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52–146PDF 2009

U.S.–CHINA RELATIONS: MAXIMIZING THE

EFFECTIVENESS OF THE STRATEGIC AND

ECONOMIC DIALOGUE

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA, THE PACIFIC AND 

THE GLOBAL ENVIRONMENT

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

SEPTEMBER 10, 2009

Serial No. 111–43

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

HOWARD L. BERMAN, California, Chairman 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

BILL DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

DIANE E. WATSON, California 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

MICHAEL E. MCMAHON, New York 

JOHN S. TANNER, Tennessee 

GENE GREEN, Texas 

LYNN WOOLSEY, California 

SHEILA JACKSON LEE, Texas 

BARBARA LEE, California 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

MIKE ROSS, Arkansas 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

JIM COSTA, California 

KEITH ELLISON, Minnesota 

GABRIELLE GIFFORDS, Arizona 

RON KLEIN, Florida 

ILEANA ROS-LEHTINEN, Florida 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

BOB INGLIS, South Carolina 

GUS BILIRAKIS, Florida 

RICHARD J. KESSLER, Staff Director 

YLEEM POBLETE, Republican Staff Director 

SUBCOMMITTEE ON ASIA, THE PACIFIC AND THE GLOBAL ENVIRONMENT

ENI F.H. FALEOMAVAEGA, American Samoa, Chairman 

GARY L. ACKERMAN, New York 

DIANE E. WATSON, California 

MIKE ROSS, Arkansas 

BRAD SHERMAN, California 

ELIOT L. ENGEL, New York 

GREGORY W. MEEKS, New York 

DONALD A. MANZULLO, Illinois 

BOB INGLIS, South Carolina 

DANA ROHRABACHER, California 

EDWARD R. ROYCE, California 

JEFF FLAKE, Arizona 

LISA WILLIAMS, Subcommittee Staff Director 

DANIEL BOB, Subcommittee Professional Staff Member 

NIEN SU, Republican Professional Staff Member 

VILI LEI, Staff Associate 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. David Shear, Deputy Assistant Secretary, Bureau of East Asian and 

Pacific Affairs, U.S. Department of State .......................................................... 10

Mr. David Loevinger, Executive Secretary and Senior Coordinator for China 

Affairs, and the Strategic and Economic Dialogue, U.S. Department of 

Treasury ................................................................................................................ 18

Mr. John Podesta, President and Chief Executive Officer, Center for American 

Progress ................................................................................................................ 33

Mr. Fred Bergsten, Director, Peterson Institute for International Economics ... 48

Mr. Randall G. Schriver, Partner, Armitage International, L.C. (former Deputy Assistant Secretary for East Asian and Pacific Affairs, U.S. Department 

of State) ................................................................................................................. 57

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Eni F.H. Faleomavaega, a Representative in Congress from 

American Samoa, and Chairman, Subcommittee on Asia, the Pacific and 

the Global Environment: Prepared statement ................................................... 5

Mr. David Shear: Prepared statement ................................................................... 13

Mr. David Loevinger: Prepared statement ............................................................ 21

Mr. John Podesta: Prepared statement ................................................................. 36

Mr. Fred Bergsten: Prepared statement ................................................................ 51

Mr. Randall G. Schriver: Prepared statement ...................................................... 60

The Honorable Donald A. Manzullo, a Representative in Congress from the 

State of Illinois: Prepared statement ................................................................. 68

APPENDIX 

Hearing notice .......................................................................................................... 78

Hearing minutes ...................................................................................................... 80

The Honorable Diane E. Watson, a Representative in Congress from the 

State of California: Prepared statement ............................................................ 81

The Honorable Eni F.H. Faleomavaega: Material submitted for the record ...... 83

Mr. Fred Bergsten: Material submitted for the record ......................................... 101

(1)

U.S.–CHINA RELATIONS: MAXIMIZING THE EFFECTIVENESS OF THE STRATEGIC AND 

ECONOMIC DIALOGUE 

THURSDAY, SEPTEMBER 10, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA, THE PACIFIC

AND THE GLOBAL ENVIRONMENT,

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 1:09 p.m. in room 

2172, Rayburn House Office Building, Hon. Eni F.H. Faleomavaega 

(chairman of the subcommittee) presiding. 

Mr. FALEOMAVAEGA. The subcommittee hearing will come to 

order. This is a hearing by the Foreign Affairs Subcommittee on 

Asia, Pacific and the Global Environment. The general theme of 

our discussion this afternoon is ‘‘U.S.-China Relations: Maximizing 

the Effectiveness of the Strategic and Economic Dialogue.’’

I will get to introducing some of our fantastic witnesses that we 

have today for this afternoon’s hearing. In place of our ranking 

member, the gentleman from Illinois, Mr. Manzullo, we have one 

of our senior members of not only the subcommittee, but the full 

committee, my good friend, the Congressman from California, Mr. 

Rohrabacher, as acting ranking member this afternoon. 

I will begin with my opening statement and then give time for 

the ranking member for his opening statement. There may be other 

members who will be coming in, and I will give them the opportunity to do the same. After that I will introduce our witnesses. 

At a bilateral meeting on the sidelines of the G–20 Financial 

Summit in London in April of this year, President Obama and Chinese President Hu agreed that the United States and China would 

work together to build a positive, cooperative and comprehensive 

U.S.-China relationship for the twenty-first century. 

Central to building that relationship would be the United StatesChina Strategic and Economic Dialogue, or S&ED, composed of a 

strategic track led by Secretary of State Hillary Clinton and Chinese State Councilor Dai Bingguo and an economic track led by 

Secretary of the Treasury Timothy Geithner and Chinese Vice Premier Wang Qishan. 

The S&ED would aim to deepen mutually beneficial cooperation 

on a range of bilateral, regional and global matters from economics, 

trade and the global financial system to law enforcement, science 

and technology, education, culture and health. 

2

In addition, the S&ED would bring together senior officials to 

work cooperatively in settling conflicts and reducing tensions contributing to regional and global instability, including the nuclear 

programs of North Korea and Iran, problems in Afghanistan and 

Pakistan and humanitarian issues in other parts of the world. 

Finally, President Obama and President Hu agreed that the new 

dialogue would intensify cooperation on energy, the environment 

and climate change, with a specific focus on energy efficiency, renewable and clean energy technologies and the achievement of a 

successful international climate change agreement. 

The broad scope of topics to be covered by the S&ED was to be 

matched by a wide breadth of participation across government 

agencies. The S&ED was thus an expansion of the strategic economic dialogue initiated by the previous administration and organized under the Department of the Treasury, which had focused 

primarily on economic and environmental matters. 

The S&ED would also provide a comprehensive framework for 

the more than 50 ongoing United States-China governmental dialogues and working groups that covered issues ranging from aviation and nonproliferation to food safety. 

The first round of the S&ED was held in July of this year in 

Washington, DC, and included senior officials from the State Department, the Treasury, the White House and 12 other departments and agencies of the U.S. Government, as well as senior counterparts from 15 Chinese Government agencies. 

President Obama opened the meeting by noting that, and I 

quote, ‘‘The relationship between the United States and China will 

shape the twenty-first century, which makes it as important as any 

bilateral relationship in the world.’’

The Chinese clearly viewed the initial meeting of the S&ED as 

a great success. In meetings I participated in last month in Beijing, 

a number of senior Chinese officials all gave very positive assessments of the first dialogue. Vice Premier Wang Qishan said the 

meeting allowed the two sides to better define further steps they 

needed to take in responding to the global financial crisis. He 

called it a huge success. 

Mr. Wu Bangguo, the chairman of the Standing Committee of 

the National People’s Congress, noted the unprecedented depth, 

scope and representation on the two sides, and said the positive 

work of the first S&ED would allow China and the United States 

to move forward more effectively on a wide range of issues. 

Our Secretary of State, Hillary Clinton, also pointed to a number 

of positive achievements resulting from the S&ED. In her closing 

remarks at the Dialogue she noted the United States and China 

agreed to promote stability in northeast Asia, resume the Six-Party 

Talks and implement U.N. Security Resolution 1874, address ongoing threats of violent extremism and nuclear proliferation, encourage Iran to live up to its international obligations and work toward 

peace and stability in Afghanistan, Pakistan and the Middle East. 

Secretary Clinton also noted that as a result of the S&ED, bilateral talks on counterterrorism would be held, military-to-military 

relations would be expanded, and progress was made on a global 

nuclear summit that President Obama plans to convene early next 

year. 

3

In addition, the two countries signed an MOU to enhance cooperation on climate change, energy and the environment, which 

commits both sides to achieving a successful international climate 

change agreement, cooperating on adaptation strategies and developing practical solutions for both countries. 

On the economic track, Secretary Geithner announced agreement 

on a framework for cooperation on macroeconomic and structural 

policies designed to ensure more balanced and sustainable global 

growth, the building of more resilient financial and regulatory systems, the reaffirmation of the two countries’ commitment to an 

open, rules-based trade and investment regime and a pledge to 

work together in ensuring that international financial institutions 

are provided the necessary tools and resources to respond adequately to international financial challenges. 

Beyond the issues themselves, the Congressional Research Service notes that the S&ED is one of the few venues in which the Chinese Ministers interact with one another across departmental jurisdictions, which is a major benefit. Chinese Government bureaucracies traditionally have been stove piped, with little interdepartmental interaction or coordination. 

The interdepartmental nature of the S&ED is important as China’s own policy making process has become more complicated now 

that the bureaucracy does not speak with a single voice and the 

government must take some account of the views of the media and 

the public. 

Clearly the Strategic and Economic Dialogue covers an impressive array of issues and challenges, and it now stands at the very 

center of the bilateral relationship. 

The United States is now the world’s largest economy, while 

China will soon be second. We are the world’s two biggest trading 

nations and the two leading emitters of greenhouses gases. China 

is the top surplus country, while the United States, unfortunately, 

is the largest deficit country. We thus represent the opposite sides 

of the global imbalances that contributed significantly to the worst 

financial crisis in generations. 

While our two countries may have differences, including a petty 

dispute over tire imports from China, I believe that Washington 

and Beijing share interests on most of the important regional and 

global issues. More to the point, there is no problem in the world 

that can be addressed adequately without bilateral cooperation, 

whether it be achieving lasting economic recovery and financial 

stability or overcoming the substantial threat of climate change 

and achieving a clean and secure energy future. These are the 

problems we must address cooperatively. 

Fortunately, the bilateral relationship today is in excellent 

shape. In my view, the first meeting of the S&ED has laid the 

groundwork for the sort of positive, cooperative and comprehensive 

relationship both sides seek, and from which both countries, as well 

as the region and the whole world, will benefit. 

Maintaining open channels of dialogue between the United 

States and China, which the S&ED does, is essential. At the same 

time, since the S&ED covers such a wide range of topics and involves so many government agencies, unless the process is well 

managed, it may fail to achieve its promise. 

4

The purpose of today’s hearing is to review the results of the first 

meeting of the S&ED and to examine how the Dialogue can best 

achieve its worthy goals on the many issues that are currently 

under discussion between the United States and China. 

I would like to turn the time now to my colleague for his opening 

statement, Mr. Rohrabacher. 

[The prepared statement of Mr. Faleomavaega follows:]

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Mr. ROHRABACHER. Thank you very much, Mr. Chairman. Before 

I move forward, let me just note that I believe that the people of 

China are America’s greatest hope for a better world and the comments that I have about the government that controls them has 

nothing to do with the people of China. 

The people of China, we need to see those people as our very important allies against the authoritarian government that controls 

them, which I believe that government, the dictatorship in Beijing, 

represents the greatest threat to America and to the western democracy’s security and prosperity in the future. 

Mr. Chairman, China is playing a rogue’s role in the world. It 

has become the ally of criminal governments and criminal gangs 

that control various controls on various parts of the planet, whether we are talking about Burma, whether we are talking about 

Sudan, Cambodia or any list of the other rogue states of the world. 

They are all buddies of China, and you will find that the Chinese 

are arming their friends and they are robbing the resources of people like the people of Burma where they are letting that regime destroy and dissipate the natural resources in exchange for weapons 

that are then used to suppress the people, and the profits from 

those natural resource rip offs are going into the pockets of a very 

corrupt few. 

