324. Memorandum From Secretary of the Treasury Miller to President Carter1
- U.S.–China Joint Economic Committee and Recommended Next Steps in the U.S.–China Economic Relationship
The U.S.–China Joint Economic Committee (JEC) held its first meeting in Washington September 16–18, 1980. The culmination of the session was Vice Premier Bo’s meeting with you and the signing of the bilateral textile, civil aviation, maritime and consular agreements.2 In addition, the JEC provided a timely forum for both governments to maintain the forward momentum of our rapidly evolving economic relationship and view within a cohesive framework the numerous bilateral economic issues which are developing between us.
The United States delegation included representatives from Treasury, State, Commerce, USTR, Energy, Agriculture, Labor, the NSC, Eximbank, OPIC, Trade and Development Program, and Office of Science and Technology. The Chinese side, led by Vice Premier Bo Yibo, included Finance Minister Wang Bingqian, and officials from government agencies responsible for planning, capital construction, foreign investment, machine building, import-export, science and technology, finance, foreign trade, foreign affairs, and banking. Both countries were extremely well represented, and well prepared for the talks. Ambassadors Woodcock and Chai Zemin also participated.
In the course of our discussions, three issues of concern repeatedly emerged:
—Of paramount importance to the Chinese was the question of finance. The Chinese acknowledged their appreciation for access to U.S. Government programs such as Eximbank, Commodity Credit Corporation, Trade and Development Program, and the Overseas Private Investment Corporation. Nevertheless, they emphasized that the terms and amounts of the USG offers were less favorable than those offered by the Europeans and Japanese. Specifically, the Chinese requested that Eximbank lend at more favorable rates (than its current 8.75%) and that [Page 1146] the U.S. consider concessional assistance for China. We emphasized that the terms offered by Exim are the best it can provide worldwide and explained the legislative constraints which prohibit aid to the PRC. The Chinese stressed that the world situation, and especially U.S.–China relations, has changed dramatically and that our aid policy and legislation should be reconsidered.
—The Chinese also expressed concern about their growing trade deficit with the United States. Two-way trade in 1979 was weighted heavily in favor of the United States: our exports totaled approximately $1.7 billion, while Chinese exports accounted for roughly $594 million—the bulk of which was textiles and other light industry goods. Aware that their export potential lies in U.S. product sectors which are domestically sensitive (e.g., textiles, footwear), the Chinese have asked for “favorable consideration” as they seek to expand exports to the United States. The Chinese also reiterated their desire to receive Generalized System of Preferences (GSP) treatment, which we cannot consider until China becomes a member of GATT.
—The third area pertained to the role U.S. firms can play in China’s modernization drive. While both sides acknowledged the competitiveness of American firms and in some areas the clear superiority of American equipment and technology, we stressed the need to address problems of business facilitation. Lack of adequate commercial and banking conditions in China have hindered the expansion of business contacts. Moreover, in order for U.S. firms to take advantage of the opportunities provided by China’s capital construction projects, we emphasized the need for more information on these projects and China’s priorities.
In general, however, the tone of the meeting was very positive. Both governments used the occasion to underscore the importance each attached to increased economic cooperation. We reviewed with satisfaction the enormous progress made thus far in the course of normalizing economic relations, including the numerous exchanges of top economic officials; the conclusion of Claims Settlement, Trade, and other important agreements; the expansion of trade (from $1.2 billion in 1978 to approximately $4 billion in 1980) and banking ties (more than 50 U.S. banks now have correspondent relations with the Bank of China); and China’s access to Eximbank and other programs which facilitate trade and investment. Progress was also cited in science and technology, energy (including oil and hydroelectric power), technology transfer (with liberalization of our export control policy toward China), and cultural exchanges.
Vice Premier Bo also discussed the recently concluded National People’s Congress and stressed the continuity of China’s economic pol[Page 1147]icies. He emphasized that China will not change its policy of expanding relations with foreign countries as it seeks to modernize.
