QUESTION: So why don’t I start with you, Secretary Kerry. How would you characterize the state of the U.S.-China relationship today? Does the U.S. see China as a true partner or an inevitable rival?
SECRETARY KERRY: Well, we definitely don’t view China as an inevitable rival. We view China with hopes and possibilities of an increasing partnership. It’s a very important relationship. Secretary Lew and I are looking forward to this Strategic Dialogue because it’s important to both of our countries, and we want China to understand that this doesn’t have to be a rivalry. There are sometimes things in which we are in competition, but it is much more important for us to find the ways to cooperate, because the world needs leadership. China is a rising power, an extraordinary economy, a nation with huge responsibilities as a Permanent Five member of the United Nations Security Council. And we work together on a lot of things – we’re working on Iran, on Syria, on other things.
So we want to grow the partnership; we don’t see an inevitability of rivalry.
QUESTION: The two leaders this time last year said they want to build a new model of major-country relationship, but some critics say, as intertwined as the economies may be, they have – there are political realities at home, and they have diverging – sometimes diverging geopolitical interests. So how can this new model be achieved? What does this new model mean to you?
SECRETARY KERRY: Well, the new model is still being defined. It’s a good concept, and we want to have a great-power relationship with China. But it’s important for China to recognize that there are global norms, standards of business, standards of international behavior, that countries live up to. And it’s very, very important for us to eliminate the areas of friction, whether it’s in cyberspace or on opening up markets. There are areas where we can do a better job of creating a fair playing field and opening up opportunity for both of our countries. And that’s really what this dialogue is about, and that’s particularly where Secretary Lew’s participation is so important because of the economic component.
QUESTION: Right. And talking about economics, Secretary Lew, I want to start with the U.S. economy. The latest figures show the U.S. economy shrank by 2.9 percent in the first quarter. First of all, your interpretation on this figure and your assessment on the state of the U.S. economic recovery.
SECRETARY LEW: I remain quite optimistic about the state of the U.S. economy and the trajectory we’re on. We had a very cold winter this year; it drove down activity. We also had inventories build up at the end of last year and they naturally drew down at the beginning of this year. And there were some things going on that were quite anomalous at the beginning of the year. If you look at the data from March, April, May, it all shows continuing growth consistent with what we were seeing at the end of last year. And look, I think that’s important for the United States; I think it’s important for the world economy. We’re the – China and the United States are the world’s two largest economies. We have special responsibilities, both in terms of our own economies and the global economy, and that’s why the discussions that we’re going to be having at the S&ED in a week are so important, because we need to be able to work well together and to make sure that there is a U.S.-China relationship that’s good for the global economy.
QUESTION: Right. Talking about China’s economy, it’s also slowing down and reforms are underway, and while the U.S. is trying to sustain its economy. So given these new realities, how do you think these new realities will mean for the bilateral economic relationship?
SECRETARY LEW: Look, I think China is undertaking an ambitious set of reforms through the leadership of President Xi and the Third Party Plenum. It is a set of policies which I think are very important for China’s future economic growth, and we have been very much encouraging moving ahead with that. I know there’s been a lot of focus on the short-term economy. I have consistently been on the more optimistic side, that China has tools to deal with the short term. I think the real challenge is making sure that China is on a path for the medium and the long term to keep growing. It’s important for China; it’s important for the U.S. economy and the global economy.
QUESTION: And talking about the S&ED, what can we expect? What specific problems will this round of the dialogue solve? First of all, on the economic track.
SECRETARY LEW: Look, on the economic track, we have had successful discussions over the last six years where we made progress step by step. The issues that we’re dealing with are familiar and they’re issues we need to make more progress on. From our perspective, having a level playing field where U.S. businesses can compete with Chinese businesses, both in the U.S. and China, is important. Our markets are very open. We welcome investment; we look forward to having opportunities for U.S. businesses to participate and contribute to China’s economy.
The exchange rate: It’s an issue which has been a very significant one in our discussions. Since 2010 there has been progress, but over the last year we’ve seen the exchange rate go down again. The first step would be transparency; if it was clear when the government was intervening and why, that would be a lot – that would help quite a lot. China needs a market-determined exchange rate. It’s something that the government has committed to in its own policy statements, and it is an important part of our conversations.
