where it was by 2007, and this is where it is today. over 300 deals, five or six of seven billion dollars a year of deals now being done growing at about 130% a year. that says something about us, that we're open, it says something about china inc., that there's not enough money to be made back in china that you
actually want to put money at work, at risk across the pacific ocean in the united states in the kind of market you've never invested in before? something different is happening, and we need to talk about it, understand it and make sense of it, and i think today is going to make a good down payment on that conversation. thank you very much. [applause] >> thank you, dan. that's excellent. let's go straight on to liz economy. >> thanks very much. as dan suggested, i was tasked with sort of outlining some of the sociopolitical downsides of 30 years of largely unfettered go-go economic growth in china. i thought what i might do, though, is add a little bit of a twist to that and highlight what i see as five trends in sort of sociopolitical dimensions that i think have actually acted to spur economic development and growth to china over the past 20-30 years but now maybe an
inflection point and may be transforming into obstacles or drags on the chinese economy. and i think will require chinese policymakers to rethink sort of the balance between opportunities and challenges that these trends may present. so i'll run fairly quickly through what i think are the sort of five overarching trends. i think they'll also help to set the stage, um, a little bit for the panel that we're going to have toward the end of the day. it's going to touch on some of those same issues. so the first trend i would highlight is demographics, and i'm sure you've heard a lot about this, but i thought i would just flush it out a bit. up until now china has really been the beneficiary of a demographic dividend, you know, with more people entering the labor force every year coupled with high savings rates, it's been able to use these to sort of fuel its economic growth over the past 20-30 years. because of the one-child policy,
the demographic picture in china is going to change quite dramatically in the next 20 years. just to give you a few numbers, by 2030 the number of people in their 20s is going to drop by 35% while the number ages 55-60 is going to increase by 60%, and those over 65 it's going to jump by 100%. so what does this mean? and people at 60 and 65 still work. but the truth is that it's the younger workers who are generally the best educated, who are the most technologically proficient and usually the most able to adapt to sort of the rapid pace of economic change, in particular in this kind of global, globalized world. it's going to place increased pressure on the health care intention systems which as of now are quite ill equipped to deal with that. and in an interesting point that
nick everystsadt made, he said really what we're witnessing as result of this one-child policy is the entire transformation of the kinship structure in china. you know, we tend to think of it simply as, you know, one child, two parents and four grandparents as sort of a difficult challenge. no siblings. but actuality, it means no cousins and no aunts and uncles. and so this kinship, this extended family that has defined chinese socioeconomic life in many respects for thousands of years is now being revolutionized. and i think we have to think about the implications of that. so the upshot, i think, for the demographic challenge that china's facing is that you're going to have fewer people entering the work force who are going to be able to drive the economy. at the same time as you're going to have increasing need for them to support the elderly. and people say china will become the first country to be old
before it is rich. the second trend that i see as helped to fuel economic growth in the past but maybe perhaps now posing more of a challenge was the -- [inaudible] of the iron rice bowl, but now the failure really to sort of develop a compensating social welfare net. be of course when at the outset of the reforms three decades ago the government, beijing, relieved the state-owned enterprises and others of their, the economic burden of social welfare net provided for the housing and the education, the general welfare for their workers, certainly that was a boon to those enterprises. clearly, allowed them to manufacture at much lower costs. but at the same time the government kind of forgot to replace the social welfare system with anything else, and it has been part of the platform of president hu jintao in
harmonious society, a lot about addressing these imbalances and sort of developing a social welfare net. but i would argue they haven't really made any progress to date, and only in the past two years or so have started to invest in the way that might make a difference and to sort of put out policy initiatives that also might make a difference. but i would say the jury is still out, and, you know, some of the discussion surrounding the fact that it looks as though workers may have to contribute, you know, half of their wages in order to pay into the pension scheme, insurance scheme and the medical care scheme suggests that this could be burdensome. but, again, i think this is still in many respects this development stage. what i also found interesting, though, is this issue of social welfare is less heavily on the shoulders of china's wealthiest as well. perhaps a number of you saw the study that was done by china merchants bank, and they surveyed about 20,000 people who
made more than a million, million and a half u.s. dollars. not made, but had more than a million in assets and found that 27% of those chinese had emigrated, and an additional 48 were considering emigration. i think this was also published in the was post. why is this case? is these are some of the most successful people in china today. well, they cited the same exact reasons that the people are so concerned. they cited health care, education, they want to have more children, and they want clean air, and they're concerned about food safety. so all of these sort of social welfare/public goods kinds of issues. so the upshot of sort of failure to develop an adequate social welfare net is, first, you're going to have difficulty achieving the kind of rebalancing of the economy that the chinese leadership is quite focused on right now. but you're also losing talent because of it.
okay. the third trend i'd like to point out is one that was mentioned by, um, david, and that's the issue of environmental keg degradation ad pollution. and i think it's clear that over the past 30 years this extraordinary economic growth in china has occurred on the back of the environment, so there's been very poor implementation of environmental regulations and laws. very lax oversight. and, again, it's allowed china or contributed to china being able to become the low-cost manufacturing center of the world. if you don't have to treat your waste water, you can just dump it into the river next to your factory, it's a lot less expensive. but in the end i think we're seeing the environment is beginning to bite back into the chinese economy. and the chinese have done a lot of their own work on this issue, the numbers are all over the place, but the environmental protection says that the cost to the gdp of china from environmental degradation and
pollution is roughly 10%. it's very difficult to measure, nobody knows whether that's really accurate. but if chinese industry on environment is putting it out there, at least it's on their minds, and, of course, there are the public health concern, the issue of social unrest, you can barely open a newspaper even here in the united states without reading about another environmental protest whether in the rural areas or in the urban areas in china. and there's the issue of the reputation, right? because anybody who goes to beijing these days one of the first things you always talk about is, oh, how is the pollution? some days you have blue skies, some days you don't. but it's constantly in the minds of people who go to china. if i were to pick the thing that was the most serious when it comes to the trends in the environmental degradation it would really be growing water scarcity and land degradation because if you don't have enough water to run your factories or to, you know, water your crops, you really are facing very hard constraints on economic growth.
okay, fourth trend i would point to is the most overafter. ing and perhaps the most critical, and that is the limited nature of political reforms to date in china. and if we try to think about how this has fueled economic growth, i think in two different ways. first, the lack of transparency, the lack of official accountability, the lack of rule of law allows for things like illegal land grabs. and, you know, violations of intellectual property rights, poor product quality and all of these things in a way, um, also permit low-cost, rapid development, sort of a not maybe counterintuitive, but i think china has benefited, chinese economic growth has benefited, in fact, from these sort of pick and corrupt natures of its political system. at the same time, i think the top-down nature of china's political system has been beneficial as it has for many
patch-up economies like japan and taiwan and south korea in the early days. because you have the ability, hopefully, to allocate capital at least initially efficiently to targets, to develop infrastructure, etc. now, however, as dan mentioned, china wants to move up the value chain, wants to be an innovation economy, and maybe they can accomplish some of this simply by going out. i think you were suggesting part of the way china's going to do this is by accessing technology and companies that are abroad. but i think it's clear they want to be able to do that at home too. but developing an innovation economy demands a different kind of political system. it demands openness, demands transparency, quality products, it demands rule of law to enforce intellectual property. in a survey of entrepreneurs in china,2,000 entrepreneurs, they
believe corruption has only gotten worse, and it's very detrimental to entrepreneurial spirit and economic activity. and in the worst case, of course, the chinese political system contributes to things like the melanin scandal or the train accident or shesh wan the, i think, the hoz of life from the -- loss of life from the shoddy construction. so i think that's another issue the chinese leadership is going to have to grapple with more directly. and the last point i'll make is really the rise of the internet. i think this is -- dan's discussion's pretty exciting, but i think at least to china one of the most exciting areas of change in the country. obviously, it's a hot bed of economic activity. i was reading a piece recently that was describing sort of what's going on. this platform has 800 million products for sale, it has, sells 48,000 products per minute and
has 370 million registered users. i mean, it's really extraordinary what has happened in just a few years in terms of e-commerce in china. at the same time, of course, the internet is transforming into a virtual political system and bringing to the chinese people in many respects everything that it can't get from, they can't get from the real political system which is to say transparency, official accountability and the rule of law. i know i've gone over my time, so i will -- oh, you're not supposed to nod. but i'll simply concur -- >> i was nodding encouragingly. >> okay. [laughter] i will simply conclude by saying i highlight these trends because, again, i think they have contributed to fuel chinese economic growth, but i think they may be at a point now where they may act as constraints. and for the chinese leadership, it may provoke a pretty serious rethink on issues as fundamental
as, you know, the one-child policy, the system of governance and kind of the balance or the distribution of investment from hard to soft infrastructure. if they want to maintain this kind of growth. [applause] >> thank you very much, liz. that was really, really, really excellent. i just want to probe three or four areas, then i'm going to ask the audience to question you. can we start with this question of whether or not the official pronouncements, the five-year plan, the ideas that are being laid out represent continuity for the last 10 or 15 years or actually represent a shift? i think i'm right in saying, liz, you've written about the continuity that the current five-year plan repeats quite a lot of the targets of previous ones. do you want to just say a bit about how you see the policy dynamic within china and then maybe dan coming on this as well. explain your position about the balance between continuity and change, whether this pivots
towards welfare domestically, towards quality of growth is really meaningful or not, and then let's hear dan on that. >> as i suggested in my remarks, i think the jury is still out. this five-year plan represents an intensification of the desire of the previous five-year plan. so i think, yes, there is an emphasis, more of an emphasis this time around. but i'm, i'm somebody who looks to see what are the results on the ground. so i'm less interested in what the targets are and what the promises are and much more interested in the results of, and what emerges after or during the five years. so that's why i say the jury is still out, because, you know, what beijing says often does not go right down at the local level. and it may play out very differently from the targets as they are set. i think, certainly, the effort to improve the environment has been ongoing for the past five to ten years. the level of investment has not changed, right?
