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As China’s Economy Grows, How Hard Should U.S. Push on Currency, Human Rights?

January 20, 2011 at 12:00 AM EDT
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Continuing his U.S. visit, Chinese President Hu Jintao met with political and business leaders. Jeffrey Brown evaluates the final day of his visit and the impact on the business world with Myron Brilliant of the U.S. Chamber of Commerce, Thea Lee of the AFL-CIO and Yukon Huang of the Carnegie Endowment for International Peace.
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JIM LEHRER: The president of China turned his attention to Congress and the business world today, and he portrayed China as an economic partner.

Jeffrey Brown has our report.

JEFFREY BROWN: President Hu Jintao began day three of his visit to Washington, arriving at the Capitol for calls on congressional leaders. His photo-op with Senate Majority Leader Harry Reid was brief and briefly awkward when a reporter shouted this question.

QUESTION: Senator Reid, what do you expect to accomplish with a man you called a dictator?

SEN. HARRY REID (D-Nev.), majority leader: He is a dictator.

JEFFREY BROWN: Reid had made that statement about Hu in an interview on Wednesday but then retracted it.

Hu’s meeting on the House side with Speaker John Boehner was not open to reporters, but Boehner spoke later.

REP. JOHN BOEHNER (R-Ohio), speaker of the House: We did discuss our economic relationship. I did express my concerns about religious liberty. I expressed my concerns about intellectual property and the issue of North Korea. The president responded. And — and I would hope that the dialogue on all of these subjects will continue.

JEFFREY BROWN: The meetings on Capitol Hill followed an evening of pomp and ceremony at the White House. The official state dinner was attended by a number of celebrities but also business leaders, including the heads of Goldman Sachs and J.P. Morgan and the CEO of Disney.

Today, in a speech to the U.S.-China Business Council, Hu highlighted business ties between the two countries, underscoring the benefits for U.S. firms.

HU JINTAO, Chinese president (through translator): For many American companies, their businesses in China have become the biggest source of profits in their global operations. Even in 2008 and 2009, when the international financial crisis was most severe, over 70 percent of American companies in China remained profitable.

JEFFREY BROWN: China, in fact, has weathered the global economic downturn far better than most. New data released in Beijing today showed Chinese growth topping 10 percent last year. At the same time, economic tensions have grown, with U.S. charges that China keeps its currency artificially low and has made it harder for foreign companies to sell in China.

Today, Hu focused on greater cooperation.

HU JINTAO (through translator): China-U.S. relationship is not one in which one side’s gain means the other side’s loss.

Rather, it should be a relationship in which the two sides respect each other and endeavor to deepen strategic mutual trust. It should be a relationship that highlights common interests and stronger cooperation in all fields.

JEFFREY BROWN: On Wednesday, President Obama raised one area of disagreement: human rights. And Hu acknowledged China has more work to do.

Today, White House Press Secretary Robert Gibbs said the U.S. wants Chinese actions to match those words, but he welcomed Hu’s statement.

WHITE HOUSE PRESS SECRETARY ROBERT GIBBS: I think you would all have to strain your recent memory to find a leader from China traveling outside of his country, or in, after meeting with the president on a number of occasions on this trip, making such a frank admission of the improvement that needed to happen in the area of human rights in the country of China.

JEFFREY BROWN: As he wound up his Washington visit today, Hu called for both sides to focus on the future.

HU JINTAO (through translator): China and the United States are different in history, culture, social system and development level. It is thus only normal that we have some disagreements and frictions. We should prevent our relations from being affected or held back by any individual incident.

JEFFREY BROWN: Later, the Chinese leader headed to Chicago, where he will continue to focus on business and economic ties.

And we do our own focus on those issues now with Myron Brilliant, senior vice president for international affairs at the U.S. Chamber of Commerce; Thea Lee, deputy chief of staff at the AFL-CIO; and Yukon Huang is a senior associate at the Carnegie Endowment for International Peace and previously oversaw the World Bank’s program for China.

Myron Brilliant, let’s start with you.

Yesterday, President Obama said, “I absolutely believe China’s peaceful rise is good for the world and good for America.”

Is its economic rise good for America?

MYRON BRILLIANT, U.S. Chamber of Commerce: I think it is good for America.

We’re talking and the second-largest economy in the world, soon to be the largest economy, 10, 15 years from now. So it’s very important that we participate in its market, that American companies are able to compete and prosper in China. And I believe that, you know, we have seen tremendous economic growth in this relationship, since 2000, well over 300 percent increase in exports to that market.