Last year, we made progress in the S&ED on the bilateral trade agreement where China agreed to a negative list. We need to see more progress in populating that list and starting to see how it can become the basis for further discussions.
QUESTION: Secretary Kerry, what can we expect on the strategic track?
SECRETARY KERRY: Well, there are many things on the strategic track. Obviously of enormous concern is the situation in North Korea, the threatening nature of the regime in North Korea. We need to work very closely with China. We are really two key partners in the efforts to try to denuclearize the Korean Peninsula. We also need to focus on the relationship between Japan and China, South Korea and China, and Japan and South Korea. And that’s a very important triangle that we really need to be focused on.
We need to focus on the South China Sea. There’s a great tension, as you know, regarding the question of boundaries and the question of sovereignty over certain portions of the South China Sea, and the Thomas Shoals, the Scarborough Shoals, the fisheries and all of these issues. We need to talk about them. We’re going to focus on climate change very, very significantly. Secretary Lew and I and President Obama particularly believe that climate change offers us enormous opportunities to make choices about energy and energy policy which will open up a vast new market for all of our countries and help solve the problem of climate change. So we’re particularly interested in working on the 2015 targets that have to be announced by both of our countries, and we want to try to work on those together.
And then, of course, we have a number of issues globally where China’s leadership is important – Iran and Iran’s nuclear program; Syria, we would love to try to find a way to resolve the killing and to end the crisis of Syria; the Mideast peace process. All of these, China is a very important player or very important potential partner with us, and we look forward to having a good discussion.
QUESTION: One issue of hypersensitivity back in China was America’s policy of pivot to Asia. Since the announcement of the policy, we’ve seen America strengthening alliances and forging new partners, partnerships. And if you look on the map – I actually brought one here today – these alliances and partnerships encircled none other than China, so many back in China believe that the Asia pivot is largely aimed at containing China.
SECRETARY KERRY: Well, let me see your map a minute. Let me show you something.
QUESTION: Or at least hedging against China.
SECRETARY KERRY: Okay, but this is not a circle. All of this are areas where China has very strong relationships, and the United States is not trying to do things. We’re involved with countries – the Philippines, Vietnam has been an emerging relationship since our war – we are involved with countries with whom we have a very longstanding security relationship. And the fact is that we do not have a policy of containment of China or of encirclement of China. What we’re trying to do is grow the relationship of a Pacific nation. We are in a Pacific nation. For hundreds of years the United States has been engaged in the entire region, going back into the 1800s when we first became a sea power.
So America is only pursuing what we have pursued, and mostly we’re trying to grow the marketplace for all of us with a set of rules that everybody can play by. That’s why the Trans-Pacific Partnership, which Secretary Lew is so involved in designing, is an opportunity for all of the countries, ultimately even China. It will grow, it will become a very significant economic trading entity, and we would welcome China and others to meet the standards, live up to these sort of higher standards by which we all engage in business, and everybody will benefit from that. But China really needs to move away from this theory, this conspiracy theory that somehow the United States is focused exclusively on China and on --
QUESTION: The theory is false?
SECRETARY KERRY: The theory is 100 percent false. We are anxious to build a strong working partnership with China as a leading economic power and a leading strategic power with a major role at the United Nations and in terms of world affairs.
QUESTION: What does the Asia pivot mean from an economic perspective, Secretary Lew?
SECRETARY LEW: From an economic perspective, as Secretary Kerry was saying, the Trans-Pacific Partnership was designed to raise standards, to have a high-quality agreement so that we could increase the growth and the economic activity in the whole region. That’s good for the United States, it’s good for China, and it’s good for the global economy. We started TPP as a way to say anyone who is willing to live with high standards is welcome to be part of it. We want to drive the world to being open, without barriers, and to have a fair and level playing field, which is good for all of our economies. It was, I think, misunderstood early on in China. As I’ve had conversations over the last year and a half, I think it’s better understood now. The questions are very different now than they were even 18 months ago. It is not something that was designed to keep China out or about China; it was designed to raise standards, and we hope China can raise its standards in so many of the ways we’re talking about. Great powers have responsibilities, and economic great powers – one of the two largest economies in the world, China in particular has a lot of responsibility, as do we.