it's still roughly 1.3% of gdp which places it someplace in the middle and lower areas of developing countries. so, you know, look at the level of investment, then, you know, factor out the corruption that's going to make some of that investment go to the wrong places, and then try to decide whether or not you think you're going to see fundamental changes, you know, in the direction that the five-year plan seems to promise. >> okay. >> yeah, there's a lot of continuity in the rhetoric in terms of what the party's all about, how the system works and what we're going to do next. you know, one sees a lot of the same themes with, you know, a change in emphasis, more emphasis on harmonious development, more emphasis on the urgency of addressing a whole list of things that liz underscored. where i think there's less continuity is in the more advanced parts of china recognizing that they are now at
an inflection point, that growth as we know it is now turned into diminishing marginal utility. you cannot any longer wring the same kind of high quality and high rate growth out of an economy once it gets to $12,000 per capita which is where shanghai is. shanghai is at oecd levels. and you cannot do it that way any further. intangible intellectual property has to make up a much bigger chunk of growth once you get to that point because there's simply no more process and production savings to be found by cutting off water treatment and all those other things that china has done in order to deliver this kind of growth. so we are at an inflection point. we see the inflection in the readiness of firms to go deal with the difficulties of investing in new assets abroad in no small part because margins are starting to not be so exciting for them back home. so we have continuity in terms
of rhetoric, in terms of reality for corporate china, i think we're already into inflection territory. and in the discourse inside china there's some confusion, and divisiveness between the left and the right in terms of whether china's doing what it needs to do to manage this transitional period. >> okay. we've got a lot of representatives here of chinese businesses in the u.s., and you put up some striking figures about chinese investment in the u.s. and i noticed that when in the launch of your report, "an american open door," secretary locke said it's great that we've got so many chinese businesses investing in the states, but there's an imbalance. and we look to the day when the chinese are as open to us as we are to them. what's your reading of what he said? do you buy that argument? how does it seem to you? do you think this is this imbalance that he pointed to? >> ambassador, now-ambassador locke has tremendous experience
with this issue. you can argue it either way really. you can say because american multi-nationals were ready to invest in china 50 years before china opened to foreign investment, right? they had been there. many of them were born in shanghai in the '20s. so this wasn't a new story for america inc. when 978 and the '80s rolled around. so shot surprisingly there's now $50 billion of american direct investments in china at least, maybe more. whereas there's only maybe $14 billion of chinese assets in america. so who's more open here is an issue we can really debate. but what then-secretary, now-ambassador locke meant was that the process is actually more straightforward on the u.s. side. much attention is given to the cfius process, committee on foreign investment in the united states, but really compared to almost any other regime applied to international investors, the system that the u.s. maintains
is fairly straightforward. it's looking for national security issues 99.8% of the time. now, the point o2 matters a lot, we can talk about that. but investing in china's not straightforward either. in fact, in many ways it's much less predictable. so the interesting thing about this question is that now that chinese firms in significant number are informing in -- investing in america, people are going to start looking at how the chinese regime works on their side in a new way and asking is there really a sort of parity between how we treat one another's companies when they come to do business? because this is about doing business. >> liz, you've written, um, a quote: the world needs the insure that china respects the interests of others as it seeks to meet its own needs, unquote. how? >> [inaudible] [laughter] >> this was your -- >> it sounds like i could have said it about so many different things, i was just curious -- >> you were talking about
china's economic move overseas, about companies were globalizing -- >> okay. >> and you were also making a point about the multilateral system, that it's got to be mutual respect. >> right. i think when we're thinking about china's going out strategy -- can i make one point on the previous -- >> of course. >> -- issue? i think one of the difficult things in china is it's still in the process in terms of investing, it's still in the process of developing a lot of rules and regulations, what it wants to do in terms of setting it own standards, and i think that can make it much more difficult for foreign investors. i think oftentimes china will put out a kind of rule or policy announcement, indigenous innovation or green dam or whatever it might be and then, you know, when the international theory descends upon beijing in response, it kind of backtracks, things mutate, and they morph, and then things are sort of applied very differently from one locale to the next. so i think part of the challenge
in terms of investing into why that is the fact that it's still in a period of transition as it figures out how it wants to develop its own economy, and that's not something that's plagued the u.s. as much. maybe it will looking forward, but i think to date it really hasn't. so in terms of chinese companies going out and sort of living up to what they demand of others, um, what i think i meant by that was really as we see chinese companies go off into latin america and africa and asia, um, that in many be respects -- in many respects they are not bringing best practices. and that, in fact, when it comes to environmental standards and labor and safety standards, you find that a lot of these not even just state-owned enterprises, but a lot of other chinese enterprises from the provincial level that are going out are bringing their own kind of worst practices in this regard. it's hard to expect that these companies are going to behave better abroad than they behave at home. and yet that is what the chinese
government asks of multi-nationals that come into china, right? that they maintain the highest standards. that's not to say they always do, but often times chinese capacity is a little bit higher than some of these other developing countries. and i think initially they, um, you know, had a lot of leeway, but more and more people in these countries are protesting this kind of, um, sort of chinese corporate, um, you know, labor/environmental practices. that's really what i was referring to. >> right. and the suggestion of how influence can be, how chinese approach can be changed or influenced, what's your thinking about it? you think it should be think a political level or through a business-to-business level? >> well, i think, you know, there are a lot of things that china could do in terms of, you know, signing on to transparency
initiatives and other best practices. but i think, um, they're not quite ready to do that. i think it has to come at both, sort of, levels. but the political commitment, but also a firm-to-firm commitment. and perhaps things will change as chinese firms break into markets in europe and the united states where at least ostensibly our political capacity is much stronger and will demand high or standards -- higher standards. >> uh-huh. >> so that may be another way in which those companies attain higher standards and then bring those standards to the developing markets as well. >> one of the side effects for china of getting so much done in such a short period of time over the past 30 years is that in the commercial space one often says that all chinese companies have original sin. this has been well written about. what it means is that, you know, if you look deep enough into any chinese-registered firm, you can
find some regulatory -- a few licenses that had to be rushed to get something done, an environmental impact assessment that maybe was done by the mayor's brother and didn't fully consider what dumping that cadmium in the river would do. and so it's one thing in china where the chinese network and fabric of relationships and political, um, considerations provide some kind of predictability on whether those firms are going to be shut down due to regulatory problems. as soon as they leave that environment, as soon as they leave planet krypton and come to earth, it's a totally different set of rules. and it's not necessarily the government that's going to use that against them, it's short sellers that are going to use the fact that they've maybe misstated what their assets are back home as a way to attack the trading value of their, of their equities. if they're foreign listed.
so this is not something the chinese government can negotiate. you can say, well, you know, we'll make sure that none of our firms, of tens of thousands, hundreds of thousands of firms have these kinds of irregularities embedded in their, in their corporate balance sheets. this is not something that can be handed over. it has to be done by gradually, steadily improving the regulatory environment and standards in china over time. the only way for china to do that, as liz has documented, is not by some edict or slogan, but by actually doing it the hard way, by enforcement. giving courts the job of making sure that corporations live by the regulationses and that is honestly and sincerely implemented. >> this issue can be picked up noticeably in respect to africa. just before we ask the audience, i wonder if we can just, um, address an implicit idea in the title of this session. because there's an implicit
rivalry assumed in the title of this section. and you and i were talking about the book called "playing our game." the argument is that the model of chinese-american rivalry is just wrong. but his argument is that china is powering innovation in the united states and is, therefore, not just a positive force as a new export market, but as a new kind of partnership. and his argument is based on quite detailed look at the integrated nature of global production across companies and across, um, boundaries. why don't you just say a bit about this very fundamental issue of whether or not we should see threat or opportunity in the change that's underway in china. >> there's been much ink spent on whether there were such a thing as the beijing consensus, this alternative game -- not our game -- that would explain why china's developed so quickly in such a short period of time. i've always found it to be
silly. when i look at china, i saw tariff levels cut from 50% to 4%. i saw barriers to foreign investment that went from a mile high to the most open developing country in the world. there's $1.5 trillion of foreign direct investment in china coming back to how we think about what ambassador locke said. it was a fairly imf-friendly approach to making growth happen. two go-go capitalism, really, without learning the lessons of the left, frankly, that the oecd world had learned the hard way over 100 years, that you actually do have to respect worker rights and the environment, and all these things will come back, and those are bills that'll have to be paid over time. so, you know, i think it's a very different conclusion one draws if one starts with that in mind. >> uh-huh. >> i think it's enormously problematic to pit the united states and china as economic
rivals, and i think the media in particular has a tendency to, you know, do a rush job on, you know, clean technology in china and it's, you know, overtaking the united states and investment and, you know, gets the president and congress all riled up. i think, you know, innovation will occur here, it will occur there, and it will occur, as jim rogers discussed, in partnerships. and there are enough global challenges that need to be addressed that i think it is the only way forward. and so i think it's just a long way to frame the future for the united states and for china and, you know, for the rest of the world. >> okay. look, we've got about ten minutes for questions and comments. if you wouldn't mind introducing -- do we have a microphone, or do people just shout? >> we can repeat the question. >> sir, why don't you tell us who you are, and i can repeat the question if it's not loud enough. >> [inaudible]
showed a chart, a slide with -- [inaudible] china and the united states, and you just made a comment before that -- [inaudible] much of that over the last year. can you give us a sense of -- [inaudible] dramatic increase of gross domestic product in china, the availability of foreign direct investment -- [inaudible] the united states creates jobs and bringing some of that capital back to our shores? >> there's -- say more about the scope for increased fdi from china. >> right. yeah, the 14 billion or so in total chinese investment in america we've seen so far s that much? well, compared to $2.4 trillion in fdi in america, it's nothing. it's nothing. but that's not the bad news,
that's the good news. that tells us that we have an extraordinary story right ahead of us to come. if things stay on the track that, you know, they're so far shown themselves pretty well rocked into -- locked into. given where china is as a global investor today, total outward investment around the whole world about $300 billion to 2020 given where china's gdp is growing, we should see anywhere from $1 to $2 trillion of additional green field investment by 2020. around the world. how much of that could come to the united states? well, traditionally about 15% of global fdi was coming to america. whether america will be as attractive in 2020 as it has been in the past is really up to us to decide here in this country. you could have foreign direct investors coming here for the fire sale to buy assets that no longer can be used very productively, or they could be
here because this is the best economy in the world to be invested in and be part of. which of those two narratives describe, perhaps two or three hundred billion is up to our congress and our leadership and our businesses to figure out whether we can get maximum american opportunity back on track. >> good. sir? >> yes. [inaudible] >> there's a microphone coming to you, actually. >> thank you. fred tipton with undp. how about the wholesale political and economic impact of china, forget the beijing consensus, the retail rivalry, our economy's better than your economy? when does china start translating it economic power as it escalates into the clout for how the global economy's going to work? where do they register those views? how do they begin to influence as they maybe bail out the europeans what the conditions of the global economy imply for them and turn their interests from domestic to global?
