Category: Obama Administration

CL&P Exclusive – Talking North Korea with Jenny Town (Part I)

By , March 30, 2017

Part I – Shifting U.S.- North Korea Relations

Jenny Town, Assistant Director of the US-Korea Institute

Since January, the situation on the Korean peninsula has become increasingly tense with North Korea test firing missiles, using toxic nerve agents to assassinate Kim Jong-un’s half brother, and announcing that it has the capability for its missiles to reach the West Coast of the United States. Meanwhile, the Trump administration has responded to North Korea equally bellicose and frightening with threats noting that no options are off the table in dealing with North Korea including possibly preemptive strike.

Are we on a collision course for nuclear war, and what role does China play in all of this? To answer those questions and more is noted North Korea expert Jenny Town. Ms. Town is the Assistant Director of the U.S.-Korea Institute at John Hopkins School of Advanced International Studies and is the managing editor and producer of 38 North, a web journal and vital resource on all things North Korea.

Read the transcript below for Part I of this two-part interview, where Ms. Town discusses shifting U.S.-North Korea relations.  Or click the media player below to listen (total time – 16:26).

CL&P: Thank you for joining us today, Ms. Town. Before we get into the current situation on the Korean peninsula, I wanted to give our listeners a little bit more background on North Korea. In the western press, North Korea is often portrayed as a hermit impoverished kingdom run by a dictatorial mad man, but is that perception true? Is that how we should view North Korea?

Kim Jong-un, Supreme Leader of the Democratic People’s Republic of Korea (North Korea) (Photo courtesy of CNN)

JT:      Thank you. It’s great to be here. I’m happy to be a part of this podcast. I think you’re asking all the right questions. The problem is that the more we treat North Korea as a caricature and we don’t take it seriously, the harder the problem becomes in the long run. A few years ago my colleague and I, we did write an article that talked about these myths about North Korea. It’s not a hermit kingdom. I think at some point we’re more isolated from it than it is from the rest of the world. There certainly are restrictions on information access and travel and movement, but there is a lot of contact with the outside world. There’s a lot of trade that goes on. There’s a lot of businesses, a lot of tourism. There’s a lot of NGO workers and diplomats, and so they do have access to the outside world. Not the same level that other countries have, but it’s not completely isolated.

The idea that Kim Jong-un is a mad man is also a dangerous characterization because he’s actually very calculating. The North Korean regime, even when Kim Jong-il was there, people liked to make fun of his sort of eccentricities. But when it came to state security, the decisions that he made were very rational. Sometimes miscalculated, but he’s the ultimate realist. They’re a country that perceives to have many enemies, and in the process will make decision on how to protect itself and how to protect the regime.

North Korea’s missiles in a military parade. (Photo courtesy of BBC)

CL&P:            So in essence, we should see their movements as something that is rational if your goal is to protect the current regime?

JT:      Yes, and we should take them seriously for what they’re doing because discounting them is not serving anyone’s good.

CL&P:            Agreed. Recently there seems to be a lot of bellicose activity from North Korea. In the middle of February it test fired a medium long range ballistic missile, and then it used, I guess, what’s known as an illegal nerve agent to assassinate Kim Jong-un’s half brother at an airport in Malaysia. Then two weeks ago, it announced a successful test of a high thrust rocket engine. Then this week they had two failed missile attempts.

Why are we seeing such activity, so much activity that seems warlike in the past month or two? Why now? What’s going on?

US-South Korea joint military drills (Photo courtesy of The Sunrise)

JT:      Well, some of this is a little bit expected. This is a time when the U.S. and ROK [South Korea] are running their joint military exercises in South Korea. Over the past year, especially the last year and this year, the nature of those exercises has expanded. It’s become more belligerent and it’s also included such things as decapitation drills and strategic over flights. These kinds of things always spark some kind of response and a strong response from North Korea because again, they do see it as more than just business as usual; but as a more provocative, more aggressive signaling to North Korea. Over the past couple of months, though, we’ve really seen an acceleration of testing and demonstration of capabilities over the past year.

At the end of the Obama administration, when it was clear that the nature of U.S.-DPRK [North Korea] relations was not going to change under the Obama administration, we saw a lot of demonstrations. In the past, there might have been missile tests, but they [North Korea] didn’t send out pictures of it, for instance. They didn’t send out pictures of Kim Jong-un celebrating different successes. I think now they’re clearly trying to prove capacity to the outside world. I think it was actually though very quiet from elections until inauguration and for a short time after inauguration as they [North Korea] were trying to figure out what to expect from America and if there was room for changing the nature of our relationship.

CL&P:            Just to go back, when you were talking about the exercises that the U.S. and South Korea are doing, you’re saying because those have become stronger and more belligerent, North Korea is taking it more serious?

US and South Korean soldiers at the DMZ

JT:      Yes. The exercises have been going on for decades and part of the function of the exercise is also signaling as to how the nature of the relationship with North Korea. There are times when they’re much more kind of routine standard operations and drills, but over the past couple of years, they’ve been adding drills and expanding it. And on top of that, the messaging coming out to the media about the [U.S.-ROK] drills and to the public about the drills has really emphasized certain things like decapitation strikes and strikes on Pyongyang and things like that. So it’s really become a much more antagonistic venture.

CL&P:            Then [what about] the recent U.S. response to North Korea’s actions the past couple months, especially with the new administration. So Secretary of State, Rex Tillerson, when he was visiting South Korea this past month, announced that the U.S. policy of what he called strategic patience has ended. I guess can you first explain a little bit more what this policy of strategic patience is or was?

U.S. Secretary of State Re Tillerson visit South Korea, March 2017 (Photo Courtesy of NY Daily News)

JT:      Sure. So strategic patience was the Obama policy.  Basically it was a supposedly principled approach that negotiations were only under certain conditions, and that in the meantime it was kind of doubling down on pressure on the regime to change it’s strategic calculus using such tactics as mostly sanctions. And then also trying to bolster defenses in the region, so in South Korea and Japan as well. But it was largely dependent on this whole intimidation, kind of pressure and intimidation factor to try and get North Korea to change its mind about how it wants to move forward.

CL&P:            Under strategic patience, I assume that the policy, whether or not it was a failure, was put in place to try to limit North Korea’s ability to develop its nuclear weaponry. Was it successful with that at all?

JT:      Absolutely not. It was a complete failure. If the goal of strategic patience really was to deter

President Barack Obama implements Strategic Patience

North Korea from developing it’s weapons programs, it’s WMD programs, it’s a complete failure because they have completely accelerated their programs during the Obama administration. In 2013, for instance, they restarted their five megawatt reactor to help produce more plutonium for nuclear weapons. In 2010, they had revealed that they had a uranium enrichment program, and in 2013, we saw that the main facility that they had shown to U.S. inspectors before had doubled in size. The centrifuge hall has doubled in size, potentially doubling it’s capacity to create weapons-grade uranium or highly enriched uranium.

We’ve seen several demonstrations of tests. Last year alone, we had two nuclear tests and over 20 missile tests. During the Obama administration, there’s been four nuclear tests. So, if the goal of strategic patience was to deter North Korea from moving forward and making the cost of nuclear weapons programs and WMD programs so untenable that it had to come back to the table, then of course it completely failed.

CL&P:            So then they’re not going to come back to the table?

JT:      Well, I wouldn’t draw that conclusion that they’re not going to come back to the table. What I’m saying is that the policy is not compelling the right response.

CL&P:            In terms of all this development, I mean I guess this goes back to the first question, and your answer to the first question about not perceiving North Korea as this shut in country, where do they get the ability to develop this technology? How do they have the knowledge to develop this technology for nuclear weapons?

JT:      They’ve been working on this program for a very long time, for decades. They have scientists in country. We know there has been cooperation with other states. They’ve gotten information from Pakistan and Syria and Russia in the past. There’s definitely plenty of people that they’ve worked with over the years to get to a point where some of it’s indigenous, some of it’s reverse engineering of designs that they’ve gotten from other countries. They’re a very resourceful people, and I would go back to again your first question and tying this all together, too. I think the underlying premise of strategic patience was this idea that Kim Jong-un would never be able to consolidate power under a third generation of the Kim family and that all we had to do was wait them out, and that eventually the state would collapse and then we could deal with someone else. That’s just simply not the case.

CL&P:            No, it doesn’t look that way. I guess since the Obama administration’s policy of strategic patience allowed North Korea to develop it’s weapon technology, and it had all these tests and it’s really advanced, just to put it in more perspective, where exactly is North Korea as a likely  nuclear threat? What can it do right now to its neighbors in Asia, and is it really true that they could potentially in very near future have something hit at the West Coast of the United States?

JT:      We did a series of reports last year that was a technical assessment of North Korea’s nuclear and missile programs. And based on what we know or what we estimate to be their capacity to make fissile materials or to produce fissile material for nuclear weapons, we estimate the baseline for their nuclear weapons arsenal to be somewhere between 12 to 15 nuclear weapons. They would have enough material to be able to make at least 12 to 15 nuclear weapons now. Given the capacity that they have to produce more – their five megawatt plutonium reactor, their uranium enrichment facility – we did projections that with the worst conditions for North Korea, making it most difficult for them for instance, that even by 2020 they could double the size of their arsenal.

By 2020 under mid-range with a little better conditions and getting their experimental light water reactor partially militarized as well, so they’d have more fissile materials, they would be able to produce maybe 50 nuclear weapons by 2020. Under the best conditions for them, if they have ample procurement, international procurement, and they have everything running in tip-top shape, at the high end we estimated they would have the potential to make about 100 nuclear weapons by 2020.
We see them really now in those ranges under those conditions that are laid out in the report. They’re somewhere on that mid to high range track. Then you add in the ballistic missile programs, and the fear is always for the how soon are they going to get an ICBM, an intercontinental ballistic missile. With the new engines that they tested last year and this year, [engines] that would be suitable for missiles and not rockets, space rockets, we’re talking that once they have an operational capacity, that they would be able actually to hit the East Coast of the United States, not just the West Coast. What we see that is probably given the designs that we’ve seen in the prototypes that they’ve displayed to us, we would suggest somewhere around 2020, somewhere in that range. Some estimates have that a little bit earlier. It really just depends.

But the reality is that they don’t need ICBMs to be a strategic threat because our strategic partners and strategic alliance partners are in Asia, so it’s South Korea and Japan. They definitely have missiles that can reach South Korea and Japan already. The big question is whether or not they have miniaturization capabilities. A lot of experts do believe they have the capability even if they haven’t been able to demonstrate it. Given the number of partners that they’ve worked with and the programs that those partners have as well and how long that they’ve been working on it. We do believe they do have the capability. It’s a huge threat, and it’s a growing threat the longer it takes to be able to have a real strategic dialogue with them.

