CA Lieutenant Governor Eleni Kounalakis & China Commercial Affairs Minister Hong Zhu on China-California Trade Relations

Hong Zhu: California is located on the West Coast of the United States, serving as the gateway to the Pacific Ocean—the window to China and the Asia-Pacific region. China is California’s largest trading partner. Export to China supports 153,000 Californian jobs. The port of Los Angeles and the port of Long Beach are the top two busiest ports in the United States, and notably over 60 percent of the contenders from the two ports are connected to trade with China.

Not long after the last time I attended the meeting on May 19, China and the United States issued a joint statement on economic and trade negotiation agreeing not to fight a trade war. Unfortunately, only ten days after that, the US side broke the joint statement by announcing additional tariffs on $50 billion worth of Chinese goods. A year on, the United States is planning to impose an additional 35% tariff on $200 billion worth of Chinese goods in ten days’ time. The escalation of trade tension has raised doubts and concerns about the future of China-US economic and trade relations.

Today, I would like to share with you some of my observations. First, China-US trade commerce has not broken down, but due to differences in interest, China and the United States have held eleven rounds of economic and trade limitations since last April. The atmosphere, in my observation, was frank and friendly, and the three-part negotiators established valuable, working relations and a personal friendship.

Recently, some US politicians and media have accused China of backtracking and demanding renegotiations. What I want to say is that China has never withdrawn its commitments. On the contrary, China has been pushing forward to reach consensus and to improve the text of the trade agreement in ongoing negotiations. In the past, the US has repeatedly broken the consensus as an attempt to ignore China’s concerns. All these are important reasons leading to the current deadlock. Once more, when the consultation has not been completed and the agreement has not been reached, it is unreasonable to blame China for breaking its commitments.

There are three divergences between the two sides of which China will never compromise. First, China believes that the additional tariffs are the starting points of trade disputes between two sides, and that if an agreement is to be reached, all additional tariffs must be removed. For the second divergence on China’s purchase of US goods, the  two states reached consensus when they met in Argentina last December. However, the US side repeatedly asked China to increase imports from the US; the import figure should still be realistic and workable. For the third divergence, a proper balance in the expression of the agreement text has to be achieved to serve the common interests of both sides. It should accommodate the concerns of both sides and should not undermine the national sovereignty and dignity of either side. Only such an agreement can be surely implemented. Regrettably, both sides are yet to agree on these reforms.

My second observation is that the actions taken by the US government against Huawei, a Chinese private company, are disappointing and shocking. Most importantly, it shouldn’t be the way a big country acts towards normal business competition. In the eyes of the public, the US government has abused it power, interfered with the normal business and market competition, suppressed Huawei and disrupted the telecommunications market without any factual basis and solid evidence.

Some say that America has lost its self-confidence and is afraid of competition. Some from Western countries say that the United States could not contract with Huawei, so they banned Huawei. I hope it is not true. Maybe our California friends here have different opinions on the US government’s actions. I believe you all have your own sentiments on the importance of strengthening scientific and technological cooperation and protecting its integrity. Generally speaking, governments do not discuss any specific companies in trade talks. As far as I know, Huawei has not been involved in China-US trade talks so far. China is firmly opposed to US imposing its jurisdiction and sanctions against Huawei, and other companies on the fabricated basis of national security. China won’t ignore these actions and will take necessary measures to safeguard the legitimate right and interest of Chinese companies.

My third observation is that however severe the situation gets, China will not close its doors, it will only open wider; cooperation is the only right choice for both sides. China has conducted the reform and opening-up policy independently. Whether China and the United States reach a trade agreement or not, China will continue to open up to the outside world following its own lead and at a set pace. China will not be forced to open up under the threat of others. As President Xi has mentioned in his recent speech at the second Belt and Road Forum, going forward, China will make progress in the following five areas to further open them.

First, we will expand market access for foreign investment in more areas. Second, we will intensify efforts to enhance international cooperation on intellectual property protection. Third, we will increase the import of goods and services on an even larger scale. Fourth, we will more effectively engage in international macroeconomic policy coordination. Fifth, we will work harder to ensure the implementation of ‘opening-up’ related policies.

We firmly believe that China-US economic and trade cooperation is not only beneficial to two countries, but also to the entire world. Cooperation serves the interest of the two countries and the conflict can only hurt both. In our highly interconnected world, China and the United States are riding in the same boat, our economies are highly integrated, our interests closely interwoven, our futures deeply connected. In this regard, cooperation is the only right choice for our both sides, as Consul General Tung pointed out in his morning opening remarks.

Ladies and gentlemen, despite hard difficulties we believe with optimism that openness and cooperation are the mainstream of today’s world. China’s door for negotiations is always open. It is in the common interest of the business community of the two countries to deepen cooperation, properly handle differences and frictions, and promote sustainable, healthy, and steady development of China-US economic and trade relations. I hope that our friends from the business community can continue to take active action, make your voice heard, and put forward good suggestions to joyously promote the soft development of China-US economic and trade relations.

