This transcript also includes the question-and-answer session at the end.
President Vest, ladies and gentlemen. From the bottom of my heart, I want to thank President Vest for inviting me here to MIT. It has given me an opportunity to meet so many learned professors and scholars, including those who have come from my alma mater, Tsinghua University, my fellow schoolmates.
Yesterday I was in New York and my good friend Dr. Kissinger said to me, you are the second person brave enough to go and give a speech at MIT. I'm talking about the leaders, of course. I truly did not have the nerve to do that, especially to give a scholarly speech. However, when I was at Tsinghua studying in 1947, Tsinghua was called at that time the MIT of China (applause).
What I was studying, the textbooks we were using were on the whole imported from MIT. Now of course these were not the original texts from the United States; these were photocopies made in China. Whether they were pirated copies or not (laughter). I do not know.
At the time I was thinking to myself, would the day ever come when I could come to study at MIT and possibly to go for a degree? Now, President Vest, please do not misunderstand me. I'm not asking you to give me an honorary degree. I don't want to be accused of making a political contribution (laughter and applause). What I was hoping for was that if I were to get a degree, it would be through my own studying, through taking exams and defending my dissertation. I'm 70 now. I don't think I'm ever going to do it in this lifetime, so I won't get that degree in this lifetime.
And then, the first time I came to Boston was in 1984 and I gave a speech at Harvard University and I also visited the Harvard Business School and talked to Dean MacArthur. But on that occasion, I was unable to visit MIT and I always felt to this very day that that was a regrettable omission.
So this time, if I were still not to come to MIT, it would be the regret of a lifetime -- particularly because the way that MIT runs itself, the slogan that you have for yourself, is so relevant to China's present strategy of moving up the nation through science and education. It has such a positive meaning for us, particularly in my capacity as Dean of the Business School of Tsinghua University, and our School of Economic Management in Tsinghua has very close cooperative relations with MIT. Therefore, if I were not to come on this visit, it would also be greatly regrettable. So even if I were to get beaten black and blue on this visit, I will come.
The topic I am supposed to talk about today is US-China relations. US-China relations have had a history of many twists and turns, but I think that the friendly cooperative relationship between China and the United States is in the interests of people of both countries and it's in the interests of the people of the entire world. It's also a policy which has received support from both major political parties in the United States, the Republicans and the Democrats, and it has also been consistently upheld by three generations of leaders in China.
Today, even as this relationship is faced with certain difficulties and problems, I'm willing to come here and to talk about some of these issues, to talk about them with the American people, to help you get it off your chest. What do I mean by this? Because I want to come tell you what the real picture is, to tell you the facts in order to help both sides come to a common understanding.
In US-China relations, there are many issues which I have discussed innumerable times in this visit to the US. For instance, human rights, the political disturbances of 1989, the Dalai Lama, TMD, Kosovo -- I'm sure you must be sick and tired of hearing this list, and so I don't want to go over these again and again. But I want to talk about something of concern to you, which is the trade deficit between China and the United States. I think that this issue is something which is of concern to people in many circles of American society. Personally, I've done a little bit of study on this issue. Now, of course, it's a far cry from the work done by your Nobel Prize-winning faculty here; that would be just too impossible to compare. But I do want to make several points here.
First, the deficit between China and the United States: in terms of its figures, the numbers have been greatly exaggerated. According to the American side, the trade deficit is 56.9 billion dollars. According to the Chinese numbers, it's 21.1 billion US dollars. A very big difference [this sentence in English] (laughter).
I'm not trying to comment on which number is the more accurate, but I want to use something developed by a scholar in the US, a scholar at Stanford University named Lawrence Lau, who has done a very in-depth study of this matter. He feels that both numbers are inaccurate.
One reason is because these numbers, when you look at import figures, included costs of shipping and also costs of insurance, and when you look at the export figures, these are not included in the numbers. At the same time, these numbers do not take into account the fact that a large portion of US-China trade consists of transshipments through Hong Kong and there is value added in Hong Kong, and that is a very large proportion of value added in Hong Kong. It also does not take into account smuggling in China.
