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Transcript of Ambassador Zhao Yongchen's Interview with GIS Informal Discussion
2019/07/09

On June 13, 2019, Ambassador Zhao Yongchen had an interview with the GIS's Informal Discussion. The full transcript is as follows:

Shere-Ann Noel :Both China and the United States are important partners for Caribbean countries like Grenada. The current "trade war" between China and the United States has become the focus of attention around the world. Why such a fierce trade conflict suddenly erupted?

Ambassador Zhao: Since the establishment of diplomatic relations between China and the US, bilateral trade and economic relations have come a long way, with expanding fields of cooperation at higher levels. A mutually beneficial and win-win relationship with strong complementarity and interlinked interests has been forged, benefiting not only the two countries but also the entire world.

Since it took office in 2017, the new US administration has waved the banner of "America First", defied international duties and obligations, arbitrarily wielded bat of tariffs, disregarded rules of multilateral trade, frequently adopted unilateralist and protectionist measures on the grounds of trade deficits, and provoked trade frictions. From the perspective of development, the trade war against China is part of US's effort to curb China. In the China-US economic and trade consultations, attempts to impose their own interests on China are typical trade hegemony. In response to the economic and trade friction unilaterally initiated by the US, China has had to take forceful measures to defend the interests of the nation and its people.

Shere-Ann Noel :Now that the China-US negotiations seem to be in stagnation, will the trade war become a long-term normal state? What is China's attitude towards this?

Ambassador Zhao: Normal state or not, depends on US. China does not want a trade war, but it is not afraid of one and it will fight one if necessary. China's position on this has never changed. China is open to negotiation, but will also fight to the end if needed.

I'd like to emphasize that cooperation serves the interests of the two countries, that conflict can only hurt both, and that cooperation is the only correct choice for both sides. Striking a mutually beneficial and win-win agreement serves the interests of China and the US and meets the expectations of the world. China is committed to credible consultations based on equality and mutual benefit, but basic rules of consultation are also needed.

Shere-Ann Noel :What kind of rules are your referring to?

Ambassador Zhao: (1) Consultations should be based on mutual respect, equality and mutual benefit

It is only natural for China and the US, the two largest economies and trading nations in the world, to experience some differences over trade and economic cooperation. What truly matters is how to enhance mutual trust, promote cooperation and manage differences.

Mutual respect means that each side should respect the other's social institutions, economic system, development path and rights, core interests, and major concerns. The right to development cannot be sacrificed, still the less can sovereignty be undermined. As regards equality and mutual benefit, we must ensure that the two sides in the consultations operate on an equal footing, that results are mutually beneficial, and that any final agreement is a win-win one.

(2) Consultation involves working toward the same goal in good faith

Consultation calls for mutual understanding and genuine effort from both sides. None other than engagement with goodwill and a full understanding of the other's position can contribute to success.

Good faith is the foundation of consultation. The Chinese government has engaged in these consultations with the US with the utmost credibility and the greatest sincerity. The 11 rounds of high-level consultations have made significant progress. The outcomes of the consultations have not only served the interests of China, but also those of the US, as a result of both sides' efforts to pull in the same direction. China has kept its word during the consultations. China has emphasized repeatedly that if a trade agreement is reached, it will honor its commitments sincerely and faithfully.

(3) China will not give ground on issues of principle

Every country has its own matters of principle. During consultations, a country's sovereignty and dignity must be respected, and any agreement reached by the two sides must be based on equality and mutual benefit. On major issues of principle, China will not back down. Both China and the US should see and recognize their countries' differences in national development and in stage of development, and respect each other's development path and basic institutions. While no one expects to resolve all issues through one single agreement, it is necessary to ensure that any agreement will satisfy the needs of both sides and achieve a balance.

As we all know, China has a long history of 5,000 years. What kind of ups and downs have the Chinese people not experienced? China will not be afraid of any pressure and will be prepared for any challenge.

Shere-Ann Noel: US President Donald Trump has repeatedly stated that China takes advantages of the United States in trade, and the United States has suffered a big loss. Is that true?