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To listen to Part 2 of this two-part interview with Ms. Town, please click here.

 

Should Obama Downgrade Xi’s Planned State Visit?

By , August 17, 2015

Last week, China Law & Policy published a post encouraging President Obama, even in light of the current crackdown on rights defending advocates in China, to move ahead with President Xi Jinping’s State Visit to the U.S. currently scheduled for September. However, China Law & Policy recommended that President Obama raise the plight of the rights defending lawyers by highlighting the important role public interest lawyers have played in the United States.

State Visit or not, the real question is: What Will the First Lady Wear?

State Visit or not, the real question is: What Will the First Lady Wear?

Our posting received a plethora of responses, including one from Adam Bobrow, CEO and Founder of Foresight Resilience Strategies, LLC, a Maryland-based strategic consulting firm to develop new solutions for companies facing cybersecurity challenges. With prior experience in the White House and the Department of Commerce, Bobrow explains the procedures surrounding a State Visit and argues that while the Xi visit must occur because of many thorny issues plaguing the US-China relationship, the visit should be downgraded to an “official visit,” not a State Visit.

Guest Blogger Adam Bobrow

Adam Bobrow

By Guest Author Adam BobrowThanks to Elizabeth for her original post which made me think more about Chinese President Xi Jinping’s September State Visit to Washington.  Elizabeth’s thoughtful take addressed the question of the White House’s response to the crackdown on rights defenders in China.  I agree that President Obama’s meeting with Chinese President Xi should go forward but I have tried to take into account additional strategic and economic policy considerations in assessing whether Xi’s State Visit seems appropriate at this time.  For reasons addressed below, I do not think that incorporating a session on the crackdown will work but suggest that the White House downgrade the meeting from a State Visit to another category of Head of State visit, such as an official visit or a working visit.

The Obama-Xi meeting should take place because there are many issues that the United States and China need to discuss at the highest levels.  But the pomp and circumstances and the inherent approbation of a State Visit sends the wrong message to China about the ways in which Chinese government policies impact the U.S. economy and elements of global security that the United States has vested interests in maintaining.

Background on State Visits

A State Visit, while it does not have an absolute definition, follows certain traditional guidelines surrounding its logistics and the respect accorded the foreign Head of State or Government.  In the United States, such a visit has an arrival ceremony on the South Lawn of the White House, a 21-gun salute for the visiting Head of State, a joint review of U.S. troops, and a State Dinner with the visiting Head of State as the guest of honor.  Because the last element is the easiest to measure—either a State Dinner occurred or it did not—I have used the inclusion of a State Dinner during a visit as a proxy for State Visits.

During the current Administration, President Xi’s State Visit would be only the ninth State Visit in the almost seven years since President Obama was sworn into office.  Perhaps more telling, of those nine State Visits, President Obama will have hosted two different Chinese Presidents.  No other country’s leaders have enjoyed two State Visit invitations during this Administration even though Mexico, South Korea, Japan, and India—all State Visit countries during the Obama Administration—have changed leaders since President Obama hosted their previous Head of State or Government.

Why Should Obama and Xi Meet?

In Elizabeth’s blog post, she advocates that President Obama should, “invit[e] Xi Jinping to a session with U.S. public interest lawyers and their supportive corporate law brethren” to demonstrate the United States’ support for the plight of rights defenders in China.  During President Xi’s visit President Obama can and certainly should raise the unacceptable and self-defeating nature of the ongoing roundup of weiquan (rights defending) lawyers by the Chinese authorities––either by insisting that there be a window reserved in the primary bilateral meeting (preferred) or by bringing the topic up spontaneously in that meeting or at the joint press conference. The latter is less effective to change Chinese behavior but important as a domestic political issue in the United States. But keep in mind that the Chinese officials planning the State Visit will not agree to a meeting that includes some of the private critics of their conduct in the United States.  The U.S. government cannot unilaterally control the broad agenda for the visit by insisting on certain meetings, such as one with U.S. public interest lawyers.

But even with this limitation, the larger question remains: why should the U.S. and Chinese Presidents meet?  Currently, the United States and China face a number of urgent issues that directly impact their relationship.  For far too many of these, however, neither side will agree even on the terms of reference for their differences, preferring either to deny a problem exists or to insist on a formulation that assigns the responsibility exclusively to the other party.  These thorny issues are myriad: Chinese island reclamation and freedom of navigation in the South and East China Seas; alleged cyber incursions into U.S.-based systems including personnel files held by the U.S. government and commercially valuable data held by a wide range of U.S. businesses; the devaluation of China’s currency in response to slowing growth in China; the creation of the Asia Infrastructure Investment Bank, a new international development institution created with China as the leading shareholder; national security limitations on Chinese investment in the United States; the impact of China’s own National Security Law on U.S. businesses operating in China; and even China’s continued non-market economy status in U.S. antidumping investigations. Today’s New York Times reveals another agenda item: Chinese public security agents operating in the United States and allegedly intimidating or threatening some Chinese expatriates suspected of graft to return to China. This is an additional issue for which the two countries offer incompatible explanations. Unfortunately, political leaders in both countries have framed these issues in ways that make them difficult to discuss, much less resolve.

The meeting of the two Presidents could advance bilateral cooperation, however, on two issues of current importance.  First, both sides seek to advance negotiations on the U.S.-China Bilateral Investment Treaty (BIT) by exchanging updated negative lists of excluded investment areas.  Second, each side also wants to advance cooperation on curbing greenhouse gas emissions in advance of the 21st session of the United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (COP 21) in Paris in December.  Obama and Xi could announce concrete and meaningful progress on BIT and greenhouse gas emissions based on strong preparation at the staff- through Cabinet-levels and help provide negotiating teams on each topic with clear instructions on the way forward in both cases.

When weighing the decision of whether to downgrade the meeting, political and protocol reasons for the level of the visit must also contend with the substantive policy questions already discussed. The issue of face plays a role in this calculation as President Xi hosted President Obama for a State Visit in Beijing last year, complete with State Arrival Ceremony at the Great Hall of the People and a State Banquet. Refusing to accord President Xi the same courtesies would cause great offense. In addition, leaders meet to increase opportunities to get to know one another and build a relationship that might advance issues or prevent future conflicts. Two years ago, the White House cited this reasoning in meeting in a more relaxed setting away from Washington in the lead-up to the two Presidents’ summit at the Sunnylands Estate in California. The very specific intention of the informal setting away from Washington was to reduce the pressure to make public pronouncements and face the increased scrutiny of a scripted and formal visit so that the leaders could get to know one another better. Whether the more informal setting did allow greater candor, the added scrutiny of a State Visit can only undermine efforts by the two Presidents to build their relationship as a hedge against growing frictions in any meaningful way.  Next month, the two Presidents will meet farther apart on urgent bilateral issues than at any prior meeting they have had and with often conflicting visions of the world as they would like it to be.  Ranging from President Xi’s marketing of China’s New Model of Great Power Relations, which premises more space for Chinese actions on the world stage free of American interference or even commentary, to President Obama’s preference for selling the Trans-Pacific Partnership trade agreement (TPP) as a way of writing new international trade rules to prevent China from writing those rules instead, these competing visions are not currently amenable to building trust during a one-day visit.

Where does that leave us in terms of a verdict on the impending visit?  Looking at the list of issues where no progress is likely, it is probable that each President will raise a differing subset of those issues without actually hearing what the other has to say.  They will talk past each other and reach no conclusions nor even advance the terms on which officials at lower levels will address these issues going forward.  On the other (skimpier) hand, the Presidents may make meaningful progress on the two issues identified above:  BIT negotiations and climate change measures ahead of the Paris negotiations in December. The non-policy considerations present a trickier, more qualitative question of whether the slim possibility of greater candor in a less formal set of meetings makes it a better bet to risk the strong negative reaction of a Chinese government that sees the downgrade as a personal snub to President Xi. The White House needs to decide based on the best interest of the United States and the American people, of course, rather than how its decision in Washington will be received in Beijing or even by some larger subset of the Chinese people.

In this instance, the pomp and circumstance of a State Visit will reduce the efficacy of the potential positive outcomes of the meeting and send a misleading positive message about the current parlous state of U.S.-China relations.  Rather than providing additional space for the two Presidents to increase mutual understanding and provide clear guidance to their bureaucracies on how to resolve some outstanding issues, the Presidents may make some small and specific progress in two areas.  But the strictures of a State Visit also make it likely that the two governments will feel compelled to send a message that the visit demonstrates a highly productive bilateral relationship on firm grounding. That message would obfuscate real differences in search of solutions, potentially setting back relations rather than moving them forward, and backfire as the evidence clearly belies such a positive message. The White House should downgrade the meeting, restore the informal approach of Sunnylands, and hope that more time focused on substance and less on meaningless public praise by each country of the other may permit more candid discussion and advance solutions to pressing problems.

Xi Jinping & Obama – Working Together on the Enviornment

THE WHITE HOUSE

Office of the Press Secretary

FOR IMMEDIATE RELEASE
June 8, 2013

United States and China Agree to Work Together on Phase Down of HFCs

Today, President Obama and President Xi agreed on an important new step to confront global climate change.  For the first time, the United States and China will work together and with other countries to use the expertise and institutions of the Montreal Protocol to phase down the consumption and production of hydrofluorocarbons (HFCs), among other forms of multilateral cooperation.  A global phase down of HFCs could potentially reduce some 90 gigatons of CO2 equivalent by 2050, equal to roughly two years worth of current global greenhouse gas emissions.

 

The agreement between the United States and China reads as follows:

 

Regarding HFCs, the United States and China agreed to work together and with other countries through multilateral approaches that include using the expertise and institutions of the Montreal Protocol to phase down the production and consumption of HFCs, while continuing to include HFCs within the scope of UNFCCC and its Kyoto Protocol provisions for accounting and reporting of emissions.

 

HFCs are potent greenhouse gases used in refrigerators, air conditioners, and industrial applications. While they do not deplete the ozone layer, many are highly potent greenhouse gases. Their use is growing rapidly as replacements for ozone-depleting substances that are being phased out under the Montreal Protocol on Substances that Deplete the Ozone Layer. Left unabated, HFC emissions growth could grow to nearly 20 percent of carbon dioxide emissions by 2050, a serious climate mitigation concern.