Based on these factors, if you make corrections, taking these into account, then according to Professor Lau's estimate, the US-China trade deficit is probably about 36 billion US dollars because the US has large service exports to China, but there are large service imports into China. So if you deduct for that, then the deficit is maybe about $30 billion.
Now, I'm not right now trying to comment on the accuracy of that estimate; it's lower than the American number and it's higher than the Chinese number, so I'm not going to comment on that, but I very much respect the huge volume of research that the scholar put into this effort and he has a lot of data to back his analysis up. So that is one point I wanted to make. That is to say, don't look at this trade -- don't make such a big deal out of this trade deficit.
People keep saying, the total US trade deficit was less than 200 billion US, which is only maybe 2 percent or a little more than 2 percent of your total GNP. This is very common in many countries. For many, many years, Canada's trade deficit has been running more than 2 percent of its GNP. So this is not such a serious problem. In terms of the US economy, it's actually a rather minor problem.
The second point I want to make is that Chinese exports to the United States consist on a whole of labor-intensive goods with low value added. These are consumer goods or perhaps resource-intensive commodities. These products, 15 years ago -- if you had looked at them, you've stopped producing them long ago, and so this kind of import has absolutely no competition in the US market. It's good for your readjustment of your economic structure. It's good for you to develop, it helps you develop your high-tech industries and that's one reason why you've been able to become the world's number one economic power.
These consumer goods, you wouldn't be able to find anyone to manufacture them in the US. If you were to stop importing such goods, you here, the ordinary people of the United States, if you had to import these same things from other countries, your ordinary American consumer would have to pay more, pay $20 billion more US (applause).
While this figure actually was according to the report by the World Bank, that's not something that I concocted. So that's an estimation, a calculation that I made according to the reports by the World Bank. That is to say, in 1988, if you had not imported such goods from China but from other places, then all of you present today would have paid more for the goods that you've consumed. Maybe the inflation rate would have been higher than at present rate.
Third point. The overwhelming majority, or say more than 70 percent of the Chinese exports to the United States, are the products by processing trade. By processing trade I mean the products produced by the enterprises or ventures established by foreign investors -- including American investors -- through processing or assembling the raw materials and the components imported from other countries, including the United States, and then these products are re-exported.
These raw materials and the components are mainly imported from Japan, [Korea], Taiwan, Hong Kong, Singapore, while the value-added parts in China is very, very insignificant. That is to say, Chinese exports to the United States actually represent a transfer of the exports to the United States by the above-mentioned countries and the regions that I mentioned. You used to import your consumer goods from the above-mentioned countries and regions, but as these countries have seen a very high labor cost now, they have transferred their production to China and then these products produced in China with imported materials and components are exported to the United States. So the US trade deficit with these countries and regions have decreased but with China has increased. But your total trade deficit is constant, the same.
In 1987, when I was the executive vice minister of the State Economic Commission in China, I made a research on that and I looked into the case of the Nike, Reebok, Adidas sports footwear exported to the United States from China. Most of these factories are set up in the coastal provinces, such as Fujian Province, so I went to Fujian Province. At that time the factories producing such footwear in Fujian were mostly run by Taiwan business people. The producer price for each pair of the sports footwear is 20 US dollars but the retail price in the US market was 120 US dollars. I found that, out of the 20 US dollars, only 2 US dollars were paid to the Chinese workers, but that 2 US dollars could support the life of two Chinese workers.
As for the raw materials, some of them were imported from Japan and some from the United States. And the cushion -- that's the main part -- was worth 2 US dollars; that may be a patent product that was from the United States. So that you can see very clearly, that kind of shoes were sold for 120 US dollars in the United States and the producer price in China was 20 US dollars, but the Chinese workers only got 2 US dollars, but that anyway was beneficial to China because that provided job opportunities for Chinese.
Then what is the situation now? Recently I received a major shoe producer from Taiwan. According to him, he has the largest sale of sports shoes worldwide and all of his products are produced in China. And I asked him, how are your factories doing as compared with 1987? He said, almost the same situation, and this time when I came to the United States I instructed my secretary to go to the nearest department stores in Chicago and to find out the prices of these shoes and I found that the average retail price of these sports shoes ranged from 80 to 120 US dollars, maybe a little bit lower than the price of 1987, and if you looked inside, you can see that they are all made in China.
