China and China-US Relations in the Era of Globalization ---- Speech by Ambassador Zhang Yesui at the University of Nebraska-Lincoln

Chancellor Harvey Perlman,

Senator Chuck Hagel,

Ladies and Gentlemen,

Let me start by thanking you, Chancellor Perlman, for your kind invitation and warm introduction. It is a great privilege to join Senator Hagel in attending tonight's E.N. Thompson Forum on World Issues.

This is my first time in Nebraska. I understand that the University of Nebraska-Lincoln is very special. It is Nebraska's biggest public university as well as an educational, academic and cultural center. Your football team, the Cornhuskers, is also very special. You have won five national championships and you currently are doing very well at the Big 12. I trust you will win back the national championship again very soon. So good luck!

As tonight's theme is "Globalization's Promise", I would like to speak first on globalization and China and then on China-US relations in the era of globalization.

Since the outbreak of the international financial crisis in 2008, many people have started to question the globalization process. Will the trend of globalization be reversed? How to view the impact of globalization? And how to deal with the various issues arising from globalization?

In spite of the heavy blow to the world economy by the international financial crisis, the main trend of economic globalization has not changed. This is because the three major drivers of globalization remain effective, namely, scientific and technological advances, cross-border trade and investment, and international industrial restructuring. New technologies, with environmental protection, new energy, low-carbon economy and technology at the core, will continue to drive the new round of globalization. In responding to the international financial crisis, there has been more profound industrial restructuring and relocation of resources world wide.

The effects of economic globalization as a double-edged sword have become more obvious. On the one hand, the worldwide flow and distribution of elements of production has undoubtedly lowered costs, increased efficiency and further improved overall productivity; but on the other hand, it has aggravated world economic imbalance and widened the gap between different economies. There is growing public discontent and suspicion in many countries, and the mood for trade and investment protection is on the rise. The risks of excessive financial globalization have also been recognized.

Global efforts are needed to address the challenges of globalization. It is necessary to make globalization more universally beneficial, coordinated and balanced. Global governance, with corresponding rules, regulations and mechanisms that can rise to global challenges, needs to be improved. The establishment of the G20 provided a unique platform for enhanced global governance. The reforms of the IMF and World Bank are also necessary steps to improve international cooperation.

Since the policy of reform and opening up was adopted in 1978, China has actively participated in international division of labor and cooperation, attracted foreign capital, advanced technology and management expertise, upgraded industrial structure and improved economic pattern. China's economic development over the past 30 years and more is, in essence, attributable to reform and opening up; but at the same time, it has also benefited from the opportunities presented by economic globalization.

While we pursue our own development in China, we are also making contributions to the growth of the world economy. The Chinese economy has increasingly become an important engine for world economic growth. It is estimated that China will account for more than 30% of world economic growth in 2010. In the wake of the international financial crisis, China was one of the first to recover and has played an important role in promoting an early world economic recovery.

As China's economy is more integrated with the world economy, it is also exposed to more risks and challenges associated with globalization. Due to the fluctuations of the international financial market, many Chinese companies and individuals have seen the value of their assets drop significantly. The rise and fall of international energy and food prices also directly affect the life of the Chinese people. Although China's GDP is one of the biggest in the world, its per capita GDP is only 3,700 dollars, less than 10% of the per capital GDP in the US and ranking behind 100 other countries. Every year, 24 million people need jobs in Chinese cities. We still face such challenges as irrational economic structure, weak scientific innovation, worsening environmental and resource constraints, uneven development between urban and rural areas and between different regions, and imbalanced economic and social development. These challenges are becoming more acute in the time of globalization.

In China, any issue, no matter how small, will become a big one when multiplied by 1.3 billion, and any resources, no matter how abundant, will become very modest when divided by 1.3 billion. This is China's reality. In terms of magnitude and level of difficulty, the challenges and problems we have encountered in our development are rarely seen in the history of mankind. The road is still long for China to achieve modernization. As a developing country, China will continue to concentrate on development. China is firmly committed to the path of peaceful development and the strategy of mutually beneficial opening-up. We will continue to participate actively in international cooperation and fulfill international responsibilities and obligations.

In this age of globalization, the interests of China and the United States have never been so closely connected. China and the US are now each other's second largest trading partner. China has been the fastest growing market for US export. US export to China has grown by 330% over the past decade. It grew by 33.8% in the first three quarters of this year. The US is the No. 1 source of foreign investment in China. Investment from Chinese businesses in the US has also been increasing.

Economic and trade ties between China and the US are mutually beneficial. They have brought huge tangible benefits to the US.

First, the rapid expansion of US export to China has created many job opportunities in the US. According to US Commerce Secretary Gary Locke, for every one percent increase in US export to Asia, 100,000 new jobs are created. It is estimated that between 2001 and 2007, US export to China created 2.57 million new jobs in the US. Research by Morgan Stanley has concluded that between four to eight million US jobs are closely associated with China-US trade.

Second, China's export of good quality but affordable commodities to the US has not just promoted China's economic growth, but also met the needs of American consumers and saved them lots of money. A total of over 600 billion dollars have been saved in the past 10 years, according to one estimate. One study by the US-China Business Council shows that trade with China has boosted economic growth and lowered inflation rate for the US, and that this means an increase of around 1,000 dollars in real disposable income per US household annually.

