Chinese President’s Visit Focuses on Trade Issues

PAUL SOLMAN, NewsHour Economics Correspondent:

President Hu's tour, from the time his U.S.- made Boeing plane landed in the Seattle area yesterday, until he departs on Friday, has, of course, been carefully scripted.

On the tarmac, he was greeted by children from the Seattle Kung Fu Club and ribbon dancers from a local elementary school. Then he got down to business with a tour of Microsoft, the software giant, 90 percent of whose potential sales in China, it's estimated, are snatched away by pirated software.

The message here:

China is doing more and more to protect IPR, intellectual property rights. The evidence? Within the past few weeks, the announcement that major Chinese computer-makers, like Tsinghua Tongfang and Lenovo, will, from now on, pre-install Microsoft software in all the machines they build, thus leaving no need for the pirated variety.

After the tour, President Hu told reporters that progress was being made.

PRESIDENT HU JINTAO, China (through translator):

We have strengthened intellectual property rights by making and enforcing laws. We will seriously prove our commitment in the future.

PAUL SOLMAN:

The president and his wife then attended a dinner hosted by Microsoft founder Bill Gates, attended by business leaders and politicians.

BILL GATES, Founder of Microsoft: It is a sign of our respect for you, Mr. President, and the great fondness of the American people for the people of China.

PAUL SOLMAN:

Today, the economic issue was China's enormous trade surplus, more than $200 billion last year with the U.S. alone.

President Hu visited Seattle-based aircraft manufacturer Boeing just weeks after another Chinese delegation signed a deal worth more than $4 billion with that company.

PRESIDENT HU JINTAO (through translator):

The cooperation between Boeing and China is a good example of the bilateral win-win trade relationship between China and the United States.

PAUL SOLMAN:

This about a deal described by the Chinese government's English-language newspaper daily as, quote, "lubricating the wheels of Sino-U.S. trade and paving the way for the success of Hu's U.S. visit."

Some U.S. economists argue, however, that the recent deals represent in total only $16 billion over a number of years and are dwarfed by a U.S. trade deficit with China in the range of $16 billion every month, a trade deficit exacerbated by China's alleged manipulation of its currency.

Moreover, some say, the Microsoft intellectual property deal only touches a tiny piece of the piracy problem. That's likely to be one of the issues on the table tomorrow, when President Hu meets with President Bush and business leaders at the White House.

What's less clear is whether the leaders will talk about some of China's other economic problems that could affect the U.S., ones that we've looked at in previous NewsHour reports after a recent trip to China, problems such as: China's increasing appetite for natural resources that's been driving up, for example, the cost of oil; its increased contributions to world pollution; the growing gap between incomes in the cities and the countryside, which has led to widespread rural unrest; and the possibility that China's growth is a bubble built on corrupt government mis-investment in luxury buildings and the like, a bubble which could burst all over the world economy.

But for this week, there's President Hu's trip, which, again, in the words of the official China Daily, "is set to clear U.S. minds of doubts and suspicion about China."

JIM LEHRER:

And to Paul Solman, in person. Paul, welcome.

PAUL SOLMAN:

Nice to be here.

JIM LEHRER:

In specific terms, what is it that the United States wants China to do about the trade deficit, to fix it?

PAUL SOLMAN:

Well, the most specific thing they want is for China to adjust its currency, to stop manipulating its currency, to let it float on the open market, but basically to rise in value. That is…

JIM LEHRER:

The way other currencies do, like the way the dollar does and, for all practical purposes, they all of them do, right?

PAUL SOLMAN:

Well, not all of them, but many, most, yes.

JIM LEHRER:

All right. Now, when you say the U.S. accuses China of manipulating its currency, what are you talking about? What do they do?

PAUL SOLMAN:

Well, they don't allow their currency to be traded on the open market. They simply don't allow their currency to be freely traded in the world markets. And, therefore, they can, more or less, by buying and selling currencies and by just restricting the amount that is available to the world, they can basically hold the value of it the way they want to.

They've been letting it appreciate ever so slightly against the U.S. dollar in the last year, but they are able to do that.

JIM LEHRER:

And why is it to their advantage to do that?

PAUL SOLMAN:

Well, because they sell us cheaper goods, right? If their currency goes up in price, their goods become more expensive, and I happen to have here two different vintage "NewsHour with Jim Lehrer" mugs, and this is just the last hour or two that I asked for these. And, sure enough, you can see there, "Made in China."

JIM LEHRER:

"Made in China," right.

PAUL SOLMAN:

That's right. The other one has something in it, so we won't tip it over…

JIM LEHRER:

Good.

PAUL SOLMAN:

… but it, too, was made in China. If the Chinese currency goes up in value, well, then these mugs become more expensive, then presumably Americans buy less of them, and maybe China even, hopefully, starts buying American mugs, because the American currency is so much cheaper, and then you get — and this is the key — you get American jobs back…

JIM LEHRER:

Making…

PAUL SOLMAN:

… people making stuff like this. That's the concept.

JIM LEHRER:

So the trade-off from the American side is, yes, there may be more American jobs, but the price for the coffee cup, it's going to go up?

PAUL SOLMAN:

Yes, it's like a giant — that's the argument on the other side. It's like a giant tax on everything that comes from China that we Americans would pay. Now, of course, we might very well be buying stuff from Cambodia, instead, or Ghana, or Pakistan. So this whole thing might not work anyway, and the Chinese constantly point that out, too.

JIM LEHRER:

Sure. Based on your reporting, Paul, what can you tell us about what might happen in this Bush-Hu meeting that might change this in any way?