This is a pattern throughout the world, whether it is Sudan or 

Cambodia or Burma. It shows that the Chinese Government does 

not reflect the values that we would expect from a country that 

would have a place that we would talk to them as equals among 

nations. 

China continues to be the world’s greatest human rights abuser, 

whether we are talking about suppression of the Uighurs and this 

slow motion genocide that the Chinese have put in place to try to 

destroy the Uighur nation or whether it is the people of Tibet, the 

same slow motion genocide operation against the people of Tibet. 

Or whether we are talking about the Falun Gong who are still 

being arrested by the hundreds at times, perhaps at times by the 

thousands, and thrown into prison with no due process. People just 

disappear and, worse, we find that the prisons which they are 

thrown into have an unexplainable source of body parts and which 

they are then selling to western buyers. 

This ghoulish regime needs to be recognized for what it is and 

not be given the status that some people would like to give it simply because it is powerful and simply because it is a force to be 

reckoned with. No, that does not mean you give someone who runs 

the government like that, you don’t give gangsters, just because 

they are powerful, the same respect that you would pay to democratic nations. 

We need to look at China as potentially America’s worst enemy. 

It is not an enemy today, it is an adversary, but it is building itself 

to the point where it could be the most threatening enemy that we 

have ever faced. 

First of all, when we look at the economic relationship that has 

been established with China it has been a disaster for the people 

of the United States and a boon for those people who control the 

levers of power in Beijing. What we have had is an unfair trade 

relationship that we have winked and nodded and permitted, a 

9

partnership between America’s corporate elite and the gangsters 

that run China for the benefit of our corporate elite and the benefit 

of those gangsters, to the detriment of the American people. 

The American people have lost millions upon millions of jobs, of 

manufacturing jobs, that have been sent off to China in order to 

be done by slave labor by people who have no right to form a union 

and people who would be thrown in jail or murdered if they tried 

to form a union in the company, not to mention the environmental 

things that you have mentioned today. 

China, of course, there is no democratic process in which the people of China will try through their government to limit the exploitation of the environment, unlike in other democratic societies, so 

the gangsters who run that country can simply do what they please 

in terms of the environment. We have had a one-way free trade 

policy with them, which again has cost us millions. 

We have the theft of American intellectual property rights on a 

huge scale being conducted by the Chinese Government. They are 

using our own technology to put us out of work and put America 

into a position where our safety and security is being jeopardized. 

We now see that in the expansion of the Chinese military and we 

see that in the expansion of the Chinese military’s insistence on 

building rockets and missiles which are demonstrably aimed at 

taking out America’s satellites. 

Mr. Chairman, what we need to do is face reality when it comes 

to this potential threat and this potential enemy in Beijing and we 

must side—we must make sure that the people of China know that 

in their endeavors against this tyranny the American people are on 

their side and that those corporate leaders in the United States 

who have made their alliance do not represent the values and the 

policies of the people of the United States. 

Thank you very much. 

Mr. FALEOMAVAEGA. I just want to make sure that it is corrected 

in the record for my good friend from California. You don’t mean 

small business owners. It is the big, corporate multinationals that 

are the ones. 

Mr. ROHRABACHER. Certainly. If I said small business owners I 

meant big, corporate nationals. 

Mr. FALEOMAVAEGA. Okay. Very good. I thank the gentleman 

from California for his statement. This is what makes America 

such a beautiful democracy where you can openly dissent or disagree on any given issues that you want. 

Mr. ROHRABACHER. Unlike in China where they will throw you 

in jail. 

Mr. FALEOMAVAEGA. I do thank the gentleman nevertheless. 

We have two distinguished members representing the administration at our hearing this afternoon. Mr. David Shear is currently 

the deputy assistant secretary for East Asia and Pacific affairs at 

the Department of State. He formerly worked as director of Chinese and Mongolian affairs in the East Asia and Pacific Affairs Bureau, has been a Foreign Service officer since 1982, and served in 

postings in Tokyo, Beijing, Kuala Lumpur and Sapporo, Japan. 

Mr. Shear was also deputy chief of mission at our Embassy in 

Kuala Lumpur. He was a minister counselor at our Embassy in 

Tokyo and deputy director of Korean affairs. An excellent genVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
10

tleman by career. He is fluent in both Chinese and Japanese. I only 

wish I could be as well. 

We also have with us Mr. David Loevinger. He is currently the 

executive secretary and senior coordinator for China Affairs and 

the Strategic and Economic Dialogue at the United States Treasury 

Department. Previous to that Mr. Loevinger served as a U.S. minister counselor for financial affairs to the People’s Republic of 

China. 

Also at the Treasury Department, he was the first permanent 

representative in China. He was responsible for deepening United 

States-China engagement on financial and macroeconomic issues, 

including monetary, fiscal and exchange rate policies. 

He played a leading role in the establishment of the United 

States-China strategic economic dialogue, the precursor of the current U.S.-China Strategic and Economic Dialogue. This is all semantics it seems to me. He worked closely with Chinese regulators 

to open new markets for United States financial service firms. The 

list goes on. 

Prior to his service in Beijing the gentleman was also deputy assistant secretary at the Treasury for Africa, Middle East and Asia 

where he advised the Secretary of the Treasury and other senior 

Treasury officials on United States policies regarding the IMF, the 

World Bank and regional development banks. 

Prior to that position he served as a staff economist, including 

also as a special assistant. My gosh. The list goes on forever on this 

guy. Mr. Loevinger, we are indeed very happy that you are able to 

come and join us. He worked with the IMF and is a graduate of 

Dartmouth University. He completed his master’s at Harvard in 

public policy at the Kennedy School. 

Very, very distinguished careers for both of these gentlemen. I 

look forward to hearing your testimony. Mr. Shear? 

STATEMENT OF MR. DAVID SHEAR, DEPUTY ASSISTANT SECRETARY, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, 

U.S. DEPARTMENT OF STATE 

Mr. SHEAR. Thank you very much for the nice introduction, Mr. 

Chairman, and thank you, Mr. Rohrabacher, and thank you also 

for inviting me today to appear before you to discuss the first 

United States-China Strategic and Economic Dialogue held at the 

end of July. 

I would like to provide an overview of the role of the S&ED as 

we call it in our bilateral relations with China, the primary goals 

of the first S&ED and the issues discussed in the S&ED strategic 

track, which was chaired by Secretary Clinton. 

My colleague from the Treasury Department, David Loevinger, 

will speak to the economic track, and my colleague from the State 

Department Bureau of Oceans, Environment and Science, Jeff 

Miotke, will be prepared to take questions regarding the Memorandum of Understanding (MOU) on climate change discussed during the S&ED. 

The Strategic and Economic Dialogue establishes the framework 

for the United States-China relationship under the Obama administration. We recognize the importance of engaging China as an important partner in addressing complicated global challenges, inVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
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cluding the recent economic crisis, climate change and threats to 

international security. It is critical that China meets its responsibilities as a global stakeholder and contributes to the solution to 

these problems. 

The S&ED brings together top United States and Chinese political and economic leaders to outline opportunities for cooperation 

and engage in frank discussions of priorities for our bilateral relationship. The dialogue enables us to work together to build trust, 

strengthen cooperation and resolve our differences. And we have no 

illusions about our differences; all of these activities serve our common interests. 

The S&ED is not the beginning of a G–2 structure. Both countries recognize that we can’t solve the world’s problems bilaterally. 

What the Dialogue does is provide a framework for the United 

States and China to deal with these challenges as responsible global cooperators and open up paths of communication on global issues 

of common concern. 

We had three primary goals for the first S&ED, all of which I 

think we achieved. First, the S&ED served as a prime opportunity 

for our senior officials to get to know their Chinese counterparts, 

a necessary first meeting that will lay the foundation for effective 

cooperation for the next 4 years. 

The first dialogue allowed face-to-face interaction among not only 

the four co-chairs—Secretary Clinton, Secretary Geithner, Vice Premier Wang Qishan and State Councilor Dai Bingguo, but also over 

20 officials of cabinet rank from each side. We held frank discussions on a variety of issues, including those sensitive to the Chinese such as human rights, Xinjiang and Tibet. 

Secondly, by mobilizing the whole of government on each side, 

the S&ED enabled discussions on issues that cut across agencies, 

including the full range of economic, regional, global and environmental challenges 

Third, the S&ED set the agenda for our future engagement with 

China by giving our senior officials the opportunity to convey priorities of the Obama administration. The S&ED set the tone and 

framework for our major bilateral initiative with China, including 

a number of subdialogues. 

With regard to the strategic track, it basically consisted of four 

areas. We discussed bilateral relations; international security 

issues such as nonproliferation and counterterrorism; global issues, 

including health, development, energy and global institutions; and 

regional security issues in North Korea, Afghanistan, Pakistan and 

Iran. Climate change, clean energy and the environment were addressed in separate special sessions. 

Some of the key highlights of the strategic track include first, the 

climate change, energy and environment MOU which elevates the 

importance of climate change in our bilateral relationship. 

Second, both sides agreed to enhance efforts in promoting regional stability. On North Korea, we affirmed the importance of the 

Six-Party talks and continuing efforts to achieve denuclearization 

of the Korean Peninsula. On Afghanistan and Pakistan, the two 

sides pledged to increase coordination to jointly promote stability 

and development in the region. On Sudan, both sides expressed our 

willingness to increase coordination and consultation to jointly seek 

12

an early and enduring comprehensive political settlement of the 

Darfur issue and promote the north/south peace process. 

In discussions on international security issues, both sides noted 

their shared opposition to terrorism and agreed to hold the next 

counterterrorism subdialogue this week actually, September 14 and 

15. We discussed the upcoming 2010 Nuclear Nonproliferation 

Treaty Review Conference and the Conference on Disarmament 

and exchanged views on the Global Nuclear Security Summit proposed by the United States for March of next year. 

On other global issues of common concern, both sides agreed to 

further dialogue in cooperation on promoting global sustainable development, including strengthening global institutions and government, addressing public health challenges and future discussion of 

cooperation on poverty alleviation around the world. 

The two sides held frank discussions on human rights. Secretary 

Clinton raised U.S. concerns about recent violence in Xinjiang and 

discussed ways to enhance mutual understanding and positive cooperation on human rights issues. Both sides agreed to reconvene 

the U.S.-China legal experts dialogue and will seek to hold the next 

human rights dialogue before the end of the year. 

We have no illusions about how the Chinese treat their people. 

We have a strong interest in improvement of human rights in 

China, and we make our views crystal clear—absolutely clear—to 

the Chinese at every possible opportunity, and we took that opportunity during the S&ED to do so this time around and will do so 

in the future as well. 

On bilateral military-to-military relations, the two sides welcomed recent improvements in military-to-military relations and 

agreed that the two militaries would expand exchanges at all levels. 

Over the next year, U.S. senior officials will take full advantage 

of a packed bilateral political calendar to follow through on S&ED 

objectives. High level bilateral engagements over the next few 

months include the President’s visit to Beijing in November, several energy and environment meetings leading up to Copenhagen 

and technical consultations on counterterrorism and human rights. 

The Strategic and Economic Dialogue has created both a strategic guideline and a catalyst for the United States and China to 

address complex global challenges. I would like to conclude my remarks here, Mr. Chairman, and thank you again for the opportunity to testify today on this important topic. 

[The prepared statement of Mr. Shear follows:]

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Mr. FALEOMAVAEGA. Thank you, Mr. Shear. 

Mr. Loevinger, for your testimony? 

STATEMENT OF MR. DAVID LOEVINGER, EXECUTIVE SECRETARY AND SENIOR COORDINATOR FOR CHINA AFFAIRS, 

AND THE STRATEGIC AND ECONOMIC DIALOGUE, U.S. DEPARTMENT OF TREASURY 

Mr. LOEVINGER. Thank you, Mr. Chairman, Congressman Rohrabacher. I want to thank you for the invitation to come and speak 

to you today about the United States-China Strategic and Economic Dialogue and more broadly our bilateral economic relationship. 