>> good. >> um, i mean, i think they've already started to do that, right? they've, i think, made their voices known in the imf, i think, beginning in 2008 when they started to talk about the potential for, you know, no longer having global dollar economy, and also sort of making the, you know, an international currency. so i think from that moment forward they've started to get to shape the dialogue in any case. and i think there's a lot of discussion going on, in fact, between the united states and china on the internationalization and, you know, sort of -- i wouldn't call it training, but discussions and capacity building on this issue. i think they already are shaping the global economy enormously, right? again, from all of their foreign direct investment throughout the developing world. they are exerting a profound
impact on the way that business is being done. you know, exporting their labor, right? you know, we may put transparency and good governance sort of conditions on fdi abroad. the chinese can put labor demands on their fdi abroad. so you have tens of thousands, probably hundreds of thousands of chinese now in, working in africa, for example. i think there are lots of ways in which china is shaping the global economy. i mean, you could, i think, go across the board. you know, china's economy, australia, all resource-rich countries basically being fueled. i mean, these were moribund economies in many cases in the developing world, and it's only because of china's economic growth that they've come back to life. so i think it's enormous. >> i would only add, i agree with that, i would only add that the ways in which china is impacting all of our markets, economies and markets comes quite a bit before china's
official willingness to take responsibility for how it's impacting those markets. it's one thing to say that without beijing accepting a world for itself in terms of international currency matters, you know, participation of china in something like a has saw accord or the international alignment of currencies or even a willingness to say that more than 4% of gdp current account surplus is too much. that was too much to ask china to commit to. that's a very soft kind of commitment given where china is in terms of it impact internationally. so they are having this impact by virtue of their private and state-owned company impact on the world. but as an official matter, they're not there yet in terms of accepting an international respondent for themselves. -- responsibility for themselves. they're of two minds at least in terms of whether it's in their narrow self-interest to start accepting those kinds of obligations as a major player. >> let me just add this from a sort of international diplomatic
per spective. -- perspective. those are two important divisions. there are reactive powers and proactive powers in the world. and certainly in traditional foreign policy outside its own region china has been a reactive power and, i think, will probably remain such. the question is on the economic be questions whether it's going to go from being a reactive part to a proactive part. and the second question is, is the move from being a veto power to an action point? china, obviously, has had an veto on the u.n. security council for 60 greers, but it hasn't -- years, but it hasn't liked using it alone. but having the confidence to use your veto is not the same as having the confidence to take actions. and i think that this is now the debate that the new leadership in china is going to have to embrace in a very serious way. because although, um, there's no such word -- as i understand it -- as stake holder in
mandarin, so responsible stakeholder has rather difficulty in translation, there is such a word as responsible. i talked a lot about the notion of responsible sovereignty because i think one has to recognize the importance of political identity at the level of the nation-state. but i do think that notion of international responsibility, existing for what you do within your own borders as well as what you do that effects the international system, is absolutely key. i have to say the dialogue i've had with chinese leaders has suggested a willingness on the economic terrain to approach that in a different way because it's the nature of the interdependence is so much starker. but we will see. there's time for one more question. who wants to come in? have we got somebody? yeah, sir. >> yes, herman bowles. if you take the premise that diversity, gender, ethnicity is good and you look at the homogeneous nature of china and you think of africa and other areas where they need to go and
you need to look at, particularly, the united states as more of a melting pot, how do you think that view will impact their ability to be more of a world power beyond just economic? >> that's an interesting question. i think that, you know, they've launched, the organization department has launched this global 1,000 talent program to look outside the borders of china to bring in the best minds, i think, particularly in the sciences. but really to bring in the best minds from around the world. and i was having that conversation, in fact, last night with -- i don't think it's been enormously successful quite yet because i think they haven't developed the soft infrastructure within china yet that makes it that appealing for a lot of non-chinese, you know, scholars and great thinkers to locate themselves, you know, more permanently in china to do their research. but i was talking to somebody who was involved in the technology field in china, has been a creative force himself
and who's chinese. and he said, no, it's never going to work because non-chinese, they can't understand china, they can't understand the political culture, you know, they're not chinese. and i was taken aback. but i think that there are, you know, two different minds within china about, you know, how much they want to accept from the outside world. it's always been the case, right? and how much they want to retain what is unique about the country. and i think the same is going to hold true in terms of, you know, how they interact with, you know, people coming into the country and how open they want to be to people, you know, in a globalized world, you know, emigrate to their country and sort of being open and taking advantage of the best that the world has to offer the way the united states does. >> china is, um, arguably what, about 94% han? 92, 94? japan is about 99% japanese. and there are 700,000 americans working for japanese-affiliated
companies in the united states. billions of dollars of r&d happening here and around the world by japanese multi-nationals. so i don't think the mere fact of 40 among mating in china necessarily determines how internationally-minded the chinese nation can be. .. level playing field to be understood but not just
relationships to be bought or built. a lot of times coming here and to europe nowadays to say tell me who i need to partner with and who i need to talk to to get this done. not one relationship is going to do. there's not some relationship consultant, you have to learn to understand what it means to employee and manage americans. working here in america it's going to take decades or more for you to do that and you're going to have to do it in brazil and england and everywhere else you want to operate. there is no easy answer to that. you have all the things you need to do it which is undermined competitiveness and products which the world is interested in. now you have to do the hard soft stuff, which is not so easy even after 40 years of 10% growth. >> picking up this point i spent last week teaching in the business school and i was struck
in the ph.d. program and the chinese and forums to sponsor chinese students to study abroad in the experience in the u.k. 80,000 chinese students in the u.k. alone which is an extraordinary commitment to understanding the rest of the world. i think the commitment on the stage to try to understand china better that's for the rather deeper question of what it means to understand the history and the culture and the millions of the country and in that sense i think the person-to-person contact of this era of globalization is unprecedented and in a way the university's ingalls brings that about as business can come in on the back that will build the confidence for the sort of understanding of the relationships that are important. but i think is a striking is to
the u.s. and china conversation is that while there is fear in both countries there is also a recognition certainly in the circles that this relationship has to be late to work and it's about more about a cingular relationship of two or ten or 20 leaders at the very top of the society. and that relationship between china and the u.s. preferably not the exclusion of the rest of the world is something that i think is a really important scene of the conference. i think we have a great start from the two of you and we are now going to have a copy. >> thank you very much. >> the china global summit continues now with a discussion about the china u.s. relationship. in particular how business contracts are changing the way the two countries deal with one another. we will hear from a former chief executive of hong kong and former u.s. trade representative. this is 45 minutes.
>> i would like now to introduce carla phill, chairman and ceo of the holding company international consultants which it advises companies on global trade investment issues coming and she is going to introduce a very special guest from hong kong today and we are going to have a conversation with the two of them about american chinese partnerships. ambassador hlls was the representative from 1999 to 1993 in the first bush administration. she also served as a secretary of the u.s. department of housing and urban development and was the assistant attorney general. she is currently the chair of the national committee on u.s.-china relations and the co-chair to the council on foreign relations. please welcome carla hills. [applause] >> thank you, mary. it's a pleasure to join all of you.
as you know our topic this morning is america, china's partnership, what works and what doesn't. and no one has given more thought to the subject of an hour very distinguished speaker this morning, the honorable who has achieved well-deserved recognition in both the public and private sectors. currently, he serves as vice chair of the 11th national committee of the chinese people's consultant conference and is the founding a share of the china-u.s. exchange foundation which is funded many important exchange programs to enhance u.s.-china relations. prior-year to the revision of hong kong to china, he served as a member of hong kong's fix it council, and for more than two decades, he served as the
chairman of the orient overseas container, a major shipping company and after the version from 1997 to 2005, he served with great distinction as the first chief executive of the hong kong special administrative region. winning the election to that posed by a very wide margin. and he is no stranger to the united states. he served -- he has served as a member on the board of overseers of the hoover institution at stanford university, a senior fellow of harvard university's asia center, as an international scholar at csis, and a member of the international advisory board at the council on foreign relations. born in shanghai, he studied in hong kong and in britain, graduating from the university of liverpool, with a bachelor of science degree. he has received many honors from -- including hong kong's highest
award and the honorary degree from the university of liverpool and from hong kong university of science and technology. and he is much in demand when he comes to the united states. so we are very, very fortunate to have him with us today. as confucius is reported to have said, when friends visit from distant quarters is that not a delightful? and it is indeed delightful for me to welcome a very old friend, and a man of extraordinary talent and achievement to the podium, the honorable c.h. tung. [applause] >> carla, friends, ladies and
gentlemen, we have about another 45 minutes and i would like to leave as much time as possible for you to question both myself and carla to have a meaningful discussion together. the title of the conference today is about u.s.-china business partnership, and i would prefer much more to talk about u.s.-china partnership, what works, what doesn't work, but since it is about the economic partnership i start on that basis and then beyond that, we can talk about the other aspect of it. i actually think u.s.-china
economic partnership is a great partnership. it is working. but there is a lot more work to be done so that it's full potential can be realized. why do i say that it's working? i just want to read to you and not said which is published last year in october by the president of procter and gamble and he said unfortunately the basic reality has been lost in much of the political debate about china which succeeded on the false assumption that china's's growth must come at america's expense. the fact is american job growth is increasingly linked to china's's economic growth. we should be encouraged by this
linkage. china has 1.3 billion customers whose incomes are rising, whose demands and products and services are accelerating, and china is a country where american companies large and small want to do business and we are the fastest-growing major overseas market for the u.s. exporters is china. then also went on to say that the case about proctor & gamble is that we began marketing our brand in china and in many of them all very famous brands, household names here in america, started marketing them in 1988. today proctor & gamble is the largest consumer product company. the largest consumer company product in china. the american company is the
largest consumer product company in china with sales of $5 billion the stronger profit growth. none of this has come at the expense of american jobs. to the contrary, our china and other international business support many high school to jobs in the united states and engineering, research and development, marketing finance and logistics. one and five of our 40,000 u.s. based p&g employees support the base outside of the united states. 40% of the 15,000 employees in ohio work on international business. the simple fact is that in the first developing markets like china needs to secure high wage jobs here at home.
