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U.S. business leaders have made a show of corporate might during Chinese President Hu Jintao’s visit to the U.S. But despite diplomatic overtures and big business deals, there are still clouds on the economic horizon. We discuss the latest from President Hu’s visit, and explore the U.S.-Sino business climate going forward.
- Jia Lynn Yang Reporter for the Washington Post
- Elizabeth Economy Senior Fellow and Director for Asia Studies at the Council on Foreign Relations
MR. KOJO NNAMDIU.S. business leaders have made a show of corporate might during Chinese President Hu Jintao's visit to the U.S. But despite diplomatic overtures and billions and big business deal, the bottom line for President Obama seems to be jobs, jobs, jobs. What economic impact should we expect from this week's visit? To answer this question, we invited Jia Lynn, reporter for the Washington Post. Jia Lynn joins us by telephone. Thank you for joining us.
MS. JIA LYNN YANGThanks for having me.
NNAMDIAlso joining us by telephone is Elizabeth Economy, director of Asia Studies at the Council on Foreign Affairs in New York. Elizabeth Economy, thank you for joining us.
MS. ELIZABETH ECONOMYThanks very much.
NNAMDIJia Lynn, the U.S. and China announced $45 billion in business deals this week. Can you tell us about some of the more significant ones?
YANGYeah. There's a -- they announced this package, a lot of which has already been announced, but they pulled it together in a way to say, you know, here, we're gonna stand together and really try to get some more U.S. exports over to China. One big deal out of this was an agreement with the Chinese government to purchase 200 aircrafts from Boeing, worth about $19 billion, over the next two years. You're also seeing GE standing together with a Chinese company in a joint venture to develop jet engines and plane technology. And you also saw there is a slew of clean energy deals here where companies like Duke Energy, American Electric Power, Westinghouse, they're all gonna try to work with some Chinese companies, some of the biggest energy producers over there, to develop things like wind farms, clean coal plants. So a range of industries, but lots of big U.S. companies wanting to work side by side with the Chinese companies on these projects.
NNAMDIThese deals are clearly, in part, a gesture of goodwill, but there's also a concern that the Boeing deal, for example, will help China develop, well, its own Boeing. How realistic is that?
YANGRight. This is the real -- the line that U.S. businesses has to walk. I mean, Boeing, by getting in there with China now, and GE as well, they have the chance to build on this market and do more business. On the other hand, you know, they risk having to be in a situation where they have to share technology and trade secrets with the Chinese government, and the concern that they've expressed in the past is that the Chinese can then turn around and use that technology to develop their own companies. And the Chinese have made no secret that they wanna develop a company just like Boeing. And they're still a long ways from there, but working with Boeing might help them get there too.
NNAMDIElizabeth Economy, President Obama said yesterday that China is one of the top markets for U.S. goods and that exports to China are growing nearly twice as fast as they are to the rest of the world. Most of us probably assumed that we're importing a lot more than we export to China, several times more as a matter of fact. Has that balance, in fact, been changing at all?
ECONOMYActually, President Obama is both right, but maybe a little bit wrong as well. Indeed, indeed, our exports are growing and they grew by about $12 billion just from 2009 to 2010. But at the same time, the trade deficit with China, the bilateral trade deficit, increased by about 26 billion. So, even as it's true our exports are growing, (laugh) we continue to import, obviously, far more than we export and, you know, trade deficit was above -- overall, above $250 billion. So I think, you know, we're still running short in terms of our competitive capabilities with China, and it's going to take more than $45 billion worth of, you know, trade and investment deals as a result of this state visit to rectify the situation.
NNAMDIAnd, Jia Lynn, there are those who say these trade and investment deals may look good, but in fact, what we have been doing, and what we will continue to be doing, is outsourcing jobs to China.
YANGThe issue here is that, you know, the growth for these companies -- if you're one of these big U.S. multinationals and you are just surveying the scene and trying to figure out where to invest, where to grow, it's almost reached the point where it's past outsourcing. You know, it's not just we can do it cheaper in China so we're going to go there. It's become an issue of that's where the growth is, that's where the consumers are. So, these big companies are thinking -- and these big companies in the U.S. are thinking, we just have to get there no matter what. And so, there is, in some ways, not much that anyone can do if, in fact, all the growth is over in China and that's where these companies want to go.
NNAMDIThere have been complaints that in response to we've got to go there, that's where the consumers are, the Chinese have been saying, oh, no, you don't. Do these talks help to smooth the way for that at all?