Ambassador Zhao: As the world's largest economic power, the US is a rule-maker for international trade. Indeed, Uncle Sam is never a victim but an exploiter in both global trade and the China-US trade.

(1) Trade and economic cooperation has supported US economic growth and lowered US inflation. The statistics indicated that in 2015 imports from China drove up the US gross domestic product by 0.8 percentage points. Exports to China and two-way investment contributed US$216 billion to America's GDP, pushing US economic growth rate up by 1.2 percentage points. Value-for-money products from China drove down prices for American consumers, and in 2015 for example, reduced the consumer price index by 1 to 1.5 percentage points.

(2) Trade and economic cooperation has created a large number of jobs in the US. It is estimated that in 2015, US exports to China and US-China two-way investment supported 2.6 million jobs in America. Specifically, Chinese investment covered 46 states of the US, generating for the US more than 140,000 jobs.

(3) Trade and economic cooperation has brought real benefits to American consumers. Studies show that in 2015, trade with China saved every American family US$850 of expenditure each year, which is equivalent to 1.5% of the average household income in the US.

(4) Trade and economic cooperation has created a large number of business opportunities and significant profits for American businesses. On average every US farmer exported over US$10,000 of agricultural products to China in 2017. In 2016, US firms' sales in China reached about US$606.8 billion and profits exceeded US$39 billion. According to statistics from China's Customs, in 2017, the total sales revenue of the United States to China was about 940 billion US dollars. As of the end of 2017, the total amount of US capital inflows from China reached US$1.37 trillion.

(5) Trade and economic cooperation has promoted industrial upgrading. In their trade and economic cooperation with China, US multinational companies have sharpened their international competitiveness by combining competitive factors of production in the two countries. For example, iPhones are designed in the US, manufactured and assembled in China, and sold in the world. According to a Goldman Sachs report in 2018, should Apple Inc. relocate all its production and assembly to the US, its product cost would increase by 37%.

Shere-Ann Noel: In fact, the United States does have a large trade deficit with China. How do you think of this problem?

Ambassador Zhao: The calculation of US import and export data to China is not objective and is seriously distorted. The US Department of Commerce announced that the trade deficit with China in 2018 was US$621 billion, but did not announce a trade surplus of US$150 billion in services. The United States also counts in the import from Hong Kong and Taiwan originating from the mainland to the total profile of export by China. The goods that the United States re-export to China through Hong Kong and Taiwan are not counted. This kind of specially-oriented statistical standard on trade volume with China will inevitably cause data distortion.

Even if data distortion is omitted, the gap in China-US trade in goods itself is a natural outcome of different economic structure, stage of development and international division of labor.

First, it is a natural outcome of a low savings rate in the US.

Second, it is a fair reflection of the complementarity and comparative strengths of Chinese and US industries.

Third, it is a result of the international division of labor and the changing configuration of production locations by multinational companies.

Fourth, it is the consequence of US export control over high-tech products exported to China.

Fifth, it is the result of the US dollar being a major global currency. The Bretton Woods System established after World War II was based on the US dollar. As a major global currency, the US dollar supports global trade settlements, and the US supplies US dollars to the world by way of a deficit. Therefore, beneath the US trade deficit lie profound US interests and the very root of the international currency system.

Let's look far. The US began to run trade deficits in its foreign trade in 1971, and by 2017 it was running trade deficits with 102 countries. The US trade deficit is an endogenous, structural and sustained economic phenomenon. The current US trade deficit with China is only a staged and country-specific reflection of the US's global trade deficit. If we look beyond trade in goods, we will find that the US trade in services to China actually has a huge surplus. US statistics show that US service exports to China grew 340% from US$13.14 billion in 2007 to US$57.63 billion in 2017 while its service exports to other countries and regions in the same period grew by 180%. The US surplus with China in services multiplied by a factor of 30 to US$ 40.2 billion.

Shere-Ann Noel: The United States has repeatedly accused China of stealing US technology and intellectual property. What is your comment?

Ambassador Zhao: China's technological innovation stems from self-reliance and accusing China of "theft"of intellectual property rights and forced technology transfer is groundless.