there is no question doing business in china is challenging. we have had to deal with the counterfeiting and dispute with local business partners, but we have found engagement with our chinese counterpart has generally resulted in the fair treatment did positive results committed to being in growing in china for generations to come to ensure that american companies like p&g can continue to succeed in china which would drive the economic job growth here in the u.s. we must maintain healthy and productive u.s.-china commercial relations. it is china or america's interest to encourage trade. we need to step back and understand the full range of our economic relationship with china. we must resist the tendency to isolate particular issues such as currency or trade balances from the broader and more complex interest that bind us
together. i just read some and it is important i read this to tell you that it's not just i'm saying that the relationship is all right. it's going well. it is going well, and proctor & gamble is just one of the examples. i give you another it simple. chinese people love to eat chicken and the way we cook chicken is it is stewed with soy sauce and very delicious and kentucky fried chicken beat the soy sauce chicken and the have established 3,600 branches and china, a huge business, and we don't worry about a brand, what is american, what is chinese, so long as it tastes good. it's fine and then to give you another it simple china cannot get into japan or germany very
successfully. but they are such a big way in wal-mart we treated wal-mart as a company in hong kong so please remember for anything that you read there are lots of things going on really going on very well. in every big relationship just like we get an argument. is all right. we sort them out, but we should not good relationship for potential. and in the years to come communicative relationship is going to blossom. china is moving ahead confidently in building a modern nation in the process of doing that, chinese look for to working with all of the countries around the world, particularly with of the united states of america because you are the largest and the
strongest and most vigorous country economically in the world. we are great to be fine and we need all of us to be working very hard to make sure that we achieve the full potential of every one of you sitting here knows about this and showed put your weight behind it to help it come through. carla, i am going to stop here and come back and start the dialogue with you. thank you very much. [applause] >> the form we are going to start with such an optimistic tone i have to share with you that i spent the weekend at the imf world bank meetings, and i did not hear one optimistic word. there seemed to be a tremendous amount of concern about the
global economy. and as you point out, the united states and china are truly leaders in economics. tell us what would your prescription be for how we avoid the worst scenario that was discussed so deeply by those visiting world wide this weekend from another recession to a depression? talk about -- this is what will be right with the partnership. >> well, i think there is reason to worry. of course life in the country making is always ups and downs
and the key question is that if it is down do we know why it has happened? how can we bring it back up again? do we have a plan? does the plan work and if it works why don't we get on with it? now, one of the difficulties sitting in asia where i sit, you know, i see this in america, a country with enormous competitive advantages. the best want to come and work in the united states. still the same. the best universities are here. the science and technology superiority is way ahead of any other country. the abundance of natural resources for the developed
nations, you can't compare this with any other nation on earth yet demographics, other nations, most of them are aging, but the united states, the population is getting younger. all the things that make america strong in the future you have in your own hands. for the time being there is a challenge about job creation, about economic recovery. yes there is the problem about reducing deficits but these are the issues that will be resolved, need to be resolved, and the key that we should have a plan how to move ahead and the anxiety i think for everyone is that they don't seem to have a political consensus are the
options, the question how to get on with it and make the decision, get on with, and then the confidence would be restored and then we can move. europe is having huge challenges probably the solution is margin calls, more challenging. it takes a similar type of critical response and what are the problems we have, how do we manage it, how do we overcome these problems. now understand where europe is going. how we are going to get their, you know, the confidence it will
come back to you. i know what all of the nations to approve the decisions being made it's not going to be easy there are ways through these very difficult challenges. so, i think the decision to resolve the short term problem is serious certainly not insurmountable is the question on the political courage for your note it is more difficult. i think again it takes a lot of political will to get it done and so far as asia is concerned, our worry in asia and all the countries we put aside japan and all the other countries in asia if we look at these countries
the fiscal management has been rather conservative with all of the problems we have in the later part of the last century [inaudible] the economy is making things come expecting things, and the spending is slowly killing at -- going up. the additional commodity cost with china a great deal and the way other nations and as far as the chinese economy is, the chinese economy i would be happy to talk separately about but
asia is doing reasonably well but asia alone cannot take the world forward and use the others to become healthy again it is the reason to be worried. the united states is one challenge i.t. is a question of political results europe has a bigger challenge but i would hope we would find a way through this. >> i totally agree that we live in a globalized world and it is an impossible for any region to think that they can decouple the partnership so it becomes more important rather than less. i would love to hear your views about your prospects for the g20 that is scheduled in november. the g20, this will be a sixth meeting and it has had a number of pronouncements about fixing
of the global economy, rebalancing the imbalances and no more protection, finishing as a doha around, and i worry that if they come phenom france and continue to make statements without action that could become an irrelevant institution that we sorely need in the international arena. talking about the u.s.-china partnership, do you vision that we could as a partnership push the key 20 to make a difference? >> i think at this moment if we look back, the best example of fudgy 20 success and at that time very much push forward by
the united states and very much responded by china with what happened immediately after the crisis through the g20 the actions were galvanized together about fiscal expansion to get the economy moving again and it was a huge thing and i think very successful with that this was dealt with the way it was dealt with in the united states and china's cooperation was impressive. at this coming june -- g20 i would imagine the focus on the crisis talk about your up about the united states about asia how
can we together move the world economy again and i think there will be the priority, but i think they would be very sad if we lose sight of the need to push the bill are around the market is the global trade which also drives the economy forward. the existing crisis which is more financially related we tend to forget the importance of these issues if another year would have gone by nothing would have happened and why is it enough to make sure that the agenda items which are relevant to the things we are trying to do today not just to put out the immediate violence as it is.
>> i want to go to the audience, and ask you to give your name if you have a question, and pose a question to mr. tung. the lights are here so -- do i see a hand? down here. >> damn rosen, the william group. the fundamental factors that are causing concerns about the united states and europe are very much our domestic political process these. i think everyone would agree with that. but there are some policy positions in china which are obligations for the wealthier countries wouldn't have been expected of china when i was at
a lower development level and some of the concern about the ability of the united states and europe to sustain their growth has to do with whether china is ready to join that sort of higher income will fall of policy commitments, and i think currency, policy is one of them. yesterday the trend made clear that china was planning to stay the course in terms of the moderate level of appreciation that's currently been taking place they were great questions whether they would stop the 6% nominal appreciation against the dollar. do you agree that there is in the new era expectations about what china contributes to the international economic scene in terms of its domestic economic policies. >> can i first of all say this to you that first in america some really good things and some
of you say you guys are too smart, you are deliberately keeping the currency low that you can get away with it an accumulated massive amount of u.s. dollars. they say you've got to know better. these u.s. dollar bonds and treasury notes and the depreciating and their scheme to fall into the trap the of the truth of the matter is that we are trying to find solutions.
we got the best way of getting to the situation now so that's the first point i want to make it in that china we are not that smart and china to create that and in america the second point is on this currency issue i want to make these points to your first that you know, if you look at this since 2005 we started this currency appreciation of the way up until now there is 30% appreciation of the currency already. is it a small amount? you know, for china is not
possible to exceed two a call for 20%, 30% and the appreciation just being done now. it does this currency have the actual trade and let me say this to you. during the first six months of this year china lost a huge market share in the textiles and shoes and toys and many of these commodities and to whom, to the likes of bangladesh, vietnam, indonesia and why? because the chinese currency appreciation. is that the reason? yes it makes the chinese goods more expensive and also with interest has been going up very rapidly. now does that actually -- did
america's current account actually decrease? no, it did not to read did american jobs create because china made less of these things? no but other countries if it is not a reason for america to have this in chinese currency is not a reason to have created the jobs situation to have created these difficulties they've divided in other words for no end of the manufacturing job that is the real issue and i don't think america wants to go back to make shoes and socks and chollet is again. the other point i want to say to
you is the chinese imports from america has grown an astounding amount from the year of 2001 at 19 billion. last year the total import from the united states to china was at $90 billion in other words four and a half times increase, 450% increase buy any percentage in china overtook as the third largest imported nation for america and for every 1% it creates 1% increase it creates about 8,000 jobs actually and if you average that out china is importing 40% more goods every year and that is what 280,000
jobs so the $80,000 is a huge increase. china is importing such huge amounts from the united states. so, china doesn't have the impression, the intention to deliberately create surpluses. china is encouraging imports from america and i also want to tell you many of you may go to this every autumn and this is always done to encourage exports but this year it is done to encourage imports from the united states and a number of states in the trade delegations are to china why? to sell american goods into china so all these things are happening to create american
imports into china, so china is doing its part to try to help with the balance, trying to work through it. china will continue its policy to gradually revalue the currency with those of you that in time china will make the currency foley international, and what if you revalue the currency 15, 20%? china will have to bear the consequences if there is difficulty with the market. but the thing is if you take actions like this in the chinese market would america be happy because the experts into china cities are the real issues through the dialogue and conversation we should try to solve these problems.
