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Growing the U.S.-China Economic Relationship: The Contribution of Food and Agriculture, 2004

Alan Larson, who is under Secretary of State for Economic, Business and Agricultural Affair, talked to the students and faculty of Beijing University about the importance of the relationship between US-China and food and agriculture.
October 19, 2004

Beijing University
19 October 2004

Good evening. Thank you, Professor Lin, for that kind introduction. It is a great pleasure for me to speak to the students and faculty of Beijing University, one of China's most prestigious institutions of higher learning.

Many of the students here tonight will soon take on positions in government, business, or academic life. In these capacities, you will make important contributions to China's development, its broadening engagement in the world, and its deepening cooperation with the United States. You are the future of your country. You will carry forward and complete China's emergence onto the world stage.

I have come to China for the second time in a year to deepen economic ties between China and the United States. On this visit, I have had the privilege of meeting with senior Chinese officials, including Vice Premier Hui, Commerce Minister Bo, Vice Foreign Minister Zhou, and senior officials of the National Development and Reform Commission. Tomorrow, I will meet with the Deputy Governor of Liaoning Province and visit economic facilities in and around Shenyang, to gain a first-hand look at the challenges China faces, and areas where cooperation with the United States would be useful.

I also hope to hear what you, the younger generation of China, think, because you are your country's future. When I was about your age, I was finishing up my studies in economics at the University of Iowa. This month the state of Iowa frequently appears on the schedules of President Bush and his challenger, Senator Kerry. In our Presidential election, Iowa is a battleground state - where almost equal numbers of citizens support President Bush as Senator Kerry. In fact, Iowans see so much of the two candidates that when asked which candidate he favored, one Iowan said, "I'm not really sure. I've talked to each of them only a few times."

Voting is a cherished right and responsibility for most Americans. I know that in rural China, some of your fellow citizens actively and enthusiastically vote for their village leaders. There also has been experimentation with voting for urban neighborhood positions. I hope this trend continues.

Elections give people the opportunity to hold their leaders accountable. Accountable governance is the crucial key to the development of a modern, prosperous and technologically advanced society. Broader participation in local and national decision-making can only help China manage the great changes sweeping the country.

Reform in China is also making possible positive advances in our bilateral relationship. More and more, our relationship is defined by what unites us -- our common interests and shared goals. We see this in the strong record of cooperation that now underpins our growing bilateral ties. Just look at what we have accomplished the past few years.

On North Korea, China and the United States are working together in the Six-Party Talks to get Pyongyang to abandon its pursuit of nuclear weapons. My country's goal is the complete, irreversible and verifiable dismantlement of North Korea's nuclear programs.

On counter-terrorism, China and the United States are cooperating to a threat to civilized life. In recent days and months, a Chinese citizen was killed in Pakistan and a number of your countrymen were murdered in Afghanistan. We share in your sorrow and in the grief of the families of those who were killed. We pledge to work with China to build a safer world.
On weapons of mass destruction, China and the United States are strengthening our cooperation to fight proliferation of weapons that could threaten our peoples. We welcome China's recent regulations on export control of missiles and missile-related items and technologies and look forward to working with you in the International Atomic Energy Agency and the United Nations.

And, in the WTO, we are working together to expand trade opportunities through the Doha Development Agenda. We welcome the full integration of China into the world trading system.
Cooperation on such a wide range of issues shows that the relationship has the potential to become a full partnership. To develop such a partnership, however, we must plan and work together to establish even more areas of cooperation, starting today. As a famous Chinese proverb says: If you want to know your future, look into your present actions.

One area that holds great potential for U.S.-China economic cooperation is food and agriculture. I congratulate China on being such a large agricultural producer and for its dramatic progress in overcoming food insecurity and malnutrition.

At the same time, the agricultural sector, and rural China more generally, must be better connected to the national and global marketplace. Why? Because this would raise incomes for the 800 million Chinese who live in rural areas. This rightly is a top priority of China's leaders. It would also reduce regional disparities in development and economic growth between rural areas and fast-growing costal regions. Improved linkages to the global economy will let Chinese agriculture raise productivity and they will facilitate greater consumption of higher quality foodstuffs, such as meat, eggs, fish, oils, vegetables and fruits.

America and China are natural partners in agriculture. American land, water and technology can help China meet its food needs at lower financial and environmental costs. This is an important consideration when food accounts for one-third of family expenditures and food prices are rising at three times the rate of increase of the CPI.

American experience in raising agricultural production can help China. In the United States, each farmer adds an average $72,000 of economic value, as compared to $365 in China.

The domestic policies needed are not unique to China. Whether in Iowa or Hunan, farmers and rural families need access to modern systems of credit. The Chinese government has recently strengthened land tenure rights for rural families by granting written, 30-year leases that include the right to transfer land-use rights to others. This should help farm families gain access to credit so they can invest in productivity-boosting inputs such as farm equipment, high-yielding variety seeds, and new fertilizers and pesticides.

China also needs investments in transportation and distribution to connect farmers with urban centers. Improved distribution channels would link farmers to food processing industries that purchase their products, ensuring them steady markets for their produce. To serve their customers well, Chinese food processors should purchase from both domestic and overseas suppliers. Last year, for instance, many Chinese soybean crushing plants bought domestic beans, but were not able to receive them on time due to bottlenecks in the distribution system. American agribusiness companies can help assure timely delivery of foodstuffs from at home and abroad, while helping Chinese counterparts develop sound distribution and delivery systems.

New distribution channels should lead to greater efficiencies in the delivery of goods and offer Chinese consumers a wider range of domestic and imported products. Large American retailers already improving the way Chinese shop for household goods. They offer ?ne-stop shopping,?saving consumers time. By using modern methods of refrigeration, they offer products, particularly meat and other perishable goods, that are more sanitary than what is found in traditional outdoor markets.