The Montreal Protocol was established in 1987 to facilitate a global approach to combat depletion of the stratospheric ozone layer. Every country in the world is a party to the Protocol, and it has successfully phased out or is in the process of phasing out several key classes of chemicals, including chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), and halons. The transitions out of CFCs and HCFCs provide major ozone layer protection benefits, but the unintended consequence is the rapid current and projected future growth of climate-damaging HFCs.

For the past four years, the United States, Canada, and Mexico have proposed an amendment to the Montreal Protocol to phase down the production and consumption of HFCs. The amendment would gradually reduce consumption and production and control byproduct emissions of HFCs in all countries, and require reporting in these areas. The amendment includes a financial assistance component for countries that can already access the Protocol’s Multilateral Fund, and leaves unchanged the reporting and accounting provisions of the UN Framework Convention on Climate Change and Kyoto Protocol on HFC emissions.

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President Xi Jinping & President Obama – Press Conference – Sunnylands, CA

THE WHITE HOUSE

Office of the Press Secretary

________________________________________________________________

For Immediate Release                               June 7, 2013

 

REMARKS BY PRESIDENT OBAMA

AND PRESIDENT XI JINPING OF THE PEOPLE’S REPUBLIC OF CHINA

AFTER BILATERAL MEETING

Sunnylands Retreat

Rancho Mirage, California

8:09 P.M. PDT

     PRESIDENT OBAMA:  Everybody ready?  Well, I know we’re a little behind, but that’s mainly because President Xi and I had a very constructive conversation on a whole range of strategic issues, from North Korea to cyberspace to international institutions.  And I’m very much looking forward to continuing the conversation, not only tonight at dinner but also tomorrow.

     But I thought we’d take a quick break just to take a question from both the U.S. and Chinese press.  So what I’ll do is I’ll start with Julie Pace and then President Xi can call on a Chinese counterpart.

     Q    Thank you, Mr. President.  How damaging has Chinese cyber-hacking been to the U.S.?  And did you warn your counterpart about any specific consequences if those actions continue?  And also, while there are obviously differences between China’s alleged actions and your government’s surveillance programs, do you think that the new NSA revelations undermine your position on these issues at all during these talks?

 

     And President Xi, did —

 

     PRESIDENT OBAMA:  Why don’t you let the interpreter —

 

     Q    And President Xi, did you acknowledge in your talks with President Obama that China has been launching cyber attacks against the U.S.?  Do you also believe that the U.S. is launching similar attacks against China?  And if so, can you tell us what any of the targets may have been?  Thank you.

 

     PRESIDENT OBAMA:  Well, Julie, first of all, we haven’t had, yet, in-depth discussions about the cybersecurity issue.  We’re speaking at the 40,000-foot level, and we’ll have more intensive discussions during this evening’s dinner.

 

What both President Xi and I recognize is that because of these incredible advances in technology, that the issue of cybersecurity and the need for rules and common approaches to cybersecurity are going to be increasingly important as part of bilateral relationships and multilateral relationships.

 

In some ways, these are uncharted waters and you don’t have the kinds of protocols that have governed military issues, for example, and arms issues, where nations have a lot of experience in trying to negotiate what’s acceptable and what’s not.  And it’s critical, as two of the largest economies and military powers in the world, that China and the United States arrive at a firm understanding of how we work together on these issues.

 

But I think it’s important, Julie, to get to the second part of your question, to distinguish between the deep concerns we have as a government around theft of intellectual property or hacking into systems that might disrupt those systems — whether it’s our financial systems, our critical infrastructure and so forth — versus some of the issues that have been raised around NSA programs.

     When it comes to those cybersecurity issues like hacking or theft, those are not issues that are unique to the U.S.-China relationship.  Those are issues that are of international concern.  Oftentimes it’s non-state actors who are engaging in these issues as well.  And we’re going to have to work very hard to build a system of defenses and protections, both in the private sector and in the public sector, even as we negotiate with other countries around setting up common rules of the road.

 

     And as China continues in its development process and more of its economy is based on research and innovation and entrepreneurship, they’re going to have similar concerns, which is why I believe we can work together on this rather than at cross-purposes.

     Now, the NSA program, as I discussed this morning, is a very limited issue, but it does have broad implications for our society because you’ve got a lot of data out there, a lot of communications that are in cyberspace.  And how we deal with both identifying potential terrorists or criminals, how the private sector deals with potential theft, and how the federal government, state governments, local governments and the private sector coordinate to keep out some of these malicious forces while still preserving the openness and the incredible power of the Internet and the web and these new telecommunications systems — that’s a complicated and important piece of business.  But it’s different from these issues of theft and hacking.

     And every government is then inevitably going to be involved in these issues, just like big companies are going to be involved in these issues.  I mean, you’ve got private companies that have a lot more data and a lot more details about people’s emails and telephone calls than the federal government does.  And if we’re called upon not only to make sure that we’re anticipating terrorist communications but we’re also called upon to work with the private sector to prevent theft out of ATMs, et cetera, then we’re going to have to find ways to deal with this big data in ways that are consistent with our values; in ways that protect people’s privacy, that ensure oversight, and strike the right balance.

 

     And as I indicated this morning, that’s a conversation that I welcome having.

 

     PRESIDENT XI:  (As interpreted.)  As President Obama said, in our meeting this afternoon we just briefly touched upon the issue of cybersecurity.  And the Chinese government is firm in upholding cybersecurity and we have major concerns about cybersecurity.

 

     In the few days before President Obama and I meet today, I note sharp increased media coverage of the issue of cybersecurity.  This might give people the sense or feeling that cybersecurity as a threat mainly comes from China or that the issue of cybersecurity is the biggest problem in the China-U.S. relationship.

The application of new technology is a double-edged sword.  On the one hand, it will drive progress in ensuring better material and cultural life for the people.  On the other hand, it might create some problems for regulators and it might infringe upon the rights of states, enterprises, societies and individuals.

     We need to pay close attention to this issue and study ways to effectively resolve this issue.  And this matter can actually be an area for China and the United States to work together with each other in a pragmatic way.  And I’m happy to learn that within the context of the China-U.S. strategic and economic dialogue, a working group has been established to discuss cybersecurity issues.  So this is an issue that the two sides will continue to discuss.

 

By conducting good-faith cooperation we can remove misgivings and make information security and cybersecurity a positive area of cooperation between China and the U.S.  Because China and the United States both have a need and both share a concern, and China is a victim of cyber attacks and we hope that earnest measures can be taken to resolve this matter.

 

Thank you.

 

Q    I’m with China Central Television and my question for President Xi is, what are the main issues that were discussed in the longer-than-expected meeting this afternoon?  And what are the major areas of consensus that have emerged from the discussion?  And last year, when you were visiting the United States, you raised the concept of the two sides working together to explore what you call a new model of major country relationship, something that is unprecedented in the relationship and that can inspire future generations.  And after this concept was raised, there has been much discussion and comment on it, both in China and the United States and in the world more broadly.  So did you have further discussion on this issue in your meeting this afternoon?

 

And my question for President Obama is, what will the United States do to contribute to the building of a new model of major country relationship between China and the U.S.?

 

     PRESIDENT XI:  (As interpreted.)  In the first meeting that I’ve had with President Obama this afternoon, we had an in-depth, sincere and candid discussion on the domestic and foreign policies of China and the United States, on our joint work to build a new model of major country relationship, and our international and regional issues of mutual interest.  And the President and I reached important consensus on these issues.

     I stated very clearly to President Obama that China will be firmly committed to the path of peaceful development and China will be firm in deepening reform and opening up the country wider to the world.  China will work hard to realize the Chinese dream of the great national renewal and will work hard to push forward the noble cause of peace and development for all mankind.

     By the Chinese dream, we seek to have economic prosperity, national renewal and people’s well-being.  The Chinese dream is about cooperation, development, peace and win-win, and it is connected to the American Dream and the beautiful dreams people in other countries may have.

 

President Obama and I both believe that in the age of economic globalization and facing the objective need of countries sticking together in the face of difficulties, China and the United States must find a new path — one that is different from the inevitable confrontation and conflict between the major countries of the past.  And that is to say the two sides must work together to build a new model of major country relationship based on mutual respect and win-win cooperation for the benefit of the Chinese and American peoples, and people elsewhere in the world.

     The international community looks to China and the United States to deliver this.  When China and the United States work together, we can be an anchor for world stability and the propeller of world peace.

 

     I stand ready to work with President Obama to expand on all levels of exchanges between the two sides.  I look forward to maintaining close communication with the President through mutual visits, bilateral meetings, exchange of letters and phone calls. And I invited President Obama to come to China at an appropriate time for a similar meeting like this.  And we look forward to visiting each other country.

     At the same time, the two sides will work hard to make progress in the various bilateral mechanisms, such as the strategic and economic dialogue and the high-level consultation on people-to-people exchange.  Also, the Chinese Minister of Foreign Affairs and the Chinese Minister of National Defense will both make visits to the United States within the year.

 

     Our two sides should also step up exchanges and cooperation in economy and trade, energy, environment, people-to-people, and cultural fields, as well as at the sub-national level, so that we can deepen the shared interests of the two countries and expand them to all areas.

     We should also improve and strengthen the military-to-military relationship between the two countries and promote the building of a new model of military relationship between the two sides.  The two sides should also improve coordination microeconomic policies so that by strengthening cooperation, we can contribute to our respective development at home, and promote strong, sustainable and balanced economic growth in the Asia Pacific region and the world at large.

 

     And I’m confident in our joint effort to build a new model of major country relationship.  I believe success hinges on the human effort.  Firstly, both sides have the political will to build this relationship.  Secondly, our cooperation in the last 40 years provides a good foundation for us to build on.  Thirdly, between China and the United States, there are over 90 intergovernmental mechanisms which provide the institutional underpinning for our efforts.

 

     Fourth, there is strong public support for this kind of relationship between China and the United States.  There are 220 pairs of sister provinces, states and cities between China and the U.S.  There are 190,000 Chinese students in the United States, and 20,000 American students in China.

 

     And 5th, there is enormous scope for future cooperation between China and the U.S.

 

     Of course, this endeavor is unprecedented and one that will inspire future generations.  So we need to deepen our mutual understanding, strengthen our mutual trust, further develop our cooperation and manage our differences so that we can avoid the traditional path of inevitable confrontation between major countries and really embark on a new path.

 

The Chinese nation and American nation are great nations, and the Chinese people and American people are great peoples.  As long as we stand high and look far, as long as we make specific progress and accumulate them over time, as long as we maintain confidence and determination, as long as we have wisdom and patience, I’m confident that we will succeed in achieving this historical mission.