though one thing i can promise you, i'm not making a propaganda i want to promise you china is doing its very best on this particular issue if it's about the right balance. >> would you agree that it is less a question of currency appreciation and more a liberalization of the banking system. my chinese friends tell me that the consumer depositor is actually getting below the inflation rate bank account and if you ought to stimulate consumption that's the problem and i know that the governor appreciates that. what do you think the time will be for china not to permit market forces more than controlling the banking system that would give the consumers a
break and actually put a lid on to inflation that is growing? >> that is a very good question. fox i would say this would china do i think you have world trade account which is rapidly liberalized you have personal accounts people would be taken overseas let's say come to america -- that's also very little now. but it's the capitol account which is very carefully watched but 90% of the foreign-exchange as that goes out every day in the marketplace, 90 -- 95% is
unrelated to the trade it is basically if you don't use the word speculated is as a trade about predicting the market's going up and down and so on and so forth and for the developing economy like china that china cannot afford the surge of capital flow in and out of china in the course of the last six months of this year any other country in asia was worth about the enormous amount of capital flow coming from the united states of america into the asian economy. not with a view to invest in the business but just to come and take advantage of the other side
and the property market and so on and so forth and these are the issues that need to be addressed the concern in china and any other country in the developing who now say similar problems because they just have too much speculative money going back and forth which creates the distortion of the value and that really needs to be addressed. >> a question from the audience. >> thank you. with the news agency, currently the bureau's own banking and the following have cause concerns of the global economic recovery outlook this has also cost less external export demand for countries like china since china and other countries can play a big role in stabilizing the year
rose on crisis so in your perspective so how china can balance its attention to the domestic economic growth, economic restructuring and its global responsibility. thank you. i think a vigorous global economy is in the interest of china it's in the interest of china, so certainly china will want to see europe become healthy and vibrant. what role canada china or anybody play? i always make the same first we have to know what are the
visions of the euro? particularly in what has happened in the recent past. what other problems that cause this enormous uncertainty. what are the plans of actions to correct this uncertainty. what division to the european leaders have for europe's future, and once we know these very basic points, i think at will be possible for china or any other country who want to be of assistance to move forward of course always consistent with the above the chief else use it correctly that china has resolved domestically which is also a challenge of tall order. but i think we have got to know
so that we can move forward. >> yes, please. right here. >> thank you. with the white house consulting group. i would like to ask mr. tung to talk a little about environmental issues and at the rate of progress and the awareness during this rabbit period of growth particularly in the power sector. i was just in of london last week and people there who are active in the climate area were saying it's jury possible china before america what actually adopt a program for a low carbon strategy with a focus on the reduction in the greenhouse gases. and that's certainly one point
of view. the other we heard this morning from some of the panelists who elude it to the fact that there hadn't been sufficient environmental protection in manufacturing process these. but with those different views perhaps you could comment a little bit on what the prospects are in in this area that will accompany a dramatic growth. >> i am sorry that i don't have a specific answer for you. but what i would say to you is is that china is very conscious of the sustainability of the development and the issue of the climate change such as energy security, clean air, water, all
of these are issues that have the full attention of the essentials government level and the senior leadership level they certainly attach equal importance from these particular issues the same importance as the development of the sustained development part of it. so i want to assure you that as i traveled from different countries put this agenda on the top of the list and also recognize that many of these rely on science and technology breakthroughs and therefore collaboration and research in science and technology is are really important.
for years now, we've been talking about working together between the united states and china on carbon captor and sequestration, and i just concerned that we are really not finding the solution there at all, but we need to make these breakthroughs. the other point i want to say is that if you have a chance to visit beijing or the university center for the low carbon economy there are all sorts of things not test the science and technology breakthrough and items involving a way of life and what is needed i agree with
the suspects but we still need science and technology breakthrough which we have to be patient i know but i don't see anything definite on that one particular area. islamic one more question. >> line with china and limited and the question is mr. tung use it in your opening remarks you think the economic partnership between the u.s. and china is working well and is it working well enough what can we do to make it better that's number one. number two, other than an economic partnership, is there any other partnership the u.s. and china would forge to get there? >> that is a good question. [laughter] >> i like to answer in this way.
the partnership is about recognizing each other's strengths and weaknesses, and i have already defined to you what i admire about america's strengths america's priorities to get job creation going and recovering again before that china needs to move on with its five-year plan, a very good plan, a very sophisticated and thoughtful plan and a very complicated difficult global challenge that we face. but i think if you look through this and say how can we work together for instance last year there were 820,000 from china
who visited and i have seen the numbers which talk about an extra 01 million come to america it would create 200,000 new jobs than you could argue whether it is 200,000 or 100,000 but any way it is a big number, okay? yesterday i was in new york and they tell me 50 million tourists, you know, that is a lot. it's a successful city. we have tourists coming from china and china is a huge market. people want to go overseas and want to find out particularly to come to america and lots of obstacles to rate and one of them is actually [inaudible]
[applause] how can there be this problem and this applies to people who want to come and invest here. yet all they want to see is it is a very simple issue that the need for the homeland security i'm sympathetic to them but i tell you my hong kong experience has helped hong kong in the most difficult time in 03. so that is my first. and there are lots of other areas where the two can work together to create a win-win situation which is not happening yet. and what was the second question? it's all right. >> let me just say that you have lived up to your trepidation ea
we are very grateful for your time. i know you'll want to join me in the thinking my good friend. [applause] i'm very glad that you didn't have a visa problem. it was an honor that you came. thank you for coming from hong kong and thank you, carless. what always -- only good to hear what you have to say that i love your voice. please come down this way i want to encourage everyone it is lunchtime and i've been instructed to have everyone come this way to take a break from the discussion we will hear from henry kissinger at lunch and then at 2:00 we have bob rubin and the all-star panel of officials from china and the united states talking about the economy. you won't want to miss that one.
[inaudible conversations] >> now a discussion about china's competitiveness in the global economy and what it means for the u.s.. panelists include u.s. treasury department official and the chinese embassies economic affairs counselor. former treasury secretary robert rubin moderates this one-hour discussion. [applause] >> thank you to reply will be moderating this panel as you may have gathered. title is the u.s. ready for the next phase of the u.s. competitiveness. the other members of the panel are david loevinger, a coordinator treasury and former financial attache at our embassy in beijing. mr. ben li, director-general of the cooperation of china's
commission of international development and reform and now the chief economic officer of the chinese embassy in washington and david rubenstein, co-founder and managing director of the carlyle group and finally, mr. cheng li, senior fellow and director of research, china center at the brookings institute. i'm going to start with a very brief review if i may about the u.s. economy because i think it kind of helps to train our discussions. these sorts of discussions when you've discussions about the united states and china, at least in this country they often have an aspect about them about the view that china is becoming more economic goliath and the great concern about the future of the united states and what is a rapidly transforming global economy. i will briefly give you my own view is there's no question the united states is experiencing difficult conditions. at the present time we face
powerful head winds and in my view at least recovery is highly likely to remain slow and difficult unemployment is stubbornly high for an extended time. having said that, i believe the policy could make a material difference both in the rate of growth during the slow recovery and in avoiding a double dip and as to the double-dip let me just say most analysts think that is unlikely although i think that analysts concern is increased somewhat lately. let me make one policy, and in the context of this short term outlook. we have a fiscal drag in 2012, and it seems to me imperative to put into place enough of a stimulus so that we can counterbalance or offset or make up for this however you want to put it that fiscal drag and what i'm about to say isn't a partisan but whatever form it takes is fine, the stimulus -- the 2012 portion of the
president's proposed stimulus fills the gap and adds a bit beyond that celebrities that form or another for i think it is imperative we have the stimulus. i also think optimally what we should do at the same time is enact a serious long-term deficit reduction program which however though enacted now would go into effect in two or three years to give the recovery more opportunity to take hold and i think if we did that we could have a substantial positive impact on the confidence which could be of enormous significance right now. however, realistically to do that we need not only cost constraint and cost segments of expenditure but also significant increases in the revenue and obviously the politics around all of this is difficult and that would be my final comment on the economy. when all is said and done you can get the challenge as i mentioned which goes back to the shorter term and i will touch on the long term in one moment as well. the ultimate and that is positive challenges political will. with respect to the longer term i think the united states has
enormous compared disadvantages in the dynamism of the society, flexible labor and capital markets, the rule of law, demographics, natural resources and much else. so i think in the rapidly changing economy we are well-positioned to succeed. but, to realize that potential we have to establish a sound fiscal regime and have strong public investment and we have to have reform in many key areas for the economy of health care cost, immigration, energy and so much else. so once again to come back to the same issue which is the politics around this are always exceedingly difficult and ultimately, the challenge is, and i believe that this is a this was a twinge of whether we will have the political will and whether or political system will be effective and do what needs to do. with that, let me start with the questions, and i'm going to start with our to chinese friends. the weigel point out one of our chinese friends though a student
of china is doing it from the united states now an american citizen. what is the view in china? the view in china with respect to the american economy particularly the longer term prospects and with respect to the effectiveness of the political system. either one of you could start. >> thank you. i'm happy to be here. you are right having the identity crisis in china and the we inherited by the chinese mind but that mind has been americanized living in this country for 27 years. but it's hard to be objective if i misinterpret china's's position. now, when china looks at the current financial economic situation particularly the u.s. economy, i should say that we do not have a unitary homogeneous
or monolithic and the rigid perspective it is quite broad and divided and prolific and the dynamic. i can say with regard to the u.s. economy and the global financial situation. one is above you shared by some leaders in the so-called new left believe the latest financial crisis in the u.s. proves that american decline which would affect the structure problems of the united states, and yet also the perception that china is coming in the right direction of only in terms of the state of the monopoly but also the one-party rule. this is only one view. the second few is the long run on the american decline they see
american strength and the competitiveness particularly since the american dynamic in the sector and the very strong sector and they are both natural and human resources and finally, the american power is a political system. they also allow the view some people actually worry that it would happen in japan in 1990 the so-called decade may also happen in china. so this is the second few. if offered a view, the mainstream view regarding this that the collaboration with the united states is not a matter of choice but a necessity and i think that carless's term is even better it is united states and china to any of the costs and aircraft in the economy and
they need of the u.s. market and china also are the most importantly that the china concerns about security of the investment in the u.s. so this is in the perspective. >> there was a remarkably good summary of the different positions. would you like to answer -- >> the person in washington, d.c. i think i'm very optimistic about the u.s. economy. the fourth quarter of last year was something like 3.8% gdp in the u.s. and then 0.4 and of course 1% during the previous quarter. i think that the trend is still outgoing. so it shouldn't be too pessimistic. so this is our growth rate and of course on the scenario the employment which i think is a little bit pessimistic in the u.s. about 14 million people who
don't have jobs or lose their jobs or don't want to work for the jobs, and the other day when i met with some of my friends they said about 40% of the adults in the united states don't work. at that time i was really surprised. the survey and china so from then on i was also pessimistic and for the other pictures of the u.s. it think that it's for the inflation is a little bit high and there is not too high so as to cause problems. ..