The S&ED that President Obama and President Hu initiated in 

April recognizes that cooperation between China and the United 

States is vital not only for the well being and prosperity of our two 

nations, but also for the health and stability of the global economy. 

Given that my colleague, David Shear, has talked about the strategic dialogue, I am going to focus my remarks on the economic 

track of the S&ED. The economic track provides a framework for 

promoting productive bilateral economic engagement in core U.S. 

interests. As Secretary Geithner told the Chinese at the S&ED, the 

United States and China may not always agree on economic issues, 

but the S&ED provides a platform for narrowing our differences 

and reinforcing our common interests, both bilaterally and in setting the multilateral economic agenda. 

The first meeting of the economic track of the S&ED was one of 

the largest delegations from any foreign country in the history of 

our foreign relations, involving 12 United States cabinet officials 

and agency heads and 15 Chinese ministers, vice ministers and 

agency heads. Both sides agreed on a framework for cooperation on 

economic issues based on four pillars: First, promoting a strong recovery and achieving more sustainable and balanced growth; second, promoting more resilient, open and market oriented financial 


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systems; third, strengthening trade and investment; and, fourth, 

strengthening the international financial architecture. 

On the first item, promoting a strong recovery and achieving 

more sustainable and balanced growth, both sides agreed to undertake macroeconomic and structural policies to ensure a more sustainable and balanced trajectory of global growth. 

China committed to policies to adjust its demand and relative 

prices that will lead to more balanced trade and growth. To achieve 

this, it will promote more domestic demand led growth and pursue 

policies to increase the share of consumption in its GDP. It also 

committed to greater development of its services sector, which will 

reduce its dependence on exports in heavy industry and support its 

transition to a greener economy. 

Second, we focused on building more resilient and market oriented financial and regulatory systems. China agreed to a range of 

measures, including promoting consumer finance, allowing foreigners to invest more in China’s capital markets, increasing the 

number of foreign joint venture securities companies and allowing 

foreign banks incorporated in China to underwrite corporate bonds 

on China’s interbank bond market. 

This will not only create market opportunities for United States 

financial services firms, but by creating a more developed and market oriented financial system it will boost the incomes of Chinese 

households and contribute to more consumption led growth. 

The two sides also agreed to strengthen their cooperation on 

anti-money laundering and countering the financing of terrorism, 

and we will continue to encourage the Chinese to strengthen their 

efforts to counter the threat of North Korea and Iran’s nuclear 

weapons programs through their financial sector. 

The third item was strengthening trade and investment, and the 

United States and China each reaffirmed their commitment to open 

and rules-based trade and investment. China committed to a range 

of measures that over time will create new opportunities for United 

States firms and workers. 

This includes further opening of its services markets to private 

investment, decentralizing its foreign investment reviews, and 

China also clarified that products produced in China by foreign invested enterprises will be treated the same under China’s Government procurement regulations as products produced by Chinese 

producers. China also agreed to intensify its effort to join the WTO 

Government Procurement Code. 

Lastly, the United States and China recognized the critical role 

that the international financial institutions play in preventing and 

responding to crises and ensuring more balanced global growth. 

The global economy has changed fundamentally since the historic 

gathering of Bretton Woods and so too must the global architecture 

that bears its name. 

Both sides committed to work together to ensure that the international financial institutions have the requisite resources and 

tools to address today’s challenges, and we will work together with 

China to ensure China’s full engagement and representation in the 

design of key multilateral arrangements and groupings, including 

the G–20, the Financial Stability Board and the international financial institutions. 

20

As Mr. Shear said, while the S&ED is going to meet annually, 

having agreed on priorities and broad policy commitments, the 

word of the S&ED is going to continue throughout the year. On the 

economic side we will work closely with our colleagues at Commerce and USTR on the Joint Committee on Commerce and Trade 

and through a range of other deputy level and staff level groupings. 

Throughout the year we intend to consult with and seek the advice of Congress, including members of this committee and your 

staff, U.S. businesses, labor and other groups affected by United 

States-China relations. Thank you. 

[The prepared statement of Mr. Loevinger follows:]

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Mr. FALEOMAVAEGA. Thank you, Mr. Loevinger. 

We are joined this afternoon also by one of our distinguished 

members, Mr. Inglis. I wanted to ask him if he has an opening 

statement he would like to share with us? 

All right. We are going to open now with questions, and I will 

defer to my good friend, the gentleman from California. At a later 

time I will ask my series of questions. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. 

Mr. Shear, and I appreciate your addressing my specific points 

on human rights in your opening statement, and you seemed rather adamant about that we are actually serious about human rights 

in the complaints we make to China. Can you tell me what consequences the regime in Beijing suffers? 

What have we put forward to say you know, these are human 

rights abuses and because you are doing that you are paying this 

consequence for it? What have we offered them as a suggestion 

that we really are serious about it rather than just using words? 

Mr. SHEAR. Thank you, Congressman. We made it clear to the 

Chinese that, for example, in the case with regard to religious freedom that all modern, civilized countries implement religious freedom vigorously and that countries that do not suffer in terms of 

openness and the vitality of their society and their economies as 

well. 

We have made it clear to the Chinese that the restriction of information on the internet, for example, not only results in a society 

which is less well informed, but in an economy that is less efficient. 

Mr. ROHRABACHER. But we haven’t said there is no direct correlation between the Chinese regime continuing to commit these 

human rights abuses and any specific policy of the United States 

Government. There is no correlation there at all. Is that correct? 

Mr. SHEAR. My understanding, Congressman, is that, for example, the Chinese still remain under the Tiananmen Sanctions Act, 

which limits a variety of exchanges with the Chinese, including 

some exports of United States law enforcement equipment and 

commercial space cooperation as well, so in that regard the Chinese 

have seen some consequences with regard to their treatment of 

human rights. 

On the general question——

Mr. ROHRABACHER. Right. 

Mr. SHEAR [continuing]. We are very strong in making representations on these subjects to the Chinese. I think that we have 

achieved some successes. 

Mr. ROHRABACHER. Pardon me. I only have a very short period 

of time to ask questions, and I have to go to——

Mr. SHEAR. Understood. 

Mr. ROHRABACHER. I would suggest that talking strong and not 

following up with a specific consequence has exactly the opposite 

impact that diplomats would like us to believe. 

Unless there is something that backs up somebody’s words, if we 

continue to talk tough but there are no further consequences other 

than what happened right after Tiananmen Square and at the 

same time Americans are stumbling over themselves to invest capital in and build an economy in China, don’t you think that basically gives the Chinese the opposite impression that really AmeriVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
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cans are just using a bunch of words when in reality all they care 

about is making money? 

Mr. SHEAR. We don’t let up on the Chinese on human rights 

issues, Congressman. The Chinese understand very clearly what 

we think on these issues, and I think our exchanges with them on 

this subject have had positive effects. 

I think Chinese rule of law has improved over the past several 

decades. They have a long way to go in this regard. 

Mr. ROHRABACHER. Right. Are there any opposition parties in 

China? 

Mr. SHEAR. There are no legitimate opposition parties. 

Mr. ROHRABACHER. Is there a free press in China? 

Mr. SHEAR. The press is highly restricted. 

Mr. ROHRABACHER. Okay. Is the Falun Gong free to have their 

organization without having their members thrown in jail? 

Mr. SHEAR. No, it is not. 

Mr. ROHRABACHER. All right. So I don’t think we have seen very 

much, and yet at the same time we have seen massive increases 

and exchanges of money, of people investing money from the 

United States in building a manufacturing base which puts our 

people out of work and enriches that regime. That is kind of a bigger message than all the words we can use. 

Let me ask you about that. The President last night said that we 

have been losing 750,000 jobs a month in our current economic situation. How many of those jobs have been going to China? 

Mr. SHEAR. I can’t answer that question, Congressman, but I know that the $73 billion in exports we sent to China last year also 

accounted for thousands of American jobs. 

Mr. ROHRABACHER. Sure. And what was the offset there? It was 

$73 billion or $43 billion we are exporting, and how much is it we 

importing? 

Mr. SHEAR. I think we imported $256 billion in Chinese goods 

last year. 

Mr. ROHRABACHER. All right. And you think that didn’t cost any 

American jobs? Well, I think that we could suggest that. 

Why is it that they have gotten away with that so long? Why is 

it that for so long we have had a one-way free trade policy that has 

permitted, from what you just described, a five to one ratio—it may 

be even more than that—of exports or imports to exports? 

Mr. SHEAR. Just a general point, Congressman, and then I would 

like to turn the microphone over to Mr. Loevinger, but this administration is committed to doing everything we can to foster American industry and help the American worker. 

We have taken action both within the WTO and bilaterally on 

trade issues with China, and, as I say, we have had some successes. 

Mr. ROHRABACHER. You will have my support at that point. My 

last question——

Mr. FALEOMAVAEGA. Will the gentleman yield? 

Mr. ROHRABACHER. Certainly. 

Mr. FALEOMAVAEGA. I recall that it was in 2007 China exported to the United States over $340 billion worth of goods. 

And I am curious. Mr. Loevinger will help us. Out of those goods 

that were manufactured in China, how many United States multiVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
27

nationals were involved in the manufacturing process in terms of 

the number of jobs that were sent overseas, sponsored heavily by 

our own multinationals? 

I am curious. Of that $340 billion of Chinese imports, how much 

was that percentage produced by our own American corporate entities that are doing business in China because of cheap labor and 

all this other stuff that comes with it? 

Mr. LOEVINGER. Thank you, Mr. Chairman. Roughly about 60 

percent of China’s exports are produced by multinational corporations. My impression is the biggest foreign investors are from Taiwan, Japan and Korea, but also the United States is a very important foreign investor in China. 

But more broadly to the point you made and the point that Congressman Rohrabacher made, we are concerned about these very 

big trade imbalances, and this was the focus of the economic track 

of the S&ED. The message to China is that its growth model is 

going to have to change because there are changes going on in the 

United States. 

U.S. households are changing their savings behavior—we have 

seen savings going up—and that if China wants to grow it is not 

going to be able to depend on the United States consumer in the 

way it has in the past. It is going to have to produce its own home 

grown growth model. Very simply, China is going to have to consume more and save less because the United States consumer is 

saving more. 

So how are we going to bring that about? The S&ED talked 

about, and it wasn’t just talk. We got commitments from China 

over the course of the next several years. That was our intent going 

in was to build a framework for engagement for the rest of the administration on ways China can bring down its very large trade imbalances. 

The exchange rate is an important part of that equation, and we 

had serious and frank discussions on the exchange rate, but the exchange rate is only one tool. We also talked about things China can 

do in the financial sector creating what we call a social safety net. 

China has to establish its own health care reform, its own unemployment insurance, its own way of financing education so Chinese 

households feel more secure so they can save less and consume 

more. 

Mr. ROHRABACHER. I am very happy to hear that we have had 

so much talk, and I would hope that the administration, unlike the 

past administration and the administration before that and the administration before that who also talked about many of the very 

same issues, will decide to do something specific in which the Chinese will feel a consequence if they are not, for example, giving us 

the type of reform on currency reform that we are talking about 

and the same type of trade restrictions that we face and they themselves are engaged, the government itself is engaged. 

Let me ask that as a basic question. Is not the Chinese Government engaged in a great effort in the United States to steal American technology? We are talking about espionage, economic espionage. I mean, I understand there have been about 50 such situations in the last few years that we have uncovered from China 

where you have——

28

Mr. FALEOMAVAEGA. The gentleman has one more question. 

Mr. ROHRABACHER. Am I incorrect in that? 

Mr. LOEVINGER. Okay. What I can tell you is we had frank discussions. There are policies that we have concerns about in China. 

There are issues that the Chinese raise with us. 

They think our export control policies are too tough. They think 

our Sisyphus process is too tough, and we were very frank with 

them that in Sisyphus we are going to protect our national security. In our export control policies that are implemented both by 

the Commerce Department and by the State Department we are 

going to ensure that militarily critical technologies and dual use 

technologies are protected. 