Chinese nation embraces innovation and has contributed significantly to human progress over the course of history. Since the founding of the People's Republic in 1949, and in particular since the beginning of reform and opening up in 1978, China's scientific and technological undertakings have passed through a series of phases. They started from a difficult beginning, forged ahead in the course of reform, and have now achieved multiple breakthroughs featuring a variety of innovations. In terms of some key innovation indices, China is already among the world's leading players. As China continues to witness a series of major scientific and technological achievements, its industries are gravitating toward the middle and high end, and the country's international influence is markedly increasing. In 2017, total R&D investment in China reached RMB1.76 trillion, ranking second in the world. The number of patent applications reached 1.382 million, ranking No. 1 in the world for the seventh consecutive year. The number of invention patents granted reached 327,000, up by 8.2 percent year-on-year. China ranks third in the world in terms of valid invention patents held. These achievements have won worldwide recognition. Historical records confirm that China's achievements in scientific and technological innovation are not something we stole or forcibly took from others; they were earned through self-reliance and hard work. Accusing China of stealing intellectual property to support its own development is an unfounded fabrication.

China is fully committed to intellectual property protection. It has established a legal system for the protection of intellectual property that is consistent with prevailing international rules and adapted to China's domestic conditions. Former WIPO Director General Arpad Bogsch spoke highly of China's legal framework for intellectual property protection, noting that China's achievements are "unmatched in the history of intellectual property protection".

China has always pursued international technical cooperation with mutual benefit and win-win as the basic value orientation. China's economic development has benefited from international technology transfer and dissemination. International holders of technology have also reaped enormous benefits from this process. China encourages and respects voluntary technical cooperation between Chinese and foreign firms based on market principles. It strongly opposes forced technology transfer and takes resolute action against intellectual property infringement. Accusations against China of forced technology transfer are baseless and untenable.

Shere-Ann Noel: The US government has repeatedly accused Huawei, the Chinese high-tech company, of having a "spy" risk, whose products have security vulnerabilities and placed Huawei on the list of entities, prohibiting Huawei from obtaining components and technologies from US companies without US government's approval. Huawei's products are also well received in Grenada, so many Grenadian people are also concerned about this issue. How do you think of this?

Ambassador Zhao: Huawei is an ordinary Chinese private company with no government background. Some US government officials and scholars have always claimed that the use of Huawei equipment has information security risks, and all actions against Huawei are politically motivated. In fact, these allegations are groundless with no evidence. Of course, a country has the right to safeguard information security, but it cannot use the precautions of security to damage or even stifle the legitimate business operations of enterprises. All countries should be vigilant of and boycott such unreasonable bullying practice.

We always require our companies to follow the laws and regulations on export control and fulfill our due international obligations. We ask our companies to observe local laws and policies when doing business overseas.

But at the same time, we oppose the act of any country to impose unilateral sanctions on Chinese entities based on its domestic laws, and to abuse export control measures while making "national security" a catch-all phrase. The Chinese side will take necessary measures to safeguard the legitimate rights and interests of our companies.

Shere-Ann Noel: We have noticed that the US government has repeatedly claimed that China backed off in the negotiations, and has led to increased trade frictions, while China is also accusing the United States. What is the truth?

Ambassador Zhao: In response to the economic and trade frictions started by the US, China has been forced to take countermeasures, as bilateral trade and investment relations took a hit. Since they were launched in February 2018, the economic and trade consultations have come a long way with the two sides agreeing on most parts of the deal. But the consultations have not been free of setbacks, each of them being the result of a US breach of consensus and commitments, and backtracking.

(1) The first US backtracking

On March 22, 2018, the US government unveiled the so-called report on Section 301 investigation of China, falsely accusing China of "IP theft" and "forced technology transfer", and subsequently announced an additional tariff of 25 percent on US$50 billion of Chinese exports to the US.

(2) The second US backtracking

On May 19, 2018, China and the US issued a joint statement, agreeing to refrain from fighting a trade war. On May 29, 2018, the US administration tore up the consensus just ten days after the joint statement, gratuitously criticizing China's economic system and trade policy, while announcing the resumption of the tariff program.