QUESTION: So the U.S. would welcome China’s participation?
SECRETARY LEW: We have designed TPP as being open to countries that have high standards that want to join. I think the challenge for China would be to meet the high standards. And we think that’s a challenge that’s worthy of all the countries in the region of seeking.
QUESTION: Okay. Secretary Kerry, another issue of hypersensitivity back in China, which is China-Japan territorial disputes over Diaoyu Island. Last month, when President Obama was in Asia, he said the Diaoyu Island falls under U.S.-Japan security treaty. What does that mean? Does that mean the U.S. will come to Japan’s defense should there be a war between China and Japan?
SECRETARY KERRY: Well, I hope there’s never going to be a war between China and Japan. I can’t think of anything more wasteful or unnecessary. This is something that can be resolved. You’re talking about some rocks out in the ocean that aren’t exactly the largest area of land or criticality. So people ought to be able to find a reasonable way forward.
But we have always recognized we do not make a determination as to the sovereignty over the island. The United States does not make that determination. What we have said is that true to recent history, certainly, Japan has administrative authority over those islands – administrative authority. And we are saying that any aggressive action by any country – not just China, but by any country – would have to fall under our security relationship with Japan. And we have responsibilities under that security relationship. But our first goal is to try to see Japan and China work to come back to where it was before when this was not such a contentious issue and work through a peaceful resolution.
QUESTION: Right, Secretary Kerry, but lots of people back in China feel – they perceive that America is not being fair, perhaps, because Washington would selectively look at facts on the ground to support its treaty ally, Japan. For example, they said it was really the Japanese Government’s nationalization of the island in September 2012 that started to escalate tensions that was often ignored by Washington.
SECRETARY KERRY: No, it hasn’t been ignored. We acknowledge that when the mayor of Tokyo moved independently in order to buy the islands and have an impact on it, this had an impact on people’s perceptions. We don’t deny that. What we are asserting, however, is the way to solve it is not by having ships in near-collision and flights that are provocative. The way to solve it is through the international legal system, through the Law of the Sea, through the different courts of arbitration, and frankly through dialogue together. You have to be able to resolve these kinds of issues.
One of the defining attributes of a great power relationship, of a great power status, is that you act responsibly and try to work through these things to set an example to other nations that you can’t have force. China appropriately opposed the – and expressed its concerns about Russia moving into Crimea. Why? Because that was a unilateral action use of force in order to assert something. By the same standard, China and Japan both need to refrain from similar kinds of activities to assert jurisdiction over these islands. They need to be resolved in a peaceful way.
QUESTION: Talking about Japan, it’s – people know this is to move to the right, because since taking off as prime minister, Abe has visited the Yasukuni Shrine, they launched school textbook reforms to downplay World War II history, and he’s launched what’s considered a revisionist claim on the investigation over comfort women.
SECRETARY KERRY: Comfort women, yeah.
QUESTION: Is the U.S. concerned with such moves?
SECRETARY KERRY: Yes, and we have expressed that concern. We were very specific about the concerns over the visit to the shrine. Our ambassador spoke out in Japan, and we have expressed our concerns. We think it’s very, very important not to have a revisionism of history. It’s important for countries to deal with these. We’ve encouraged the Japanese to deal with this issue with Korea with respect to the comfort women, and we would continue to encourage them to do so.
But we don’t want any country trying to use these issues to drive wedges. It’s important that people engage in a quiet and appropriate kind of dialogue to resolve these problems in ways that don’t embarrass people or try to win public victories. That’s not what this is about. This is about building relationships and building a future in which the people of all of the countries of that region can feel that they’re secure and they’re living with stability and with the promises of future economic growth and development so that they do better.
QUESTION: Right. Talking about regional economic development, obviously, China-U.S. investment relationship very important, Secretary Lew. You mentioned the bilateral investment treaty, which we started – the negotiation over which we started last year. When can we expect it to conclude? And what are the challenges?