Mr. ROHRABACHER. Well, to the degree that you guys are doing 

that more than talking you will have my support. I wish you luck, 

and we will be watching real closely, won’t we, Mr. Chairman? 

Mr. FALEOMAVAEGA. Yes. I find it somewhat ironic that here we 

have a country that is basically Socialist Marxist ideology in applying free market systems since Deng Xiaoping made that announcement in 1978, and yet somehow they do a better job in working 

their economy in a free market system when we are supposed to 

be the better ones to understand how capitalism, how a free market, should work in such a way that we find ourselves in a worse 

situation than the Chinese. 

Am I missing something here? Because it seems that the Chinese 

are telling us how to properly implement a free market system because, apparently, despite all this world crisis, economic crisis, China’s economy seems to be the most stable. Yet it is a not a capitalistic society. Could you help me reconcile this irony? 

Mr. LOEVINGER. I would be happy to. Without a doubt the growth 

that China has achieved since Deng Xiaoping instituted the reforms 30 years ago has been one of the most notable economic success stories in history. Without a doubt, the Chinese people, their 

lot has been improving. More people now are richer in China than 

they have ever been. 

At the same time, I respectfully disagree that I don’t think when 

you compare the United States to China we have to give anything 

to the Chinese. The big imbalances we see in China are as much 

an indication of their weaknesses that Chinese households can’t 

consume. They feel they have to save because they don’t have the 

whole set of systems that we have set up in the U.S. 

Mr. FALEOMAVAEGA. What I meant, Mr. Loevinger, is that I am 

not an economist, but the financial crisis that we find ourselves in, 

something happened on Wall Street. The derivatives and all this 

came about, lack of regulatory authority on the part of government 

to enforce what was supposed to be to keep an eye on greed, if that 

is a better way of saying it. I suppose the extreme of capitalism, 

you become greedy and you forget the rules and that is how we 

ended up where we are. 

Now, I may be wrong in my laymen’s terms of defining that. I 

mean, you have to give some credit to the Chinese for their success 

in doing whatever they have done in making their economy now 

second or near second now only to our economy, so that is what I 

am trying to say here. 

29

They seem to have done a better job in not only controlling the 

economic situation with the annual growth rate now at 8 percent, 

and we are suffering right now in terms of all the jobs lost, the recession and all of that, so I was just trying to dig into that. 

Mr. LOEVINGER. Yes. Let me make three quick points. 

Mr. FALEOMAVAEGA. Yes. 

Mr. LOEVINGER. Obviously a lot of mistakes were made in the 

U.S. and Secretary Geithner is going to work very closely with Congress on reforming our financial supervision and regulation to 

make sure those mistakes don’t happen again. 

Secondly, China did not have the financial crisis, but part of the 

reason is China’s financial sector is much less developed than ours, 

and that has its own problems for Chinese households. It is much 

harder to go to a store and pay with a credit card. It is much harder to get a loan to buy a home or finance schooling in China than 

it is in the United States. 

Mr. FALEOMAVAEGA. I think that is understandable. I think our 

overall GDP right now is about $19 trillion to China’s what, $3 trillion or $4 trillion, so understandably, our economy is still number 

one in the world. 

On the S&ED, it sounded more like a G–2 that we are taking all 

the world’s issues it seems. Are you sensing any sense of resentment maybe from some of our closest allies? Do they ask, ‘‘How 

come we are not part of the team?’’

Is there a sense of exclusivity involved here where now only 

China and the United States are solving the world’s problems and 

without consultations with our allies or the other forums that may 

have similar problems? 

Are we taking too much into this or are we streamlining it better, defining our priorities? Not just for China. We are talking 

about regional issues. We are talking about world issues. Shouldn’t 

others also be active participants in the process? 

Mr. SHEAR. Mr. Chairman? 

Mr. FALEOMAVAEGA. Mr. Shear? 

Mr. SHEAR. Secretary Clinton has said that we are not in a 

multipolar world now; we are in a multipartner world. And China, 

as one of the world’s great powers, one of the world’s great trading 

nations, is one of those essential partners in our efforts to address 

issues like climate and the global financial crisis. 

But it is not the only partner. We will be working together closely particularly with our allies in Europe and in East Asia to address these issues as well. In East Asia we will be working closely 

with our Japanese, our South Korean and our other allies, particularly as the new Japanese Government comes in. 

We will be consulting with them closely. We will be cooperating 

with them intensively, and we will be keeping them fully informed 

of what we are doing with our other partners, including China. 

Mr. FALEOMAVAEGA. I was in Korea recently, and I noticed with 

interest the fact that there is no other country that has more influence on the situation in North Korea than China. There is no other 

country in the world that has more influence on the situation in 

South Korea than the United States. 

So my question: Where does it say in the Bible that there must 

be Six-Party Talks? Why not just China and the United States and 

30

two Koreas? Where does Russia have an interest in the process? 

Japan now is introducing a collateral issue that has nothing to do 

with denuclearization, which to me kind of puts a puncture there 

on the process of Six-Party Talks. Do you care to comment on that? 

Mr. SHEAR. All members of the Six-Party Talks——

Mr. FALEOMAVAEGA. And by the way, how do you denuclearize a 

country that already has in its possession 10 nuclear bombs like 

North Korea? Did we do that to Pakistan? Did we do that to India? 

Why are we singling out North Korea to denuclearize when it already has the nuclear bomb, may I ask? 

Mr. SHEAR. On your first question with regard to Six-Party 

Talks, we think that all parties with a vital interest in peace and 

stability and denuclearization on the Korean Peninsula should be 

involved in this process. The six parties are the countries closest 

to the Korean Peninsula and with the strongest interest in these 

issues. 

I think we have worked closely through the Six-Party process. 

We want the Six-Party process to continue. The Chinese do as well. 

The Chinese have a variety of interests on the Korean Peninsula, 

including the denuclearization of North Korea, but also including 

stability and avoiding a large flow of North Korean refugees across 

the border. 

We have addressed all these issues within the context of the SixParty process. We hope the North Koreans will come back to the 

Six-Party table as soon as possible as we rigorously implement the 

sanctions under Security Council Resolution 1874. 

Mr. FALEOMAVAEGA. My apologies. My time is up. 

Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman. Let us stick on that issue 

for a minute with respect to North Korea because China is North 

Korea’s gateway to the outside world, right? I mean, China props 

up North Korea. That is the reality. 

Now, you say that China recognizes the latest U.N. Security 

Council resolution. I am trying to figure out what that means. Does 

that mean that China is giving us adequate assistance on North 

Korean financial activity? Because it doesn’t look that way. 

Mr. SHEAR. I will defer to Mr. Loevinger on the subject of financial activity, but in general terms China worked with us in the Security Council to produce one of the strongest sanctions resolutions 

on North Korea yet. That is the result of lengthy cooperation and 

consultation with the Chinese within the Security Council on a succession of Security Council resolutions on this subject. 

With regard to implementation, we have consulted closely with 

the Chinese on this. We have urged them to implement the sanctions vigorously. I think the Chinese have done that, and we are 

working with them on other measures they can take. 

Mr. ROYCE. They are with us right up to pulling back on economic support and propping up North Korea. 

Mr. SHEAR. The Chinese have restricted energy to North Korea 

in the past. 

Mr. ROYCE. But for very short periods of time, and we had some 

success for a very short period of time in terms of the Banco Delta 

Asia. That was an example of how you get North Korea’s attention, 

but that requires the cooperation of China. 

31

The only point I am going to make is that your report was light 

in terms of how we have tried to leverage China on North Korea. 

What I would suggest to you is you spent a lot of time on these 

issues with China, a whole host of them. I think we are missing 

the big picture right now, which is proliferation. Once it reaches 

the Euphrates River and North Korea is building reactors in Syria 

we have a proliferation problem. China is sort of the linchpin of 

this. 

But that takes me to another concern that I have, and I will go 

to David’s testimony here. Mr. Loevinger, you said in your testimony that China and the United States each reaffirmed their commitment to open and rule-based trade in investment. That seems 

to me a stretch because I don’t see China—I can see them reaffirming its commitment. I just don’t see any practice of it. 

One of the reasons I say that, I am from California and have met 

with many Chinese, Vietnamese-American, American investors, 

people all over the map who are trying to do business in China, 

and it is always the same story about corruption. 

So after so many of these cases and reading so many of them in 

the press as well, it is clear that American investors get used and 

abused in China and you have officially sanctioned corruption 

there. So what is the United States going to do about that? We 

have got American investors basically being pin ̃ atas, you know, and 

Chinese corruption just takes a whack at them. 

And what is more bothersome is that the U.S. Government, more 

specifically, the Commerce Department, very deceptively promotes 

China. I can’t tell you how many complaints I get from investors. 

So you go to one of the many conferences they hold, and you would 

think China was nirvana as they pitch this, an investor’s paradise. 

That it is ripe for the picking. 

These conferences are a real shame because they give 

disinformation, and our commercial advocacy at the embassies and 

the consulates, which are then absolutely necessary once anybody 

invests, that is very, very feeble. For those of us who have worked 

on constituents’ cases to try to get any justice done, you and I know 

there is no justice in that system. 

So I would like to hear from you what this trade and investment 

dialogue was like with the Chinese, given the fact that some of us 

know what the process is really like for those involved in trade and 

investment. You know, did it deal with the reality that thousands 

of American investors are getting wronged in China, or was it just 

happy talk, or what happened during that dialogue? 

Mr. LOEVINGER. Thank you, Congressman Royce. Frankly, you 

bring up a lot of good points. 

I just spent 31⁄2 years at the embassy in Beijing, and every week 

I heard from U.S. companies, a lot of U.S. financial services firms, 

talking about how tough it is to do business, so I can tell you it 

is no nirvana. On the other hand, frankly, as you guys mentioned, 

there is a lot of United States investment going into China because 

even though it is not a nirvana businesses are making money and 

they are growing their business. 

When we say we want to promote rule-based investment in trade 

and we want a Chinese commitment to rule-based investment in 

trade, we are going to start with the WTO. You have seen this adVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
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ministration and the previous administration bring several WTO 

cases to China, and we have won several WTO cases and we are 

going to continue to bring cases to the WTO when China is not adhering to its commitment. 

Secondly, we want to expand the international commitments on 

trading investment that China is part of, so we spent a lot of time 

talking about the WTO government procurement agreement and 

how it didn’t matter in the 1980s when the agreement was signed 

whether China was in or out because who cared because China was 

a small purchaser and a small supplier. Now it matters a lot. 

And we also talked about when the administration finishes its 

review of policies toward bilateral investment treaties moving forward on a bilateral investment treaty with China again to put our 

trade and investment relations under more of a rule-based framework. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. FALEOMAVAEGA. Thank you. I wondered if the gentleman 

from California desires to do a second round. We have another 

panel pending. 

Mr. ROHRABACHER. No. 

Mr. FALEOMAVAEGA. Okay. I do want to say thank you both, gentlemen, for coming. My subcommittee looks forward to working 

with you both in the coming weeks and months as we try to unravel a lot of the fundamental issues affecting the Asia-Pacific region, over which it has jurisdiction. I sincerely want to thank you 

both for being here this afternoon. 

Mr. SHEAR. Thank you, Mr. Chairman. 

Mr. FALEOMAVAEGA. Thank you. 

We have in our next panel my dear friend, a distinguished gentleman in his own right, Mr. John Podesta. Here with us also are 

Mr. Fred Bergsten and Mr. Randall Schriver. 

Mr. Podesta is currently president and CEO of the Center for 

American Progress. Under his leadership, the Center has become 

a notable leader in development of and advocacy for progressive 

policies. In 2003, Mr. Podesta served as White House chief of staff 

to President Bill Clinton and served on the President’s Cabinet and 

was a principal on the National Security Council. While in the 

White House, he also served as both assistant to the President and 

deputy chief of staff. 

Recently, Mr. Podesta served as co-chair of President Obama’s 

transition team, where he coordinated the priorities of the incoming administration, oversaw the development of policy and spearheaded the appointment of major Cabinet secretaries. 