 

     I’m sorry for going too long.  Thank you.

     PRESIDENT OBAMA:  Well, I think President Xi summarized very well the scope of our conversations.  We spoke about some very specific issues — for example, President Xi mentioned the importance of military-to-military communications.  In the past, we’ve had high-level diplomatic communications about economic and strategic issues, but we haven’t always had as effective communications between our militaries.  And at a time when there’s so much activity around the world, it’s very important that we each understand our strategic objectives at the military as well as the political levels.  So that’s an example of concrete progress that can advance this new model of relations between the United States and China.

     So we’ll be taking steps to institutionalize and regularize such discussions.  But more broadly, I think President Xi identified the essence of our discussions in which we shared our respective visions for our countries’ futures and agreed that we’re more likely to achieve our objectives of prosperity and security of our people if we are working together cooperatively, rather than engaged in conflict.

 

     And I emphasized my firm belief to President Xi that it is very much in the interest of the United States for China to continue its peaceful rise, because if China is successful, that helps to drive the world economy and it puts China in the position to work with us as equal partners in dealing with many of the global challenges that no single nation can address by itself.

     So, for example, neither country by itself can deal with the challenge of climate change.  That’s an issue that we’ll have to deal with together.  China as the largest country, as it continues to develop, will be a larger and larger carbon emitter unless we find new mechanisms for green growth.  The United States, we have the largest carbon footprint per capita in the world; we’ve got to bring down our carbon levels in order to accommodate continued growth.  And so that will translate then into opportunities for specific work around green technologies and research and development, and interactions between our scientists so that we can, together, help advance the goal of a sustainable planet, even as we continue to grow and develop.

 

     We’ve got a lot of work to do to take these broad understandings down to the level of specifics, and that will require further discussions not only today and tomorrow, but for weeks, months, years to come.  But what I’m very encouraged about is that both President Xi and myself recognize we have a unique opportunity to take the U.S.-China relationship to a new level.  And I am absolutely committed to making sure that we don’t miss that opportunity.

     Thank you very much, everybody.

                             END           8:47 P.M. PDT

Remarks by President Obama & President Xi Jinping After First Day of Meetings

THE WHITE HOUSE

Office of the Press Secretary

For Immediate Release                                June 7, 2013

REMARKS BY PRESIDENT OBAMA

AND PRESIDENT XI JINPING OF THE PEOPLE’S REPUBLIC OF CHINA

BEFORE BILATERAL MEETING

Sunnylands Retreat

Palm Springs, California

5:21 P.M. PDT

 

     PRESIDENT OBAMA:  Well, it gives me great pleasure to welcome President Xi back to the United States.  We first met during my visit to China in 2009, and I had the opportunity to welcome him to the Oval Office last year when he was still Vice President and a guest of Vice President Biden’s.

     I think some of you may know that President Xi is no stranger to the United States.  He’s remembered fondly in Iowa, where he once visited and stayed with a local family, and on his trip last year, he had a chance to come to California — including, I understand, going to a Lakers game, which I was very jealous of.  (Laughter.)

     President Xi just took office in March.  Our decision to meet so early, I think, signifies the importance of the U.S.-China relationship.  It’s important not only for the prosperity of our two countries and the security of our two countries, but it’s also important for the Asia Pacific region and important for the world.

     And the importance of this relationship in some ways is reflected with this somewhat unusual setting that we are hosting the President in.  Our thought was that we would have the opportunity for a more extended and more informal conversation in which we were able to share both our visions for our respective countries and how we can forge a new model of cooperation between countries based on mutual interest and mutual respect.  I think both of us agree that continuous and candid and constructive conversation and communication is critically important to shaping our relationship for years to come.

 

     And for my part, this will give me an opportunity to reiterate how the United States welcomes the continuing peaceful rise of China as a world power and that, in fact, it is in the United States’ interest that China continues on the path of success, because we believe that a peaceful and stable and prosperous China is not only good for Chinese but also good for the world and for the United States.

     Of course, as two of the largest economies in the world, we’re going to have a healthy economic competition, but we also have a whole range of challenges on which we have to cooperate, from a nuclear North Korea — or North Korea’s nuclear and missile programs — to proliferation, to issues like climate change.

 

     And the United States seeks an international economy and international economic order where nations are playing by the same rules, where trade is free and fair, and where the United States and China work together to address issues like cybersecurity and the protection of intellectual property.

 

     In addition to the strategic concerns that we share and the economic challenges that each of our countries face, I will continue to emphasize the importance of human rights.  President Xi has spoken of a nation and a people that are committed to continuous self-improvement and progress, and history shows that upholding universal rights are ultimately a key to success and prosperity and justice for all nations.

 

So I want to again welcome President Xi to the United States.  We’re very glad that he’s here.  Inevitably, there are areas of tension between our two countries, but what I’ve learned over the last four years is both the Chinese people and the American people want a strong, cooperative relationship, and that I think there’s a strong recognition on the part of both President Xi and myself that it is very much in our interest to work together to meet the global challenges that we face.  And I’m very much looking forward to this being a strong foundation for the kind of new model of cooperation that we can establish for years to come.

 

So welcome, and thank you very much for being here.

 

PRESIDENT XI:  (As interpreted.)  Honorable President Obama, it’s my great pleasure to meet you.  We’re meeting with each other earlier than people might have expected.  They thought that we might have to wait until the Saint Petersburg G20 summit to meet with each other, but here we are.  I want to thank you for your invitation, and it’s my great pleasure to meet you here at Sunnylands, the Annenberg Estate.

 

This is a wonderful place, a place of sunshine, and it’s very close to the Pacific Ocean.  And on the other side of the ocean is China.  When I visited the United States last year, I stated that the vast Pacific Ocean has enough space for the two large countries of China and the United States.  I still believe so.

 

And, Mr. President, we’re meeting here today to chart the future of China-U.S. relations and draw a blueprint for this relationship and continue our cooperation across the Pacific Ocean.

 

     And this reminds us of what happened over 40 years ago when the leaders of China and the United States, with the strategists’ political courage and wisdom, realized a handshake across the Pacific Ocean and reopened the door of exchanges between China and the United States.  And in the more than 40 years since then, the China-U.S. relationship has gone through winds and rains and it made historical progress.  And our two peoples and the people elsewhere in the world have reaped huge benefits from this.

 

     And at present, the China-U.S. relationship has reached a new historical starting point.  Our two countries have vast convergence of shared interests, from promoting our respective economic growth at home to ensuring the stability of the global economy; from addressing international and regional hotspot issues to dealing with all kinds of global challenges.  On all these issues, our two countries need to increase exchanges and cooperation.

     And under the new environment, we need to take a close look at our bilateral relationship:  What kind of China-U.S.  relationship do we both want?  What kind of cooperation can our two nations carry out for mutual benefit?  And how can our two nations join together to promote peace and development in the world?  These are things that not just the people in our two countries are watching closely, but the whole world is also watching very closely.

     Both sides should proceed from the fundamental interests of our peoples and bear in mind human development and progress.  We need to think creatively and act energetically so that working together we can build a new model of major country relationship.

President Obama, I look forward to having in-depth communication with you on major strategic issues of common interest to deepen our mutual understanding and to push forward all-round cooperation.  I’m confident that our meeting will achieve positive outcomes and inject fresh momentum into the China-U.S. relationship.

     Thank you.

     PRESIDENT OBAMA:  Thank you very much, everybody.

                        END           5:34 P.M. PDT

Why So Secretive? US-China Legal Experts Dialogue

Who received the invitation to the Legal Experts Dialogue?

One would think that after a six-year hiatus, the resumption of the U.S.-China Legal Experts Dialogue would receive a little more fanfare than a cursory four-sentence press release from the Department of State (“DOS”), issued on June 6, a mere two days before the big event.

For the past two years, almost every high-level discussion between the U.S. and China has raised the issue of the Legal Experts Dialogue (“LED”), with the goal of resuming the talks (last held in 2005).  When President Obama visited China in November 2009, the two countries’ Joint Statement directly stated that “[t]he United States and China decided to convene the U.S.-China Legal Experts Dialogue at an early date.”  Ditto for the Joint Statement after President Hu’s visit to Washington, D.C. in January 2011.

It wasn’t until April 28, 2011, at the Human Rights Dialogue, that anyone provided somewhat more of a hard date.  At a press conference, Assistant Secretary of State Michael Posner announced that the U.S. and China finally agreed to convene the LED in “June 2011.”  This vague date was reiterated a few weeks later in the statement issued at the conclusion of the Strategic & Economic Dialogue.

So why the lame press release about the LED?  It’s been a priority item in the U.S.’s negotiations with China.  One would think that finally being able to achieve the goal of actually having the LED and especially of hosting it in the midst of the Chinese government’s crackdown on rights-defending lawyers, would be a feather in DOS’s cap; something that they would want the world to know about.

Why remain mum on who these “experts” are and what they will be discussing?  Instead, DOS only states that there will be “government and non-government experts” who will “explore key legal issues of mutual interest.”  Could DOS be more vague?

There are occasions when the U.S. might achieve more by pressuring China behind the scenes.  In the case of Xu Zhiyong in 2009, it looks like that approached worked.  But the LED is a completely different beast – the existence of the Dialogue has long been made public and given that there will be non-government experts, it does not appear that there will be high-level discussions here on par with Hu-Obama talks.  It sounds like it is one group of lawyers talking to another.  Given some of the issues that have sprung up in the past few months, including the assault on public interest lawyers, China’s indigenous innovation policy, various WTO cases, and the criminal trials of U.S. citizens, it would be interesting to know what is on the agenda.

But in general, I do not hold out hope that the LED will produce any earth-shattering results, if it produces results at all.  While DOS has stated that there will be “in-depth discussions and practical cooperation on the rule of law” (yeah, I don’t know what that means either), it’s basically two days of meetings among strangers with translators in between.  How much can really be achieved?

And maybe that’s why the U.S. hasn’t given the LED the credit one would think it is due.  Maybe even DOS realizes that bringing over a delegation of Chinese lawyers and legal experts for a mere two days is likely a waste of taxpayer’s money.

I do think that more open dialogue between the U.S. and China is a good thing.  But there are better ways to increase the lines of communication between the legal communities in the two nations and assist China with improving upon its commitment to a rule of law.  Identifying and inviting reform-minded Chinese lawyers to the United States for a longer period of time – anywhere between three months to a year – is a better use of money.  Through that experience, a Chinese lawyer can see how our legal system functions, see the good and the bad, interact with U.S. lawyers, and determine which aspects if any should be replicated in China.