(3) The third US backtracking

On December 1 the two presidents had a meeting on the margins of the G20 Summit in Argentina. In accordance with their important consensus on economic and trade issues, the two sides agreed to halt new additional tariffs for 90 days to allow for intensive talks geared toward the full elimination of all additional tariffs.

Following numerous rounds of consultations, the two countries had agreed on most of the issues. Regarding the remaining issues, the Chinese government urged mutual understanding and compromise for solutions to be found. However, the US government has adopted a bullying attitude resorting to intimidation and coercion.

Shere-Ann Noel: Among US proposals,which one or ones are unacceptable to China?

Ambassador Zhao: The more the US government is offered, the more it wants. It persisted with exorbitant demands, maintained the additional tariffs imposed since the friction began, and insisted on including mandatory requirements concerning China's sovereign affairs in the deal. These are all unacceptable. US's refusal to negotiating on an equal footing caused delay in the resolution of remaining differences. On May 6, 2019, the US irresponsibly accused China of backtracking on its position to shift the blame for the inconclusive talks onto China. On May 10, the US raised the additional tariffs on US$200 billion of Chinese exports to the US from 10 percent to 25 percent, which represented a serious setback to the economic and trade consultations.

The US government's accusation of Chinese backtracking is totally groundless. It is common practice for both sides to make new proposals for adjustments to the text and language in ongoing consultations. In the previous more than ten rounds of negotiations, the US administration kept changing its demands. It is reckless to accuse China of "backtracking" while the talks are still under way.

Shere-Ann Noel: US Trade Representative's Office and the Treasury Department said in a joint statement that the United States was disappointed at the White Paper recently issued by China, namely China's Position on the China-US Economic and Trade Consultations. They noted again that Chinese negotiators had "backtracked" and said the impetus for their actions is to stop China's unfair trade practices. Do you have any comment on that?

Ambassador Zhao: The US statement is full of sophistry that confounds black and white.

China issued a White Paper on June 2, namely China's Position on the China-US Economic and Trade Consultations. It offers a complete and accurate account of the whole process of consultations and presents the facts and truth. As it clearly states, every setback in the trade talks was caused because the US side was flip-flopping and breaking commitments. Its accusation on China's "backpedaling" is merely an attempt to distort the facts and blame the innocent party for its own wrongdoing.

In response to the US accusation on China's "unfair trade practices", China issued The Facts and China's Position on China-US Trade Friction on September 24 last year, which was an authoritative response and refutation to the baseless blames by the US on trade deficit, intellectual property rights and technology transfer. The latest US statement is nothing but singing the same old tune again, and engrossed in self-righteousness and make-belief.

Additional tariffs will not make America "great again". On the contrary, the US will only get hurt. China has the resolve and capability to defend its own legitimate rights and interests. We hope the US can grasp the situation, return to the right track and meet China halfway as soon as possible.

Shere-Ann Noel: China-Grenada relations have developed rapidly in recent years. The links between China and the Caribbean countries are much closer than before. The cooperation between the Caribbean countries and the United States is also very close. Will the trade war between China and the United States affect Caribbean countries such as Grenada?

Ambassador Zhao: According to WTO Director-General Roberto Azevedo, if tariffs return to the pre-GATT/WTO level, the global economy would contract by 2.5 percent instantly and more than 60 percent of global trade would disappear, creating an impact more serious than that of the 2008 global financial crisis. A trade war is detrimental to all, and particularly to the poor, who could lose 63 percent of their purchasing power. History has proven time and again that trade wars produce no winners. The global economy will suffer as a result, and every country may face an impact. Economic globalization is an irresistible trend of the times. Unilateralism and protectionism are welcomed by none. The trade protectionist measures taken by the US go against the WTO rules, damage the multilateral trading system, seriously disrupt global industrial chains and supply chains, undermine market confidence, and pose a serious challenge to global economic recovery and a major threat to the trend of economic globalization.

First, the US measures are undermining the authority of the multilateral trading system.