Additionally, he has held numerous positions on Capitol Hill as 

an aide to the former Democratic leader, Senator Thomas Daschle, 

and as counsel to the Senate Agriculture Committee and Judiciary 

Committee. 

A Chicago native and a graduate of Knox College and Georgetown Law School, he currently is a visiting professor of law, authored several books, and the list goes on and on. John, welcome. 

Very glad to have you. 

Mr. PODESTA. Thank you, Mr. Chairman. 

Mr. FALEOMAVAEGA. Dr. Fred Bergsten is currently the director 

of the Peterson Institute of International Economics, formerly 

33

known as the Institute for International Economics in its creation 

in 1981. The Institute is the only major research institution in the 

United States devoted solely to international economic issues. 

It has been called the most influential think tank on the planet. 

The first comprehensive survey of some 5,465 think tanks around 

the world recently concluded that the Peterson Institute was tied 

for top-rated think tank in the world with the Brookings Institution, I understand. It has a staff of about 60 and has moved to an 

award winning new building right now. Dr. Bergsten was the most 

widely quoted think tank economist in the world in 1997 and 2005, 

and his tremendous work continues on. 

Also he was assistant secretary for international affairs at the 

U.S. Department of Treasury from 1977 to 1981, also as a major 

economic assistant to Dr. Henry Kissinger at the National Security 

Council. Dr. Bergsten has authored, co-authored and edited over 40 

books and hundreds of articles. My gosh, the list goes on and on. 

I could spend the whole day here listening to this gentleman. 

Dr. Bergsten received his doctorate and his master’s from the 

Fletcher School of Law and Diplomacy and graduated magna cum 

laude from Central Methodist College. He has contributed tremendously to U.S. and international economic policy, analyses of a wide 

range of global economic issues, and provided a vision for a G–2, 

now known as the Strategic and Economic Dialogue. 

Mr. Randall Schriver is one of the founding partners of Armitage 

International, a consulting firm that specializes in international 

business development and strategies. Mr. Schriver served as deputy assistant secretary of State for East Asia and Pacific affairs 

where he was responsible for the People’s Republic of China, Taiwan, Mongolia, Hong Kong, Australia, New Zealand and the Pacific 

Islands. 

Prior to that, he served as chief of staff and policy advisor to 

then Deputy Secretary of State Richard Armitage. He formerly 

served for 4 years in the Office of the Secretary of Defense, was an 

active Naval intelligence officer for 3 years, foreign policy advisor 

on the McCain Campaign for President last year and was on the 

Bush-Cheney defense transition team. 

Mr. Schriver has won numerous military and civilian awards. He 

hails from the state of Oregon. He holds a master’s degree from 

Harvard and a bachelor’s from Williams College. 

Gentlemen, this committee is truly honored to have all three of 

you for taking your precious time to come and testify before the 

subcommittee on this issue, which I think is very, very important 

not only to me, but also to my colleagues on the Foreign Affairs 

Committee. 

I would like to start with Mr. Podesta, if you would, and see 

where we can go from there. 

STATEMENT OF MR. JOHN PODESTA, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, CENTER FOR AMERICAN PROGRESS 

Mr. PODESTA. Thank you, Mr. Chairman. You have an extensive 

written statement, so let me try to summarize. 

Mr. FALEOMAVAEGA. Without objection. All your statements will 

be made part of the record, as well as any other materials you 

want to add. 

34

Mr. PODESTA. I will just try to hit some key points. I am honored 

to be here with you, Mr. Chairman, Mr. Rohrabacher. I just returned from China where I led a high level delegation that included former leader of the Senate, Tom Daschle, John Deutch and 

former Ambassador Wendy Sherman, and I just came back last 

week so my observations are at least fresh, if not accurate, but 

they are at least fresh. 

Our conversations with very senior members of the Chinese Government convinced me that the relations between China and the 

United States are on a solid footing. For example, State Councilor 

Dai Bingguo told us that the government hoped President Obama’s 

visit in November would rival the significance of President Nixon’s 

visit and introduce an era in which the United States and China 

could build a positive, cooperative and comprehensive relationship, 

which you quoted in your opening statement, Mr. Chairman. 

Look, I am not naive about China. I understand the human 

rights issues, the issues around support for states like Sudan and 

Burma, but I think that we don’t have the luxury of either ignoring 

or not getting along with China at this moment in history. 

We have pressing global challenges that need to be addressed 

with China, so I think it is time to move beyond what has been 

usually referred to as engaging in hedge framework of China policy 

and take an approach that is openly premised on a strategy that 

maximizes opportunity and tries to manage the risk. 

The new format of the Strategic and Economic Dialogue will be 

instrumental to shaping our relationships going forward, as well as 

making progress on a number of global challenges. I thought I 

might comment based on again our conversations recently in China 

on some aspects of the national security relationship and then talk 

a little bit about climate change and clean energy. 

On North Korea, you may know, Mr Chairman, I recently accompanied President Clinton to Pyongyang, making me I guess one of 

the few Americans who have been there in recent years, and our 

discussion in Beijing I think suggests that China remains committed to a denuclearized Korean Peninsula, and they will work to 

reengage the DPRK in multiparty communications. 

China’s recent enforcement, as Mr. Royce was suggesting, of U.N. 

sanctions against Pyongyang I think is actually an encouraging 

sign of their position. They view this as a strategic I think threat 

in the region, and I think they are being cooperative on that question. 

On Iran, China has acknowledged that Iran should not possess 

nuclear capabilities, but it has declined to use its leverage on the 

issue. The United States Government I think needs to continue to 

press China on Iran, given our mutual interest in avoiding a regional arms race and promoting long-term stability. I think in that 

regard, the Chinese investments, particularly with respect to developing the Iranian capacity to develop gasoline, I think are troubling. I think we need to keep pressing on that front. 

With respect to military cooperation, we met with General Ma, 

who is the vice chairman of their Joint Chiefs. Cooperation and 

confidence between China and the United States militaries I think 

has lagged behind that of other state apparatuses. I think both 

35

sides view this as being marked by a kind of stop/start/restart quality that has not always been helpful to either side. 

I think both sides actually, both the United States military and 

the Chinese military, are looking to bring cooperation and confidence to levels consistent with other areas of the United StatesChina relations, and senior leaders of our two militaries need to 

continue to engage in regular and candid dialogue on issues of mutual concern. 

The resumption of our formal bilateral defense dialogue is an important first step, and there are a number of other activities I 

think that could follow on. For example, our ships are battling pirates side-by-side right now off the coast of Somalia, and I think 

that is symbolic of the way we can develop a stronger mil-to-mil 

relationship. 

We also discussed pandemics. I think China learned its lesson 

from SARS and are actively cooperating with the World Health Organization particularly with respect to H1N1. While they have 

made some mistakes in that regard, I think they are basically in 

a cooperative mode and a positive mode. 

Let me just say a word about climate change. During our meetings in Beijing, we were assured that China will do its part with 

respect to addressing its skyrocketing emissions rates. As my testimony goes over, they have very, very significant investments in 

clean energy, very major investments in solar and wind, developing 

the clean energy technologies and industries of the future. I think 

they will be a competitive player in that regard. In fact, I think we 

are at risk of falling behind. 

The MOU that was referenced in the first panel I think is a significant movement whereby we can begin to understand and move 

forward to demonstrate that their energy policy will indeed result 

in emissions reductions capabilities in a measurable, reportable 

and verifiable way, so I think it is a very important part of the Dialogue and has been made central under this administration to the 

Dialogue. 

We, along with the Asia Society, have developed a kind of road 

map on how we can cooperate on CCS, carbon capture and sequestration, which I think they are quite interested in, our own Government is quite interested in, and it may be a way of carrying out 

demonstration of that vital technology to both countries in a way 

that is cost effective and will result in reduced emissions again in 

both countries. 

My time is up, and I will turn back the microphone. 

[The prepared statement of Mr. Podesta follows:]

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Mr. FALEOMAVAEGA. Thank you, Mr. Podesta. 

Dr. Bergsten? 

STATEMENT OF MR. FRED BERGSTEN, DIRECTOR, PETERSON 

INSTITUTE FOR INTERNATIONAL ECONOMICS 

Mr. BERGSTEN. Thank you, Mr. Chairman. I appreciate the opportunity to testify. I will make five basic points and try to do so 

quickly. 

First, as you have already indicated, the United States and 

China are clearly the two most important national economies in the 

world. It is therefore clear that effective international policy coordination requires the closest possible cooperation between the United 

States and China. 

The two countries do not have to agree on every issue, let alone 

pursue identical policies, but they must be willing and able to work 

constructively together if enough agreement is to ensue to permit 

progress across the entire range of crucial international issues 

ranging from recovery from the current crisis to creating a new 

global regime to counter global warming. 

The punch line of that dual leadership is that the United StatesChina relationship must focus increasingly in the future on the 

wide range of global economic issues rather than the narrow bilateral frictions that we have traditionally emphasized in the past. 

Second, in anticipation of those conditions, and as you indicated, 

I proposed 5 years ago that the United States and China work toward creating an informal G–2 that could provide effective leadership of the world economy. The idea is to develop a close working 

relationship that would supplement, not supplant, the other Gs—

G–7, G–20—and the IMF and WTO. 

Somebody mentioned that other countries are miffed that the 

United States and China might be working on these issues together. If the U.S. plays it right, all the other countries will be consolidated and engaged too, and if the United States and China can 

agree, and they have to agree to make progress, the outcomes will 

be superior and the other countries ought to welcome it. The idea 

is not to supplant but to supplement and make the system work 

better. And without these two, whether we like it or not, there has 

to be agreement or we won’t get much progress. 

My assessment of the initial meeting of the Strategic and Economic Dialogue and its future prospects is governed largely by an 

assessment of whether it is helping to create such a G–2. I think 

it is moving clearly in that direction, despite the denials of the Secretary of State earlier on, and holds considerable promise for so 

doing. I thus strongly endorse the initiative, praise the Chinese for 

participating so actively in it, and offer a few suggestions for how 

it can best proceed. 

Third, to create and sustain an effective G–2, and to have an 

S&ED that works, the United States and China have to engage in 

a wide ranging and continuing conversation on their respective 

roles in the world economy and the global economic system. 

As you mentioned, Mr. Chairman, they weren’t even in it until 

30 years ago. The whole system was created before they were even 

engaged. They were not present at the creation. They had nothing 

to do with the rules and institutions. So it is not a shock that as 

49

they become the second largest economy in the world they might 

raise some questions about what they are getting into. 

Therefore, we have to talk with them very seriously on world 

views about the global economy, the same way my old boss, Henry 

Kissinger, and President Nixon talked to Zhou Enlai and Mao 

Zedong back almost 30 years ago in opening up the United StatesChina relationship. And in a way that is even more important in 

the economic sphere because, as I say, they weren’t involved in the 

system when it was created and developed, yet it is critically important to bring them into it. 

So that would be point 3. The S&ED, by providing a full day or 

two of intensive interaction between key ministers of the two countries, can and should play an active role in that process. 

Point 4. Heads of government and top officials will become impatient with lengthy discussions of world views and such unless there 

are some deliverables on issues of immediate concern. And I think 

it is therefore imperative the S&ED tackle the media topics. There 

are at least two issues where I think they did so effectively, and 

you heard about it early from the government representatives. 

On the world economy, China and the United States have led the 

global recovery with fiscal and monetary stimulus. China in fact 

grew at an annual rate of 15 percent in the second quarter of this 

year, clearly was the first country to recover, clearly is leading the 

global recovery. The U.S. has not bottomed out. Our recovery has 

probably begun, and so I think we are on the way to a joint leadership of the recovery process. 

What is critically important, however, and David Loevinger from 

Treasury emphasized it, is not only recovery of growth, but reshaping the composition of that growth and therefore the direction of 

both countries’ strategies. China has been running huge, and in my 

view, unacceptable and unsustainably large trade surpluses, over 

10 percent of its GDP. They have manipulated the exchange rate. 

Mr. Rohrabacher didn’t even mention that one, which I think is 

the most important problem. The Chinese have manipulated their 

exchange rate aggressively and massively. That has given them a 

huge competitive advantage and built up these trade surpluses. 