Third, investment by Chinese companies in the US has helped to create many local jobs. Just to cite one example, when the China Ocean Shipping Company (COSCO) started direct service to the Port of Boston in 2002, it not only saved the Port from being closed down and but also kept 9,000 jobs.

Fourth, the China business has become the highlight of growth for many American companies. For some, their China operation has been the only business generating profits. According to AmCham-China's 2010 White Paper on the State of American Business in China, 71% of US companies operating in China made profits in 2009 and 91% are optimistic about the prospect in the next five years. Taking General Motors for example, it filed for bankruptcy in 2009 in the US, but its sales in China went up by 67%, making China its second biggest overseas market.

Given the fact that our business ties are growing so fast in so many areas on such a large scale, problems and frictions are hardly avoidable. What is important is to address them properly through dialogue and consultation. For some time, there are some in the US who believe that the trade imbalance between us is caused by the under-valued exchange rate of the RMB. As a matter of fact, the root cause of the trade imbalance is the structural differences in trade and investment, rather than the RMB exchange rate. It is precisely the result of international division of labor and industrial transfer in the era of globalization.

China does not seek trade surplus. China has a surplus in trade of goods, but runs a deficit in trade of services. China has a surplus in trade with the US and Europe, but runs a deficit in trade with Japan, Republic of Korea and ASEAN countries. The majority of China's export to the US are labor-intensive, low value-added consumer goods. Many of them are no longer produced in the US. Even if the US does not import them from China, it will have to buy from other countries. Appreciation of the RMB will not solve the issue of trade imbalance for the US, nor will it noticeably reduce the US unemployment rate. From 2005 to 2008, the RMB has appreciated by 21.1% against US dollar, but the US trade deficit continued to grow during this period. This proves that the RMB exchange rate is not the cause of trade imbalance. Nevertheless, China will further advance the reform of its exchange rate regime, but external pressure can only be counterproductive.

We stand for a comprehensive approach to ease the trade imbalance between China and the US. Both sides will be losers should a trade war or currency war break out. In my view, it is of vital importance for us to cooperate in the following three areas:

First, to continue to support each other's economic restructuring. China is trying to achieve economic growth through boosting domestic demand. The 12th Five-Year Plan, which is being drafted, lays emphasis on continued effort to expand domestic demand, transform the mode of economic development and embark on the path of balanced development. The size of China's domestic market is expected to surpass two trillion US dollars this year, far more than China's total export. At the same time, the US is also changing its high spending, low saving mode of growth. We should support the restructuring efforts of each other and explore cooperation in such areas as clean energy, energy conservation and emission reduction, environmental protection, infrastructure and modern services industry.

Second, to increase US export of hi-tech products to China. China is prepared to further increase its import from the US. However, among the hi-tech products we imported in 2008, only 6.9% were from the US. This is not commensurate with the standing of US as the leading nation in science and technology. US export to China will be greatly enhanced if restriction on high-tech export to China be eased and real efforts be made to promote free trade.

Third, to encourage Chinese businesses to invest in the US. Currently, many Chinese companies face obstacles and uncertainties when making investment in the US. A level playing field needs to be created. This will encourage more Chinese companies to invest in the United States, which will be conducive to job creation and the growth of the economy in this country.

China-US cooperation has assumed greater international significance. In response to the international financial crisis, China and the US have stepped up macro economic coordination, worked together within the G20 framework, and made important contribution to economic recovery in both countries and in the world. We have also had productive consultation and cooperation on a series of regional and global issues such as counter-terrorism, non-proliferation, climate change, the Korean and Iranian nuclear issues.

President Hu Jintao and President Obama have agreed to work together to build a positive, cooperative and comprehensive China-US relationship for the 21st century. This has set the direction for our bilateral relations. The China-US relationship will grow more solid and stronger as our two countries share more common strategic interests and cooperate with each other in more areas.

Finally, I wish to say a few words on China's relations with Nebraska.

In recent years, China and Nebraska have increased mutual exchanges and cooperation. The state of Nebraska and Guizhou province of China have established sister relations. From 2000 to 2009, Nebraska's exports to China increased by 306%. In 2009, Nebraska's total export fell by 10%, but by contrast, its export to China rose by 6% to reach 211 million US dollars. This fully testifies to the strength and potential of Nebraska's export to China. China has become the fourth biggest export market for Nebraska. This afternoon, Governor Heineman and I had a good meeting and we explored ways to enhance cooperation Nebraska and China.

Educational and cultural exchanges can serve as an important bridge between China and Nebraska. At present, 120,000 Chinese students are studying in the US. There are 1,500 in Nebraska, including over 500 in UNL. Currently, there are about 20,000 American students studying in China. The US government has launched a 100,000 Strong Initiative by which it will send 100,000 American students to China in four years. We welcome more American students, including from UNL, to study and do research in China. I am pleased to learn that as we speak, President James Miliken is visiting China. This is his first trip to China, and it represents a major step to enhance exchanges and cooperation with Chinese universities. I hope that the Joint PhD programs, the Joint R&D projects and the Confucius Institute that the UNL has in partnership with Chinese universities will be more and more successful, thus making fresh contribution to the growth of our educational and cultural exchanges and friendship between our two countries.

Thank you all very much.

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