China's Role in the World Economic SystemAlan P. Larson, Under Secretary for Economic, Business, and Agricultural AffairsRemarks to the Students and Faculty of the University of International Business and Economics (UIBE) Beijing, China November 5, 2003 Thank you very much for that kind introduction. It’s a pleasure to address the students and faculty of the UIBE this afternoon. I feel very much at home here. The Department of State has a training institution with many similarities to UIBE, although we can’t match UIBE either in terms of numbers of students or degree programs. Our facility is called the National Foreign Affairs Training Center, and it is named after former Secretary of State George Shultz. It has an excellent faculty that instructs America’s diplomats from a number of agencies in languages, economics, political and area studies, and administrative topics. You may be interested to know that one of our largest and most important courses of study is Chinese language—both Mandarin and Cantonese. The fact that we work so hard to teach our diplomats Chinese is a small but very concrete example of the importance we attach to our relationship with China. Today I would like to talk about the economic component of the U.S.-China relationship. The premise for my remarks is a simple, but important one: because of its size and large population, economic strength, and huge trading sector, China has joined the U.S., European Union, and Japan as a global economic power that shares a special responsibility for the health of the international economic system. Of course, we understand that China continues to face huge development challenges. But the fact is that your country’s extraordinary, ongoing economic transformation is making profound impact not only on China but on the world. China has truly emerged as a global economic power over the past two decades. Consider just a few pieces of evidence:
Our security cooperation has been increasingly successful over the past few years. China has joined us as a partner in the war against terrorism, has taken a leading role in the international effort to end the threat of a nuclear North Korea, and supported the coalition campaign in Afghanistan, pledging $150 million to Afghan reconstruction. We have differences on security issues as well, of course. For example, China has not yet agreed to support an APEC [Asia-Pacific Economic Cooperation forum] action plan to control shoulder-fired anti-aircraft missiles. But in general, our cooperation on security issues has brought benefits not only to the U.S. and China, but also to the broader international community. Making International Markets Function Better How can global economic powers like the U.S. and China work together to strengthen the international economic system? For the U.S., the starting point is supporting the continued development of free, open, and competitive markets for goods, services, and investments. The lessons of history on this point are clear: just as market economies are the best way to promote growth and reduce poverty domestically, so also are effective and well-functioning international markets the surest path to global prosperity. The United States believes strongly in a rules-based world economic system. These values are embodied in our support for the WTO [World Trade Organization], an organization that promotes global prosperity by opening markets worldwide in goods, services, and investment. The U.S. strongly supported China’s accession to the WTO precisely because you were too big and important a trading nation to be on the outside looking in. The WTO is now facing a very serious challenge. The Cancun WTO ministerial in September was a missed opportunity for all countries, but particularly developing countries with large trading sectors like China. We were frankly disappointed at the role of the so-called Brazil-India group of middle income developing nations in Cancun. They showed no negotiating flexibility until it was too late, and adopted a posture of confrontation rather than negotiation. While China associated itself with this group, we were pleased that your government chose later to try to 'bridge the gap' through constructive proposals and a moderate speaking tone. The U.S. put a comprehensive and ambitious offer on the table at Cancun. But the message we received from many was "not now,” even though the draft texts in discussion at Cancun offered great benefits for some of the world’s poorest countries. If the Doha Development Round is going to succeed, all WTO members, including China, need to move beyond a narrow focus on their own requests. They also need to consider what they can offer so that all countries can enjoy the benefits of further trade liberalization. A step in the right direction is the recent pledge by APEC economies to work towards restarting Doha Round discussions using proposals from Cancun as a starting point. China’s Role as an Emerging Economic Power I just outlined a few of the ways in which the U.S. seeks to use its influence for the benefit of the global community. How can China use its growing economic power not only for the good of China’s citizens, but also for the benefit of the international economic system, including developing countries? Of course, the interests of China and the U.S. are not always exactly the same. But on some of the most important international issues of the day, the interests of China and the United States are clearly compatible. The areas in which we cooperate to our mutual benefit are clearly growing. President Bush, Secretary Powell, and all of us in the Administration have worked hard over the last two and a half years to forge a candid, constructive, and cooperative relationship with China. Our guiding principle has been to deal straightforwardly with our differences and try to build on our common interests. President Bush has met with China's leader an unprecedented five times since taking office. He visited China twice in