That just can’t continue. 

As Loevinger said, you have to put that in the context of a restructured growth strategy. Already, and this is not widely realized, China’s trade surplus this year will be cut in half from where 

it was just 2 years ago. 

The U.S. trade deficit is already cut in half from where it was 

3 years ago so there is good progress, but the issue is to keep that 

going, build on it, use the S&ED and other devices in order to restructure the growth pattern in the way that Loevinger was discussing. I can elaborate on that if you wish. 

The other big issue is global warming, and I do believe that this 

Memorandum of Understanding, which was the most tangible result from this S&ED meeting 6 weeks ago, could turn out to be a 

breakthrough in terms of United States-China cooperation and China’s commitment to deal with that global problem. 

Fifth and finally, there are some things they did not do and have 

to do in the future. China has expressed great anxiety about its 

dollar holdings. Well, they didn’t really talk about that. The United 

50

States is very concerned, rightly, about a seeming revival of industrial policy initiatives in China. I am not aware that they talked 

about that very much either, and the Chinese have this very aggressive policy of keeping the exchange rate undervalued. That 

boosts their trade surpluses and enhances their competitiveness 

unfairly. 

Loevinger said they had long talks about it, but the truth is both 

Treasury and the IMF have backed away from any effective 

counter to that Chinese policy, which is very adverse not just to 

our economic interest, but to the stability of the whole global system. 

So I think the S&ED is a good step down the line toward a G–

2 to talk about global issues, and they made good progress on two 

of the big ones. But there are several others that remain to be addressed so they have a big agenda for the future that I hope they 

will continue to address. 

[The prepared statement of Mr. Bergsten follows:]

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Mr. FALEOMAVAEGA. Thank you very much, Dr. Bergsten. 

Mr. Schriver? 

STATEMENT OF MR. RANDALL G. SCHRIVER, PARTNER, 

ARMITAGE INTERNATIONAL, L.C. (FORMER DEPUTY ASSISTANT SECRETARY FOR EAST ASIAN AND PACIFIC AFFAIRS, 

U.S. DEPARTMENT OF STATE) 

Mr. SCHRIVER. Thank you very much, Mr. Chairman. Thank you 

for the invitation and thank you also for seating me along side people I respect and admire so much. I know we are somewhat judged 

by the company we keep, and I know my reputation is enhanced 

today. Thank you for giving me that opportunity. 

Talking about a particular format or dialogue, I think it is important that we ground this in our impressions of the overall relationship because even the best modalities won’t produce results if the 

fundamentals aren’t there in the relationship. And the reverse is 

true as well. If the fundamentals are in place the form of dialogue 

will only marginally affect the outcomes. 

I guess I would take a bit more of I don’t want to be pessimistic, 

but maybe in my view at least a sober minded view of where things 

stand. I think although it is undeniable that our interests are converging in many ways, there are still very profound differences between the United States and China. Many of those issues have already been mentioned—human rights, the security of Taiwan, proliferation and so forth. 

So I think even if we are extremely creative and come up with 

the best modalities, I think these profound differences will mean 

that the outcomes and the deliverables and the products I think 

will necessarily be modest, and I think that was frankly borne out 

in the first round of the S&ED. That doesn’t mean the Dialogue 

shouldn’t take place, but we should think carefully about how we 

characterize this dialogue and what our expectations are. 

In fact, when the Chinese raised the prospects of holding a strategic dialogue, my boss at the time, then Deputy Secretary 

Armitage, agreed to a senior dialogue only. He said we reserve 

strategic dialogue for allies and people who share our views and 

share our interests, and I think that is an important point to keep 

in mind. 

I think many of the advantages of this forum have already been 

discussed. I would underscore several of them. I do think it is useful to the interagencies on both sides. People have noted the Chinese interagencies are stove piped. I might hasten to add that is 

a problem on our side as well at times, and this format with so 

many cross-cutting issues does help interagencies on both sides 

interact and deal constructively on a range of these issues. 

Obviously having a flagship dialogue of this magnitude can be an 

important action forcing event that can incentivize governments 

into action, and obviously having a format of this nature when 

things are said they are almost by definition authentic, authoritative and it is a great platform for communicating clear messages. 

I think between the United States and China that single goal of 

clear communication to the extent it helps us avoid differences and 

conflicts and miscommunications, that in and of itself is important, 

but let me focus on what I think are a few of the potential 

58

downsides, and I do so at the risk of sounding overly negative, but 

I want to use the time to be constructive and talk about what I 

think some of the potential pitfalls are. 

Number one, I think we have inadvertently placed China in a 

place of priority or predominance that they haven’t quite earned. 

I would note that Japan still has the second largest economy in the 

world. We have other major trading partners in Asia. 

We have trading partners around the world who are more closely 

aligned to the United States, share our values, share our views, but 

yet, as was noted earlier, there has never been anything like this 

in terms of high level engagement with any of these countries, so 

I think inadvertently we have given the impression that China has 

a place of priority, which I don’t think they quite frankly have 

earned through their actions and through their policies. 

I think that segues into a second concern I have. We often place 

value differently on the outcomes of dialogues of this nature. China 

often judges success or failure based on symbolism, status. People 

say face in Asia. I think we run the risk sometimes of loading six 

or seven Cabinet secretaries on a plane, touching doing in Beijing, 

and the Chinese have already accomplished their objectives in the 

meeting without having to actually produce. 

If they perceive they are already the great strategic partner of 

the United States, my feeling and based on my experience of interacting with China, that may actually decrease the possibilities that 

they will engage in constructive cooperation, and in fact there are 

a range of things we can and should be doing with our allies that 

are not only the right things to do with respect to those relationships and for our United States interests, but also is the smart 

thing to do in terms of engaging China. 

I mentioned that it is a useful action forcing event, but the reverse could also be true. China often holds in abeyance initiatives 

and deliverables and outcomes until the next round of a major dialogue, so I think there is a potential downside of this diluting many 

of the other interactions we have; for example, the so-called JCCT, 

the Joint Commission on Commerce and Trade. 

Another downfall and potential downside I would note is a lack 

of priority and a very unwieldy agenda in the S&ED format. I have 

noted what the representatives of the administration have said 

about prioritization. I take them at their word. I have a great deal 

of respect for both of them, but it is, very frankly, hard to see from 

the outside that there were clear U.S. priorities being conveyed in 

the S&ED. I think that that has the potential to dilute the possibility of achieving outcomes on what are truly the most important 

and strategic issues for the United States. 

Finally, I worry a little bit about a sense of complacency; that we 

have so many ministers, so many Cabinet secretaries that we will 

be under the impression we are talking to all the right people and 

we have a vehicle that is sufficient for all the work that needs to 

be done in the United States-China relationship. 

And in this regard it certainly underscores something Mr. Podesta said about the military-to-military relationship. I think if we 

could get PLA operators into a room to talk about safety on the 

high seas, that in and of itself would be just about equal value to 

59

what we are getting with all these Cabinet secretaries and ministers. 

I know my time is running very short. Let me just quickly conclude with some recommendations. I don’t want to only cast aspersions. I think high level dialogue, senior dialogue, with China is 

important. I think it can be improved. 

Number one, I think we should step up our cooperation with our 

allies. I think we should conclude CORUS, I think we should enhance our TIFA talks with Taiwan, and I think we should really 

take advantage of this fiftieth anniversary of the U.S.-Japan alliance coming up for a robust security declaration. Again, the right 

thing to do, but I think it actually helps us to engage China. 

Number two, I think we need much greater clarity on the agenda 

for the S&ED so that we can really work on issues of true priority 

and the number of Cabinet secretaries and ministers adjusted accordingly if we are able to do that and focus on a more concrete 

and specific agenda. 

Again, number three, other fora. We shouldn’t be complacent 

about this S&ED as being all the right people, all the right issues. 

I do think military-to-military is extremely important. 

And then finally, I do think we have created an impression, and 

I will only say that, that human rights is lower on the agenda than 

I feel it should be with China. I take the administration and Mr. 

Shear, again who I respect greatly. I take him at his word about 

the vigor with which these issues are pursued, but I did note China 

coming out of the S&ED almost thanking the United States for not 

raising the Uighurs and Xinjiang with greater intensity and forcefulness. 

I don’t take that as a good sign when we are being congratulated 

for things like that, and so I think some things should be done to 

re-energize those issues in the United States-China relationship. 

Thank you. 

[The prepared statement of Mr. Schriver follows:]

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Mr. FALEOMAVAEGA. Thank you very much, gentlemen. 

The gentleman from California for his questions. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. Let me 

note in terms of a little comment on your original comment, which 

was how China has had such stability, economic stability, when 

there has been such economic chaos going on in the United States 

and the western markets. 

I think that if you live in a country where they have killed the 

lawyers and jailed all the union organizers and cut off all free press 

and political opposition, it would appear to be a stable regime. 

Mr. FALEOMAVAEGA. Will the gentleman yield? 

Mr. ROHRABACHER. And you could actually make sure the profit 

is directed toward the right people. Yes, sir. 

Mr. FALEOMAVAEGA. I think it was one of the great writers, a fellow by the name of William Shakespeare, who said the first thing 

we do is kill all the lawyers. 

Mr. ROHRABACHER. Well, the Chinese have certainly read that 

one all right. 

So let us note that that is the kind of society. There is a facade 

of stability and strength, but I think that underneath that is you 

have millions and millions of Chinese people who long for the same 

things that we long for, and that is to be able to live in freedom 

and to have better lives for our children and to express ourselves 

and to be able to worship God as they see fit. 

I think these are not things that only westerners want. I think 

that the Chinese people, I see them as our greatest ally, and they 

right now have a boot on their face and it does not do us any good 

or the world any good to ignore that fact and to just talk about how 

we can cooperate with the guy who has the boot on his foot and 

that boot is on the face of their own people. 

So with that said, let me ask a question because the first two 

witnesses seemed very optimistic about cooperation. As a matter of 

fact, your whole testimony was about how we cooperate with this 

regime. Pardon me for being cynical here, but do either one of your 

groups receive contributions or have clients from business that are 

making profit from the China market? 

Mr. PODESTA. I will let Mr. Bergsten answer for his group. We 

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Progress generally in the vicinity of $25,000, but never for any 

work that we do, and so I think that we have no economic stake 

in the people that——

Mr. ROHRABACHER. By the way, $25,000 does not sound like a 

small contribution to me. 

Mr. PODESTA. Well, we take contributions from corporations as 

part——

Mr. ROHRABACHER. But do you make a profit from China-to- China trade? More than $5,000? 

Mr. PODESTA. You know, we do no work on their behalf and we 

take no corporate contributions to do particular studies, Mr. Rohrabacher. 

Mr. ROHRABACHER. Okay. I understand. You do take contributions. 

Mr. PODESTA. We take union contributions. We take individual 

contributions, and we take corporate contributions. 

Mr. ROHRABACHER. There it is. Okay. I am just asking. People 

need to know who is talking. We have a group that takes $25,000 

contributions from people who are doing business with gangster regimes. 

Now, what about your organization? 

Mr. BERGSTEN. About a third of our funding comes from philanthropic foundations, about a third from individuals, about a third 

from companies, some of which certainly have business in China. 

Mr. ROHRABACHER. All right. 

Mr. BERGSTEN. They of course have businesses in hundreds of 

countries, and we take——

Mr. ROHRABACHER. Sure. 

Mr. BERGSTEN [continuing]. Funding for our China related 

projects——

Mr. ROHRABACHER. Okay. 

Mr. BERGSTEN [continuing]. From companies that are involved 

in——

Mr. ROHRABACHER. And what size? We heard about $25,000 is 

the biggest contribution from any business that does business in 

China from his organization. What about the biggest contribution 

from a company that does business in China for your organization? 

Mr. BERGSTEN. Well, we are much better fundraisers than Podesta so we get more than that from some companies. We get $10,000 from some, $5,000 from some. But I suspect—I would have to check the record—we get $50,000 or more from a 

couple of companies——

Mr. ROHRABACHER. All right. 

Mr. BERGSTEN [continuing]. That have business in China. 

