U.S.-China Economic and Security Review Commission, "Hearing: China's Role in the Origins of and Response to the Global Recession," February 17, 2009

February 17, 2009
Room 562, Dirksen Senate Office Building
Delaware and Constitution Avenue, NE
Washington, DC 20510

Hearing Co-Chairs: Commissioners Michael R. Wessel and Daniel M. Slane

Opening Statement of Chairman Carolyn Bartholomew

Good Morning. Welcome to this hearing on “China’s Role in the Origins of and Response to the Global Recession.”

My name is Carolyn Bartholomew. I am the Chairman of the U.S.-China Economic and Security Review Commission for the 2009 reporting year. This hearing will be co-chaired by Commissioners Michael Wessel and Daniel Slane. For those who are new to our hearings, let me say that we are a bi-partisan Commission composed normally of 12 members, six of whom are selected by the Majority and Minority Leaders of the Senate, and six from the Speaker and the Minority Leader of the House. Commissioners serve two-year terms. We currently have two vacancies.

Congress has given our Commission the responsibility to monitor and investigate the national security implications of bilateral trade and economic relations between the United States and China. We fulfill our mandate by conducting hearings and undertaking related research as well as sponsoring independent research. We also travel to Asia and receive briefings from other U.S. government agencies and departments. We produce an annual report and provide recommendations to Congress for legislative and policy change.

This is the first hearing for the 2009 reporting year, and the first hearing with a new Administration in Washington. The new Administration will have to deal with a lot of critical issues in 2009, along with the worst economic crisis the world has seen in the past 60 years.

Today’s hearing is on the global economic crisis, the role that China has played in the global recession, and its role in plans and actions to address the crisis. The implications of this global recession are enormous. We must think carefully and clearly about rules governing lending and borrowing and trade and investment. The interconnectedness of the US and Chinese economies has been clearly demonstrated in this crisis. How the US and China decide, as individual nations and working together, to react will define the prospects for the next generation.

Later in the year we will have hearings on the PLA’s activity abroad and China’s activity in Asia. Furthermore, we intend to hold hearings on China’s industrial policy and its pillar industries, as well as China’s internal and external propaganda efforts.

I ask that each of the panelists speak for no more than seven minutes. This will allow the maximum amount of time for questions and answers.

Let me now introduce Commissioner Larry Wortzel, who is the Vice-Chairman of the Commission.

Opening Statement of Vice Chairman Larry Wortzel

Good morning and thank you Chairman Bartholomew.

Welcome to our panelists and to the public and to their representatives in the press corps. I’d like to invite all of you to also visit our website, uscc.gov, where you will find many useful things, including our 2008 annual report and its conclusions and recommendations. It was published last November, and was adopted unanimously by the twelve Commissioners.

The transcript of today’s hearing will be published on our website; today’s written testimony will be posted on the website as well. And by the end of November, our 2009 annual report will appear on the website and in the form of a bound, paper copy. Today’s hearing will provide a wealth of information for that annual effort.

For those of you who will be with us the entire day, I’ll note that we will break for lunch at 1:15 pm and will resume promptly at 2:15 pm. There is a snack bar and carry-out in the basement of the Russell Senate Office building, which is called, “Cups and Company.” There is also a cafeteria in the basement of the Dirksen building but that requires a congressional ID when Congress is in session. That is connected to the Russell building by a long hallway.

Today’s hearing is on the global economic crisis, and it’s the first for this year. The current global recession has exposed the weaknesses in our current economic system, and the interdependence of the US and Chinese economies. In today’s hearing we will explore the role that China played in the financial crisis, and the policies it plans to implement to overcome this crisis. Even looking at official statistics, China's economy grew by only 6.8% in the final quarter of 2008; down from a 9% growth in the third quarter, and 10% growth in the first three quarters. The current meltdown is the worst we have seen since the Great Depression. Although we anticipate holding another seven hearings on a variety of issues, most of them will inevitably deal in one way or another with the global economic crisis we are facing.

With that, let me introduce Commissioner Michael Wessel, who is one of the co-chairman of the hearing.

Opening Statements
Opening Statement of Chairman Carolyn Bartholomew
Opening Statement of Vice Chairman Larry Wortzel
Opening Statement of Commissioner Michael Wessel
Opening Statement of Commissioner Daniel M. Slane

Congressional Remarks
Senator Jim Webb (D-VA)

Panel I: The Origins of the Financial Crisis and Link to China
Dr. Nicholas R. Lardy, Senior Fellow, Peterson Institute for International Economics, Washington, DC
Dr. Stephen S. Roach, Chairman, Morgan Stanley Asia, Hong Kong
Mr. Robert B. Cassidy, International Trade and Services Professional, Kelley Drye & Warren LLP, Washington, DC

Panel II: China’s Short Term and Long Term Economic Goals and Prospects
Ms. Alexandra Harney, author of “The China Price,” Hong Kong
Mr. Gordon Chang, author of “The Coming Collapse of China,” Bedminster, NJ
Dr. Wing Thye Woo, Professor of Economics, University of California at Davis, CA, and Senior Fellow, Brookings Institution, Washington, DC

Panel IV: The Effect of the Crisis on the U.S.-China Economic Relationship
Dr. Derek Scissors, Research Fellow, The Heritage Foundation, Washington, DC
Mr. Michael Pettis, Professor of Finance, Peking University, Beijing, China
Dr. Eswar Prasad, Professor of Trade Policy, Cornell University, Ithaca, NY and Senior Fellow, Brookings Institution, Washington, DC