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Larsen Speech to US-China Business Council

Location: Unknown

Thanks to John Frisbie and Erin Ennis for the opportunity to say a few words today, and thank you all for attending.

2012 is going to be a critical year for the U.S.-China relationship. There are a number of important events and shifts in policy that are occurring simultaneously within both the countries. These changes could lead to greater cooperation for the U.S. and China--or greater confrontation.

The first shift taking place is the U.S's pivot toward Asia -- a natural evolution. The U.S. is a Pacific nation, and is committed to being an active partner with friends and allies in the region. The U.S. takes no relationship in the Asia Pacific for granted. The countries of the Asia Pacific are at a geopolitical crossroads and the United States must continue to foster strong cultural, diplomatic and economic relationships with the region as we move forward.

The successful passage of the Korea free trade agreement and President Obama's commitment to successfully negotiate a Trans Pacific Partnership (TPP) trade agreement are extremely important for our nation's exporters and solidifies the U.S. commitment to the region economically.

Secretary Clinton's trip to Burma, the President's attendance at the East Asia Summit and the recent hosting of the APEC Summit by the U.S in Hawaii all underline the fact that the U.S. is a Pacific nation and is not going away.

I also believe that the recently released Defense Strategic Review by the Department of Defense sends a strong signal that our national interests lie in the Asia Pacific as well.

The perception by some is that the pivot to Asia is a challenge to China. In my view, the reality is much more complex and positive.

I agree with Ken Lieberthal (former NSC Director of Asia and current Director of Thornton China Center at Brookings) when he says that "the Obama administration does not seek to confront China across the board. Rather, it has adopted a two-pronged approach: to reaffirm and strengthen cooperative ties with China; and to establish a strong and credible American presence across Asia to both encourage constructive Chinese behavior and to provide confidence to other countries in the region."

Last year's summit between President Hu and President Obama set a positive and constructive tone for the U.S.-China relationship and I expect this to continue through 2012.

The second shift occurring in 2012 are the elections in Taiwan and the U.S.--and the selection of new Members of the Politburo Standing Committee in China. The Taiwanese have reelected President Ma, which is positive for the Taiwan-China relationship -- and also positive for the U.S.-China relationship.

The Presidential election in the U.S. could pose some challenges, however. Jobs and the economy will continue to be the number one issue for Americans -- followed not far behind by debts and deficits. However, when foreign policy is discussed I believe that the topics will be Iran, Syria, North Korea -- and China. And only China is both a foreign policy concern and an economic one. It will be important for those who engage the Chinese government this year to remind them that the rhetoric heard on the campaign trail is not the same as policy of the U.S. government.

Lastly will be the selection of the nine individuals who make up China's Politburo Standing Committee later this year. It is expected that seven out of the committee's nine current members, including President Hu and Premier Wen, will step down. This will mean that the principal decision makers in China will be new -- and could rule China for the better part of a decade or longer.

I am not an expert on Chinese politics but I have developed relationships with a number of the individuals who are vying for the nine seats. Current Vice Premier Wang Qishan and current CCP Organization Dept Head Li Yuanchao are also anticipated to obtain seats and perhaps be among the top four. I have met both on a number of occasions in both Beijing and in Washington DC, and am encouraged. Xi Jinping, who will visit the U.S. sometime in the early part of this year, is expected to become the new General Secretary and President and current Executive Vice President Li Keqiang is expected to become Premier. Other Standing Committee candidates such as Bo Xilai in Chongqing or Wang Yang in Guangdong (both have acquired the nickname "the two cannons" according to Cheng Li) make for a fascinating and important selection.

While we, understandably, view the leadership selections in China through the lens of U.S. interests, the Chinese view it through the lens of their own needs. China's economy is slowing. As I have said in the past, President Hu Jintao doesn't wake up worried about what 300 million Americans think -- he wakes up worried about what 1.3 billion Chinese people think. And a slowing Chinese economy is probably keeping him awake.

Chinese gross domestic product expanded by 8.9% in the final three months of 2011. That is down from 9.1% in the previous quarter.

Chinese leaders are concerned about rising inflation and its impact on growth and have serious concerns about the growing income disparity between rich and poor. China will focus on solving the aforementioned domestic issues: rural-to-urban movement, income disparity, inflation, and increasing the quality of life for all Chinese.