his first 13 months in office, hosted President Jiang Zemin in Crawford last October, and met the Chinese President, Hu Jintao, in France this June and more recently in Bangkok. The economic implications of China’s development as a great power are profound. We welcome the emergence of China as a positive and dynamic force in the world economy. We also hope that China will be a strong force in supporting the economic systems on which global prosperity depend. In this regard, let me suggest four areas where China could contribute to the health of the international economic system: First and foremost, as one of the world’s most successful trading nations, China should use its influence to strengthen the world trading system. China should do all it can to support a successful conclusion of the Doha Development Round. We recognize that China is a new WTO member, and may not feel comfortable taking a leadership role at this stage. But the WTO is a fragile institution; it can succeed only if all countries with a stake in the trading system contribute their leadership and support. China could also do more to implement fully and on time its WTO accession commitments. This is a key issue for not only the United States, but also for many other developing countries that seek access to your market. Other countries’ businesses, workers and farmers expect and deserve the opportunity to take advantage of expanding market opportunities in China—just like China has done in the U.S. and around the world. We frankly have serious concerns with China's WTO compliance in certain areas--including agriculture, intellectual property rights, the services sector, and on the cross-cutting issue of transparency. We are working closely with Chinese officials to address these concerns and look forward to progress soon. We are encouraged that China's leaders have repeatedly confirmed their intentions to implement China's market access commitments. Second, along with the U.S., China is one of the principal engines of world economic growth today. Economic growth in our countries has huge positive spillover effects in the Asia-Pacific region, and on the world economy as a whole. This means that other countries look both to China and the U.S. to pursue rapid, sustained growth that will create new opportunities not only for our own people, but for their people as well. In the U.S., President Bush worked to turn the U.S. economy around through an aggressive series of tax cuts and through a historic reorganization of our homeland security system in order to counter the threat from terrorists to our people and our economy. China’s challenge is to keep up the momentum of reform to create a more rules-based and market-driven economy. Much of this work will come as China implements its WTO commitments, but other reforms are equally important. These include financial sector, banking, and state enterprise reforms. It will be important for market forces and an effective financial sector—not government planners—to play the leading role in channeling resources into their most productive uses. As a large economic power, China’s responsibility to the world is to keep these and other reforms moving briskly so China remains an engine of world economic growth. Third, China is becoming a major force in world financial markets through its huge trading sector, large-scale foreign investment inflows, and foreign exchange reserves. But unlike other global economic powers, China has maintained an essentially fixed exchange rate since 1997. For a time, this system may have served your country and the outside world well, but now the evidence is changing. In a dynamic world economic system, the fixed exchange rate can contribute to imbalances that threaten the global economy. When China’s currency does not adjust to changes in supply and demand, it forces the currencies of other nations to adjust more sharply as a consequence. That puts their economies through deeper and more painful economic adjustments than would otherwise be the case. For that reason, we have welcomed statements by senior Chinese officials that China intends to “reach a more flexible exchange rate,” and the announcement that China and the U.S. would establish a joint technical cooperation program to promote development of China’s financial markets and to strengthen market-based financial mechanisms and related macroeconomic management institutions. Finally, China’s economy is growing fast, but its appetite for energy is increasing even faster. In just two decades, China has become the world’s second largest energy consumer. It is a major player on the world energy markets--Chinese companies have bought oil fields and other energy assets in a number of countries. As China’s share of world energy markets continues to grow, we urge you to work with other countries to develop strategies diversifying across fuels and suppliers and for coping with supply disruptions. We also encourage China to join in international efforts to develop new clean energy technologies like hydrogen. Our experience has shown in a globalized world, energy security is something that cannot be achieved by one country acting alone. Rather, it must be achieved through cooperative efforts. We have begun discussions with China on strategic energy issues, but much more remains to be done.In closing, let me reiterate that the United States views China's emergence as a global economic power and its integration into regional and global organizations as historic and positive developments. But China’s emergence means our two countries increasingly share an important mantle of responsibility to promote global economic growth and to ensure the smooth functioning of the rules-based global economic system. Making the most of this challenge will require us to consult closely and frequently on a broader range of issues than in the past. We look forward to this, and hope you do to. Thank you very much.
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