PAUL SOLMAN:

I don't think people — well, what do I know? But, I mean…

JIM LEHRER:

No, what you've been talking to.

PAUL SOLMAN:

Well, the people I've talked to don't think there's going to be a big difference. You know, there was a bill in Congress. That bill has been put back. It has been pulled back. It was Charles Schumer and the Republican Lindsey Graham. That bill, people think, is moribund, at least the people I talked to.

Another bill replaced it. It was Charles Grassley and Max Baucus. That's a bill, but it doesn't have punitive measures. The first bill had a tariff that would be slapped on all Chinese goods.

JIM LEHRER:

If they didn't. If they didn't do it.

PAUL SOLMAN:

If they didn't revalue their current.

JIM LEHRER:

OK, the intellectual property issue. If President Hu wanted to fix that problem, does he have the power to do it? Could he do it?

PAUL SOLMAN:

You know, I used to think he did, because somebody pointed out to me that there are no 2008 Beijing Olympic logos pirated anywhere in China, because the government put its fist down, and that was proof that they could do whatever they want.

I talked to Yaxiang Wong (ph), who has been on this show a number of times, an MIT professor. Let me quote: "I just don't see any solution. Everyone copies in China. Professors plagiarize each others' students, copy each other's homework. Why? Because there's such high pressure to perform."

And this would be true, obviously, of any business, too. "The norms are not there, and you don't suffer penalties."

So I asked him — there's a famous Chinese proverb you always hear over there, "Kill a few monkeys to scare the chickens." You know, a few examples, and everybody will fall into line. And he said, but if there are so many chickens and very few monkeys, will it work? And then you don't project intellectual property rights if you don't have domestic knowledge to protect. Bottom line: China doesn't yet.

JIM LEHRER:

So they don't have their own property rights?

PAUL SOLMAN:

Right, and that's the key.

JIM LEHRER:

That's right. If they had their own to protect, then they would — obviously, they would enter into other people's agreements.

PAUL SOLMAN:

They'd pressure, yes.

JIM LEHRER:

Yes, yes.

PAUL SOLMAN:

Even the deals, these computer deals, Tsinghua Tongfang and Lenovo, these are companies that have strong American ties. They're allies who are — so, in a sense, it's foreign pressure, even in those deals, the ones who are putting Microsoft now into their machines, you know, to avoid the pirating problem.

Even those aren't really fully — or it can be argued that they're not fully domestic Chinese companies. And even if they were, they're a very small part of the total.

JIM LEHRER:

Paul, I was interested in the quote you used from the Chinese Daily to end your little set-up piece.

PAUL SOLMAN:

Yes.

JIM LEHRER:

And you said President Hu is set to clear U.S. minds of doubts and suspicion about China. What doubt and suspicions? The kinds of things we've just been talking about or is it something else?

PAUL SOLMAN:

And the kinds of stuff you talked about last night, you know, the idea that the — you know, the oppressive regime, the other kinds of things, pollution.

JIM LEHRER:

In terms of access to the Internet, which was what we…

PAUL SOLMAN:

Yes, I mean, you know, that they're repressive, and that's a doubt and a suspicion we have about them.

What about pollution? China is 30 million vehicles at the moment. The United States has 220, or something like that, cars and trucks. If China had as many vehicles per family as we have — and in 25 years, 30 years, why not? — that would be a billion more vehicles in the world.

JIM LEHRER:

A billion more vehicles?

PAUL SOLMAN:

Yes, that's right. Do the math. I think I've done the math right.

JIM LEHRER:

OK.

PAUL SOLMAN:

Right now, there are about 550 billion — yes, 550 million vehicles in the world, the estimates I've seen. So it would be twice the number of vehicles there are now.

So, you know, we're worried about a lot of things, the electric plants. You go to China, and you look at all the new buildings that are being built, honeycombed with air conditioners on the outside of them. I mean, you just look at it, and you think, "Oh, my goodness, what's going to happen to us all?"

Now, China is actually making some considerable advances with respect to car emissions, for example. More stringent guidelines now on new cars than we have in this country. But the sheer magnitude of it, half the world's cement, twice as much steel as we use in this country now, oil prices, obviously, going up as a result.

JIM LEHRER:

Sure.

PAUL SOLMAN:

And these are all things that we're worried about.

JIM LEHRER:

You mentioned in your series, and you mentioned it again a moment ago in your set-up, this whole thing of bringing prosperity to rural China.

PAUL SOLMAN:

Yes.

JIM LEHRER:

And they've made some progress there, too, I think.

PAUL SOLMAN:

Yes, they've made progress, but they backslid. A lot of progress in the '80s, a lot of backsliding in the '90s, the so-called Golden Era. But the farm people really suffered tremendous unrest, 87,000 official protests in China, officially recorded protests in China.

Now, they are — again this is from Yaxiang Wong (ph) — making a real effort in the countryside. They eliminated rural taxes in 2003. Now, one of the biggest things, one of the biggest expenses for rural Chinese is school fees: textbooks and miscellaneous school fees, electricity, water, stuff like that.

They are on a path — they plan to and have announced that they will eliminate them all by next year. That's 30 percent. School fees are 30 percent or so, according to Professor Wong (ph), of all the costs.

JIM LEHRER:

You used the word "big"…

PAUL SOLMAN:

Of the rural families.

JIM LEHRER:

Yes, you used the word "big," big, big, big. That word applied to everything, problems, and what they have done, and what they still have to do, and what they're going to talk about, the two presidents, right?

PAUL SOLMAN:

I don't see how — that's the one thing I'm sure of in this conversation.

JIM LEHRER:

All right. Thank you, Paul.