In the United States you cannot find anybody to produce such labor-intensive products and it will be more expensive if you were to import such products from other countries and the regions than China. Only China is in the best position to produce such products, and this is also beneficial to China because this has provided job opportunities to China. But most values contained in such exports to the United States represent the transfer of values from other countries in the region.
I very much appreciate Professor Paul Krugman's views -- I often read his papers. One of his papers says that this does not mean that a Chinese market is not open, but shows that the Japanese market is not open (applause). This time in Denver I went to visit the Storage Tech and the host told me that a very important component of the product's read-and-write head was imported from China and that I looked at it and I said that it seems that the most valuable components of this read-and-write head was from the United States -- was made in the United States.
The read technology actually was from the United States and even the steel used for their products was imported from Japan. In China, we just did assembly. That is to say, if such a read-and-write head is worth 10,000 US dollars, then about the value of 8,000 US dollars is produced in the United States and out of the 2,000 US dollars, about 1,000 US dollars are the raw materials imported from Japan or South Korea. So the real Chinese exports to the United States was only 1,000 US dollars.
Professor Krugman's conclusion is that, while such trade deficits under both current and capital counts, the trade is actually -- we have spent most of the $146.5 billion foreign exchange reserves to buy the US treasury bonds, and so that professor's conclusion is that such double surpluses of China are the weak point of China. So I agree with you. We need to adjust such structure.
Making the above-mentioned three points, I just want to say that the current trade deficit between the United States and China is not only in China's interests but I think it's also to a large extent in the American interests. I'm not saying that we don't need to improve this trade balance. China would do its best to improve this trade balance between China and the United States.
[During] negotiations on China's accession into the WTO, China has made very major concessions. I believe that such concessions are good for the Chinese people to participate in the international economic cooperation, and also good for enhancing the competitiveness or promoting the market competition in China and also the development of China's national economy. And there are more good for the WTO because without China's participation, the WTO would not be representative enough and I think such concessions are all the more in the US interest.
In Washington, DC, Vice President Gore and I co-chaired the second China-US Forum on Environment and Development. At that opening ceremony I said that, through its practice in economic development, China has come to realize the importance of sustainable development and also the importance of coordinated and harmonious development of economy, environment and ecology. So China now has made unprecedented efforts and made unprecedented investments in such ecological and environmental infrastructure projects.
If China and the United States can cooperate in these areas, and if the United States is willing to transfer its technologies to China, then several years from now, you will have very big markets worth hundreds of billions of US dollars. I think that cooperation can do a great good, do a lot of good to improving the trade balance between our two countries.
Now, a lot of Americans are very angry about China for the trade deficit and there is a lot of talk about trade deficit in the United States, and I said that maybe several years from now, maybe it will be in China that we will be very angry about Americans in talking about China's trade deficit with the United States (applause). I'd like to add [that] I'm referring to the Chinese people, not I. I will not be angry, because in my view, so long as we can introduce advanced technology to improve our management, such trade deficit is a pleasant burden on us because that will do good to the long-term development of China's economy.
But that will not entirely depend on China. Now, first and foremost, the United States should really do what it advocates: that is, free trade. While there's too-strict restrictions on these exports to China -- just now President Vest told me that you are all engaging in probing the secrets of the universe and while I was so afraid of the word "secrets" because that reminded me of espionage (laughter and applause) -- now the United States is imposing a lot of restrictions on its exports to China. Maybe if we are not the last one, we are the next to the last. While we intended to launch asatellite from Hughes Company but that has not got a license and our meteorological bureau needs a computer from the United States, but that was not allowed to export to China.
How can we improve US-China trade imbalance under such circumstances? I'd like to remind you to the fact that last year machinery and electrical products exported from the United States to China only accounted for -- only stood at 8.9 billion US dollars. They were just ordinary products, not high-tech products. But for Japan last year, their exports of such products amounted to 15.1 billion US dollars. For the European Union, their exports of machinery and electrical products to China amounted to 14.8 billion US dollars last year.
I really want to ask, you only want to export wheat and citrus fruit to China? OK. The SPS Agreement reached this time, signed this time, has opened China's door to your wheat and citrus fruits, but ladies and gentlemen, can the Chinese people only live on citrus and wheat? Yes, we can, but we want to live better.