These types of sustained contact are what can best assist China with implementing a rule of law.  A two-day conference likely cannot.  But unfortunately, we won’t really know because nothing about the LED is publicly available.

A Jersey Shore Analysis of the Hu Jintao State Visit

By , January 23, 2011

Welcome to the Jersey Shore!

State visits never produced tangible results, and last Wednesday’s visit of President Hu Jintao to Washington, D.C. was no exception.  True a series of business contracts  and joint ventures were announced, but not much else.  Really though, that’s not why we watch state visits – especially ones involving leaders of the two largest economies in the world.

We watch them more because they are a reality show of sorts – watching two world leaders from vastly different cultures walk the fine line between appearing strong for one’s own country’s interests but at the same time, not completely trampling the other country’s interests.  But unlike the Jersey Shore where one might just be sent home from the beach for misbehaving (think Angelina Season 1 AND Season 2), the consequences are much more serious when you are dealing with two countries whose future relationship can easily determine the fate of the world.

Fortunately, this State visit proved a lot more peaceful and face-saving than anything being shown on the Jersey Shore these days.  While there were some surprises, especially on the Chinese side, there were no fist-a-cuffs.  Overall, the visit seemed to show an improved relationship, at least rhetoric-wise, between the United States and China.

But this is a Jersey Shore analysis so enough of the feel goodness; the question still remains – who won?  Below is a point-by-point analysis of President Hu Jinato’s State visit.

Point for China – Hu Finally Gets a State Visit

The fact that there was a State visit at all was a huge point for China.  It’s been 13 years since a sitting Chinese president

Ceremony on the South Lawn, Jan. 19, 2011

was invited for a State visit and President Hu’s last visit to Washington in 2006 consisted of a lunch with President George W. Bush.  Could anything be more embarrassing for a world leader than to just be offered the lunch menu at the White House?

Unfortunately, yes.  Hu’s 2006 “official” (not state) visit was marred with embarrassing moments for the Chinese.  First, China was introduced as the Republic of China – the official name for Taiwan – sort of a huge gaffe in U.S.-China relations.  Second, a Falun Gong practitioner, a religious order that the Chinese government considers a threat to its rule, was able to obtain press credentials for Hu’s 2006 visit and protest at the event.

But for this visit, the Obama Administration pulled out all of the stops, making it a State visit to outdo all other State visits.  President Hu was greeted at the airport by Vice President Joe Biden and quickly ushered to the White House for an intimate dinner with President Obama.  At all times, China was introduced by its correct name and there were no protests on the South Lawn.

Michelle Obama at the State Dinner for President Hu Jintao

Culminating the event was Wednesday night’s State dinner, perhaps the most anticipated affair this winter.  In addition to a fun and interesting guest list, Michelle Obama chose an amazing dress in homage to one of fashion’s favorite designers – the late Alexander McQueen – making the event the talk of the town of both politicos and fashionistas.

Point for the U.S. – China Gets (a little bit) Tougher on North Korea

North Korea is proving to be a particularly troubling aspect of U.S.-China relations.  No one – including China – particularly cares for North Korea and its saber-rattling as Kim Jung-il’s son takes the rein of perhaps the world’s worst dictatorship.  North Korea’s bellicose activities interfere with China’s economic relations with its Asian neighbors.  But China has yet to take a strong stance against North Korea’s actions even though such actions upset the stability that China needs to continue its rise.  China’s hesitance comes from the fact that it fears a collapsed North Korea; not only would there be the demise of another communist ally, but a collapsed North Korea would mean an influx of starving Korean refugees into China as well as sharing a border with the democratic and U.S.-military-backed South Korea.

For its part, the United States has begun to see North Korea as an increasingly real threat against its allies and itself.  As a result, at Tuesday night’s intimate dinner between the two leaders, President Obama explained to President Hu that unless China takes a stronger stance against North Korea, the U.S. will be left with no choice but to rebuild a stronger military presence on the Korean peninsula.

That argument eventually carried the day.  In the Joint Statement issued on Wednesday, China, for the first time,

Kim Jong-il, Beijing's friend or foe?

“expressed concern” regarding North Korea’s nuclear build-up.  Additionally, while China has urged the resumption of “six party talks” with North Korea, the U.S. has hesitated, seeing it as a reward for North Korea’s bad behavior.  Evidently China and the U.S. were able to reach a compromise: before any six-party talks resume, the two Koreas must first resume their dialogue (see paragraph 18 of the Joint Statement).  On Thursday, South Korea agreed to low-level talks with the North.

Half a Point for the U.S. –Human Rights Makes the Agenda but an Odd Assortment of “Human Rights Advocates” Advise President Obama

Human rights loomed large during Hu’s State visit.  After meekly raising the issue during his State visit to China in November 2009, President Obama was having no criticism of his commitment to human rights.  Secretary of State Hillary Clinton made that apparent in her speech on January 14, 2011 when she not just raised the issue of human rights but also mentioned specific human rights advocates that the U.S. believed were been unlawfully detained.

President Obama continued to publicly press the issue of human rights.  President Obama publicly declared the universality of certain human rights as well as the need for the Chinese leadership to meet with the Dalai Lama.  Perhaps the most surprising of all was when President Hu admitted that China still had a ways to go in better protecting human rights (see the Q&A portion of the Joint Press Conference).

Normally, this should receive a full point.  But the U.S. loses a half a point because of form.  Prior to President’s Hu’s visit, President Obama met with five China human rights advocates.  These “advocates” included Prof. Andrew Nathan of Columbia University; Prof. Paul Gewirtz of the Yale China Law Center; author Zha Jianying; the wife of former Ambassador Winston Lord, Bette Bao Lord; and research scholar at the University of Maryland, Li Xiaorong.

While these five are likely well-informed on issues of human rights, there seems to be some missing names from the list of “human rights advocates.”  Sharon Hom of Human Rights in China has dedicated her life – and at times has risked her safety – to advocate for greater human rights protection; one can’t think of anyone else more qualified.  And if one wants to stick with academics (three of the five study human rights), it is questionable why Prof. Jerome Cohen of NYU School of Law was not in attendance.  Prof. Cohen continues to lambast China on its human rights record on an almost bi-weekly basis in his South China Morning Post articles and actively supports many human rights attorneys in China.

But most of all, why weren’t the Chinese human rights activists themselves invited?  Currently, the wife of missing human rights lawyer Gao Zhisheng is in the United States as is the wife of imprisoned human rights lawyer Guo Feixiong.  Why not invite either of them to speak with the President of the current human rights situation in China?  Or exiled dissident Yang Jianli currently residing in the U.S.?  Or better yet – why not have a Skype chat with any of the human rights lawyers presently in China (Teng Biao, Mo Shaoping, Tang Jitian, Liu Wei)?  The latter might be a bit too much to ask, but the list of human rights advocates invited to speak with President Obama should have been longer.

Point for China – U.S. Promises to Rein in Spending

As the largest holder of U.S. debt, China is very concerned about the U.S.’ spending habits.  The Federal Reserve’s announcement of injecting more cash into the U.S. economy through “quantitative easing” only worsened China’s fear that its U.S. dollar reserves would lessen in value.  So when President Obama, in response to a reporter’s question during the joint press conference, stated that the U.S. must take greater responsibility in saving and cutting the U.S. deficit, China was very happy.

Half a Point for the U.S. – Government Procurement

China’s closed government procurement market and its indigenous innovation policy has been a issue for U.S. businesses.  China is not a member of the WTO’s Government Procurement Agreement (“GPA”) and as a result is not required to have an “open” government procurement market.  China has submitted two bids in the past few years to be a member of the GPA, most recently this past summer.  However, both applications have fallen far short and as a result, China remains outside of the GPA.

But surprisingly, in the U.S.-China Joint Statement (paragraph 27), China agreed to resubmit an application to the GPA by the end of 2011 and include sub-central government entities as subject to its proposal.  Such an agreement was unexpected and likely a welcome development to the U.S. business community.

So why half the point?  Seeing is believing in this case.  It’s not completely in China’s self-interest to be a member of the GPA at this stage so anticipate that its renewed application will still fall short of GPA requirements.  And even if it becomes a member, it’s questionable if China will enforce laws to promote an equitable government procurement market.

Point for U.S., Point for China – 100,000 Strong Initiative Articulated

Study Abroad in China!

During President Hu’s visit, Michelle Obama, in a speech before a thousand DC-area students, reaffirmed the Administrations’ commitment to sending 100,000 U.S. students to China on various study abroad programs (the “100,000 Strong Initiative”).  In 2008, less than 15,000 U.S. students (on both the college and high school levels) studied abroad in China. The U.S. has a long way to go before we reach 100,000 students but its commitment to achieving that goal is a win-win for both China and the U.S.

Americans’ knowledge of China is abysmally low; as China rises, our lack of our understanding its history, culture or language becomes dangerous.  Study abroad programs can help bridge that gap.  While very few U.S. students will continue on their China path after their study abroad program, just being exposed to the culture and the difficulties that the nation faces is important.  But there will also be some students that will continue on that path, providing an invaluable resource to the American government as China continues its rise as a global power.

The “strong” in the 100,000 Strong Initiative is more about strengthening the cultural ties and understanding between our two nations.  While China sends 10 times the number of students to the Untied States, it is important that U.S. students go to China for those Chinese who will never come to America.  What’s even more important is that the 100,000 Strong Initiative reaches out to community colleges and historically black colleges and universities, both of which have been underrepresented in China study abroad programs.  It is important that the students the U.S. sends to China reflect our great diversity.

Sec. Gates, not a happy camper on US-China military ties

No Points for Anyone – Military-to-Military Ties Remain the Same

There doesn’t seem to be a change in military-to-military ties.  After the U.S. sold arms to Taiwan last January, China broke off military ties and the relationship has barely warmed.  When Secretary of Defense Robert Gates visited Beijing a few weeks ago, a stealth jet fighter was flown unbeknown to even President Hu Jintao.

The Joint Statement (paragraph 9) includes language on improving and deepening communication between the two militaries.  But it appears to be boilerplate language similar to the language found in the Joint Statement issued after President Obama’s visit to China in November 2009.  The fact that China’s military remains non-transparent, secretive and slightly threatening is a serious issue.  The fact that President Hu did not seem to have control of the military, even though he is the nominal Chairman of the Central Military Commission, is even more troubling, for both the U.S. and China.