YANGThey might. I mean, at least, they're laying out these issues on the table. You've got, you know, President Hu Jintao, Obama and, you know, leaders of GE, Microsoft, these big companies all in one room talking about it. But it's clear that there's, you know, suspicion on both sides, both for U.S. companies trying to get into China and complaining about certain barriers. And on the other hand, Chinese companies wanting to invest in the U.S. and also getting resistance from there. And so, I think yesterday, they spent a lot of time talking about what some of those barriers might be and, you know, at least some gesture from both sides to work on those issues.
NNAMDIWe're talking about U.S.-China economic and business relations, inviting your calls at 800-433-8850. How do you perceive those relations? Have they, in fact, as a result either of these talks or before been getting better from the U.S. point of view? 800-433-8850, or you can go to our website, kojoshow.org, join the conversation there. We're talking with Jia Lynn, she's a reporter for the Washington Post, joining us by telephone, and Elizabeth Economy, director of Asia Studies at the Council on Foreign Relations in New York.
NNAMDIElizabeth, in the past few months, we have been seeing China allowing its currency to appreciate against the U.S. dollar, albeit slowly, how should we interpret that move?
ECONOMYI think that, you know, on the currency issue, certainly looking at what came out of this visit, President Hu really gave nothing away and we shouldn't have accepted any -- and we shouldn’t have expected any sort of breakthrough. China is going to move in its own way on this issue according to what it perceives as its own economic interest. And, you know, over the past six months or so, I guess, the currency depreciated about 3.6 percent and it's much slower than, I think, what our Treasury Department had hoped for. I think they were hoping for about a 10 percent appreciation in anticipation of President Hu Jintao's visit here. And I think that President Hu also made it pretty clear that he does not view strengthening the currency as essential to addressing China's inflation problem, which is one of the arguments that our Treasury Department has made.
ECONOMYSo I think what we can expect is that China's going to allow its currency to appreciate at a rate that it, you know, believes it to be in its own economic interests. At the same time, there is a kind of battle within China between the Ministry of Commerce and the central bank of China, with the Ministry of Commerce really not being interested in watching the currency appreciate because of its concern about export. So, I think, you know, this is gonna be domestically, internally determined and the United States is really gonna play a pretty small role in determining China's path forward on this.
NNAMDIElizabeth, if the -- when the Chinese currency is more freely able to fluctuate, what impact does that have on U.S. exports?
ECONOMYWell, I think the hope, of course, is that -- and -- on U.S. jobs -- the hope, of course, is that, you know, it's going to make our exports more competitive, right? Because by China keeping the value of its currency low, it makes exports cheaper. The real issue though, or at least part of the issue, is whether or not what we want to export to China is at all competing for what China wants to export to us, and in fact, whether our jobs maybe are going to China, but -- even if the Chinese currency appreciates, perhaps our jobs will go to Cambodia or Indonesia or Vietnam. And I think the last point that's important to make is that the currency is not really simply a bilateral issue with China, but managed currency, you know, is -- throughout much of East and Southeast Asia. And so, all the way down the supply chain, we would want or probably even need to see some changes in the way those countries manage their currencies in order to realize the full value of a Chinese move.
NNAMDIAnd, Elizabeth, this is a kind of follow-up question to the one I asked Jia Lynn Yang earlier. How has China made it difficult for U.S. businesses to set up shop in China?
ECONOMYWell, I think there are a couple of different aspects to the challenge of doing business in China. One is certainly intellectual property rights protection, and China has a poor record, and it's an issue -- the perennial issue in the U.S.-China relationship. And the Chinese simply haven't made it a priority, except rhetorically, to protect the intellectual property of our companies. So I think that's one issue. Second is really, you know, provinces and localities giving favored treatment to -- in their own companies. And this is interesting because it's not simply a competition between American companies or, you know, companies outside China and those within China, but even within China, you can find one province giving preference to a homegrown indigenous company over a company -- a competitor from another province. So they even have these kinds of trade and investment barriers within their own country.
ECONOMYSo I think that there are -- and then of course there's the issue of, you know, subsidies for things like, you know, steel production, and I think there are many ways in which the Chinese government (laugh) makes it difficult. And the last, you know, issue, and this is one where I think the United States actually made some progress, potentially anyway, as a result of this visit, was the push within China on indigenous innovation and the idea that, you know, in terms of government procurement, you know, what Beijing would buy for its own, you know, railway system or whatever, it would have to be developed and innovated within China. And there was a lot of pushback not only from the United States but also from Europe and Japan on this idea of indigenous innovation, and the Chinese seem to be taking an important step back from this.
NNAMDIElizabeth Economy is director of Asia Studies at the Council on Foreign Relations in New York. We're discussing China business relations. She joins us by telephone, along with Jia Lynn Yang who is a reporter for The Washington Post. Jia Lynn, forgive me for not using your last name earlier. The oversight was completely mine. I was so focused on pronouncing your first name that I omitted the last.