I think it's very important for us to see the importance, the strategic importance, of China-US relations. China is not your potential adversary, let alone an enemy of the United States. China is your trustworthy friend (applause). What kind of threat can China pose to the United States? As President Clinton has said, the United States has more than 6,000 nuclear weapons while China only has 20 to 30. I don't know how he knows that (laughter) because even I myself, I don't have the knowledge of how many or the exact number of the nuclear weapons we have (applause). But I fully agree with his judgment; that is to say, [the US] has lots of them and China has very few of them.
China will never be a threat to the United States. We will not pose a threat to the United States. China's per-capita GDP is dozens of times smaller than that of the United States. Even in 30, 40 or 50 years, there will still be a big gap between our two countries. China will still be the largest market, potential market, for the United States. China will be your partner, not your adversary. So I think it's very important to establish, to strive to establish, the constructive strategic partnership between our two countries because that serves the interests of both peoples and I think that also enjoys the bipartisan support.
We can look back in history. It was President Nixon of the Republican Party who opened the door to China-US relations and the Democrat, it was under President Carter, the Democratic president, that China-US diplomatic relations were established. And then the Republican Presidents Reagan and Bush further promoted such friendly relations in the cooperation. And President Clinton again, a Democrat, together with President Jiang, exchanged very successful visits and they expressed the determination that the two sides will work towards a constructive and strategic partnership.
I think this marks a new stage of development for China-US relations. Such relationship is good for both peoples, for the people throughout the world, and also good for international cooperation and the world peace. Three generations of leaders in China -- that is Chairman Mao Tsetung, Mr. Deng Xiaoping and the present Jiang Zemin -- they've been working unswervingly for promoting, for maintaining and promoting such a relationship.
We are convinced that the difficulties or some problems in the current China-US relations are no more than a small digression in the long history of China-US friendly relations and the cooperation, and I believe that such difficulties and the problems are just like a cloud that is going to pass and the bright sunshine is going to shine brightly. So let us work together for that (applause).
As we are about to wind up our visit to the United States, I wish to express our heartfelt gratitude to President Clinton and the government of the United States for their gracious hospitality and also to the American people that we have had discussions, including all those members of the Congress, maybe already 30 of them that we have had meetings with, and also to those press, the media people. We had breakfast together with the American press people and we had lunch together with the American bankers, and in the American streets we have had conversation with the ordinary American people. So from all these contacts and interactions, I feel deeply that China-US friendship is very deeply rooted among the people.
Yesterday, at 2:00 yesterday afternoon, President Clinton called me over the phone and I told him what I felt through the visit and he said, I have the same feeling. I think that the American people favor China-US friendship and favor the early accession into the WTO by China, so on the eve of my departure from the United States I wish to once again express our heartfelt gratitude and our thanks to all of you present and also the people of Boston (applause), the people of Massachusetts and people of the United States for your very warm welcome (applause). Thank you very much. (applause)
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After Premier Zhu's speech, MIT President Charles M. Vest moderated an audience question-and-answer period.
Vest: Although Premier Zhu Rongji has indicated that he is too busy at the moment to complete his coursework at MIT, he has graciously agreed to stand for his oral examination at this time. Seriously, Premier Zhu is going to take a few questions from the audience. I would ask only that your questions be stated very concisely and precisely and quickly so that we can deal both with translation and give the premier an opportunity to answer as many questions as time allows. We have the first microphone back here, please?
Question (in Chinese): I represent the daughter of Mr. Xu Wenli and I would like to ask the following question. Why was Mr. Xu Wenli imprisoned for conducting peaceful activities which were not in contravention of any article of China's constitution? These were, his imprisonment goes totally against the Universal Declaration of Human Rights and all UN conventions. Last December 21st, after a three-and-a-half-hour trial, he was sentenced to 13 years in prison. The question is, when will you cease this dictatorial rule and release Mr. Xu Wenli from prison?
Zhu: The subject of human rights in China is one which I have discussed on numerous occasions in the United States. In fact, I've talked so much about it, that I practically have blisters on my mouth.
