Under Secretary for International Affairs Lael Brainard Rema

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Under Secretary for International Affairs Lael Brainard Remarks at the U.S.-China Business Council's "Forecast 2011" Conference
As Prepared for Delivery
http://www.treasury.gov/press-center/pr ... g1058.aspx

It’s a pleasure to join you today for the U.S.-China Business Council’s Forecast conference. I have had the pleasure of working with this organization for many years, and appreciate the opportunity to hear your ideas on priority issues for the bilateral relationship.

Let me dispense with the usual striking statistics on China’s rise—you know them all too well. What is more interesting today is the choices China will make as it navigates the transition from an economy powered by foreign export demand to one that unleashes the purchasing power of domestic consumers. From a large magnet for foreign investment inflows to a growing source of investment outflows. And from adoption and adaptation of foreign technology to an innovation society. As China navigates this transition, the choices it makes matter for America’s economic interests—our exports, our businesses, our farmers and workers.

As China strives to innovate rather than adapt, as it shifts from export-driven growth to growth driven by domestic consumption, and as it seeks to invest in foreign markets, its domestic goals will be well served by the same principles that we have been seeking in our trade and investment relations: promoting a level playing field, knocking down barriers to market entrants, improving the allocation of capital to reflect market signals, and reducing the role of the state in the economy.

As we have seen from similar transitions elsewhere, China will develop robust innovation capacity only if it protects intellectual property and opens up opportunities for government procurement to new entrants. China will transition smoothly to more balanced growth only if it allows its currency to adapt to market forces. And China will continue to have strong interest in access to America’s products and services, markets and, increasingly, investment opportunities.

For these reasons, the Obama Administration is working hard with China to promote continued strong growth of U.S. exports, to level the playing field and ensure market access, and to make sure the exchange rate continues to appreciate in line with market forces.

We made progress in advance of President Hu’s visit but we are not complacent.

One of the important areas of improvement has been on China’s indigenous innovation policies, which have been of serious concern for the Administration and a top priority for many here today. Last summer at the Strategic and & Economic Dialogue, we secured a commitment from China that its innovation policies would be consistent with the key principle of nondiscrimination. At December’s Joint Committee on Commerce and Trade, China agreed that it would not make the location of the development or ownership of intellectual property a condition for the eligibility for government procurement preferences. And during President Hu’s visit, China agreed that it would not link its innovation policies to the provision of government procurement preferences.

China also committed to submit a revised offer to join the WTO Agreement on Government Procurement that will include sub-central entities by the end of 2011. This is an important step in ensuring that our companies will be able to compete in China’s procurement market. China’s accession to the GPA will provide U.S. exporters with improved access not just to the more than $88 billion central government procurement market, but also to the even larger market for sub-central procurement.

We further made concrete progress on intellectual property rights enforcement, where China agreed to ensure that government agencies have funds to use legitimate software and to audit and publicly report on the use of these funds.

And as we continue to engage with China, we will work on implementation of China’s commitments and press China to make further progress.

We are also seeing progress on China’s efforts to transition from a nation heavily reliant on external demand to one that can tap to a greater extent its deep capacity to generate internal demand. While China still needs to do much more to rebalance its economy, we are seeing important results. Domestic demand in China grew by about 20 percent in U.S. dollar terms in the past year.

Rebalancing is likely to be a central focus of China’s next Five-Year plan, and the exchange rate has to be a critical part of that effort, along with other structural reforms. We’ve made progress on the currency issue but that does not mean we are satisfied. We have seen the RMB appreciate by 3.7 percent against the dollar in nominal terms since last June. Taking into account higher domestic inflation in China, the real bilateral exchange rate has appreciated even more, at a rate of more than 10 percent per year. Based on this adjustment, and based on President Hu’s stated commitment, Treasury recently concluded in its semi-annual Foreign Exchange Report that China did not meet the legal standards for currency manipulation. We will remain intensely focused on this issue to ensure accelerated progress to address the remaining substantial undervaluation of the RMB.

U.S. exports to China have been growing at twice the rate as they have to the rest of the world. And we are on track to export over $100 billion of goods and services to China over the past year. The $45 billion in contracts finalized during President Hu’s visit offer a concrete illustration of that growth. Now we must make sure that this progress is sustained—if we are to achieve the President’s goal of doubling exports in five years.

On investment, China is shifting rapidly from a nation that was dependent on hosting foreign investment to one where investment flows in both directions. Looking ahead, we anticipate that China is in the early stages of an outward investment wave. Ensuring that the investment environments are open and fair with clear and transparent regulations will therefore be a growing element of our economic relationship, consistent with our national security objectives.

The Administration’s engagement with China has been intensive and tightly prioritized since day one – across all the economic agencies and the White House. We maintain continuous interaction at all levels with the Chinese government across the full range of economic priorities. Under the leadership of Secretary Geithner, the economic track of the U.S.-China Strategic and Economic Dialogue has strengthened relationships and mechanisms to pursue these priorities consistently and effectively at the highest levels.

We have made significant progress but we know, just as you do, that what matters is not what we agree to on paper, but what really happens on the ground. That’s why we will be very focused on implementation of commitments, using all appropriate tools and leverage to make sure this happens.

We are also very aware of China’s priorities, which include access to innovative U.S. products, greater investment opportunities in the United States, and 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 on how much progress we see from China.

President Obama’s economic team is likewise addressing our own set of policy challenges as we transform our economy following the financial crisis. We are getting our economy back on track, getting the job engine cranked up, saving more as a nation, and putting the policies in place to compete and win. And we are focusing on the core foundations for strong growth into the future: strengthening our infrastructure, our innovative capacity, access to education and training, and our ability to export.

Together, as we pursue our individual, bilateral and multilateral economic agendas, we recognize that the U.S.-China economic relationship offers great promise and potential, and we remain committed to securing the best outcomes for American workers and businesses.

Thank you. I’m happy to take your questions.