Mr. ROHRABACHER. All right. So we understand, okay? No one is 

saying that what you are saying is untrue or that you don’t believe 

it, but that is the environment in which you are working. 

So with that said, and again you are focused on cooperation. I 

will have to say I am a little flabbergasted by someone who would 

suggest that the United States be viewed in the world as a partner 

with the world’s worst human rights abuser and that in some way 

is going to have a positive impact with the G–2, but let me ask this 

question of you all. 

Mr. BERGSTEN. Could I answer that directly? 

66

Mr. ROHRABACHER. Yes, you may. Go right ahead. 

Mr. BERGSTEN. Because you raise a very fundamental question. 

It comes up all the time in our debates on how to organize the 

world. There are two conflicting schools of thought. 

One would say, and that is what I have said, that when another 

country is the world’s second largest economy, second most important economy, and you can’t really make progress on any global 

economic issues without it. You have to deal with them as effectively as you can. 

Your view is that despite all that if their values are not ones we 

share——

Mr. ROHRABACHER. Yes. 

Mr. BERGSTEN [continuing]. That you stay distant. 

Mr. ROHRABACHER. Right. 

Mr. BERGSTEN. And I think one has to reconcile the two as best 

one can, but one has to ultimately choose which way you lean. 

I think honest people can disagree, but I don’t see how we can 

promote our economic interests unless we deal effectively and extensively with the world’s second largest and most important economy. 

Mr. ROHRABACHER. Well, as Mr. Schriver pointed out, Japan for 

a long time was the world’s second largest and we never tried to 

afford them the type of prestige that you are suggesting we move 

forward with China. 

Mr. BERGSTEN. Not actually true, Mr. Rohrabacher. 

Mr. ROHRABACHER. Okay. Let me move forward with a couple 

things here. 

Mr. BERGSTEN. We were very close with Japan with many, 

many——

Mr. ROHRABACHER. Okay. Let me just note this. First of all, I 

have heard from the business community for year after year after 

year, for decades now, that if we just deal with these people in a 

cooperative spirit and really treat them as friends that there will 

be a liberalization going on. 

I have not seen any liberalization going on in the Chinese Government throughout this expansion of economic relationships, and 

I believe that the hug-a-Nazi-make-a-liberal theory has not worked. 

We have hugged them, we have kissed them, we have put our investment money in their pockets, we have helped build their economy, and they still have a fascist regime in Beijing. 

One last question, and that is right now which do you believe to 

be the worst threat to the stability and peace of the world, the Somali pirates or China’s claim to almost the entire South China 

Sea? 

Which one, the Somali pirates or this major massive power laying claim to all of the trade routes through which Japan has to 

bring all of its oil into almost all the entire South China Sea? Do 

you think that claim is a belligerent, arrogant act on the part of 

the Beijing? 

Mr. PODESTA. If you are forgiving the Somalia pirates, I don’t 

know why. 

Mr. ROHRABACHER. Okay. 

Mr. PODESTA. I mean, it seems to me that we need to deal with 

both questions or both security issues, but, you know, you see the 

67

world as black and white and I see it I guess in shades of gray, 

Mr. Rohrabacher. 

Mr. ROHRABACHER. Okay. 

Mr. BERGSTEN. I would like a few more choices. You just gave 

two choices and which is the greatest threat. 

Mr. ROHRABACHER. Okay. What about for you, Mr. Schriver? 

Mr. BERGSTEN. There are a number of countries, incidentally, 

that claim portions of the South China Sea and the Spratlys and 

all that——

Mr. ROHRABACHER. Right. 

Mr. BERGSTEN [continuing]. So it is not only China. It is literally 

last count I think eight or 10 countries in Asia that——

Mr. ROHRABACHER. I will have to say, when the Philippines go 

out there with their little putt-putt patrol boat and say yes, we own 

this much of the South China Sea it doesn’t seem as threatening 

as when the Chinese claim the whole thing. 

What about you, Mr. Schriver? 

Mr. SCHRIVER. Well, I wouldn’t hesitate to say that China represents the greatest potential threat to the United States. 

It doesn’t imply necessarily the full policy prescription of what 

we do about it, nor does it say that there aren’t potential opportunities as well, but I think their trajectory, we have to be very sober 

minded about that. 

Mr. ROHRABACHER. Thank you, Mr. Chairman. 

Mr. FALEOMAVAEGA. Thank you. We are joined now by our distinguished ranking member, the gentleman from Illinois, my good 

friend, Mr. Manzullo. If he has an opening statement or a series 

of questions he would like to——

Mr. MANZULLO. I ask that my opening statement be made part 

of the record. 

Mr. FALEOMAVAEGA. Definitely. Without objection. 

[The prepared statement of Mr. Manzullo follows:]

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Mr. MANZULLO. You know, we have been working with China 

ever since I came here in 1993. I served as the first chair of the 

U.S.-China Interparliamentary Exchange, have been to China several times, helped entertain the Chinese here in the United States, 

and one of the impressions that I get it is very hard to refer to the 

‘‘Chinese’’ as one people just as it is hard to refer to Bergsten and 

Podesta as people of like mind. 

And I say that facetiously because depending upon the area of 

China with which you are dealing or the individual we have found 

some extraordinary open people that have really in individual cases 

gone to bat for United States companies that were getting clobbered by the Chinese themselves in various parts of that country, 

so I find it——

I know we are still dealing with a country that is closed and I 

am disappointed it is not more open than we anticipated in light 

of the different laws that we have passed regarding China’s trade 

obligations, et cetera, but one of the things that I want to explore 

with you, and this comes as a person who also sits on the Financial 

Services Committee. 

I am really concerned that the Chinese, which owe over $800 billion in U.S. notes, the first part of April at the G–20 had talked 

about a bag of currencies, cache of currencies, whatever it is, to 

supplant the U.S. dollar as a currency of reserve for international 

trade purposes. 

On April 2, the G–20 signed an extraordinary agreement that 

sort of indicated that, and prior to that Secretary of Treasury 

Geithner had made some remarks that perhaps he hadn’t studied 

talking about this substitute for the U.S. reserve. China now of 

course wants more of a say so in the G–20 because they are putting 

more money around the world. 

My question to the three of you is what implications would happen if the U.S. dollar no longer is the international currency of reserve? That is an easy question. Who wants to start with that? 

Fred? 

Mr. BERGSTEN. Let me start. Sure. First of all, the Chinese holdings of dollars are probably more like $1.5 trillion now, almost double what you said. We can only record about $800 billion of their 

direct holding of U.S. Government paper, but the estimated total 

is close to double that and rising very rapidly, whatever they may 

say about their unhappiness about dollars. 

I made the point before that they have intervened massively in 

the currency markets to keep their exchange rate undervalued to 

improve their trading competitiveness. The way they do that is to 

buy dollars. They buy dollars, sell renbinmi. It holds the price of 

the renbinmi down against the dollar, gives them more price competitiveness. 

The financial consequence is their dollar reserves keep rising so 

whatever anxieties they may enunciate they keep piling up dollars 

more and more. So one can understand that they want the best of 

all worlds. They want to be able to keep their currency down, but 

also get some kind of takeout for the dollars that they hold. I don’t 

think they are likely to get that. 

I am not sure what you referred to in the G–20 in April, but it 

may have been the decision to create a large amount of special 

70

drawing rights at the IMF to supplement global reserves. In an indirect way you might say or might interpret that as a response to 

the anxiety of China and some other countries incidentally—Russia 

and some others—about their large dollar holdings, but I think the 

G–20 viewed that, and rightly, as part of the response to the global 

crisis. 

The idea of creating special drawing rights through the IMF is 

to add to the reserves of all member countries around the world. 

That gives them more wherewithal to buy imports, restore the level 

of international trade, which has dropped so sharply, and thereby 

contribute to the global economic recovery. It is legitimate to say 

a side effect is to slightly decrease the role of the dollar in world 

finance. 

The SDRs up until now have accounted for something like 0.2 

percent of all global financial reserves. The decision at London—it 

has now been implemented, incidentally, August 28 by the IMF—

takes the SDR share of total reserves up to 5 percent not by reducing the amount of dollars but simply by increasing an alternative 

asset. 

Now, what would happen if the dollar no longer becomes the key 

reserve asset? First of all, that could not possibly happen for a 

very, very long time. The dollar is the currency of international 

commerce. It is used in variously estimated 70–80 percent of all 

international transactions, including by countries far away from us 

geographically, so there is not much risk that its role is going to 

diminish any time soon. There just wouldn’t be any technically feasible way to do that. 

I may shock you, however, when I suggest that a gradual and orderly reduction of the dollar’s role might not be such a bad thing 

for the United States. Why do I say that? First of all, the dollar 

enables us to finance our huge trade deficits much more easily. 

That is generally viewed as its main benefit. We can live beyond 

our means. We can buy more from abroad than we sell because the 

foreigners are willing to pile up dollars, finance our debit card as 

if nobody was collecting on principal, and so we can live beyond our 

means. In the short run that is attractive. 

But it also means that we often pursue policies that are not 

greatly in our own interest, and I would submit that the huge foreign financing of our huge trade deficits was an important cause 

of the current crisis. Why? All those dollars came in from China 

and elsewhere. They kept our interest rates very low. They kept 

our monetary conditions very lax. They kept our liquidity extremely high. 

The Chinese did not force our banks to make stupid subprime 

loans, but the conditions, the monetary conditions, that ensued 

were an open invitation to overleveraging, underpricing of risk, all 

the things that brought on the crisis. In short, the great financing 

of our big deficits and all that wonderful foreign capital inflow created conditions that really rose up to bite us. 

There is a second reason why it is not such a great thing for the 

United States to have all this foreign dollar financing, and my 

China example describes it. The Chinese manipulate their exchange rate because they can buy dollars in the currency market 

and keep their currency low. That overvalues our currency, makes 

71

us less competitive in world trade, brings on those big trade deficits 

and to some extent job losses here. We don’t control our own exchange rate because of the international role of our currency. 

So it is a mixed bag. I don’t want to be totally negative. There 

are advantages and disadvantages. It is a complicated business. I 

wrote a book on it a long time ago. I have just done a big article 

for the next Foreign Affairs issue addressing that whole set of topics. 

But I for one would believe that over time as we move into a 

more multipolar world economy where the euro is rising as a national currency, where the IMF can create this alternative asset, it 

is probably a good thing for the United States to have that greater 

variety. 

The United States in fact was the country that initiated the idea 

of special drawing rights in the IMF 40 years ago and again strongly supported the G–20 action to create the $250 billion just in the 

last few weeks, and I think that is a constructive course for U.S. 

policy. 

Mr. PODESTA. Mr. Chairman, could I just add one word to that? 

Mr. FALEOMAVAEGA. Please. 

Mr. PODESTA. I defer to Fred’s expertise on this, but it seems to 

me that he is laying out a solution that the implication may be that 

the course should be to weaken the dollar and weaken the reserve 

position of the U.S. dollar, and it seems to me that the more effective way to approach this problem is actually to get our macroeconomic policy right and fix our own economy and retain the 

strength of the dollar as a reserve asset by doing things like returning to fiscal discipline and creating a macroeconomic policy 

that is going to have wage growth happen in the United States so 

that the pressure to kind of borrow our way into prosperity is reduced as people’s incomes rise. 

Mr. SCHRIVER. Well, I am not an economist, but as a China 

watcher I would say that I think much of their actions and statements are actually driven by insecurity. They never invested in 

U.S. dollars and held U.S. dollars out of affinity for us or love of 

us or because they wanted to be nice to the United States. It is the 

best place for them to keep wealth and hold wealth. 

And they are nervous. They are nervous by our profligate spending. They are nervous by the trajectory of things right now, and I 

would completely agree that the best thing we can do is return to 

fiscal discipline as soon as possible. Otherwise this dynamic will 

surely continue. 

Mr. BERGSTEN. Just to be clear, that is exactly the same policy 

conclusion I come to and stress in the upcoming article, but I do 

have a somewhat different view on whether the international role 

of the dollar is a great thing for the United States. 