YANGThat's quite all right.
NNAMDIWe're gonna take a short break. When we come back, we will continue this conversation. I'm Kojo Nnamdi.
NNAMDIWhat is your view of U.S.-China business relations or the talks currently taking place between the presidents of both countries? You can call us at 800-433-8850 or you can send us an e-mail to firstname.lastname@example.org, a tweet @kojoshow or go to our website and ask a question or make a comment there at kojoshow.org. We're talking with Jia Lynn Yang, who is a reporter for The Washington Post and Elizabeth Economy, director of Asia Studies at the Council on Foreign Relations in New York. Jia Lynn, U.S. business leaders from Intel, DuPont, Microsoft and others met with the Chinese delegation yesterday. What was on that agenda?
YANGThey talked a lot about, you know, some of their concerns and really just wanting to open up this dialogue about we want to do business in China. How do we make that happen? So, a little bit about what Elizabeth was referring to earlier, these concerns about these various ways that they view the Chinese government blocking their entrance into this market. So, you know, Microsoft's Steve Ballmer brought up this intellectual property issue. How do we make sure that when we sell products -- Microsoft products in China, they're not turned around and suddenly there's -- it's pirated everywhere. And, you know, this issue of are you gonna give us this open level playing field where we're not up against Chinese companies, they're getting preferential treatment from the government?
NNAMDIFrom this visit, Jia Lynn, can we assume any kind of softening by China on its opposition to the U.S.?
YANGIt's simply too soon to tell right now. I think the issues here -- I mean, the slew of deals that they announced helps in that it sort of pushes the way forward that you've got these several joint ventures announced between U.S. and Chinese companies. But, you know, the issues here are more -- they go back longer and I think these CEOs are gonna be still a little bit skeptical until they see a really good faith effort by the Chinese government to really open up that market and not give their own companies preferential treatment. Again, really try to enforce these IP laws. And until that happens, you know, it's still a little bit too early to say.
NNAMDII'm so glad you gave me that it's-too-soon-to-tell old media response because in today's 24/7 news cycle, we wanna know everything right now.
NNAMDI(laugh) We wanna know -- we wanna be able to tell it right now. Elizabeth, Chinese rules, including one to promote domestic innovation, have led companies and the U.S. government to express concerns about the treatment of foreign investors, but President Hu pledged this week to create a stable and transparent environment for both foreign and domestic companies and to address the concerns of foreign investors. Is this just talk or have we seen anything that could lead one to believe that there's likely to be action?
ECONOMY(laugh) Well, I think at this point, Jia Lynn is exactly right. I think we've heard all of this before, right? And the proof is in the pudding. So I think, you know, when the Chinese leaders go back to Beijing and they send their, you know, missives down the supply chain to the provinces, then we'll begin to see whether we see any real difference in any of this. I mean, I think, again, the two sort of gets for the Obama administration, at least theoretically, we're really on indigenous innovation, and here, again, the Chinese government pledged to take a step back from this idea that, you know, any product that the government was going to purchase had to be innovated and developed and manufactured in China. And indeed, on government procurement itself. And so, here the Chinese pledged to submit a new plan to join the WTO Government Procurement Agreement that would include not only things that were purchased by Beijing but also things that are purchased by provinces and localities and state-owned enterprises, which had been something that was left out of China's previous submission and represents, you know, an enormous market.
ECONOMYSo, these are the two, I think, important gets. Again, it just depends on how well implementation takes place afterward. I mean, we've been hearing about China's efforts and commitment to protect intellectual property rights for well over a decade and seen, you know, virtually no substantive improvement in this area. So, I think until, you know, we see what the Chinese government actually does, as Jia Lynn said, it's just too early to tell.
NNAMDIOn to Aldo in Phoenix, Md. Aldo, you're on the air. Go ahead, please.
ALDOThanks, Kojo. My comment is, 20 years ago, China, and still today, is our political, basically, enemy because it's the opposite of what we think. But we have been very convenient for them in the financial arena to open through capitalism and (word?) America to that advance that taking all the jobs overseas. Now, China, last year grow over 10 percent, and their inflation was merely 3 percent. When was the last time America economy grow in the two digits? And more and more of the jobs are going to China. You know, we need to reverse -- we cannot go back in time, but we can do things so the jobs come back to America (unintelligible). Right now, again, the big companies are making deals for $45 billion to sell in China. What is coming back to us, the Americans? Where are the jobs for us?
ALDOBecause the political...
NNAMDIGo ahead, Aldo.
