Chairman Roth and Chairman Bereuter, Members of the International Relations Committee, thank you for the opportunity to appear before you today.
Let us stipulate right from the start that the U.S.-China relationship is an important one and that we look forward to a brilliant future with the people of China, politically, economically, diplomatically and culturally.
As you know, there are serious concerns in Congress about a number of aspects of the U.S.-China relationship. These concerns fall into the broad categories of trade, proliferation, and human rights. Given that your emphasis today is on the economic nature of the relationship, I will focus my remarks on some Congressional concerns in this arena. The picture, I am afraid, is not a good one, particularly in light of the lack of access to the Chinese market for the vast majority of U.S. goods and services. Mr. Chairman, in my statement I will discuss the trade deficit, intellectual property rights violations, technology and production transfer, and MFN.
First, I would like to present some of the basic facts of the U.S.-China trade relationship. The emphasis of supporters of unconditional Most Favored Nation (MFN) status for China is not unexpectedly on U.S. exports to China. To understand the U.S.-China economic relationship, however, we must look at how trade has grown in both imports and exports.
While overall, U.S. exports to China have tripled in the last ten years, U.S. imports from China have grown eleven times, resulting in a trade deficit with China that has grown from $10 million in 1985 to $34 billion in 1995. In 1985 China was our 70th largest deficit trading partner; it is now our second largest deficit trading partner, second only to Japan. At the current rate, the U.S. trade deficit with China will likely surpass $41 billion in 1996 and will, within a matter of a few years, surpass our trade deficit with Japan.
Another alarming feature of this trade pattern is the four-to-one ratio of what we buy from China as to what they buy from us. The U.S. is China's largest export market, with over one-third of their exports coming to our country. At the same time, U.S. exports to other East Asian markets surpass our exports to China. In 1995, for example, U.S. exports to Taiwan, with 21 million people were $19 billion and to China, with 1.2 billion, were under $12 billion.
I am sure that you will hear often today the statistics proffered on U.S. jobs supported by exports to China. The numbers I have heard cited by the business community range from 180,000 to 220,000. These numbers are important yet they must be seen in the larger context of jobs lost through lack of market access, violations of intellectual property rights and technology and production transfer.
We should all be concerned about the harm to our economy of the ongoing practice by the Chinese of violating our intellectual property rights, which is estimated to have cost the U.S. economy over $2.3 billion in 1995. All of the trade numbers I went through earlier, including the trade deficit, do not include the impact of Chinese piracy of U.S. software, cd's, videos, pharmaceuticals, books, movies and music.
We are told regularly by economists and labor force specialists that the future of our economy is our intellectual property -- the genius that arises from our great democratic tradition of freedom of expression and freedom of thought. In that very real way, with their continuing patterns and practices of theft of our intellectual property, the Chinese are stealing our economic future.
In China, it is possible to buy $12,000 worth of pirated U.S. software on a CD-ROM for $10. Pirated versions of Windows'95 were available in China before the real thing was released in the U.S. More importantly, the production of stolen intellectual property in China is not only for Chinese domestic consumption. Our IP is being stolen and produced for export. China's domestic consumption capacity of cd's is only 7 million cd's annually -- and its cd production capacity is currently 150 million units per year.
The piracy does not stop at software. There are reports of pirated raw materials -- like integrated circuits from China -- showing up in Paraguay for distribution throughout the Americas. China's piracy of our intellectual property, while barring access for U.S. products to China's market, robs American workers of jobs and undermines our global competitiveness.
I support the Administration's decision to publish a preliminary sanction list and commend U.S. Trade Representative Charlene Barshefsky and Deputy U.S. Trade Representative Lee Sands for their unrelenting efforts to protect U.S. intellectual property rights.
We should also all be concerned about the harm to our economy of the technology transfer and production transfer which is accompanying U.S. investment in China and U.S. sales to China. We know that the Chinese government only allows into China a limited list of U.S. products -- primarily telecommunications, fertilizer, aerospace, some engineering, and grain -- and bars market access for most other U.S. goods and services. The Chinese government is very smart in its choices and in managing its economy and technology. I have heard from many businessmen, for example, that when companies sign on to joint ventures with Chinese companies, they must present up front an export plan. That translates into lost jobs here in the U.S..
We also know that when many sales are made, U.S. companies, while they will rarely admit it publicly, are required or "strongly expected," to transfer production and/or technology to the Chinese. The Chinese government is building its own industries to the detriment of the long-term vitality of our industries and we are not only letting them do this, we are encouraging them in this practice.
The aerospace industry is an excellent example of the pattern of technology and production transfer. According to a 1995 study by the Economic Policy Institute, the Chinese aerospace industry already employs 500,000 workers manufacturing planes in China -- and pays them an average of $50 a month. One example: China is working closely with McDonnell Douglas assembling Western-designed commercial aircraft, MD-82s, in a coproduction deal. McDonnell Douglas estimates that Chinese-assembled MD-82s are 10% to 15% less expensive than those assembled at Long Beach. And, the coproduction of MD-90 "Trunkliners," is expected to have dramatically increased Chinese content, reportedly up to 85% by the end of the production run. Several years ago, Boeing shut down a plant in Wichita, Kansas -- the 737 rear fuselage and tail sections which American workers produced are now being produced by workers in Xian, China, who earn $50 a month.
The Chinese government's industrial policy of targeting certain U.S. industries is by no means limited to aerospace. It us my understanding that General Motors, for example, has plans to build 28 parts plants in China -- plants which it is believed will produce auto parts for export and will displace American autoworkers.
At some level, I understand the position of any given business on the U.S.-China relationship. Each business is, after all, concerned for its own bottom line. But we here in Congress are supposed to have a broader view -- someone is supposed to keep their eye on the public interest, on the bigger picture -- and the bigger picture here is neither a pretty nor an encouraging one.
Technology and production transfer can only result in the loss of an increasing number of American jobs as we lose our job-intensive industries to a cheaper and more manipulable labor force. The belief that we have only lost and are only losing our low-wage, low-skilled jobs to China is a completely fallacious one. The Chinese government is carefully and calculatedly building its own economic future by acquiring overtly and covertly, legitimately and illegally, our technology, our production, and our genius, the very blueprints of our economy.
Finally, since this hearing is about Most Favored Nation status for China, I will say that the annual review of MFN for China can give the Congress and the Administration increased leverage with the Chinese government. I believe it is an important opportunity to review the state of the U.S.-China relationship. During the debate, we must gauge whether U.S. policy is making trade fairer, people freer, and the world safer. We must retain the legislative vehicle of MFN as a tool to make significant progress in these areas.
We can only be successful when Congress and the Administration reach common ground on a unified policy which supports American workers and is true to American values. Thank you.