Eleni Kounalakis: California is the primary economic engine driving the US economy, which is the largest economy in the world. Our state alone, if it were an independent country, would be the 5th largest economy in the world. When it comes to economic development, California is growing faster and outperforming the rest of the country in almost every sector. California’s new governor, Gavin Newsom, has made it a priority to engage in the world around us, and amplify the voice of California on the world stage.

I am very proud that as part of the governor’s effort to better focus California’s international engagement, he issued an executive order designating me as his representative on international affairs and trade development. I’m also proud to serve as chair of a newly created interagency committee focused on international affairs alongside Chief Economic Adviser to the Governor, Lenny Mendonca. The committee is comprised of agency secretaries, board chairs, and department directors that include international work in their portfolios. In just these first few months, our effort has already identified a series of key priorities and I’d like to share some of them with you.

First, as a former United States ambassador, I know that a substantial part of international diplomacy is keeping open lines of communication and investing time and effort in relationship building; some call it ‘tending the diplomatic garden’. I look forward to working with both our countries traditional allies, and other global partners, to recommit ourselves to our shared values and mutual interests. Now, as you all know, there has been a lot happening these last few months, well actually these last few days, around trade. Although California does not set trade policy, we have more to gain or lose than any other state. Thirty percent of US exports and 40 percent of imports come through California ports, and 20 percent of the state’s workforce is supported by trade. Every day, one billion dollars’ worth of goods flow through the port of LA and Long Beach alone, the largest port complex in our country.

Two-way trade with China is, of course, very important to our economy. China invests more foreign direct investment into our state than in any other in the United States, and 37 percent of imports coming into our ports are from China as well as 9% of our exports. And as Ambassador Zhang noted in his remarks this morning, there are certainly some challenges right now in the trade relationship between the United States and China. And again, although the power to regulate trade rests with the federal government, California will continue to work to develop relationships and programs to promote trade and investment with China. Our trade relationship has been enormously beneficial to both of our countries. Let’s work out our differences and set the stage for a future of stronger, deeper ties that bring our people and our economies closer together.

Next, I’d like to talk about climate change, and I’m very passionate about this issue. One of the greatest challenges we in California have taken upon ourselves to address is the existential thread of climate change and global warming. We have two choices, we act or we cope. As the impact of climate change is already being felt with rising tides, melting ice caps, and erratic weather patterns, California has chosen to act. And let me point out that as we have acted, we have also seen our economy grow.

Since the year 2000, California’s economy has grown by 46 percent and our population has grown by 16 percent all while greenhouse gas emissions have been reduced by 10 percent. That is remarkable. Right now, across our state, the next great breakthroughs are being pursued by researchers, entrepreneurs, and visionaries. These committed women and men are tirelessly working on the next generation of battery technology, low-carbon fuels, renewable energy, carbon capture, and so much more.

Last month, I represented California in two forums at the Belt and Road Conference in Beijing. I discussed the robust relationship between China and California around combating climate change and the important role China can play in helping lead the world on this issue. As California has charted our ambitious pathway, a strong partnership between California and China has emerged. It is built on a foundation of friendship and a recognition that the Earth’s changing climate is a crisis that threatens us all.

Since 2013, California and China have signed several memoranda of understanding at national, provincial, and municipal levels. These agreements have established a framework for high-level engagement, agency staff level policy exchanges, extensive research collaborations at our universities and research institutions, trade delegation, and billions of dollars in investment by both governments. Our partnership was initiated around sharing best practices to reduce air pollution. California has made great progress in addressing air pollution in our state, and we have gladly shared best practices with China to strengthen vehicle pollution standards, promote environmentally sustainable ports, and improve maritime vessel compliance with fuel regulation.

California is also extremely proud of our cap-and-trade program. This carbon-emissions trading program is designed to limit carbon emissions while generating substantial revenue. It is considered one of the best models in the world, and has been essential in helping our state meet the goals that I just outlined. Since our emissions-trading system first started collecting revenues in 2012, we have appropriated over $9.3 million in clean transportation programs, low-carbon communities, energy efficiency projects, sustainable forests, and agricultural lands, and many other programs aimed at reducing greenhouse gases.

As China works to develop its own cap-and-trade program, California has been happy to assist; we formalized our cooperation through agreements signed with the National Development and Reform Commission, and have been closely engaged with regional pilot programs, including with some of you in this room.

As you can see, cooperation between California and China is robust, mutually beneficial, and good for the world. Today’s summit between California and China, of which I hope there are many more to come, is a welcome opportunity to continue our cooperation. Again, I am truly honored to be here with you today, and delighted to welcome so many entrepreneurs, innovators, representatives from both California and China. I sincerely hope this summit proves to be informative, fruitful, and enjoyable, and that our guests return home with new partners, friends, and ideas to expand and develop the relationship between California and China.