China Trade and Economic issues Senate Floor

Mr. President, I rise to update you on a concerning issue of the deepest importance. In my recent China speech that I delivered this past Monday, I detailed how China is indeed a growing threat; when the fragmented pieces of current events and policies are glued together they form an alarming picture of the threat to our national security. I believe this threat is of the most serious order and until we address it, I will continue to draw America's attention to the issue.

In 2000, Congress established the U.S.-China Security Economic Review Commission to act as the bipartisan authority on how our relationship with China affects our economy, industrial base, China's military and weapons proliferation, and our influence in Asia. I fear that the Commissions findings have largely been ignored.

A major part of our economic relationship with China is the growing trade deficit. This deficit grew to $162 billion in 2004, by far the largest economic imbalance the United States has with any country. One potential key factor contributing to this imbalance is the undervaluation of the Chinese yaun [pronounced you-an]. Through currency manipulation, China has been able to create an uneven economic playing field in its favor. The Commission recommends that Congress pursue legislation that will push the administration toward correcting these imbalances and for the US Trade Representative and Department of Commerce to undertake an investigation of China's questionable economic practices. I think this is very sound advice. In fact, I voted last Wednesday to not table a Chinese currency manipulation amendment.

China joined the World Trade Organization in December 2001. Their transition was to be overseen by the Transitional View Mechanism (TRM). Although China has made some progress in the areas of tariffs and other WTO commitments, they have consistently frustrated the TRM's ability to assess China's WTO compliance through lack of transparency. As the Commission recommends, the Bush administration must be pressured to take action to preserve TRM's oversight and cooperate with other trading partners to create a cooperative effort to address China's shortfalls.

Another problem area is that the Chinese government has been listing State Owned Enterprises (SOEs) on international capital markets. These companies lack accountability standards that normally track the companies' cash flow. At least one Chinese SOE, China North Industries Corporation, has been sanctioned by the US government for proliferating illegal weapons technology. As the 2004 Commission report outlines:

"Without adequate information about Chinese firms trading in international capital markets, U.S. investors may be unwittingly pouring money into black box firms lacking basic corporate governance structures, as well as enterprises involved in activities harmful to U.S. security interests."
Beyond dangerous investing, there are other security aspects to China's trade practices. The hard currency that China is gaining through its manipulative economy is buying foreign technology and modernizing their military. We know China is pushing very hard to get the E.U. to remove their arms embargo. The embargo was put in place after the 1989 Tiananmen Square massacre to protest China's appalling human rights record. The EU claims that the embargo is no longer effective, but ignores the obvious-why lift the embargo without replacing it with a better one? Their solution, an informal "code of conduct", allows for no comprehensive enforcement. We can also expect E.U. technology to proliferate beyond China's borders, to countries that would gladly use it against the U.S. The E.U. does not consider this a strategic threat. In fact, President Chirac just demanded an early lifting of the embargo. However, the Commission reports: "
"Access to more advanced systems and integrating technologies from Europe would have a much more dramatic impact on overall Chinese capabilities today than say five or ten years ago. For fourteen years China has been unable to acquire systems from the West. Analysts believe a resumption of EU arms sales to China would dramatically enhance China's military capability. If the EU arms embargo against China is lifted, the U.S. military could be placed in a situation where it is defending itself against arms sold to the PLA by NATO allies."

Lets think about this: we share military technology with our European allies and then find our security threatened and possibly our servicemen killed by this same technology. All this is made possible because China is exploiting economic grey areas to come up with the money to buy all this new technology. This is a critical issue that Congress must to respond to.

Further, Some experts believe that China's economic policy is a purposeful attempt to undermine the U.S. industrial base and likewise, the defense industrial base. Perhaps it is hard to believe that China's economic manipulation is such a threat to our nation. In response, I would like to read from the book Unrestricted Warfare, written by two PLA (People's Liberation Army) senior Colonels:

"Military threats are already no longer the major factors affecting national security… traditional factors are increasingly becoming more intertwined with grabbing resources, contending for markets, controlling capital, trade sanctions and other economic factors…the destruction which they do in the areas attacked are absolutely not secondary to pure military wars.""

The book goes on to argue that the aggressor must "adjust its own financial strategy" and "use currency revaluation" to weaken the economic base and the military strength of the other country. This is the Chinese saying this, not some American commentator. You need to hear that in context of the US-China Commission's statement:

"One of Beijing's stated goals is to reduce what it considers U.S. superpower dominance in favor of a multipolar global power structure in which China attains superpower status on par with the United States."

I think the picture is clear. We must link China's trading privileges to its economic practices. As China's No. 1 importing customer, accounting for 35 percent of total Chinese exports, we have the influence. As I said in my previous speech, I agree that the way we handle an emerging China must be dynamic, but it must not be weak. The Commission puts it well:

"We need to use our substantial leverage to develop an architecture that will help avoid conflict, attempt to build cooperative practices and institutions, and advance both countries' long-term interests. The United States has the leverage now and perhaps for the next decade, but this may not always be the case. We also must recognize the impact of these trends directly on the domestic U.S. economy, and develop and adopt policies that ensure that our actions do not undermine our economic interests … the United States cannot lose sight of these important goals, and must configure its policies toward China to help make them materialize…If we falter in the use of our economic and political influence now to effect positive change in China, we will have squandered an historic opportunity."

The bipartisan US-China Commission has been doing an outstanding job in translating how recent events affect our national security. I plan on giving two more speeches highlighting the Commissions findings, followed by a resolution to affect their conclusions. I hope America is listening.