Mr. MANZULLO. I appreciate your answers on all of those, and as 

somebody who spends probably 60 percent of his time in Congress 

working on manufacturing issues—I think I am the only member 

who has gone to warehousing school—I am concerned over the drift 

actually started with Chairman Greenspan, who never thought the 

loss of manufacturing jobs was significant. Fortunately, Chairman 

Bernanke takes the opposite view and is concerned about every sinVerDate 0ct 09 2002 17:05 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00075 Fmt 6633 Sfmt 6633 F:\WORK\APGE\091009\52146 HFA PsN: SHIRL
72

gle job that we lose to a foreign competitor and very sincere and 

very earnest in that. 

I think it is a matter of how you look at this thing. Mr. Podesta, 

I don’t know how the United States can get its macroeconomic 

house in order. I don’t think we could sit down and all agree to 

wear the same color tie on alternative Wednesdays. Excuse me, Mr. 

Chairman. Or bolo ties or whatever we are going to wear. 

You know, you could take piecemeal what we see going on in 

manufacturing in this country, and I see often times a company 

will say either—a large company will tell a supplier either you are 

going to knock out so much per dollar or we are going to take it 

to China, and often times there is no supplier from China. It is 

used as a paper dragon, if I could use that term. Many of the suppliers say all right, if you want to buy that thing from China, and 

then there is a pause and a hesitancy. 

What I see going on is a lot of these jobs are going to China. A 

lot of the price to the suppliers is being forced down by the manufacturer who threatens that. I don’t think you can develop a macroeconomic policy when China is used both as a source of manufacturing and as a threat of source of manufacturing. I just don’t see 

how we can overcome that except to make U.S. manufacturing 

more competitive. 

There are any number of ways that could be done through the 

work we are doing on export controls and things of that nature, but 

I had just asked for a comment. I didn’t really ask for a solution 

because I know none is here. I appreciate the comments of each of 

the three of you. 

Mr. BERGSTEN. Just to say very briefly, I very much agree. The 

reason I have railed rather adamantly against China’s exchange 

rate policy is because it contributes very importantly to the erosion 

of United States manufacturing and job base that you indicated. 

Certainly we have to do everything we can domestically in terms 

of fiscal policy, as John said, and in terms of tax policy to maintain 

a competitive base here for the manufacturing sector and job creation. 

Mr. MANZULLO. If I could quote, when Madame Wu Yi was here 

this was April 22, 2004, the U.S.-China Business Council—I think, 

Fred, you were at that meeting—she made the most extraordinary 

statement, so extraordinary I had to record it forever in my Blackberry. 

She said China has a ‘‘market based managed unitary floating 

exchange rate.’’ I thought I had heard that wrong, and then she 

had actually put out an English translation. Actually she spoke in 

English. I said how could you have a market based managed unitary floating exchange rate, but that is their definition of their fair 

currency. 

I thought you would enjoy that, Chairman. Do you like that? 

Thank you. 

Mr. BERGSTEN. It is a double oxymoron. 

Mr. MANZULLO. Well, whatever it is. 

Mr. FALEOMAVAEGA. Unfortunately my good friend from California has had to leave, but I wanted to just share with him a little 

sense of my perspective about our relationship with China. 

73

China is not a perfect country, but neither is the United States 

or any other country in the world for that matter. And I say with 

a sense of a historical perspective, that at the height of the Cold 

War we had a major adversary almost to the brink of using nuclear 

annihilation if you will. 

But something happened in 1972—to President Nixon’s and Mr. 

Kissinger’s credit—to have a dialogue with the most powerful Communist country, I guess the most populous at that time. Mao 

Zedong and Zhou Enlai, literally changed not only the balance of 

power in the world, but probably in my humble opinion made a better world. The fact is that this historical event in my humble opinion was due to China’s willingness to deal with us, a matter of 

power politics, if you will, but they did. 

They were willing to dialogue to the point where we eventually 

established a formal diplomatic relationship. So I wanted to share 

that with my friend from California, but maybe next time. 

Gentlemen, I know it has been a long afternoon and certainly 

want to commend all three of you for your most eloquent statements and opinions in terms of this very important issue. 

I just wanted to ask Dr. Bergsten. I think it was at one time 

China wanted to propose an idea of an international currency rather than using the dollar as the basis of all other currencies. What 

do you think of that idea? 

Their concern comes about because of what we have done in 

terms of our own economic recession, which has literally affected 

the entire world economy, including their own, I suppose, as being 

worried about almost a $1 trillion investment in the United States. 

Japan almost a $900 billion investment. 

What do you think of the idea? Why don’t we have an international currency rather than just relying on the dollar or other 

forms of currency? 

Mr. BERGSTEN. The IMF currency that I mentioned before, the 

special drawing rights are actually an international currency, and, 

as I said, with the creation of a large new amount in the last few 

weeks it has now become at least a modestly significant component 

of monetary reserves held by national governments. 

However, there are no private markets in that currency. When 

it was first created in the early 1970s there were in fact some nascent efforts to create a private market, and it was used to denominate some contracts and some bonds and things like that, but it 

never caught on. 

It could. It could become used in the private sector if individual 

financial institutions and companies decided they wanted to do so, 

and that would move us toward a more internationalized monetary 

and economic system. As I said before, I do not think that is likely. 

The dollar has huge advantages of convenience. The United 

States is by far, for all its recent problems, the deepest and broadest financial market in the world, so right through the crisis, countries and private actors around the world have continued to build 

their dollar balances. 

In fact, one of the most interesting and some would say ironic 

elements of the crisis, which was of course initially caused in the 

United States, was that the exchange rate of the dollar strengthened very sharply throughout the crisis. Why was that? In the 

74

depths of the problems and fears about economic security and financial stability there was a flight to quality and the safe haven 

of U.S. Treasury securities and the dollar. 

Therefore, our interest rates went to virtually zero. Our exchange 

rate strengthened. All that was a result of world demand for dollars in the teeth of a crisis largely caused by the United States. 

Now, that does indicate that the dollar is not about to go away 

any time soon as a global currency, but if one wanted to move incrementally toward a bigger role for an international asset, that 

move has already begun and could be elaborated. 

Mr. FALEOMAVAEGA. Mr. Schriver, you indicated earlier that you 

don’t think China has earned her stripes of being in standing with 

the United States not necessarily as a co-equal economically, but 

substantively in any other way that it seems to be. 

Can you elaborate a little further by saying what does she have 

to do to earn being a co-equal partner with the United States that 

you seemed to have reservations about? 

Mr. SCHRIVER. Well, my own opinion is that it goes beyond the 

size of the economy and the size of the population in terms of how 

you interact with another country. 

Undeniably, I wouldn’t question anything that was said earlier 

about the importance of working with China to deal with the whole 

swath of global and regional issues. It is far easier to get things 

done if China is on board and I daresay almost impossible in some 

cases, depending on the issue, to get things done if they are an adversary to you on those issues. But I do think symbolism matters 

in international relations and I do think tactics in terms of how 

you approach another country can be consequential. 

As I said in my testimony, I think elevating China to this position before they have earned it, and I will add a thought or two 

on that, actually can create the wrong kinds of incentives or disincentives for them to cooperate constructively because they do 

value that symbolism and that status much more than other countries. 

So I have always not pulling back on how we engage China, but 

to ensure that our allies are properly positioned, we are doing all 

the things like to create a United States free trade agreement, 

TIFA talks with Taiwan, a robust security declaration with Japan 

and so forth so that China understands we still have close allies 

and valued allies and we are doing things with them, in addition 

to what we are doing with China. 

I would suggest actually, and maybe this is out of line with other 

panelists and the administration, but I think the cupboard is actually very bare on United States-China cooperation if you want to 

really talk about meaningful consequential outcomes. 

And I know there is a range of issues people point to. North 

Korea, for example. I think the cupboard is very bare there. Proliferation, global climate change. I think we have really yet to see 

truly constructive behavior from China and constructive cooperation. On top of that, I think you have some pretty irresponsible behavior in the international community, and much of that was mentioned earlier, so what I am really talking about is tactics and how 

to get the right kinds of outcomes. 

75

I am not suggesting we shouldn’t be engaging in China at a high 

level, nor am I suggesting it is unimportant to do so. It is just, how 

do you get the outcomes you want? 

Mr. FALEOMAVAEGA. Mr. Podesta? 

Mr. PODESTA. Well, I would probably come down someplace in 

between Mr. Bergsten and Mr. Schriver. I think the G–2 is a bad 

construction. I don’t think the Chinese want that. I don’t think the 

United States wants it. Maybe it is a kind of glib construction. I 

don’t know, Fred. 

But it seems to me that the relationship—we should not be sending the signal to the rest of our partners that somehow China and 

the United States are going to kind of control or dominate the 

international architecture on either the economy, security or the 

environment as we have talked about, but we need China in all 

those relationships, in all those arenas, and I think that the Strategic and Economic Dialogue opens the door to strengthen that relationship, strengthen the partnership. 

I think that a number of the potential outcomes have already 

been mentioned. We have spent a lot of time thinking through 

again the energy and climate aspect. If you take the two countries 

together, there is more than 40 percent CO2 emissions globally 

from the United States and China. 

If we both don’t move forward, both independently but also together, then I think the world faces tremendous challenges again 

across all those dimensions: On the environment with respect, but 

there is also an extreme security dimension to the impacts, potential impacts of climate change, and obviously there is tremendous 

economic impacts as well from severe storms from the other consequences that have been well noted. 

I think we need particularly in that arena, if you will, we need 

cooperation for sure on the research and development side, on the 

technology deployment side, but we also need diplomatic cooperation to ensure that the world moves forward. I think the same is 

true with respect to the security arrangements. 

I actually think that particularly this year the Chinese have actually been, and I say this from the perspective of not just listening 

to what I have heard in the United States and in Beijing, but actually what I heard in the DPRK. I think that the Chinese have surprised to some extent the North Koreans in the vigor with which 

they reacted to the missile launch and to the nuclear test. 

So I think they are an important player globally and we need to 

strengthen our relationship, and clearly from the economic perspective we could find ourselves in a very unfortunate rapid delinkage 

I suppose in the near term, but what we need to do I think is find 

a way forward that is going to work for the United States fundamentally, and that is going to require the Dialogue that I think 

you heard from the first panel. 

Mr. FALEOMAVAEGA. In fairness to the administration, the first 

meeting was held in July, and I think in fairness to what they are 

trying to do they are trying to sieve through what exactly the 

issues that are relevant and important. And I suppose the more we 

get the results of that dialogue that we can probably make a better 

judgment of how this concept is being taken by both countries. 

76

But I do, as I am sure my colleagues will take a tremendous interest in where the S&ED is taking us for the future. And I kind 

of like to follow Dr. Bergsten’s idea of being positive and constructive, and I think this is what I believe honestly in my dialogues 

with the leaders of China is their desire as well. 

I suppose it all comes down to one word, gentleman, and that 

word is trust. Ideologically different, but I don’t think you will find 

the Chinese any different in terms of their desire to have the same 

things that we want in life here in our society. 

You gentlemen have been so patient and so kind to give us your 

precious time. I sincerely hope that this hearing has been good for 

the public and especially for my colleagues. All your statements 

have been made part of the record. Without objection, if you wish 

to submit any additional materials to be made part of the record, 

I would welcome it. 

Gentlemen, I am sorry I don’t have any Kalua pig to give you for 

this afternoon, but maybe on another occasion. Thank you so much 

for coming. 

The hearing is adjourned. 

[Whereupon, at 3:16 p.m., the subcommittee was adjourned.] 

(77)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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ADDITIONAL MATERIAL SUBMITTED BY THE HONORABLE ENI F.H. FALEOMAVAEGA, A

REPRESENTATIVE IN CONGRESS FROM AMERICAN SAMOA, AND CHAIRMAN, SUBCOMMITTEE ON ASIA, THE PACIFIC AND THE GLOBAL ENVIRONMENT


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ADDITIONAL MATERIAL SUBMITTED BY MR. FRED BERGSTEN, DIRECTOR, PETERSON

INSTITUTE FOR INTERNATIONAL ECONOMICS


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