>> the other day when i visited my friend, he also said that our administration would also like to do something. >> the reconciliation in china was in a somewhat different fiscal situation when you were using stimulus. a fiscal consolidation but trying to give the economy a little more time to get going. >> my fellow americans have to address the reality we're not going to be the dominant economy of the world for the rest of our
life. china by 2016 or 2025 will become the largest economy in the world. united states will be the second biggers and you can adjust to the result of that. the r probably less than 2% of their investment in the united states. why is that? because we're not that welcoming and make it difficult to invest here and fine -- we have to do many of the things we mentioned and be more welcoming of political investment in china. i think american business
community -- we have to work with chinese customers. right now they don't feel very welcome. >> let me ask -- since david has taken us there, what do you think the politics are -- what are the politics around chinese investment? we have immense infrastructure needs. we do not have government wall funds to do what we need to do. on the other hand, to welcome chinese capital, that could be significant both short-term and long-term strength of the united states economy and secondly, we have a lot of japanese transplants here who have been very successful in the auto industry. and we welcome eyally chinese
transplants. >> what i'd like to do is kind of address two issues. first issue is the narrative. and i think -- think about the u.s., think's how -- think abouw many times in the past said the u.s. is on the way out. >> think about the rule of law, innovation, a financial sector that can get capital to the most innovative sectors and firms. think about the challenges that china faces. so don't count the u.s. out. a lot of the head winds that bob talked about are u.s. households, u.s. states and
municipalities and the u.s. federal governmenting, reducing our debt, increasing our savings. that's going to feel painful right now but is going to put the u.s. economy in a position where it's going to grow and prosper again. you look at china, you know, trees don't grow to the sky, and i know li ben and his colleagues at the national development commission are rightfully very focused on the medium-term challenges that china faces. china has huge demographic challenges. it's facing decreasing returns from ever higher levels of investment. if you look at china's new five-year plan, which i think mr. li and his colleagues had a very important role in putting together -- there's a very clear recognition by china's
leadership that they can't continue on this growth model of relying on experts, relying on investments and resource intensive pollution, intensive heavy industry. it needs to change if china is going to get to its next stage of development, and just as you said, you know, the question is is the u.s. political system up to the challenges we face? these are very real questions about whether china's political system is up to its challenges. in the u.s., everybody agree wes need to reduce or deficit, except don't tax me. tax the guy behind the trees. in china as well, there are very powerful vested interests that have a stake in china's development model and they're going to resist change very fiercely. >> i wouldn't say i'm counting out the united states.
i'm not talking down the u.s. economy. the u.s. will still be the second biggest economy in the world 20 years from now or 50 years from now. being the second biggest is a great place to live and great place for entrepreneurs and china has many challenges to get to being the largest economy in the world but we have to recognize the shift of 1960 to today. in -- we're not as dominant in the global economy and have to adjust in the united states to that reality, and the shouldn'ter we adjust, our economy will be better off. on the fiscal situation, people don't understand fully exactly what we're talking about in terms of the debt reduction levels we need. we have $14.5 trillion of federal dot. not counting fannie mae and fedy macwhich is 5 trillion. 14.5 of external debt.
federal debt. not counting fannie and freddie. >> are you counting the debt in the social security -- >> yes. >> about 10.5 trillion -- >> if you count that debt -- and i think it's real debt -- we owe it to ourselves but it's okay. 5 trillion of fannie mae and freddie mac which we prepare is not our dead but probable -- our debt but is. the president is talking about taking the 10-11 trillion debt and reducing that by three our for trim. so at the end of the ten-year period of time we're only going to be an additional eight trillion of debt. so we still at the end of ten years, even if we cut four trillion, have 95% of gdp for the federal government. so we're not going to solve
problems by soing the $4 trillion problem. we have to go through massive changes in entitlement programs and tax policies to get to the 4 trillion, and i'm not sure that's going to be enough if we're going to be an economic power house. >> this isn't a time to have a discussion about the debt. i think about the mostly four trillion we owe to ourselves. >> take the four trillion out and what's the number -- >> i use 10.5 -- >> here's 10.5 -- still take it. >> we talk of four trillion we're not reducing our debt, we're just reducing the increase. >> we stabilized the debt. assuming the growth assumptions are right. so your point is well taken. let's turn back -- so your point is well taken. let's turn back to chinese investment in the united states. what do you think the politics would be around very substantial chinese investment.
infrastructure or chinese transplants in the united states? >> my own view is there are tree countries when they want continue vest significantly in the united states, there are political problems. one is russia, for they were a cold war enemy, and it does raise eyebrows when russia wants to invest here. i think for unfair reasons the same is true of saudi arabia if they want to buy things here, there's going do be issues, and the third country is china. because we see china as a major competitor in the global economic scene and other national security concerns we raise our eyebrows much more when china wants to make a major acquisition here than britain or japan and unless we change that atmosphere are china is not going to put much foreign direct investment into this country and that's not a good thing for us. >> david, you're in the united states treasury department. why don't you change the atmosphere?
>> i was fortunate to be able to accompany vice president biden when he went to china, and this is an issue he talked about, both with the chinese leadership and with the chinese media, and his message was very clear and very unambiguous. we welcome chinese investment in the united states, stop, done. that's our message to china. we, like china, like every other economy, has measures to ensure we are protecting our national security. in the united states we have something called community foreign investment in the united states, and we hear complaints from the chinese and others about how we run through this process to protect our non security, but i think if you look at it -- and i always encourage my chinese friends to roll up your sleeves sleeves anp in. it's not meant to block
investment unless there's a very narrow national security concern, and lots of chinese companies, lots of chinese state-owned companies have gone through the process with no problem, and the important thing to remember about this is if you want to come in and set up a brand new factory, we call that greenfield investment. they have no role over this. so, i think our policy and our regulations are very clear, but you asked about the politics, and the politics get tricky, and i think -- and it's not just only in the u.s. when you look at other countries, europe, australia, there are similar issues with chinese investment. one is when you look at chinese policies towards foreign investment, you see broad sectors with foreign investors are prohibited from investing or
forced to invest as a minority partner in a joint venture and forced to transfer their technology. that perception, that's when -- when people think of foreign investment in china, a lot of them think about chinese policies. so, as chinese companies increasingly come to invest in the u.s. -- and if you look at the data, in 2010, the stock of chinese investment in the united states more than doubled so the trend is really on a very sharp upward path. >> very low base. chinese is investing roughly $2 billion in the united states. >> last year it went from about 2.5 to about 6. >> 6 bill? >> yes. >> the united states investing how much in china? roughly 20 billion a year?
>> yes. for those of you who work on china, things start off -- everything in china starts off from a low base. everything grows very rapidly, and all of a sudden china is the biggest or second biggest or whatever it is in the world. so i'm very optimistic at what i see. i don't agree that they're not happy with the u.s. if you want to be a leading global company, you have to be in the u.s. >> i think li bin's colleagues are very focused on, how does
china get to the next stage of development, and it's obvious they're going to do what korea and taiwan and all the other asians that were able to break through the middle income track, they're going to follow their customers abroad. >> that sentiment or general view in china, chinese media and the companies are angry about the difficulties to accessing u.s. markets, and the mid-term election a couple years ago, and now the presidential election next year, china with blame -- most of the blame probably not fair -- its not about the white house but from the congressional branch. from the chinese perspective, we len you -- lend you money and also want to help create jobs and also want to help you in
infrastructure, transportation, like obama says we should look at china. but china should be a solution to your problem, not should be considered as the problem. but by just give all its limitations we are really self-defeating in my view. so, of course, we should not really -- the washington post said to listen to different perspectives and different views. talk about china problems, and i think own economic problems and also international trade and investment. but that's our own problems. >> i say in david's defense, he has done more to promote chinese investment in the united states than virtually anybody i know and has work very hard. it's just that no one person can completely solve this problem, and right now you find the united states companies are investing much more in china
than the chinese companies are investing in the united states. china is investing maybe 5 or 6% of your foreign direct investment in the united states, something like that. very small percentage. most is going to asia and more is going to latin america than here and more is going to brazil and india than coming here. so i know you have done a great job trying to do what you're doing, and i work with you trying to help, not that i did any help but you have done a great job and it's just that you are working against a zeitgeist, and we have to work together. the system is not enchurching, if anything, on capitol hill people are saying more antichina investing here than pro china investing here.