ALDOYeah, the political correct arena for me is -- politically correct means dollars sign.
NNAMDIWell, allow me to bring both Elizabeth and Jia Lynn on this discussion. Starting with you, Elizabeth, some of these economic statistics that we see only tell one side of the story. True, China's economy is growing at a more rapid rate than ours. True, some 200 million Chinese have been brought into the middle class. But the fact of the matter is that in China, with the size of its population, that means that there are 700 million or more Chinese still living below the poverty line. True, that China is increasing its commitment, if you will, to the -- what they used to call the capitalist road of development. True, it is still run by a Communist Party. How do you interpret all of these, Elizabeth?
ECONOMYI'd interpret it in my next book, I guess.
NNAMDI(laugh) Thank you.
ECONOMYYou know, I think, I think -- let me just offer a couple of thoughts.
NNAMDIBut Aldo's simply talking about the fact that their economy is growing faster than ours, and that they...
ECONOMYAnd what's happening to our jobs? Right.
NNAMDIRight. What's happening to our jobs, correct.
ECONOMYI think -- no, I think he raises a very important point. First, let me just make one small point and that is, really, only 200 million people in China live below the poverty line.
NNAMDIOh, I'm sorry. I thought it was 700.
ECONOMYSo they're making much more rapid advances in terms of bringing people into the middle class, I think, than anybody could have imagined, and that 10, 11 percent growth rate is what's responsible for that. I think it's a very important point. I mean, I think out of this visit, of course, President Obama said that some 235,000 jobs are dependent in some way on these $45 billion worth of deals. You know, I think it will be interesting to try to parse out exactly how those jobs correlate to (laugh) those deals. But I do think it's important, right, as China begins to bring investment here to the United States, that we think about ensuring that jobs are brought along with that investment.
ECONOMYI remember when the Chinese Ministry of Railways and GE, and this is one of the deals that's announced in the state visit, when they were talking about bidding for the railway, the, you know, high-speed rail in California, the minister of railways of China said, you know, we can bring not only our technology but our workers and our engineers, right, and our expertise to this. And I thought to myself, well, we don't need your workers and we don't need your engineers. We have both those things (laugh) here in the United States. And this is a very traditional Chinese way of doing business abroad. So, all throughout Africa and Southeast Asia and Latin America, when you have these big infrastructure projects, the Chinese tend to export -- about 70 percent of the labor that's used tends to be Chinese. So I think it's very important, as we welcome Chinese investment and, indeed, we should welcome this investment, that we make sure to protect our own jobs here in the United States. And so, I think that's one thing that we ought to bear in mind.
ECONOMYI think the other, perhaps, is simply that, and this is a point made by Clyde Prestowitz, that we ought to be thinking about the Chinese transfer of technology. Some of these deals bring technology to the United States that Chinese developed. And the Chinese have long demanded, when the U.S. does business in China, that there be a degree of technology transfer. And I think it's only fair that we begin to play by their rules and demand the same concessions from them that they've demanded from us.
NNAMDIJia Lynn Yang, have there been any conversations over the past few days about conditions of labor in China? I know the labor movement here and many activists have been observing that there have been demonstrations and strikes in China because Chinese laborers want more money. And the big complaint here, of course, is that we're losing jobs to the Chinese because the labor costs alone -- did that enter into the conversations at all?
YANGI don't think that came up in the conversations, to my knowledge, between the business leaders and President Hu. I mean, you're seeing, obviously, a somewhat chillier reception for President Hu on Capitol Hill. This morning, Nancy Pelosi met with him and, you know, she certainly very directly brought up the human rights issue. And I believe, you know, Senator Chuck Schumer didn't even meet with him for whatever reason. And Schumer has been a pretty outspoken critic of the way China does business and, you know, even during the debate over the stimulus package, you know, raised a lot of concerns about whether that money was going at all towards Chinese companies and not staying, you know, completely in the U.S. So, at least, on the Hill, you're seeing a lot of sensitivity around, you know, China, and a lot more direct talk and criticism.
NNAMDIElizabeth, if we do see an opening of the Chinese markets to U.S. businesses, what might be the impact on Chinese labor?
ECONOMYWell, I think it would depend on the kind of business. I mean, if, you know, we're developing more manufacturing plants in China, then the impact will be a positive one on Chinese labor. I think, too, that, you know, it is incumbent on U.S. business, you know, doing business in China to ensure high labor standards. And this can be difficult. You know, some of our companies, you know, have supply chains that can stretch for, you know, 10 or 20,000 or more factories. But I think it's important to ensure that we're operating with the best labor safety, you know, health and environmental standards down the supply chain. So it should be that the impact of U.S. business on Chinese labor is quite a positive one.