At the conclusion of the meeting, the two sides recognized that much work remains to be done. The discussions at the JEC indicated a need to move forward in the following areas:
Business Facilitation. We need to develop procedures for the establishment of business offices; visa and other arrangements for entry, travel and residence; adequate office and housing space; customs and taxation; and our proposal for government trade offices in each country. To assist U.S. firms’ participation in China’s major projects, we also need to continue to exchange information regarding the priority and status of these projects. Discussion on these issues will continue when Commerce and other USG officials visit China in November.
Trade Expansion. In order to maximize our trade potential and ensure the orderly marketing of sensitive products in each country, we need to continue our dialogue with the Chinese on trade practices and policies. Governor Askew discussed these matters during a visit to China this month. We also need to cooperate fully on trade promotion programs and the staging of trade exhibitions, in accordance with the Trade Exhibition Agreement. The first Chinese exhibition opened in San Francisco September 14, and Secretary Klutznick will be in Beijing to open the first U.S. exhibition on November 17.
Overseas Private Investment Corporation (OPIC). OPIC and China International Trust and Investment Corporation officials initialed an OPIC bilateral agreement in Beijing October 7. The formal exchange of notes is expected to take place in the near future. Conclusion of this agreement will send a positive signal to more than 80 U.S. investors who have already indicated an interest in OPIC’s insurance and finance programs for China.
Eximbank. Throughout the JEC meeting, we emphasized that Eximbank is prepared to start processing Chinese applications. To date, Eximbank has issued one commitment for China for a sale of $80 million of steel mill equipment. We expect Bank of China and Eximbank officials to continue their discussion to expedite procedural understandings and clarify China’s priorities on projects in order to take advantage of the $2 billion in credit arrangements the Vice President announced we would make available to China. This will facilitate the sale of U.S. exports to China. It will also, however, further tax Exim’s strained resources and add to the need to find ways to augment them.
Trade and Development Program (TDP). Both sides agreed that, despite the modest size of TDP, it can play an important role as China pursues development projects and U.S. firms seek participation. The [Page 1148] U.S. side noted the role that TDP has already played in implementation of the U.S.–China Hydropower Agreement by helping to finance technical exchanges. The Chinese indicated that they would submit additional project applications to TDP.
Banking. The Chinese acknowledged the need to facilitate the expansion of banking relations, but noted that limited housing and office facilities currently restrict their ability to consider U.S. bank applications for representative offices. Discussion on this subject will have to continue. The Chinese, however, remain interested in opening a branch of the Bank of China in the United States—a move which we have been encouraging.
Taxation. The Chinese asked to continue discussion of U.S. foreign tax credit policy and we requested clarification of their new tax codes. U.S. investors, especially oil companies, have repeatedly inquired about China’s tax laws and implications for U.S. taxation. Treasury officials will travel to China this fall to continue discussions on these issues, and possibly to exchange notes on taxation of civil aviation and maritime profits. Eventually, consideration will also be given to a bilateral income tax treaty.
Investment. Both the U.S. Government and potential private investors need to know more about China’s new Joint Venture Law and subsequent investment regulations. Discussions of these topics will continue in the months ahead. Also, once an OPIC agreement is concluded, we may wish to consider the merits of an investment or commercial treaty with the PRC.
Over the longer run we will have to reexamine various aspects of our economic policy toward China to see whether they adequately promote U.S. economic objectives, and to ensure that they are consistent with our strategic and political objectives. Examples could include whether or not China should be granted GSP treatment once it becomes a member of GATT and the pros and cons of concessional aid. We may also wish to examine whether current USG programs available to China (such as Eximbank, TDP, OPIC, CCC) have sufficient resources to support our several policy goals. The need for coordinating such a wide range of U.S. policy tools and separate programs strongly counsels continued use of the overview forum represented by the JEC.
The U.S. side of the JEC will be meeting frequently to coordinate our follow-through on the many issues discussed in this report. We also intend to meet informally with our Chinese counterparts throughout the year in order to ensure the continued orderly development of our economic relations, and to prepare for the next session of the JEC in 1981.[Page 1149]
This report reflects the comments of the Departments of State and Commerce, USTR, the Export-Import Bank, the Overseas Private Investment Corporation, and the Trade and Development Program.