>> why don't we set up a capacity within our federal government to really help chinese who want to invest here, work their way through what is a very difficult political as well as -- no so much regulatory but political environment. people say there's a great development or growth for chinese investment in the u.s. you see in 2009, only 460 million u.s. dollars. for 2009, it was only 900 million u.s. dollars. last year there was an increase but only 1.3 billion u.s. dollar, and this year there was a decrease, something like
460 million u.s. dollars again compared to 2008 whole year volume. so, i think when they talk about this growth, and still compare with some of the other -- compare with capabilities in the u.s., those three or four are small. i heard another figure that for this year we have already approved a total value of 3.4 billion u.s. dollars for investment project. i was very excited, but i don't know whether that's true or not because only the -- doesn't mean the investment actually invested in the u.s. is there anything that has been stopped or disapproved by the relevant agencies? i also heard another figure, which was the stock of the total investment in the u.s. is 4.8 billion u.s. dollars.
exciting. but that's still far from a figure we wanted. and -- >> and these investments in the united states -- i think there is a political environment here that one needs to learn to navigate, and i agree with whoever said that china really is part of the solution to our problems, not our problem. there's a trade issue that contributes enormously to the issues we have between our countries, and you have an exchange rate issue, which we can discuss endlessly, and i could do both sides of the discussion, but at some point china has to face the reality, they have a strategy with a nonmarket based economy and creating immense political problems. if we could solve that. everything would be easier. let's leave that aside for the moment. from the perspective of the chinese, we would benefit enormously from vastly increased
chinese investment in this country and we should find ways to help chinese who want to invest here, navigate our strange political and to some extent -- i don't know if regulatory is a problem but our political environment. >> first, you have to deal with -- there's lies, damn lies, and then there's statistics, and so if you look at those chinese data and u.s. data on foreign direct investment, it will tell you a lot. if you look at chinese data, and david said only 6% come to the united states -- most of chinese foreign investment goes to offshore financial centers or tax havens. now, either i'm missing all those chinese factory being built in the camman island or
it's going somewhere else. so i think chinese data tells you more about chinese tax policy and chinese rule of law than actual -- >> do you think there are more investments here that are hidden. >> no. no it's going through tax havens. >> you think there's more chinese insvelte here than we realize? >> you have to look at different data sets. the commerce department reports foreign investment in two ways. we look at who owns the factory, and there's a lot of foreign investment again from, like, the cayman islands and netherlands and antilles, and they go through the corporate ownership chain and see who owns the factory, and if you use that data set, you'll see that chinese investment is bigger. >> i said that and you said no.
>> sorry. sorry. >> you would agree there's less chinese investment in the united states than american investment in china. you agree with that? >> the u.s. has been investing in china for 30 years -- >> i think we're all actually agreeing on the same thing. if you -- if our two chinese friends could make any one change in the american environment for chinese in. some the united states, what would it be? >> talking about u.s. environment or china's own behaviors? >> the u.s. environment. >> i think that -- i want to be fair. i want to talk about china's problems. the state-owned monopoly has reached a peak in two years, and you do not have incentive for innovation, and use a term -- it's economic professionalism,
and used the word to refer to the chinese economy. he said it's unstable, unbalanced, uncoordinated. and -- so basically china is in a very difficult period for changing its mode of economic development or model from export-led, labor intensative, high energy cost, too innovation-driven economy, and with a strong domestic demand. innovation economy requires political openness. and development requires more so into the rule of law. you can see that these kind of problems can -- it's a political bottleneck for china's image, and chinese investment in this country, we talk about linkage of politics and security.
on top of this, china will have leadership succession next year and will be far more difficult than nine years ago, that china has a media, and public opinion, and always say the same song, but also china has what i call the tea party movement as well. something quite remarkable. this is a new game in many ways. as we know that 70% of leadership will change. so we face next year two elections. china succession, so political rhetoric will be really quite strong. >> in china. >> in china. >> wait until you see the rhetoric here. >> the leaders are cautious when you want to cut a deal with you. so at the moment we certainly hope that china will gradually open its political system and in
term of the -- i think that you and i were towing -- you were extraordinarily insightful and also informative about the chinese political situation. but is that impeding chinese -- i understand the transition from export-led to demand. but is that impeding chinese investment in the united states? >> could be -- most of them think global is right one, and adopting -- accommodating and chinese opening the market, currency issues and other issues coming to the fore, and become a political issue, and these policy may become political issues. so, you deal with the collective
leadership. sometimes they reach a consensus. >> i apologize. i understand that around all the other dimensions of the many things but let's say that we would somehow or other magically -- a more receptive in this country to chinese investment. when the political issues you just described impede investment in this country? >> well, could be in term of how much treasurery can buy. this is a more consensus for investment in the u.s. >> i believe what we need to do now is recognize that china, i think, ultimately, needs to redeploy reserves in the united states and other parts of the world, but because we're the biggest economy it needs to deplay a fair bit of it here. how do we encourage china to do it and make it more receptive here? i think we have to do a better
job generally in let can members of congress know that chinese investment is not taking jobs away from american workers. it's going to create more jobs. secondly, we have to make the process a little more less opaque and more clear as to how it works to people in china understand it before they're ready to proceed with an acquisition in the united states. third, we have to have american companies in the united states who invest in china or do business there, work with their chinese partners to try to help them invest in the united states and learn more about it. if we don't let them invest more in the united states, the americans investing in china are not going to be as welcome. so the american companies have to take the responsibility of getting chinese partners to do more in the united states, and people who invest in private equity, my own industry, in china, should work with chinese industrial companies to help them learn much more about how to make these investments in the united states and partner up with them. nothing is going to happen
overnight that's going to change people's attitudes in a year or two or three. if we don't begin the process of making people less afraid in china and americans lest afraid of chinese investing here we're going to be in worse shape five years from now than today. >> david, you were in the white house, a while ago -- david was in the carter white house. so you have had the experience all through these years, from then until the present moment in dealing with congress and public opinion. how do we best go about doing what i think you correctly said we need to do, which is to get a different mindset in this country? >> it takes leadership. the president has many different things on his plate, but the extent he can spend some time talk on the issue is helpful. vice president biden's trip was helpful. and we need leadership from the business community. the business community has to explain to people in the country and the congress exactly what
the problem is. the problem is there's enormous foreign reserves, going to distort our economy and the chinese economy unless it is invested in the united states and our infrastructure is that what is what win we were growing up. if you go into new york city, you through through tunnels and bridges builtment 70 years ago. if you go to china, it was built a couple years ago. so to the extent china can help with infrastructure ventures, it would be helpful. >> i think it's important in the u.s., president obama also talked about it the other day when he talk about his -- we also, chinese people, have expectations you will go to fast rapid train and projects so in
this process, china can be involved because we have the technology, and also have the equipment. >> let me tell you something -- i know we we will open this up to comments. but what worries me deeply -- and get responses from both sides -- i think that as economic conditions in this country are very difficult right now, and then you look to the longer term. i think there is a strong tendency in the political system to think of champion as the problem. don't believe that. i believe the problem is us. if we get our own house in order, and all the -- we can be extraordinarily competitive and really robust part of the 21st 21st century. no reason in the world we can't do it if our political system will do what it needs to do politically right now there's a tendency to look wells and china. trade is at the absolute center of there, and there are some very legitimate concerns in terms of exchange rates, subsidize, and i think now i
come to my question -- i think we're getting close to financially and economically unsustainable and now it's politically unsustainable. i don't know how close we are to that. my question is, do the american panelist agree with that? and the second is, how do the chinese friends react? i understand what you said about the politics in china. moving from an expert-led to domestic led, and special interests and i totally relate to all that. but will a similar set of problems here and it's right on our doorstep right now with 9% unemployment. >> i think for two years ago or three years ago, americans were saying, well, a lot of our jobs are being shipped to china, india, other places. i think americans are recognizing it wasn't a problem at all. we have so many endem nick
structural problems, economic problems, we have to look at ourselves and really recognize we're the enemy. we have spent too much, lived to high on the hog. borrowed too much and have to change a bit. unless we make the changes, i don't think our economy is going to get better. i think people are not believing in the chinese as much as years ago. we have our own internal problems to solve and until the solve them we're not going to progress much further in terms of economic growth. i don't think the chinese are blamed for it but i don't think they're seen as the solution. people are not saying if we only let more chinese investment, it would. he they're not saying that. our focus in the united states has been on how to solve our debt problems and unemployment problems, and we're on a political gridlock situation. we get to these points occasionally. when i was in the white house, i saw we're looking towards the next election and everything is frozen. so right now we are almost at a
point where people are saying the next election is in 14 months. let's not do anything dramatic in terms terms of the some thene get a new president, and right now a lot of business people are frozen in their willingness to investment in the united states and willingness to create jobs and that's unfortunate. >> david, do you want to make any comment on that? >> yeah. i would agree with what david said. both countries are heading into a period where domestic political considerations are going to be paramount. we're going into our campaign election area. china is going into a year of very important political transition, and that's going to present challenges in managing the relationship, but also i like what you said about this growth model that brought a lot of years of high growth to both the united states and china. what the crisis showed is we're both going to have to find a different way of growing in the
next ten years than the last ten years. the u.s. has to save more. china has to move away from a dependence on exports. that's the economics and also the politics, that when china was -- had a lot of people but was a very small economy, the impact on the rest of the world was much less when chinese experts were growing 20-30% a year. now china is the biggs exporter in the world and the second largest economy, and even though china's growth in the aggregate benefits the u.s., huge opportunities for u.s. workers and investors, but there's a lot of dislocation when you get an economy that's going so fast and integrating so quickly. the other thing is, people see our system of global governance and they see things -- again,
the wto agreement on government procurement, things like the international agreement on export credits, and what they see is not the largest exporter in the world, and major player in the provision of export credits, one of the world's biggest government procurement markets is not a member, a full member of that system. and i don't think that's going to be sustainable. >> we could really go on for a long time because i had a whole bunch of other questions. but i think natalie is going to fire us if we don't open it to everybody else. so we would be delighted to respond to anything that anybody would like to raise. i can't see you because they the light is in my eyes. yes, ma'am? >> please identify yourself, where you're from, and then keep the questions brief so we can
get as many as possible. >> thank you. two quick questions. i want to draw the subject back a little bit to the tight title of the session, which is chinese economic competitiveness to what extent do you see the chinese competitiveness are there with regards to the u.s. economy besides that china has the possession of such a large reserve, because the labor costs in china is going up and what it's trying to invest in markets are actually quite a lot of high-tech industries. so it lack a certain level of indigenous innovation. the second question is david mentioned that any big business have to invest in u.s. and china. what about europe? in the foreign direct investment market, if we look at the recent statistics from chinese government, one of the fastest growing market is in europe. it's not in the u.s. to what extent do you think this
is a safe assumption? thank you. >> who would like to -- >> i think the chinese comparing this would be easy in several different suspects. china's middle class and huge domestic market and also that china is a strong state and foreign reserve, could help china, as you already mentioned. several other things. u.n. entrepreneurship. people in china talk about so desperately want to make money, and i don't know whether it's true or not, and also some anecdote about chinese going out and bring two back, one for himself or herself, and the other for sale. so entrepreneurship is distinctive, and not -- i think the perception of china's rise helped china in that record.