Transportation infrastructure is a key element of agricultural efficiency. The Chinese Academy of Social Sciences estimates that transport and logistics accounts for 20% or more of the retail price of goods. China is investing heavily in highways and ports, but much greater investments are needed. The Government maintains a monopoly on the rail system, which is contributing to a shortage of rail cars and rail services. Large amounts of investment, including foreign investment, are needed to provide the modern ports, roads and railroads that will connect rural China to the global economy.

New technologies are also important, both to protect human health and to promote agricultural development. Dr. Huang Jikun, of the Center for Chinese Agricultural Policy here in Beijing, has written extensively on how China's use of bio-engineered cotton developed in the U.S. has reduced pesticide use, in turn reducing drastically the number of farmers poisoned by pesticides. Dr. Huang further concluded that biotech cotton resulted in lower costs and higher profits for small farmers and reduced contamination of ground water used for both irrigation and drinking water by Chinese farmers. This is an area where I hope the U.S. and China will be able to work together very closely, since there are other biotech products, such as biotech corn, which could improve farm incomes.

My country recognizes China's strong scientific capabilities. For example, Professor Yuan Longping has done research on rice that won him and another scientist this year? World Food Prize. Professor Yuan is the Director-General of the China National Hybrid Rice Research and Development Center in Changsha, Hunan Province. Secretary Powell and Secretary Veneman took part in a ceremony at the State Department that I hosted in March to announce this year? winners. They will share the $250,000 prize, which was presented in Des Moines, Iowa, last week.

We both have capabilities in biotechnology. Working together, we can adapt techniques and know-how that have boosted agricultural production in the U.S. to the particular needs in the Chinese situation.

Our agricultural sectors are complementary. For example, China has a very large population and a relatively smaller amount of arable land, so that the average Chinese farmer cultivates one acre of land. It is natural that Chinese farmers will shift away from the production of cereals, which require a great deal of land and water, and shift into the production of higher-value horticultural products such as fruits and vegetables, which also are more labor-intensive. This is already happening. The Wall Street Journal reported last week that China now produces half the world's  vegetables and melons - 11 times as much as the U.S.

It is also natural that the United States should be a growing agricultural supplier to China. In the United States the average farmer cultivates 140 acres, especially of soybeans, corn and wheat. Profit margins on these grain products in China are very low, compared to the United States. By purchasing U.S. feed grains, Chinese producers of poultry, beef and pork can cut costs, enhance efficiencies, and reduce prices to consumers. China's growing demand for more protein-rich diets will also call for rising imports of meat products from the United States.

Trade is a win-win proposition. Chinese exports to the United States have increased the variety and lowered the cost of goods available to American families. In the same way, U.S. agricultural exports can help China achieve its nutritional goals, and at much lower costs. Frankly, food security is best achieved through interdependence and cooperation, not through futile attempts to mandate self-sufficiency. Each of us should be both reliable suppliers and reliable customers.

Differences are part of a deep and strong relationship

As these examples illustrate, there are tremendous opportunities for cooperation, even in the narrow slice of our economic relationship connected to food and agriculture. What is true in this sector is also true of our broader relationship.

Closer cooperation, does not mean we will no longer have differences. What it does mean is that both will work together to resolve differences and act responsibly. A recent example is the political courage President Bush showed when he rejected two petitions objecting to China's labor standards and exchange rate policies, and proposing trade sanctions in response. Although he shares the concerns of the petitioners, President Bush rejected the petitions because we believe we can resolve these concerns more effectively through cooperation and dialogue than through sanctions.

Acting responsibly also means resolving our large bilateral trade imbalance. China sells the U.S. over $150 billion dollars worth of goods and services, but the U.S. sells China less than $30 billion worth of goods and services. This imbalance in trade is the result of an imbalance in opportunity. China's market remains closed in many sectors and overburdened with trade-inhibiting regulations. There is a simple remedy: to provide greater opportunity for U.S. products and services to compete in China's markets. I expect that as China fully implements its WTO commitments, this problem will recede.

China also needs to move as quickly as possible to a flexible, market-based exchange rate. Major currencies in modern economies need to float so as to permit smooth adjustment to economic shocks and international imbalances. In addition, a floating exchange rate would ensure that exporters compete fairly, without the distortion afforded by an artificially under-valued currency.

We recognize cooperation is a two-way street and understand China's concerns about American visa procedures. You want to send more Chinese students to universities in the U.S. -- and we want more Chinese students to come. Last year there were nearly 65,000 Chinese students studying in the U.S., and they made up 11 percent of the total international student population in my country -- second only to students from India. I hope we can have more Chinese students come to the U.S; because of our visa requirements, it is important to apply early.

Improvements in China? protection of intellectual property rights is of critical importance. Product piracy and trademark counterfeiting cost the U.S. economy billions of dollars every year and are beginning to pose a problem for Chinese companies as well. A strong system for protecting intellectual property will promote high tech investment, innovation and creation of high wage jobs.

Finally, it is important to resolve problems of transparency in the issuance of new regulations and standards. When China issued ambiguous new regulations for soybean and soybean oil trade, it created great uncertainty for foreign exporters. This uncertainty caused some sellers to forswear the Chinese market while others insisted on higher prices to compensate for the increased risk of selling to China. That outcome hurt for Chinese consumers and producers alike.

If the U.S. and China combine our economic strengths, we each can be stronger than either of us can be working alone.

Ultimately, the future is yours to write. But I look forward to a U.S.-China partnership that serves as a foundation for peace, for security, and for prosperity in the region, and in the world. Thank you.

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