According to the officials with whom I have met, China will respond to these challenges in the next five years by raising wages of working people including 400 million workers, incentivizing workers to go to less developed areas, and subsidizing low-income education and housing. These programs will be expensive.

Vice Premier Wang Qishan, in particular, was clear that China's export orientation is a thing of the past and that China's leadership is, in fact, serious about rebalancing its economy to depend less on exports and more on domestic consumer demand.


First, U.S companies -- particularly small and medium sized businesses -- must continue to seek way to export to the growing Chinese markets. I have established a District Export program in my district office that links small businesses in my district with the Federal and state resources that help small businesses export their products -- and not their jobs -- overseas.

Second, the U.S. government and business community must continue to press China on IPR protection and indigenous innovation.

IPR protection is critical for innovation for both American and Chinese entrepreneurs.

As the Administration works with the Chinese on these challenges, it's also important that we enforce those trade laws already on the books and ensure there is a level playing field for U.S. companies.

The U.S. Trade Representative's Office must continue to identify, monitor, and enforce the full range of international trade issues to ensure that American workers, farmers, ranchers, and businesses receive the maximum benefit under our international trade agreements.

Next, the U.S. must continue to seek ways to dialogue with the Chinese -- and certainly not cut off dialogues that already exist.

Last year, Congress passed a funding bill that included language to cut funds for dialogues between the U.S. and China on space and technology issues. This approach to the U.S.-China relationship is misguided.

As the U.S. and China continue to learn about each other and grow the relationship more dialogue is needed -- not less. This is particularly true at the military-to-military level. Members of Congress and the Administration must continue to support a healthy, stable, and reliable military-to-military relationship. This is important not only for the bilateral relationship but also for the safety of U.S. and Chinese sailors who work closely, but not in coordination, in many areas of operation.

We also need to seek ways to increase the number of U.S.-China exchanges. Government officials at the U.S. State and Chinese Provincial levels are interested in increasing the number of exchanges and this should be encouraged at the Federal level.

We also must continue to work with the Chinese on programs that both sides strongly support -- and seek to find more.

One example is the Administration's 100,000 Strong Initiative - a national effort designed to increase the number and diversify the composition of American students studying in China.

In November, the State Department and the Institute of International Education (IIE) released the annual Open Doors Report, which showed another large increase (23 percent) of Chinese coming to study in the United States for a total of 158,000 in academic year 2010-2011.

The Report also showed a very small increase - less than 2 percent) - to just under 14,000 in Americans studying in China in the 2009-2010 academic year -- just before the Initiative was formally launched. The Report underscores the importance of the 100,000 Strong Initiative. As co-chair of the Congressional U.S.-China Working Group, I am looking forward to highlighting the 100,000 Strong Initiative in Congress this year.

One last issue I want to highlight before I take questions is the importance of Chinese investment in the United States.

Chinese investment in the United States creates jobs for Americans. The value of Chinese direct investment in the U.S. is very modest, representing just 0.1 percent of all foreign direct investment in the U.S.

However, it is growing. According to Daniel Rosen from the Rhodium Group, China's FDI in the U.S. increased 130 percent in both 2009 and 2010.

Investors across China are the same as investors in any other country -- they are interested in investing money in the U.S. or in other countries and want to see a return on that investment.

I agree with Rosen when he says that Chinese direct investment is well screened for national security considerations under existing U.S. law and policy processes.

Housed in the Department of Treasury, the Committee on Foreign Investment in the United States (CFIUS) is directed to determine the effect of such transactions on the national security of the United States.

Some in Congress and elsewhere are concerned that Chinese foreign direct investment in the United States poses a threat. Likewise, there is a concern by the Chinese that the U.S. uses CFIUS and other FDI screening processes to punish China. Neither is true and both presumptions harm our ability to engage further and create jobs here in the United States.

We need to be moving forward on a bilateral investment treaty (BIT) with China that would promote and regulate foreign direct investment flows between our two countries. I understand the Administration continues work on updating the U.S. model BIT. I encourage them to conclude that process soon so we can begin official discussions with the Chinese on a U.S.-China BIT.

Thank you for being here today. I look forward to your questions.

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