whether it's real or not real. but perception is sometimes reality. >> i think our competitiveness is really in the manufacturing area, mostly in the past it was in the low-margin area or low-profit area. now we have some improvement in the last few years. what we need to improve is innovation, entrepreneurship, and because we cannot always rely on the low margin or low profit manufacturing area. >> china experienced what many net exporters have experienced. they produced initially low margin products that are cheap and very welcomed in many other countries in the world. as you mature as an economy you want more high-margin businesses, more manufacturing businesses, more semiconductor type businesses. china is moving in that direction and has done
reasonably well. the jury is out whether they can become as good in the high manufacturing products as in the low-margin businesses. i suspect that china will get there take more time in terms of europe, europe, as many people know, is the biggest economic unit in the world. the eeu is bigger than the gdp of the united states or china. both countries are trying to export and are experting a lot there. and because of europe's most recent problems people are concerned about and skittish about where the european economy is growing and they're probably going to grow at a lower rate than the u.s. economy. >> somebody pointed out that -- i don't know if it's true or not but a nobel prize winning economy gist said this. the first time in modern history the leading economy in the world has had a gdp per capita much lower than many other countries and it puts china in escort of a
schizophrenic position, which i think is part of the problem around some of the transitions that china has to make. that's just -- his comment that struck me as a sensible comment. >> a very important point. the across and developed country, a few countries in the middle east, the highest per capita net income in the world. china's is 100th in the world and it has long way to go, and the wealthiest countries in the world have a much higher per capital net income than china. china has 0 lang way to go before it catches up with the united states in per capita. yes, ma'am? >> i have two questions. >> i think make it one question. give more people a chance. >> my name is -- the discussion -- question is the u.s. is hoping chinese increase domestic consumption and would
likely lead to lower chinese savings. so the question is, are we shooting ourselves in the foot here? >> i'll give you my response. mine is unofficial and my own personal view and then we can get the official and well-grounded view from the treasury don't. i think china has done itself and us a considerable disservice by supporting the dollar over the past years and really helping us fund a deficit in a sense it's almost a mask of fiscal problems by keeping interest rates as low as it otherwise would have been, and i don't think we can continue on that out. you want trans -- transitions to be gradual. but fundamentally i think chinese support of the dollar for their own trade or expert purposes, by virtue of buying
treasurery bonds and bills and so fort, kept interest rates lower than they would have been and kept pressure off our political system to deal with the fiscal situation. i don't think that's a good formula going forward. but you also want to do these things at a reasoned pace, otherwise you can create dislocations. anybody have a different -- >> no. i agree with you that right now, the question that many investors are asking in the world is, where is growth going to come from? they look at the u.s. and europe and japan, and the head winds they all face, and see china and other asian economies still following very export-dependent growth model. so, the best thing china can do, i think, for china and the u.s. and the world, is to move resolutely forward as quick as they can to implement its own five-year plan to move from an economy that was based on
export-led growth to one that's based much more on home-grown domestic demand consumption led growth. right now, if you look at the yields on treasurery bonds, there's no shortage of demand for treasury bonds. people think that china is financing our budget deficit. i just have one question for you guys. david, you mentioned there were $14 trillion outstanding in u.s. securities. can one person guess what percentage of that 14 trillion china owns? 8%. all right. he reads the u.s. treasury bulletin. you're right. it's 8%. >> 12% of the publicly owned debt.
>> it's -- china's the largest foreign holder of u.s. treasury securities but overwhelmingly large fraction of the u.s. tressy securities are owned by americans. >> still, percentage owned by foreigner ins totally is still over 30-some percent. >> about 31%. >> i think the greatest growth opportunities in the next couple of years are investing in conferences that talk about the u.s.-china relationship. [laughter] >> more of them than anything else. >> there you go. ...
at gentry improve the trade deficits it would not be. >> let's ask other people. there are things we could learn from germany for example they are good as you know i gathered from the question the manufacturing of some of the things that go inside things if you want to call it that the education system as well geared to the job market, but i will
make another -- there may be other lessons to be learned from germany but i will make one other observation if i may and that is the exchange rate is a lot lower than it rode the because the euro exchange rate from the whole area and that is not inconsiderable the advantage to them in terms of competitiveness. also i think i'm right in saying the wages in germany remained flat for quite some period of time. this would have been a social contract almost, but i wouldn't disregard that wave that the currency dimension calls from and the fact that the exchange rate doesn't reflect germany, german economic situation rather it reflects europe and just as somebody said i guess it was david levin measure the world would benefit greatly from the increased domestic demand growth in china and the same thing with respect to germany. some of the biggest exporters and the bible are exporting using a relatively cheap currency.
germany, united states and china relatively speaking have a lower currency than say japan in terms of the value and it's helping exports. united states, germany and china are the biggest exporters. >> yeah. >> i think it depends what you compare them to. >> all of them have relatively low were currency them japan has to. >> i agree. >> japan's currency and i think that is why their exports are going to be heard for a while. >> why japan's currency. >> thank you. i'm donna alexander and i ron the consortium of banks involved in the transaction banking internationally and we are concerned about the fact that we are looking at these two economies and david leffinge irca leffinge you for your help on a lot of things we are looking at one of the concerns that we are going to export our way out of the problem and that is some of the message from the u.s. and also the message that
china is looking at and the two largest economies both with the same solution and then in the export import equation there is at least two sides of that equation and i did not hear any country or any interest raising their hands jumping up and down saying we will help import your way out of this problem. i would love to hear this group opine on some of that. david you already touched on some of it but i would like to hear more, please. >> we've had a question on the need with the chinese five-year plan for that domestically the present time i guess the question we could pose is are the objectives of the five-year plan going to be obtained and be, if they are is that a rapid enough pace? >> it is going to be i think it is going to be talking about this it will not be driven just by the export oriented would be
driven by the domestic event, but the basis for the domestic is the people have social security and spend their money at the growth contained and also the other characteristics paying attention to the ordinary people's lives increasing the income of the people i noticed with climate change or so. there is the emphasis that the emerging industries which related with new energy or clean energy and the opportunity for the cooperation between china and other countries including the united states but at the same time i think china should be sensitive to really interesting market in the state companies continue to dominate
the field so that is the area of cooperation. >> we've reached the end of our time that make a couple of sentences closing comments. i think david may be right to suspend the tremendous industry in china u.s. but i think the reality what somebody else said for the four countries and it refers a tremendous amount as the pentagon our ability and the leadership on these enormous concessional issues and the global economy also is very dependent on these two countries being able to forge the construction. the panel said such a bad thing, david. if you are moderating. thank you very much. [applause]
the united nations security council will consider the palestinians application for statehood to mauro and the experts discuss how it will affect the israel arab conflict. the panel includes a former defense department comptroller a jordanian diplomat and political adviser to the former israeli prime minister. the discussion is hosted by the potomac institute policy studies
in arlington virginia. before we get started like to ask you all to turn off yourself phones and beepers and noisemakers that you have and they made noise and get recorded and interruptions. i am mike and it's my privilege to welcome you to the potomac institute for policy studies for another great forum put together by alexander. the potomac institute is a not-for-profit science and technology policy think tank here in the washington, d.c. area and it's been our privilege for more than a decade to
sponsor international terrorism studies but looks at a full range of spectrum of issues in and around terrorism and world peace. moreover it has been our privilege and our honor to be associated for most of this time and for many of these events with the international wall institute and professor john is here and will help give a few words in that respect and a few minutes of the forums are about trying to find and identify issues and discussion points that can be used as a forum for the exchange of ideas and scholarships to help move forward the diplomacy peace initiatives in the time. today is an example of that and as i said a minute ago we are very proud and privileged to be part of it. we have also with us today a number of members of the potomac institute staff and the chairman
of the region's general who will have a few words to say in a moment as well. thank you very much for coming, sir. with that i'd like to turn the program over to professor wallace to kick it off and once again as i said a minute ago it has been a privilege to be associated and partner with you at sponsoring these events. sir? >> mike, thank you very much. glad to be here. i don't know what is coming to happen to general gray. i'm the chairman of the international law institute and i guess my connection is that we have worked together for years and one of the centers which he runs on the legal studies is housed at the institute and very happy to join him once again. lots of things together and asked to mention one or two of them as you may know his programs are very active with nato and we recently had a
program a year ago now and produced this publication for the so-called partnership for peace training center which is an impressive place and as you noticed recently, turkey with all of its ad libs and turkey and written books on turkey with all of its changes seems a rather steadfast part of nato and all the other things here is a book on the sort of future of measures to be taken with respect to terrorism and this is one of the great specialties you'll hear. the subject of the program, the title is u.n. palestinian statehood, political, legal, social, economic and strategic perspectives. as we all know, the palestinians have made an application i think is the pla to the u.n. and we will see what is going to happen to that application but there are many perspectives on the
subject and i might say a word about the strategy from the former law professor and other strategists driving over to boston on 66i was listening to a program from the united states institute of peace on china and i was thinking when he think of asia you think of china coming to japan and korea and all of these countries, and in a way the united states is a rather strategic position out there, the enmity of the country's for each other. now we come to the middle east which is the home of the palestinians. i've lived in turkey. you think of turkey, egypt, israel and i am not so sure we have a similar have the situation there and i expect that is one of the great perspectives and backgrounds to the subject which we are going to deal with today. at this point i will turn the microphones, there are two of them come over to yonah, the professor alexander. >> i will yield to the --
[inaudible] >> thank you. okay. we are ready to go. thank you very much. we want to thank c-span for broadcasting this event to bring some ideas to the audience i would like to welcome of the participants here and in the very distinguished panel later on. i want to mention also that one of our major programs is through the generations of the professionals and i'm very proud