Today the Commission holds the third in its series of hearings during the 108^th Congress.

Our first two hearings, in June and July, focused on the important topics of media control in China -- specifically how it played out during the SARS outbreak-- and on China’s behavior with respect to the critical issue of the proliferation of weapons of mass destruction and ballistic missiles, with a focus on China’s pivotal role in the ongoing nuclear crisis with North Korea.

Today we will be examining issues on the economic security side of our portfolio, namely China’s exchange rate policies and industrial and investment strategies and their impact on the U.S. economy, particularly our manufacturing sector. These issues are currently receiving substantial media attention, but have been in our mandate and on our research agenda from the first year of the Commission’s establishment.

Indeed, in quoting one of the findings from our first annual report to the Congress in July, 2002, "Continuing trade surpluses, vast investment inflows, and very high foreign exchange reserves are evidence that China is manipulating its currency by holding down its value thereby gaining an unfair trade advantage that increases the U.S. trade deficit."

In America, people in varying capacities -- business, labor, academia, the media and government -- have come to better understand the almost tectonic economic forces now shaping the U.S.-China economic relationship. With increasing sophistication, China has become a manufacturing powerhouse. Its central and local government policies have supported development of key industrial sectors. In the 1990’s, China became embedded in what has become a global supply chain for many traded products and saw its share of global trade in manufactured goods triple.

In the meantime, there is increasing unease in the U.S. over the declining share of manufacturing output and employment in our overall economy. And this is happening while China’s currency — the yuan — remains pegged to the U.S. dollar at a rate set by government fiat nine years ago. What are the causes and effects here? What are the key linkages? Are there steps the U.S. should be pursuing to remedy these challenging and, in some cases, debilitating circumstances?

Today we will be exploring these and other important questions with a distinguished group of panelists. We are particularly honored that we will be joined by several Members of the House and Senate, from both sides of the aisle, who will lead off the hearing by giving us their perspectives on these crucial matters. The Congress is profoundly concerned about the issues we are discussing today, and a number of Members have introduced thoughtful legislation to address these concerns. We look forward to working with the Congress as it moves forward in its consideration of appropriate remedies.

The co-chairs of our hearing today will be Commissioners Patrick Mulloy and Dr. June Teufel Dreyer. Commissioner Mulloy will preside over the morning session and Dr. Dreyer will take the gavel after lunch. I am now pleased to turn the hearing over to Commissioner Mulloy and our distinguished Congressional guests.