Human rights in China have been improving from one day to the next, and I think it's fair to say that the degree of human rights now being enjoyed by the Chinese people is unprecedented in China's history. We acknowledge that we still have shortcomings, and these shortcomings are ones which we are still working hard to address. But our congress, which is the National People's Congress, is in the process of revising the Chinese constitution, and it is paying particular note to the work of adding a constitutional amendment, which stipulates that we wish to establish a nation which is ruled in accordance with law. That is to say, we wish to see this -- to be a country where there is rule of law. And therefore, this is what we are now currently working on. As for any individual case, I don't think this is the time or the place for me to go into details.
Question (in Chinese): Premier Zhu, I, on behalf of the Tsinghua University alumni who are studying here, want to welcome you and all of us congratulate you on the success of your visit to the United States. I would now like to pose two questions to you. You've mentioned that it is a basic policy of China now to invigorate the country through science, technology and education. So, which do you think are the major problems right now in implementing this policy? And what means do you think the Chinese government will use to improve itself and do this work better? The second question has to do with the development of high tech industries in China. Which areas do you think this will focus in, and what policies does the government now have in place to encourage students who are studying abroad to return to China and to work?
Zhu: Thank you very much for your good wishes, and I would like to take this occasion now also to convey my warm feelings to the Qinghua alumni and all the Chinese students and scholars who are studying at MIT.
On two separate occasions, I have announced that the policy of invigorating our country through science and education is a priority for the current administration. And to this end, the investment which we have put into this effort over the last two years has been unprecedented in its scope and size. Of course right now, I don't have the time to go into detail as to which specific areas these funds have been channeled to, but I think that the most fundamental aspect of this policy of invigorating the nation through science and education lies in education. Now, of course, basic education is a very important component of this, but in addition to basic education, I think an extremely important aspect of education is professional education, particularly in the area of management.
Right now, China is very short of talented managers, and in our state-owned enterprises, the large majority of CEOs and chief accountants lack the necessary qualifications. That's why I was saying to President Vest a little earlier, that what we would like to see more than anything else is to see MIT helping us to train these high-level managerial persons.
And right now, in fact, we are also in the process of working together with Peat Marwick and Arthur Andersen to establish three centers in China for training accountants. These will be national accounting academies. But the first of these has already been established: it's at Tsinghua University, and it is beginning to take shape now, and the first classes will be offered soon. The problem is, I still haven't identified a suitable dean for this institute, and so, if anybody here is willing to take up the job, contact me.(In English:) I promise I will pay what you are paid here. (applause)
I might also add that our securities work also is equally lacking in qualified people, so our securities regulatory commission right now has engaged Mr. Ronald Leung of Hong Kong to be our first advisor. And at his suggestion, I am inviting outstanding talents from Taiwan and Hong Kong to become part of our securities regulatory commission. And the pay that I am offering these people is comparable to the pay that they had before coming to our commission.
Vest: We have time for one last question. Let me get to the middle here, Professor Potter.
MIT Professor Mary Potter: Your excellency, at MIT, we recently addressed problems of persisting inequality between men and women professors. (applause) What, my question is, what steps are you taking to insure equal use of the talents and abilities of girls and women in China. (applause)
Zhu: Thank you. I am very much in favor of equality between men and women, even though throughout its history, China has had a tradition of placing men over women. And we have many mass organizations whose mission it is to protect and defend the rights and interests of women and children.
You can see that even among the ranks of our delegation here, we have a very outstanding Chinese woman, Madame Wu Yi, who is one of our state councilors.
Madame Wu Yi played a pivotal role in the negotiations we had with the American side on this visit regarding China's accession to the WTO. I know that many Americans are a little bit puzzled by this word "state councilor" and they're not quite sure exactly what this job is, so I can tell you here and now, that what she is, is a vice premier.
But Chinese are very concerned about matters of protocol, and the title of state councilor comes right after that of vice premier. However, in this round of negotiations, she was the premier and I was the vice premier. (applause) I can also share a little secret with you. At home, I am totally an obedient servant of my wife's. I don't have so much as a penny in my pocket. I hand everything over to her.
Vest: Ladies and gentlemen, please remain seated while the platform party exits. But before doing so, please join me once again in thanking His Excellency, Premier Zhu Rongji. (applause)
