MARYLAND-CHINA BUSINESS COUNCIL
Embassy of the People's Republic of China
Clay E. Hickson
President
November 16, 2005

US & China: Interdependent Economies

Minister Su Ge, Secretary of State Mary Kane, other distinguished guests and friends, we are pleased and honored to be hosted here again this year by the Chinese Embassy as we celebrate the Maryland-China Business Council's 10th anniversary. Thank you Dr. Su and the embassy's capable staff for helping make these arrangements and for sharing your insights with us. On behalf of MCBC, a warm welcome to all.

We are pleased all of you could be with us. Here tonight are a great mix of people from business, academia, non-profit and government organizations. China has become increasingly important to the economic development of this area in many ways. Recognizing this, our elected officials and their representatives are not only regularly hosting delegations from China but also are making trips to China themselves to develop specific opportunities.

In addition to our many friends and colleagues from the Secretary of States' Office-Susan Frick Payne-and the Department of Business and Economic Development-Tom Kingston, Nancy Wallace, and Bradley Gillenwater-there also is a representative from the Department of the Environment-Stanley Tsai.

I particularly would like to recognize the presence of Sam Mok, CFO of the US Department of Labor; Jason Chung, Executive Director of the Governor's Office on Asian-Pacific Affairs; Janet Owens, County Executive of Anne Arundel County, who has been to China several times over the past year; Paul Comfort, Administrator of Queen Anne's County; and David Iannucci, Executive Director of Baltimore County Department of Economic Development and former Secretary of DBED; as well as representatives from Montgomery County-Bernadette Musselwhite, Prince George's County-Patricia Hayes-Parker, and the City of Baltimore-Elizabeth Weiblen.

Great things can grow out of business's relationships with government, and we appreciate their support and the development of public-private initiatives.

We all know that in any great relationship, there also are challenges, and that certainly is true of the US-China relationship. It also is true that US-China relations have become increasingly complex as our economies have become ever more intertwined. As President Bush and President Hu prepare to meet in China this weekend, now is an opportune time to reflect upon important developments in the US-China relationship.

Most of us are aware that some of the major challenges in the relationship relate to the growing volume of trade between our two countries, currency and exchange rate issues, and intellectual property rights protection. Important progress has been made in many areas thanks to the recognition of leaders on both sides that our economies are very much interdependent and that the successes of one can engender greater opportunities for the other.

In the four years since it joined the World Trade Organization, China has become a major manufacturer and exporter of goods ranging from stuffed toys to computers, Christmas decorations to appliances, and T-shirts to mobile phones. Its trade with the rest of the world more than doubled from $509.8 billion in 2001 to $1.2 trillion in 2004. At the same time, when China joined the WTO, it agreed to one of the fastest programs of import duty cuts and market opening ever accepted by a new member.

Some may have doubted China's ability to meet those ambitious commitments, but according to the WTO, the overall level of its import tariffs has fallen to 9.9% in 2005 from almost 40% in the early 1990s. Although its exports have taken off, its imports also have grown and sometimes at a faster pace than exports. According to Chinese sources, in 2003 Chinese imports rose 39.9% compared with export growth of 34.6%, and in 2004 imports grew by 36% compared with a 35.4% rise in exports.

At times, China's trade boom has been uncomfortable for the United States, which has seen its trade deficit with China rise to $175.8 billion in 2005 from $90.2 billion in 2001. The discomfort has intensified, with Chinese global exports rising 31% in the first nine months of 2005 while imports have grown only 16%.

With the volume of trade so great, tensions are bound to arise from time to time, and this was evident earlier this year when longstanding international textile quotas were abolished. The pace of change left many in industry insecure and prompted calls for some solution. After months of intense negotiations, the US and China signed a deal that brings stability and predictability to the bilateral apparel trade. The agreement, which imposes limits on a wide range of Chinese-made clothing and textile imports but still allows for growth in volume, required concessions from both sides. The agreement will make it easier for companies to make sourcing and manufacturing plans and allow for a more gradual adjustment to international trade trends.

With regard to currency issues, China recently announced policy reforms that allow a measure of flexibility of the yuan against a basket of other currencies. To date this has resulted in a 2.1% appreciation of the yuan against the US dollar. Some believe this still leaves the renminbi highly undervalued and are calling for immediate steps to allow the RMB to appreciate by at least 25% against the dollar or a transparent, trade-weighted basket of international currencies. There are calls in the US Congress to encourage China to take further action to revalue is currency. This is a complex issue, but it is encouraging to see further reforms in China's financial system.

Much of today's global economy is built upon a foundation of technology and innovation, and that is just as true for the United States as it is for China. That is why finding further common ground on the protection of intellectual property rights is crucial. Achieving this will require additional collaboration on effective enforcement.

While some sources believe current conditions allow for extremely high levels of intellectual property rights infringement and believe greater progress and transparency can be achieved in China's enforcement of intellectual property rights, the US government recognizes that progress has been made. For instance, China has identified numbers of specific judicial decisions and administrative rulings reflecting the application of significant remedies for IPR infringement that work in the favor of US businesses. Also, when President Hu and President Bush last met in September, President Hu gave public assurances that China would aggressively strengthen antipiracy efforts.

Even though faster progress might be hoped for on the enforcement of intellectual property and distribution rights; transparency in the publication of industry rules and regulations and in the setting of standards; more market access; and financial system reforms, many observers acknowledge China has adopted policies resulting in a more open and profitable business environment for international companies.

As I often do, I wish to emphasize the importance of cooperative relationships, and this event symbolizes the power of collaboration that can help all parties prosper. The Chinese Embassy and MCBC have collaborated on a number of activities that have been mutually beneficial; the Chinese Government and the US Government have made great strides in reinforcing their relationship on many levels and for strengthening an international environment that promotes freer trade.

There also are a number of other important ways in which collaboration can and should be strengthened, for example in the areas of energy use and environmental protection. There are promising possibilities for joint research and development activities in energy and environmental related fields and for promoting use of conservation and efficiency mechanisms, alternative fuels, and other means of securing energy self-sufficiency.

There is no doubt today's global environment creates many challenges and opportunities for businesses, and political and economic issues require even greater cooperation and partnership between the United States and China to address these issues and find solutions.

This region in particular has a lot to offer in the development of collaborative relations. Tremendous amounts of R&D in many areas take place right here in both government and private facilities. A number of Maryland companies and organizations already are doing a great deal of useful and profitable work.

MCBC members are involved in many collaborative ways in China that are helping turn challenges into opportunities, and this is noteworthy as MCBC celebrates its 10th anniversary. MCBC plans to continue facilitating such collaboration for many more years to come.

Now, it gives me great pleasure to introduce our next speaker. This has been a very busy year in the Maryland-China relationship and particularly for the Secretary of State's Office because this year marks the 25th anniversary of the Maryland-Anhui Sister State relationship and the 20th anniversary of the Baltimore-Xiamen Sister Cities relationship. Maryland's Secretary of State Mary Kane has overseen or been involved in much of those activities and will speak to us now.

Thank you all for coming this evening, and we thank our friends here at the Embassy for hosting MCBC again this year.