Second, the US measures threaten global economic growth. Global Economic Prospects released by the World Bank in January 2019 revised its forecast for global economic growth down further to 2.9 percent, citing continuous trade frictions as a major downward risk.

Third, the US moves disrupt global industrial and supply chains. The tariff measures artificially drive up the costs of supply chains, and undermine their stability and security. It will also seriously damage or even break the global value chain, impact normal product trade and resource allocation on a global scale, and generate a wide range of negative spillover effects through the interrelationship between countries' economic and trade connectivity, and reduce the efficiency of the global economy.

To be more specific, China-US manufacturing is highly interdependent. Many US manufacturers rely on Chinese raw materials and intermediate products. In the short term, it is difficult to find suitable alternative suppliers, and they can only bear the cost of adding tariffs. The price will rise and eventually consumers will pay. Grenada has close trade ties with both China and the United States and is likely to suffer from the impact of spillovers.

Shere-Ann Noel: What's your comment on the development of relations between China and Grenada?

Ambassador Zhao: In recent years, with the joint efforts of both sides, China-Grenada relations have developed rapidly, the level of political mutual trust has been continuously improved, with real achievements of mutually beneficial cooperation, increasingly rich humanities exchanges, and close cooperation on major international and regional issues. It can be said that China-Grenada relations are at the best stage in history.

In 2018, the two governments signed a memorandum of understanding on jointly building the"Belt and Road" Initiative, a huge progress in experience sharing and exchanges. The two sides jointly held the China-Caribbean Conference on Anti-corruption Law Enforcement Cooperation and made great contributions to promoting the fight against corruption in China and the Caribbean countries.

The Low-Income Housing project Phase Two has been fully commenced. Maintenance in Phase one project has been launched. Experts of Agricultural Technical Cooperation group has provided various guidance for local farmers. The "Ark Peace" hospital ship's successful visit brought health, peace and friendship to Grenada. It has enhanced the friendship between the two peoples. China has provided numerous scholarship and human resources training opportunities to Grenada, and has made positive contributions to the development of the society.

Looking to the future, China and Grenada shall adhere to mutual respect and deepen political mutual trust; strengthen development strategy coordination, and expand cooperation in various fields; promote mutual understanding, and enrich cultural exchanges; engage in close communication and coordination, and strengthen international affairs cooperation. China and Grenada are both developing countries with common dreams and intertwined future. We need to work together to promote the establishment of a new international order, promote the building of a community with shared future, and work together to write a new chapter in China-Grenada friendship.

Shere-Ann Noel: What impact do you think this trade conflict between China and the United States will have on China? Will the Chinese economy be hit hard? Will the development be stalled?

Ambassador Zhao: Since the beginning of the China-US trade frictions, there has been many similar questions. I want to answer by quoting President Xi Jinping, "China is the world's second largest economy. We have a market of more than 1.3 billion consumers who live on the land of over 9.6 million square kilometers. To use a metaphor, the Chinese economy is not a pond, but an ocean. The ocean may have its calm days, but big winds and storms are only to be expected. Without them, the ocean wouldn't be what it is. Big winds and storms may upset a pond, but never an ocean. Having experienced numerous winds and storms, the ocean will still be there! It is the same for China. After going through 5,000 years of trials and tribulations, China is still here! Looking ahead, China will always be here to stay!"

We have always understood that China's development will not be smooth, and there will be difficulties, obstacles and even storms. Faced with various risks and challenges, China is confident to challenge any difficulties and turn crisis into a new world.

No matter how the situation develops and evolves, China insists on doing its own thing. Developing and growing itself through reform and opening up is the fundamental way to deal with economic and trade frictions.

China will continue to deepen reform and opening up. China's door will not be closed; it will only open even wider. In the face of international situation with increasing uncertainty, instability and insecurity, China will remain true to our original aspiration, stand with the world, follow the trend of the times, uphold justice, and take the right path, unswervingly safeguarding the multilateral trading system, and promoting the reform of the global governance system. China is always a builder of world peace, a contributor to global development, and a defender of international order, consistently promoting the building of a community with a shared future for mankind.

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