The U.S. military is stationed through out China and patrols many international waters.  The Chinese military is becoming increasingly assertive at times.  Small incidents have occurred in the past.  But without good communications between the two militaries, it is easy for any small incident to become an international one that could upset the stability in the Pacific.  Hopefully the promised high-level military visits between the two countries will soon produce results.  Then both the Chinese and American people will find it easier to sleep at night.

Winner?

It’s a tie. As far as State visits go, this was a pretty good one.  Everyone got something they wanted and can bring back positive results to their respective people.  Aside from military relations, U.S.-China rhetoric seems to be improving.  Hopefully this trend can continue.

Clinton on U.S-China Relations – A Changed Approach

By , January 17, 2011

Secretary of State Hillary Clinton delivers the Richard Holbrooke Inaugural Lecture

The Obama Administration has a new China policy, or at the very least has gotten better at articulating it. In preparation for President Hu Jintao’s January 19 State visit, key officials in the Obama Administration outlined their goals for the U.S.-China relationship through a series of speeches last week. 

While Secretaries Tim Geithner and Gary Locke each focused on specifics (currency, market access, intellectual property), Secretary of State Hilary Clinton’s speech on Friday (click here for speech transcript) provided a new framework by which to view the U.S.-China relationship. Rest assured this isn’t the same soft China policy that accompanied President Obama on his visit to China in November 2009. 

In her speech, Clinton acknowledged the importance of the U.S.-China relationship to each country and the world at large. But while it values its relationship with China, the United States still has choices and the U.S. would “firmly and decisively” address its differences with China. Friday’s speech, which was also the inaugural Richard C. Holbrooke Annual Lecture, in honor of former State Department official and an important peace envoy (key player in the Dayton Peace Accords and envoy to Afghanistan), has already received criticism from China’s leadership.  

Clinton Announces a New Paradigm By Which to View China’s Rise

Perhaps the greatest obstacles in the relationship – at least for the U.S. – have been China’s currency manipulation and China’s protection of domestic industries at the expense of international trade rules and norms.  What the U.S. asks of China – to stop pegging its currency to the U.S. dollar and to open its markets to foreign competition in accordance with international standards – inevitably means that in the short-term, Chinese domestic companies will suffer.  By allowing its currency to float, Chinese exports will become more expensive, hurting the manufacturing backbone of its economy.  Opening its markets to more competition from foreign companies and products – particularly the government procurement market – could impair the development of many of China’s nascent industries. 

Needless to say, it has been difficult to find a convincing argument to make Chian’s leaders willing suffer short-term hurt. In the past, U.S. officials have repeatedly discussed how in the long-run these changes will eventually better promote China’s economic growth and power. But this appear disingenuous since in the short-term, it is the U.S. that will most greatly benefit from changes to Beijing’s current policies.  Additionally, telling Beijing what’s good for it in the long-run is sort of like parents telling their kids what is best. 

But Clinton’s speech took on a decidedly different approach and offers a more convincing, even slightly threatening argument.  Clinton did not bother with a “what is best for China” argument to try to convince the Chinese government; instead Clinton provided an entire new way by which to view China’s rise.  Clinton acknowledged the hard work of China’s people and the far-sightedness of its leaders in creating the world’s second largest economy in just over 30 years.  But Clinton also stressed the important role the United States played in China’s rise; without the United States, which guaranteed military security in Asia and equitable rules to govern the global economy, China’s current success would have been impossible.  

By tying China’s rise to the stability the United States provided in the region for the past 30 years, Clinton makes a much stronger argument as to why China’s leaders should make some changes on currency and market access – basically, these are the rules of the game that allowed you to succeed and now you think you can just change them? 

No rest for Robert Gates

The United States Will Remain a Pacific Power

But if logic isn’t enough to better protect U.S.’ interests, Clinton put China on warning that it is not the only fish in the sea.  Repudiating any notion of a G-2 relationship, Clinton gave a shout out to the other countries in the region, stating that the United States intends to remain a Pacific military power, strengthen its bonds with its allies in the region (e.g. Japan, South Korea, Philippines) and deepen its ties with developing Asian countries (e.g. India, Vietnam, Indonesia).

On some level, this should not come as a surprise to China.  This past summer, the United States involved itself in a long-running dispute between China and Vietnam over the control of a group of rock islands, stating that the U.S. has a national interest in mediating the dispute.  Additionally, recent bellicose developments on the Korean peninsula and China’s ambivalent response to the North’s unprovoked attack on South Korea, makes it apparent that the United States must maintain a strong military presence in the region.  China’s response shows that it is not yet ready to take on the responsibility of maintaining peace in the Pacific region since its loyalties to North Korea still dominate. 

Finally, Clinton noted that China’s non-transparent military build-up leaves one wondering what exactly are China’s intentions.  Military-to-military ties between the

China launches its Stealth fighter jet during Robert Gates visit to Beijing

 United States and China are at all-time low, mostly at the fault of China.  China’s military continues to shroud itself in secrecy and the recent visit of Secretary Robert Gates to China was a complete debacle.  While Gates visited with President Hu Jintao in Beijing, the People’s Liberation Army (PLA) tested – in a very public way – its own stealth fighter jet.  Hu’s admission that he was unaware of the PLA’s planned test fight, is not particularly reassuring.  Not only does the PLA continue its secrative military build-up, but it’s even a secret to China’s own President, making one wonder, what power does Hu still have?  If history is a guide, whoever is in charge of the Chinese military is in charge of China.  If not Hu, then who?

Getting Serious About Human Rights

Clinton was surprisingly blunt when it came to China’s human rights record and didn’t just portray human rights as a peculiar aspect of the American culture (see President Obama’s talk to Shanghai students in November 2009 for this approach).  Instead, Clinton emphasized the universality of certain human rights and highlighted the fact that China is a signatory to many United Nations human rights treaties.  The United States is not interfering with China’s domestic politics; instead the United States is merely requesting that China fulfill its human rights obligations, obligations it voluntary agreed to. 

But Clinton went further and mentioned specific dissidents, including the recent Nobel Peace Prize winner, Liu Xiaobo who is currently languishing in a Chinese prison; rights defending attorney Chen Guangcheng who since his release from prison has been subject to repeat police harassment; and missing rights defending attorney Gao Zhisheng.   Clinton stressed that as long as people like these three continue to advocate peacefully within the confines of the law, China should not persecute them.  Clinton poetically commented that the empty seat for Liu Xiaobo at last month’s Nobel Peace Prize ceremony symbolizes China’s unrealized potential.  Clinton stressed that these human rights are necessary to China’s success; freedom of speech is essential to fostering free thought that leads to technological and scientific advancement and a vibrant civil society addresses social-economic problems that are currently one the regime’s biggest fears. 

The Obama Administration has a new policy on China – it’s tougher, more logical and stresses the importance of human rights.  The Chinese government has already responded.  President Hu Jintao, in an interview with the Washington Post, commented that the United States should not interfere with the internal affairs of China. 

Wednesday’s meeting between Presidents Hu and Obama should prove to be perhaps some of the most important conversations in the U.S.-China relationship since Kissinger secretly visited Beijing in 1971 in preparation for President Nixon’s visit.

Gary Locke’s Take on U.S.-China Relations – “Trenton Makes the World Takes”

By , January 13, 2011

I used to think I was the only one who noticed the huge, weird, angry sign “Trenton Makes the World Takes” plastered on the Delaware Bridge just outside the New Jersey city of Trenton.  So imagine my surprise when this slogan was featured in Commerce Secretary Gary Locke’s speech about U.S.-China relations before the U.S.-China Business Council (USCBC) on Thursday.  For Locke, the manufacturing center of Trenton during the early 20th Century is China today; it’s China that now makes and the world takes.

But the status quo must change Locke argued.  While noting some successful U.S.-China commercial relations, Locke raised the issue of market access in China, particularly in light of China’s indigenous innovation policies and its lax protection of intellectual property (which makes one wonder why didn’t he continue to play with the Trenton theme and say “China makes AND takes”; that would have elicited laughs from the USCBC for sure),  Between Locke’s speech, reprinted below, and Treasury Secretary Tim Geithner’s speech Wednesday, there is some serious saber-rattling coming from the American delegation in preparation of President Hu Jintao’s State visit next week.

Commerce Secretary Gary Locke Delivers Policy Speech

on U.S.-China Commercial Relations

Thank you John, for that kind introduction.  And thank you for having me here today.

We are today less than a week away from an important State visit by Chinese President Hu Jintao.

More than two decades ago, on my first trip to mainland China, I could not imagine that the U.S.-China relationship would eventually become so consequential.

Nor could I have imagined a scene like we witnessed a few days ago: Defense Secretary Gates joining together with his Chinese counterpart to stress the need for stronger military ties between China and the United States.

In 1989, I came in from Shanghai’s airport on a rickety, Russian-made bus, and stepped into that city’s dimly lit streets into a world very different than the one I left in the U.S.

There were swarms of bicycles – young men with their dates balanced on handlebars, grandparents pedaling to the market, boys and girls with white-knuckle grips on their parents’ shoulders. Bikes everywhere.

Shanghai then was a gritty, industrial city filled with low-rise buildings.

There were no skyscrapers. Few cars.

There was little sign of what was to come.

Today, Shanghai’s skyline is dotted by more than 400 skyscrapers.  Go to the Shanghai World Financial Center – one of the tallest buildings in the world – and you can stay at a Park Hyatt Hotel with a lobby on the 79th floor.

Those bike paths I saw on my first visit have been replaced by elevated freeways shuttling people and commerce at a frenetic pace.

To see it is to be awed, and I am every time I go back to China.

The explosive growth in places like Shanghai has helped lift almost 200 million people out of poverty.  In the years ahead, hundreds of millions more Chinese citizens will join the middle class.

The United States welcomes this growth, because it’s good for the people of China; it’s good for the global economy; and it’s important for U.S. companies who offer world-class products and service, products and services that can improve the quality of life for the Chinese, while providing jobs for American workers back home.

With the U.S.-China Business Council’s help, this has become perhaps the most important bilateral trading relationship in the world.

China is the top destination for American exports, behind just Canada and Mexico.  And America is the number one national market for Chinese exports.

In the past 20 years, U.S. exports to China have increased by a factor of 12; imports from China have increased more than 30-fold.

However, we are at a turning point in the U.S.-China economic partnership.  Last year, China became the second largest economy in the world.  And the policies and practices that have shaped our relations over the past few decades will not suffice over the next few decades.

So today, I’d like to talk a bit about how we can move forward and ensure that we can unlock the full potential of the U.S.-China commercial relationship in the early 21st century.