So, there’s enormous promise for our farmers, for our manufacturers, for our service providers. More needs to be done, but it’s a good market and it’s important that we continue to engage it.

JEFFREY BROWN: OK, Thea Lee, so, starting off with opportunities here, but what are the key — what’s the key problem that you see right now in the relationship?

THEA LEE, AFL-CIO: Well, the Chinese economy is enormously important to the United States, and it has enormous potential.

But, unfortunately, right now, there are a lot of trade frictions because the Chinese government is not playing by the rules, whether it’s respect to currency manipulation, egregious violation of workers’ rights or illegal subsidies.

And so we can’t have a healthy and sustainable trade relationship with a country that doesn’t play by the rules. Right now, we have a more-than-$250 billion trade deficit with China. That’s because we’re importing so much more product than we are able to export. We need to figure out how to get that relationship on a more balanced footing, and we need to figure out how to get the Chinese government to comply with the international obligations it has already agreed to.

JEFFREY BROWN: And, Yukon Huang, the Chinese came here saying they have made some adjustments on the currency. They come touting some recent business deals.

What’s — what’s the Chinese perspective on these tensions that get so much attention here?

YUKON HUANG, Carnegie Endowment for International Peace: Well, the world sees a China rising, next superpower.

China, looking forward, actually sees a country which is mired in what I call low-cost, labor-intensive production processes, commensurate with the economy which has a per capita income of less than $4,000, one-tenth of that of the United States. And when they look forward, they say we have to move up the value chain. We have to move to higher-value-technology product lines.

JEFFREY BROWN: And therefore?

YUKON HUANG: Therefore, what they’re really keen on doing is acquiring technology. And, therefore, you have this controversy over indigenous innovation, the rules of the game.

In some cases, it’s actually very gray, not transparent. Similar practices exist in every country, both in Europe, U.S., as well as in China. And I also agree with Thea. This question of transparency and how you define this is a — is a key issue for everybody in the coming years.

JEFFREY BROWN: And Myron — so, Myron Brilliant, you started off by talking about the opportunities here, but your companies — a lot of your companies are having all kinds of problems.

MYRON BRILLIANT: Well, it may be funny for your viewers to realize that Thea Lee and I agree on a lot. We agree that we do have regulatory issues…

JEFFREY BROWN: Well, we don’t see that all that often on this program, right? But it…

MYRON BRILLIANT: Well, on this issue, we share some common views.

One, we do have concerns about China’s intellectual-property record. We also want to see China’s currency appreciate. We think that would help our trading relationship. But, also, as importantly, we have a range of regulatory issues in that market. We want to see how China will develop a level playing field that allows our companies to invest and export to that market.

So, we have some challenges in that market. We shouldn’t skirt over the differences. I was pleased that President Obama raised those issues. Now we need to see how China responds.

JEFFREY BROWN: All right, but give — make it concrete. I mean, can you give us an example of a particular — to — of how the problem works itself out for a company?

MYRON BRILLIANT: Well, there are a number of problems. One that has gotten a lot of attention is how China developed an indigenous innovation policy that basically cut our I.T. companies and advanced manufacturing companies potentially out of the procurement market.

Now, the two sides have worked on that. There was progress made between the two presidents. And, hopefully, we have addressed that. But they basically were saying, if we didn’t register our I.P. in that market, we wouldn’t be able to compete for procurement contracts, both at the central-government level and at the provincial level — hundreds of billions of dollars at stake.

So, this is an area where we made some progress on this visit. Now will see how it’s implemented by the Chinese government.

JEFFREY BROWN: And, Thea Lee, do you — do you see movement on the Chinese side? Yukon Huang was talking about their perspective of what they’re trying to do to grow their economy. So, they have — they have clearly got their issues as well.

Do you see them moving in the right direction on some of these areas?

THEA LEE: I think the movement has been way too slow on the part of the Chinese government on all the areas that I talked about, certainly, whether it’s currency — if you have a 40 percent imbalance in the currency, and you make a — half-a-percent appreciation, that’s just buying time.

That’s not solving the problem. And, meanwhile, as they slow-walk the solutions to those problems, we’re losing jobs. Now, American companies are more patient because they’re making money in China. But American workers are losing their jobs, and we have a crisis situation right now.

The same thing with workers’ rights. There has been some very, very slow progress, but this is an enormously important country for us, and yet Chinese workers lack basic human rights. They can’t form an independent union. They cannot bargain collectively with their employer over wages or working conditions.