NNAMDIAldo, thank you very much for your call. We move on to Jin in St. Jo (sp?), Va. Jin, you're on the air. Go ahead, please.
JINOkay. Thanks, Kojo. My question is in reference to the currency exchange rate issue. From my understanding, the Chinese, you know, kind of execute that fixed rate by purchasing U.S. Treasuries and U.S. Bonds to maintain that rate. So wouldn't the impact of letting it float be a higher interest rate on our own -- in our own economy here and therefore have a overall negative impact? I just kind of -- I'd like to know if that's true, if my line of thinking is true, and whether or not that would outweigh the risk of -- would outweigh any benefit gains from letting their exchange rate float.
ECONOMYYou know, that's -- it's an interesting question and, you know, my sense is -- hmm, I'd have to think it through. I hadn't -- I haven't seen an argument made that, you know, we would suffer in the end. I think the advantages -- we believe the advantages would outweigh any disadvantages from a drop in the Chinese purchase of our debt. But it will be an interesting thing to sort of map out.
NNAMDIJin, thank you very much for your call.
JINAll right. Thank you.
NNAMDIJia Lynn, you mentioned earlier about President Hu meeting with congressional leaders today and them raising some of the expected political and human rights in particular issues. But what can we expect from the new Congress vis-à-vis China?
YANGI think that you're gonna see -- and the Republicans especially have been very critical and, you know, you saw that Speaker Boehner is asking very directly about these trade issues, again, intellectual property rights, currency. And I think -- I mean, one thing that you've just seen in general, just, not only from the Hill but, you know, from the business community, from the White House, is just a greater willingness to push back, you know, whereas this IP issue has been around for a long time now as Elizabeth mentioned. You know, these things are growing discontent and a willingness to kind of push back against China and ask for things. So, you know, unclear, you know, where they -- where things go from here, but certainly, the Republicans are not going to, you know -- they're gonna be very, very critical of Chinese political system, human rights issues, government issues. So that's gonna be on the front burner for them, for sure.
NNAMDIElizabeth Economy, what are you expecting from this new Congress vis-à-vis China?
ECONOMYWell, I think that's right. I know they already held their first hearing on China this past Wednesday, just a small briefing to try to get a sense of, sort of where China is going broadly politically and in terms of its foreign policy. So I think there's going to be a lot of interest. And I agree, I think the human rights issue, labor issues are going to come to the floor, in a way that they haven't, in...
NNAMDIBut isn't this likely to be a more pro-business, U.S. House of Representatives?
ECONOMYYou know, not necessarily.
ECONOMYI mean, pro-business, I think everybody is pro-U.S. business.
ECONOMYIt’s really a matter of how that's executed, right, and whether or not -- and here, I think it's probably important to remember that, you know, it's Schumer-Graham bill, right? So I think the kinds of concerns over the currency or over intellectual property rights really does -- is a cross party issue, right? And people on both sides of the aisle are quite concerned about Chinese practices here. So, I think it may be pro-business, but I think that's pro-business in an American context. I don't think they're going to be any easier on China in the U.S.-China trade relationship.
NNAMDIWell, we're talking pro-business in a highly charged political environment, are we not, Jia Lynn Yang?
YANGAbsolutely. I mean, one thing that's interesting is that the Chinese unrest in the U.S. is actually rising dramatically. It's grown about 150 percent last year, so. And the last time, you know, we've seen a couple of flare-ups now over the issue of Chinese companies and the Chinese government investing in the U.S., most memorably in 2005 when CNOOC tried to acquired Unocal, and there was a huge political uproar over that. And since then, I mean, it's politically very touchy. Except, you know, one issue -- what's interesting is that you see President Hu tomorrow. He's gonna be in Chicago. He's actually visiting U.S. (word?) and the Chinese company.
NNAMDIOh, yeah. And Chicago Mayor Richard Daley has called that a big, big, big, big, big deal. (laugh)
YANGYeah. And so, you know, here is a really interesting example of a company called Wanxiang, which is a giant auto parts company, about $8 billion...
NNAMDIOnly got about 20 seconds.
YANGOh. Anyways, but, here, the idea is President Hu is sensitive. He's saying, Look, here's a Chinese company in the U.S. creating jobs, you know, we're employing 5,000 Americans here in Chicago. Let us come in and, you know, pull down your barriers, too, and maybe we can help create American jobs.
NNAMDIJia Lynn Yang is a reporter for The Washington Post. Elizabeth Economy is director for Asia Studies at the Council on Foreign Relations in New York. Thank you both for joining us and thank you all for listening. I'm Kojo Nnamdi.
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