The gross trade imbalances between our countries are a good place to start, because they have the potential to threaten global stability and prosperity.

And I think a great illustration of that can be found in, of all places, Trenton, New Jersey.

Many of you have likely taken Amtrak up to New York, and when you pass by the Delaware River in New Jersey, you see that famous sign: Trenton Makes and the World Takes.

Well, replace Trenton with China, and you have a simplistic, but pretty accurate description of the global economy over the last few decades.

China and the United States benefited tremendously from this arrangement in recent years.

American consumers got an impressive array of low-cost goods.  And in its transition into one of the world’s top exporters, China was able to lift millions of its citizens into a fast-growing middle class.

But it’s not sustainable.  The debt-fueled consumption binge in developed countries like America is over.

And countries like China are beginning to realize that there are limits to purely export-driven growth.

That’s why we need a more equitable commercial relationship.  And it is within our reach.

The United States is doing its part to facilitate global adjustments by increasing private savings and exports, as well as taking steps to bring down its long-term fiscal deficits to a sustainable level.

And the Chinese leadership is making the rebalancing of its economy one of the cornerstones of its forthcoming five-year plan.

China is aiming to promote domestic consumption through a variety of measures, such as boosting the minimum wage for its workers and building an improved social safety net. Changes like these will hasten the rise of a middle class that wants the same cars, appliances, fashion, medical care and other amenities that have long been enjoyed by consumers in the Western world.

The Chinese government is also putting an intensive focus on strategic emerging industries, with more high-value work in areas like healthcare, energy and high technology.

And the Chinese have signaled that they want foreign businesses to help develop these sectors by entering joint ventures and by conducting more research and development in China.

This is assistance that U.S. companies are eager to provide, so long as China deals meaningfully with concerns about intellectual property protection, as well as a variety of other issues I will talk about later.

Such cooperative projects can serve as the foundation for a stronger economic relationship between China and the U.S.

But China’s long-term success at addressing the concerns of international businesses will help determine whether it realizes its economic vision – a vision in which China is a leader in innovation and a producer of higher-value goods and services.

Here’s the good news: we are already seeing examples of just how this future could play out, as our businesses and our governments collaborate to tackle some of the world’s greatest challenges.

Just look at what’s happening with the new Energy Cooperation Program that Secretary Chu and I announced while in China in October 2009 to promote more collaboration between Chinese and American companies on energy issues.  One of the founding corporate members of the program, Boeing, is partnering with Air China and Petro China to research a new generation of aviation biofuels that don’t rely on food crops.

If this venture is successful, it could reduce the carbon footprint of airplane travel, and avoid the negative impact that other biofuels have on the global food supply.

Or look at what’s happening with Duke Energy, one of America’s leading utilities, which has signed an agreement for joint research with China’s largest energy company, Huaneng, and with the Chinese government’s Thermal Power Research Institute.

Today, there are scientists and researchers shuttling between the companies and the research institute, working to develop cutting-edge solutions for cleaner-burning coal and carbon sequestration.

The Chinese and American governments are also working together on a variety of transportation issues, including how to spur the deployment of more high-speed rail.  China has embraced high-speed rail and has developed its infrastructure at a tremendous rate.  Starting from scratch, China has constructed and put into service over 4,000 miles of high-speed routes in the last decade – making China’s the longest high-speed rail network in the world.

In meetings last year, officials and experts from the Department of Transportation and China’s Railway Ministry met in Cambridge, Massachusetts, to share information on the development of high-speed rail standards.  And at the state level, the Chinese government has signed cooperation agreements with the State of California on its high-speed rail project to link Anaheim and San Francisco.

There is, however, a sobering side to U.S.-China commercial relations: For every story like Duke Energy’s or Boeing’s, there are many more that are never written.

When I talk to business leaders across America, they continue to express significant concerns – shared by business around the world –about the commercial environment in China – especially China’s lax intellectual property protection and enforcement, lack of transparency in government decision-making and numerous indigenous innovation policies that often preclude foreign companies from vying for Chinese government contracts.  These policies mandate that products must be made, conceived and designed in China.

It’s important to note that since China formally joined the WTO nine years ago, it has made important progress opening its market.  Tariffs have come down, private property rights are steadily evolving and great strides have been made to free the flow of commerce across China’s borders.

On balance, the competitive playing field in China is fairer to foreign firms that it was a decade ago.  And we commend the Chinese for that.

It is also not lost on countries in the West that on our march towards industrialization, we sometimes protected native industries with policies that today would mobilize an army of WTO lawyers in opposition.

But those policies were folly then, and they are surely folly now.  After World War II, the United States and a growing community of nations painstakingly built a global trading system based on the freer flow of goods, ideas and services across borders.

And the creation of the World Trade Organization in 1995 ensured that countries would be held accountable for their commitments to open markets and lower barriers.

China has benefited tremendously from this international trading system, especially since it joined the WTO in 2001.  The United States and other foreign nations have every right to seek more meaningful commitment and progress from China in implementing the market-opening policies it agreed to when it joined the WTO.

From our experience, there are usually five things that need to happen to turn these promises into reality.

It starts with the easiest step: a statement of principle from Chinese officials that action will be taken to solve a market access issue.

Next, that agreement has to be codified into binding law or regulations.

Third, the law or regulation needs to be faithfully implemented by the central government.

And fourth, it needs to be implemented at the local and provincial levels.

Only after all these things have happened can you arrive at the fifth, final and most important step, which is where this new law or regulation becomes a norm – an accepted way of doing business in China’s commercial culture.

When it comes to indigenous innovation, intellectual property or a variety of other market-access issues, an enduring frustration is that in too many cases only the earliest steps are taken, but not all five.

Perhaps an agreement is made, but it never becomes binding.  Or perhaps there’s a well-written law or regulation at the national level, but there’s lax enforcement at the provincial or city level.

A few weeks ago, the Commerce Department and the office of the U.S. Trade Representative welcomed Vice Premier Wang Qishan and other leading Chinese officials for the 21st Joint Commission on Commerce and Trade, where we worked through a variety of specific trade issues.

It was a productive meeting.  Vice Premier Wang and his team were responsive to our concerns and they pledged action in a variety of areas critical to American businesses.

They agreed to remove administrative and regulatory barriers discriminating against American companies selling everything from industrial machinery and telecom devices; to those that restrict U.S. participation in the development of large-scale wind farms in China.

They also agreed to revise one of their major government procurement catalogues to ensure a level playing field for foreign suppliers and to reduce the use of counterfeit software in government offices and state-owned enterprises.

Additionally, Vice Premier Wang asked the Commerce Department and the U.S. Trade Representative to partner with him on a public campaign to reduce intellectual property rights violations in China, which he is leading.

The American government welcomes these commitments from China.

But to be clear, they are only a first step.  What was agreed to at the JCCT were important statements of principle and policy – but they must be turned into concrete action with results.

Take last year’s JCCT, when the Chinese agreed to remove a local content requirement for wind turbine suppliers – a positive step forward.

But soon after, China’s government employed a rule that required foreign businesses seeking to build large scale wind farms in China to have prior experience with such projects in China.  The rule might have been different than the local content requirement, but it had the same effect – making it tougher for foreign companies to compete with China’s domestic companies.

At this year’s JCCT, we persuaded the Chinese to modify that rule as well.

Or look at the issue of intellectual property. We have heard Chinese leaders condemn IP-theft in the strongest terms, and we’ve seen central government laws and regulations written or amended to reflect that sentiment.

But American and other foreign companies, in industries ranging from pharmaceuticals and biotechnology to entertainment, still lose billions of dollars from counterfeiting and IP-theft in China every year.

For example, in the United States, for every $1 in computer hardware sales there is about 88 cents in software sales.  But in China, for every dollar in hardware sales there is only eight cents in software sales.

According to the Business Software Alliance, that discrepancy is largely explained by the fact that nearly 80 percent of the software used on computers in China is counterfeit.

So America welcomes Vice Premier Wang’s pledge to accelerate China’s crackdown on intellectual property violations.  And China will have a very willing partner in this endeavor in the United States.  But we will be focused on meaningful outcomes.

I recognize I’m not the first foreign official to express concern over the commercial environment in China.  But it would be a mistake to portray this concern solely as U.S. self-interest masquerading as advice.

The Chinese economy is increasingly moving up the global economic value chain, where growth is created not just by the power of a country’s industrial might, but also by the power of its people’s ideas and their inventions.

In the long run, economies with poor intellectual property protections and inconsistent application of market access laws will lose out on generating great new ideas and technologies.  And they’ll lose out on the jobs that come with producing new products – jobs critical to an expanding middle class.

The damage won’t happen overnight.  I freely admit that companies and countries can gain short-term advantages from lax rules in the commercial space.

But over time, if innovators fear that their inventions or ideas will be stolen or discriminated against, one of two things will happen – they’ll either stop inventing, or they’ll decide to create or sell their inventions elsewhere.

Ultimately, all that the United States seeks is a level playing field for its companies, where the cost and quality of their products determines whether or not they win business.

That is the ideal we strive for in the United States.

And our commitment to open and competitive markets is a big reason why we remain the number one destination for foreign direct investment in the world.

We understand that China’s modernization and evolution towards a more market-oriented economy is a process that will take time.

China has 1.3 billion people.  Seven hundred million of them still live in rural areas; many with little electricity or running water.  It took the United States over 100 years to build the electrical transmission capacity it has today.

To meet the rising demands of its own consumers, China will have to build a similar amount of capacity in just 15 years.

These are enormous undertakings.  And it’s understandable if, in the past, China’s immediate development goals took precedence over other concerns.

With millions of Chinese coming in from the countryside looking for work, it isn’t necessarily an easy decision to close down a factory producing counterfeit goods, when that factory is providing badly needed jobs.

So what we’re discussing here are real and significant challenges. For market reforms to continue, it will take constant vigilance – not just from the United States, but from all countries and businesses around the world that benefit from rules-based trading.  And from Chinese business and government leaders, who themselves have a strong stake in ensuring that China is friendly to global innovation and international competition.

In front of us is the opportunity for China and the United States to lead the world economy in the early 21st century to create a new foundation for sustainable growth for years to come.

We can’t tell exactly what that future will look like.

But we can be certain that it will be a better future if the Chinese and American governments pursue cooperation over confrontation in the economic sphere.

Cooperation that will put millions of our people to work.

Cooperation that will develop technologies to solve the most pressing environmental, economic and social challenges facing the world today.

This is the great opportunity before China and the United States.  We just have to seize it.

Thank you.