And the Chinese government doesn’t enforce any of its labor laws effectively, whether it’s minimum wage, maximum hours, health and safety, or protections against child labor or slave labor. And so we have some real serious problems, and the progress is way too slow, in my view.

JEFFREY BROWN: Of course, Yukon Huang, it’s often — it’s pointed out on this program and the Chinese pointed out, the U.S. has its own imbalances, right, that…

YUKON HUANG: Right.

JEFFREY BROWN: … spending beyond our means, for example, leading to this trade imbalance.

YUKON HUANG: Well, let me speak about the trade imbalance.

China’s trade surplus five years ago was 8 percent of GDP. This year that we just finished, it fell to 3 percent. My guess is that, by the end of the next year or two, it’s going to be one or two. It’s going to become insignificant; it’s actually going below the guideline that Geithner, Secretary Geithner, established.

So, I don’t think the trade issue is a serious issue.

JEFFREY BROWN: It’s moving in the right direction.

YUKON HUANG: Right direction. And nor is the exchange rate really the issue.

There is a real issue in terms of — about jobs. What’s ironic, of course, is both the U.S. general public and the Chinese general public share the same general question: We need more jobs, higher-paying jobs. How do we get at it?

Now, the unfortunate issue that the U.S. is the most innovative, high-technology country in the world. China is, in fact, producing only a range of low-technology jobs. And for China, the real issue is how do I actually move up the value chain?

And there are very few examples of successful countries that have done this. There’s actually only one. And that’s Korea. And if you look at Korea very closely, you see that Korea did this through indigenous innovation.

So, China is actually copying a model of another country, the only one they have been able to find. And the question is, is this consistent with the rules of the game?

JEFFREY BROWN: Well, Myron Brilliant, we’re all saying, everybody is saying that we need to be more proactive or watch the rules of the game here. How — what specifically should the Obama administration do? How hard do they push? Do they — do they — do we start to set our own barriers, for example?

MYRON BRILLIANT: Well, no, I don’t think the answer is to erect protectionist barriers.

One, we need to ensure we have our competitiveness agenda in place. That’s investing in education. It’s making sure we have a robust trade agenda, passing free-trade agreements. It’s making sure that we invest in infrastructure and R&D. So, one — one part of the solution is that we work domestically to have the right policies in place.

With respect to China in particular, I think we need to continue to press the Chinese in these dialogues that they — if they are going to be a global economic power, it comes with rights and responsibilities. They need to participate in the international rules, and they need to ensure that if they want to be able to compete in our market, in other markets around the world, that they have to have a level playing field for our goods and services.

And right now it’s not a level playing field, and we need to address that.

JEFFREY BROWN: Well, Thea Lee, press how hard, is the question.

THEA LEE: Right.

JEFFREY BROWN: But how would you fight — how would — how would you fight this battle?

THEA LEE: Well, I would press beyond strategic dialogues and unending state visits, where nothing actually gets done.

I think the United States needs to bring some cases at the World Trade Organization, bring more cases than we have, particularly on the issue of currency manipulation and workers’ rights violations, because these are areas where the Chinese government is gaining an enormous unfair competitive advantage on American producers and American workers.

And our government is doing too little to challenge them. And I agree with some of what Myron said. I think, you know, the United States needs its own coherent national economic strategy with respect to infrastructure and education. Unfortunately, we see everybody in the United States obsessed right now with cutting state budgets and cutting funds for education and for infrastructure.

And that is the wrong direction. China’s not cutting the funds it’s spending on infrastructure and education, and the United States shouldn’t be either. But we need to press a whole lot harder than we have, and we need to come out with more concrete results than we did from this last summit.

JEFFREY BROWN: Time for a quick response.

MYRON BRILLIANT: Just three reactions to what Thea said.

First of all, there are areas where we should be looking at multilateral, not unilateral or bilateral, approaches to dealing with issues. Economic rebalancing is one of them.

Second, when we’re dealing with summits, we actually do get results out of these deals. And I will tell you that indigenous innovation wouldn’t have been resolved without the visit of President Hu Jintao. We would not have $45 billion worth of contracts without Hu Jintao’s visit. So, the visits are important, and they do create jobs here in the U.S.

And, third, we’re not opposed to using enforcement tools that the United States has. That’s the last resort. That’s not the first step in dealing with China. We need to engage China.

JEFFREY BROWN: All right. We have to leave it there.

Thea Lee, Myron Brilliant and Yukon Huang, thank you all very much.

YUKON HUANG: Thank you.

MYRON BRILLIANT: Thank you very much.