SECRETARY LEW: These are always challenging agreements, and I think it was an important first move that China last year said it would move to a negative list. We have not yet seen that list populated. We’ve also – the Shanghai Free Trade zone, not seeing exactly how that develops. I think there’s work to be done there, and we look forward to engaging with our Chinese counterparts. I don’t think bilateral investment treaties get negotiated in days or weeks, so it’s not something that I think is likely to be completed at this moment. But we look forward to continuing to make progress and continuing to open markets.
We pride ourselves in the United States that our markets are amongst the most open in the world. From the beginning of our country, encouraging foreign direct investment has been one of the ways we’ve grown. I actually think that it would be good for China to make progress in this area and good for the world economy. Certainly, there are American companies that would be happy to do business in China if the level playing field can be provided.
There are other issues of concern that are outside of the scope of a bilateral investment treaty. When you talk to companies seeking to invest in China, questions about intellectual property come up almost every time. So it’s kind of part of a package of issues where to be one of the leading economies in the world, to be one of the leading nations in the world, you have to meet a certain set of standards, and we look forward to continuing to make progress as China meets those standards and we can strengthen our economic relationship.
One of the things I will say is that in times when there are other issues that are challenging, we continue to make progress on economic issues. I think it’s important to both of our countries and to the world economy.
QUESTION: Talk about challenging issues, cyber security is definitely one. When the U.S. indicted five Chinese military officers last month, you said industrial espionage is something the U.S. doesn’t do and – but according to revelations by Edward Snowden, the NSA has hacked into private firms as well as trade officials, including the antitrust commissioner of the EU, Mr. Joaquin Almunia, to allegedly advance America’s economic interests, because Mr. Almunia had previously fined Microsoft and Intel and threatened to fine Google.
So how are these activities, Secretary Kerry, different from what the U.S. accused China of doing? Is there a double standard here?
SECRETARY KERRY: None, none whatsoever, and I can absolutely guarantee you that the United States does not engage in any kind of information gathering through any government security services in order to transfer to any business or to advance American business. It just doesn’t happen, period.
QUESTION: But according to a congressional report as early as 1996 – this report is called Aspin-Brown report on U.S. intelligence capability. It said U.S. Government spies on foreign firms to identify situations where U.S. commercial firms are at a competitive disadvantage. And thanks to such efforts, U.S. firms obtain billions in foreign contracts they would otherwise have lost. Isn’t this industrial espionage?
SECRETARY KERRY: I have no idea where that information comes from or how it’s compiled. I can tell you there is no active, ordered, instructed policy by which any government agency is gathering information for economic purposes or advantage that it then transfers back up to any company in America. It doesn’t happen. I don't know if in some instance somebody gathered something or did it on their own or whatever; I can’t tell you that. But I can tell you it is not ordered by, sanctioned by, or approved by the government and by this Administration.
QUESTION: All right. Finally, on Iraq, Secretary Kerry, you just came back from Iraq. Now looking back at the turmoil – this is something you have been very engaged in – do you think the previous administration’s intervention in Iraq in 2003 was, as some call, a grave mistake? And what will the U.S. do next?
SECRETARY KERRY: Well, I’m on record historically not only in saying that it was a grave mistake, but in running against the president who ordered it and offering an alternative. So I’m hardly capable of ducking that squarely. Yes, I think it was a grave mistake and I think we are still working through many of the problems associated with it even today. There’s a huge residual hangover, a cloud that hangs over the region as a consequence of that decision.
Now we are working very hard – President Obama’s decision was to make certain that we try to change that, and that’s why he moved to withdraw the combat troops. And now we’re working very, very hard to empower the Iraqis themselves. They have to make this decision. Iraqis have to decide who their government is and it needs to be a representative unity government that brings people together and resolves, through its reforms in terms of its relationship to the Kurds, its relationship to the Sunni, everybody – and the Shia – all have to be feeling as if their needs are being met through the governmental process and structures that are established.
That’s what we hope will emerge through the Iraqis themselves and their decisions in the next few days.
QUESTION: Thank you so much, Secretary Lew, and thank you, Mr. Kerry. Thank you for this opportunity with CCTV.
SECRETARY LEW: Good to be here. Good to be with you. Thank you.
SECRETARY KERRY: Thank you. Thank you. Thank you very much. Thanks.