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Treasury Secretary Geithner Speaks on China Relationship

By , January 13, 2011

Treasury Secretary Tim Geithner

In preparation for President Hu Jintao’s State visit next week, Secretary of the Treasury, Timothy Geithner, provided his thoughts on the future of the U.S.-China economic relationship at John Hopkins School of Advance International Studies (SAIS) on Wednesday, January 12.  While the speech provided the usual platitudes of a shared economic future, the tone was at times cautionary about the current state of the economic relationship.  Geithner spoke frankly of China’s barriers to market access and concerns over currency.  With Commerce Secretary Gary Locke and Secretary of State Hillary Clinton to each give their own speeches in the coming days, Hu’s State visit to the U.S. next week might not be the polite rhetoric of before.  See below for Geithner’s full comments.

Secretary of the Treasury Timothy F. Geithner

“The Path Ahead for the U.S.-China Economic Relationship”

Remarks As Prepared for Delivery

It’s a pleasure to be here at SAIS.

SAIS is a leader in one of the most important challenges in public policy and education – that of helping Americans understand the world and the role we play in it.  This is important because we cannot effectively pursue our national interests unless we understand the objectives, the intentions, and the capabilities of other nations.

Next week, President Obama will host President Hu Jintao at the White House.

This State Visit takes place at a time of important transition for the world economy, the Chinese economy, and the U.S. economy.

The global economy is emerging from the financial crisis, but that crisis has left lasting scars that will take years to repair.  And it has left a growing gap between the growth trajectories of the large developed economies and the rapidly growing emerging economies.

While many of the major economies are still confronted with the challenge of rebuilding after crisis, many of the emerging economies are at the early stage of what should be a long period of very rapid economic growth, with rising incomes creating growing demand for resources and for investment capital.

The growth of the United States stands between these two divergent paths.  We are likely to grow at about half the rate of the major emerging economies, but about twice the rate of Europe and Japan.

These dynamics will fundamentally change the balance in the world economy, forcing changes in the architecture of the trade and financial systems.

In this new global context, China’s principal economic challenge is how it will manage the next stage in its transition from a state-dominated developing economy, dependent on external demand and technology, to a more market-oriented economy, with growth powered by domestic demand and innovation.

Today, I want to talk about the implications of these changes for our economic relationship with China and for U.S. economic policy.

China presents enormous economic opportunities for the United States and for the world, but its size, the speed of its ascent, and its policies are a growing source of concern in the United States and in many other countries.

To put those concerns in context, I’d like to begin by stating a few fundamental propositions about our economic relationship.

First, the economic relationship between the United States and China provides tremendous benefits to both our nations.  Even though we compete in many areas, our economic strengths are largely complementary.

Second, China faces a very complicated set of challenges as it transitions toward a more open, market oriented economy.  It is very much in our interest that the Chinese manage these challenges successfully.

Third, our priorities in our economic relationship with China – from its exchange rate to its treatment of intellectual property – reflect changes that are fundamentally in China’s interest.  Ultimately, China will need to make these changes in order to promote its own long-term prosperity.

Fourth, and finally, I want to emphasize that the prosperity of Americans depends overwhelmingly on the economic policies we pursue to strengthen American competitiveness. Even as we work to encourage further reforms in China, we need to understand that our strength as a nation will depend, not on choices made by China’s leaders, but on the choices we make here at home.

Now, over the last few decades, China has emerged as a major economic force.

That growth was unleashed by China’s economic reforms, a growing labor force, and one of history’s greatest economic migrations from farms to factories.

But China’s growth was also made possible by the access China enjoyed to the markets, the investments, and the technology of the United States and the other major economies.

The open, multilateral system of trade and investment, with its balance of rules and responsibilities, was built with the leadership of the United States decades before China opened up to the world.

The opportunities created by the system were fundamental to China’s economic ascent, and they remain vital to China’s ability to continue to grow.

China needs the United States, but the United States also benefits very substantially from our rapidly expanding economic relationship with China.

The benefits of this relationship are hard to capture in any one statistic, but remember this.

The United States is on track to export more than $100 billion of goods and services to China this year.  Our exports to China are growing at twice the rate of our exports to the rest of the world.

These exports are supporting hundreds of thousands of jobs across the nation in all sectors – from high technology to soybeans, aircraft to autos, and forklifts to financial services.

We have a great deal invested in each other’s success.

In our economic relationship with China we have focused on two principal objectives.

The first is to expand opportunities for U.S. companies to export and sell to the Chinese market.  This requires a more level playing field for U.S. companies that compete with Chinese companies in China, in the United States, and around the world.

Our second objective is to promote reforms that will reduce China’s reliance on export led growth and encourages a shift to domestic consumption and investment.  As part of this, China’s exchange rate needs to strengthen in response to market forces.

I want to provide a quick review of some of our concerns and the extent of progress, as we see it, in each of these areas.

First, on the broader competitive landscape in China and the opportunities and challenges we face competing in China:

The commanding heights of China’s economy and its financial system are still dominated by the government.

Chinese companies and workers are able to take advantage of a range of preferences and subsidies and operate behind trade barriers that give them a competitive advantage relative to U.S. and other foreign firms and workers.

They get access to low-cost finance, land, and energy.  They enjoy preferences in terms of access to government contracts.

Next, theft of intellectual property remains widespread in China, across many industries.

And the Chinese government has introduced a range of new policies to encourage innovation in China that are designed to favor Chinese technology over foreign technology, including in the enormous Chinese government procurement market.

Where these practices violate China’s international commitments, we are actively using the remedies available under U.S. and international trade laws to protect our interests.

And China has been gradually moving to address some of our concerns.

The government recently launched a new enforcement effort to combat the theft of intellectual property and to force Chinese companies to pay for the intellectual property they use.

The Chinese leadership has committed to expand opportunities for U.S. firms in access to procurement by government entities.

And the government has committed not to discriminate against U.S. companies that operate in China.

We welcome these commitments.  They don’t address all our concerns, but they are something we can build on.  And we will continue to press the Chinese to translate these commitments into further progress.

Doing so is in their interest.  Government domination limits competitiveness within the Chinese economy and prevents the private sector from contributing to growth at its full potential.  And you can’t promote innovation if you don’t protect intellectual property.

Alongside the reforms I’ve mentioned, we want to encourage China to move definitively away from the export driven growth model of the last few decades to a growth model driven by domestic consumption.

The Chinese leadership recognizes that China is now too large relative to the world economy for it to continue to rely on foreign demand to grow.  And the government has adopted a comprehensive program of reforms to rebalance the economy and shift growth to domestic demand.

This requires reforms to increase public spending on health and education, raise and enforce minimum wages, remove barriers to investment in services, expand access to financial products for individuals and entrepreneurs, and remove subsidies for investment in the sectors that drove the initial decades of growth.

This transition will take time, but it is already having a major impact on the shape of Chinese growth, and providing increased opportunities for American companies.  Domestic demand is contributing more to growth, and as a consequence, U.S. exports to China are growing more rapidly, and U.S. companies operating in China are seeing more opportunities.

Finally, and importantly, China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country.

These policies have the effect of keeping the Chinese currency substantially undervalued.

They also impose substantial costs on other emerging economies that run more flexible exchanges rates, and as a result have experienced a substantial loss of competitiveness against China.

This is not a tenable policy for China or for the world economy.

If China does not allow the currency to appreciate more rapidly, it will run the risk of seeing domestic inflation accelerate and face greater risk of a damaging rise in asset prices, both of which will threaten future growth.  And sustaining an undervalued currency will undermine China’s own efforts to rebalance growth toward domestic consumption and higher-value-added production.

Since June of 2010, when Chinese authorities announced they would resume moving toward a more flexible exchange rate, they have allowed the currency to appreciate only about 3 percent against the dollar.  This is a pace of about 6 percent a year in nominal terms, but significantly faster in real terms because inflation in China is much higher than in the United States.

We believe it is in China’s interest to allow the currency to appreciate more rapidly in response to market forces.  And we believe China will do so because the alternative would be too costly – for China and for China’s relations with the rest of the world.

These are our main priorities.  China’s objectives are focused on the following areas:

  • China wants more access to U.S. high technology products.
  • China to take greater advantage of investment opportunities in the United States.
  • China would like to be accorded the same terms of access that market economies enjoy.

We are willing to make progress on these issues, but our ability to move on these issues will depend of course on how much progress we see from China.

As China reduces the role of the state in the economy, reforms policies that discriminate against U.S. companies, removes subsidies and preferences for domestic firms and technology, and allows its exchange rate to reflect market forces, then we will be able to make more progress on China’s objectives.

In any discussion of China, I think it is important for Americans to understand the solutions to our challenges in the United States rest first and foremost in the policies of Washington, not of Beijing.

Fundamentally, how many jobs and how much wealth we create will be the result of the choices we make in the United States – not the choices of others.

In our efforts to rebuild and put Americans back to work, we have to make sure we are making the investments and reform that will be essential to our capacity to grow in the future.

As countries like China, India, Brazil and other emerging economies grow and expand, we want the American economy, American workers, and American companies to play a major role in – and gain substantial benefits from – that growth.

We want to see a substantial part of that growing demand outside of the United States met by goods and services that are created and produced in the United States, and fueled by investment in the United States.

If we are successful in doing that, we will be stronger as a nation.

But to be successful in meeting that challenge, there are things we must do.

We must invest more in research and development.

We must invest more in educational reforms.

We must invest more in public infrastructure.

We must create stronger incentives for investment in the United States, by both American and foreign companies.

We must be more forceful and effective in promoting American exports.

And we must restore fiscal responsibility.  This will require the government to spend less and spend more wisely, so that we can afford to make the investments that are critical to future growth.  And it will require tax reform that produces a system that is more simple and more fair, that encourages growth and investment, and that will help restore fiscal sustainability.

These are our challenges.  And they are not just an economic imperative, they are a national security imperative.  Our strength as a nation depends on the ability of our political system to move quickly enough to put in place solutions to our long-term problems.

Our great strengths as a country have been in our openness to ideas and talent, our capacity to innovate, our excellence in higher education, a willingness to invest public resources strategically in scientific research and discovery, and the political will to confront challenges with wisdom and force.

If we preserve and build on these strengths, and if China successfully continues on its path to a more open, market economy, then both our countries and the world economy will be in a much stronger position.

The President recently said, “We should feel confident about our ability to compete, but we are going to have to step up our game.”

China’s rise offers us the opportunity of dramatic growth in demand for things Americans create and produce.  But it also will force us to raise our game.

We should welcome both the opportunity and the challenge.

Thank you.

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