I am very pleased to have been asked by Chairman Robinson and Vice Chairman D’Amato to co-chair, along with Commissioner June Teufel Dreyer, a noted China scholar, this hearing on China’s exchange rate, industrial, and investment strategies and their impact on the U.S. economy.

This bipartisan commission was created by the Congress in October 2000. It is composed of 12 Commissioners, three of whom were appointed by each of the Congressional leaders in both the House and Senate. It issued its first report to the Congress in July of 2002 by a vote of 11-1, which signifies our bipartisan consensus on the key issues in U.S.-China relations within the Commission’s mandate.

One of the tasks we have been given by the Congress is to "analyze and assess the qualitative and quantitative nature of the shift of United States production activities to China, including the relocation of high technology, manufacturing, and R&D facilities." We were also asked to examine the effect of such transfers on United States economic security, employment, and the standard of living of the American people. In addition, Congress asked us to assess "the need for corporate reporting on United States investments in China and incentives that China may be offering to United States corporations to relocate production and R&D to China."

In keeping with this mandate, today’s hearing will focus on the increasingly complex and dynamic factors in the US-China trade and investment relationship. These issues rise amidst concerns in our country over the large loss of manufacturing jobs in our economy in recent years, the continued shrinking of manufacturing output as a percentage of U.S. total production, and the ongoing shift of investment capital and manufacturing employment abroad, notably to China and other Asian countries.

We look at these issues in the context of Commerce Secretary Evans’ statement of September 16 that "the President believes that our economic and national security require a stable, robust manufacturing sector that produces sophisticated goods here in the United States." The Commerce Department is leading the Administration’s effort to craft a manufacturing strategy to help meet the current challenge posed by the ongoing erosion of our manufacturing sector, and we will be following these developments closely.

I would like to note that we extended invitations to both the Treasury and Commerce Departments to participate today and share their perspectives with us on the Administration’s exchange rate discussions with China and its manufacturing sector initiatives. Unfortunately, the key officials on these matters were unable to attend, but both Departments will be submitting statements for the record. The Commerce Department has committed to testify before the Commission on its manufacturing strategy later this year and we hope to hear directly from the Treasury on its progress with China on exchange rates at a later date as well.

At today’s hearing we are fortunate to be able to hear from a bipartisan group of distinguished members from both Houses of Congress to give us Congressional perspectives on the issues before us. Among those we will hear from are Senators Dorgan of North Dakota, Schumer of New York, and Graham of South Carolina and Congressmen Manzullo of Illinois, Chairman of the House Small Business Committee, Levin of Michigan and Stenholm of Texas. We very much appreciate their taking time to be with us today and look forward to their testimony.

On our second panel this morning we will hear from some of the top experts in the country on China’s exchange rate policies. We will hear differing and sometimes conflicting views on whether China’s effort to peg its currency, the yuan, at about 8.3 to the dollar, constitutes an unfair trade practice, and whether such pegging has a positive or detrimental effect on the U.S. economy. These experts are:

C. Fred Bergsten, Director of the International Institute for Economics;

David Hale, Chief Economist and Founder, Hale Advisors, LLC;
Ernest Preeg, Adjunct Fellow, the Hudson Institute; and

Stephen Roach, Chief Economist, Morgan Stanley

My co-chair, Dr. Dreyer, will preside over and introduce the two afternoon panels, but let me provide a preview.

In the first panel after lunch we will hear from three noted experts on China’s efforts to attract foreign investment to help build its industrial and research and development base: Prof. Peter Nolan of Cambridge University; Prof. Ed Steinfeld of MIT; and Kate Walsh, Senior Associate at the Stimson Center in Washington.

The last panel of the day will explore the concrete impact of our economic engagement with China on the U.S. economy. The four panelists will be: Frank Vargo, Vice President for International Economic Affairs at the National Association of Manufacturers; Thea Lee, Chief International Economist of the AFL-CIO; the Honorable Paul Craig Roberts, Chairman of the Institute for Political Economy and a former Assistant Secretary of the Treasury; and Willard Workman, Senior Vice President of the U.S. Chamber of Commerce.

We hope the knowledgeable views brought together in this hearing room today will contribute to the research and debate now taking place in America as we try devise appropriate strategies to deal with the economic challenges presented by China’s fast-growing economy.