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Remarks at American Chamber of Commerce Shanghai and U.S.-China Business Council, Shanghai

Wednesday, May 19, 2010

Secretary of Commerce Secretary Gary Locke
Remarks at American Chamber of Commerce Shanghai and U.S.-China Business Council, Shanghai

Press release

Thank you for that kind introduction.

It is wonderful to be here in Shanghai and to be speaking in front of an organization that has done so much to expand U.S.-China trade over the years.

I'm here on the heels of the announcement of President Obama’s National Export Initiative – which aims to double American exports by 2015 and support two million jobs.  And this week, I am leading the administration’s first Cabinet-level trade mission.

With me are 24 American companies that will play an important role in meeting the president’s ambitious export goals. 

These are companies of different sizes that operate in different industries.  But together, they represent the best that America has to offer in:

  • clean energy generation;
  • energy efficiency; and
  • electricity storage, transmission and distribution.

I’m eager to help them expand their business in China – the most populous consumer market and the fastest-growing clean energy market in the entire world.

This is of course an important commercial opportunity for the businesses with me, and for their prospective partners in China.

But I want to begin by discussing the nature of the energy challenge facing the United States, China and the entire world.

It is the defining challenge of our time. . .

. . .the one issue, more than any other, that will shape the fate of our planet, our economies and our nations.

To understand our future of energy challenge, it’s useful to consider the recent past of this wonderful city we’re gathered in today.

I remember the first time I ever came to Shanghai, back in the summer of 1989 as part of an education mission from the state of Washington.

After arriving at the airport, we were brought into the city on a rickety Russian-made bus with dimmed headlights.  And as we pushed into downtown, I recall thinking to myself:

“I have never seen so many bikes in my life.”

Young and old, men and women. . .

. . . they were all pedaling around what was then a gritty, industrial city.

At the time, cranes were beginning to dot the skyline, but I never could have imagined that just 20 years later, Shanghai would become one of the most vibrant metropolitan areas on earth. 

When I first came to Shanghai, there were no skyscrapers. . .

. . .today, there are over 400.

And those bike paths have been replaced by elevated freeways shuttling people and commerce at a frenetic pace.

It has been an amazing transformation.

The maturation of Shanghai is one of the world's greatest economic success stories, and one that makes the Chinese people justifiably proud.

And this is just the beginning.  Shanghai’s explosive growth has been replicated in cities throughout China.  In the years ahead, the story will be repeated in many parts of India, South America and Africa.

People will become wealthier, healthier and eager to embrace the energy hungry amenities of modern life, from automobiles to air conditioning.

This is an eventuality we should celebrate.

But this rapid development will challenge the world’s physical and intellectual resources as never before.

When we add the future energy demands of emerging countries with continued economic growth in the more developed ones, we’re left with a stark energy reality staring us in the face.

By mid-century, global energy use is likely going to double. 

Let me just put that in perspective for a moment. 

To meet that demand, we’d have to turn on two new 1,000-megawatt power plants this week – and we would have to keep building two new plants each week for almost 30 years.

But we’re not looking for any old kind of energy.  This new energy has to be clean to avoid catastrophic climate change.  And it has to be cheap to keep our economies growing.

There are two countries that simply must take the lead in solving this challenge: the United States and China. 

We are the two largest emitters of climate change-causing greenhouse gases in the world.  This alone gives us a responsibility to act.

And if that sense of responsibility doesn't move us, then pure self-interest should. 

When climate change starts creating more deserts and less water in northwest China and in the Southwest United States; and when rising sea levels flood Manhattan or Pudong in Shanghai, you had better believe climate change is going to be:

  • Bad for business;
  • Bad for job creation; and
  • Bad for the quality of life of our children and grandchildren.

That is the very real and very scary downside of our energy and climate challenge. 

But today, I want to talk about how the development of the clean energy and energy efficiency technologies that we need to curb greenhouse gas emissions could spur one of the greatest economic opportunities of the 21st century.

And how a growing clean energy partnership between China and the United States could help put millions of both our peoples to work in high-skill, high-wage jobs.

Worldwide, energy is a $6 trillion market.  And the fastest-growing sector is of the cleaner, greener kind.

Meanwhile, in the next few decades, we need to rebuild and reinvent virtually every industrial activity:

  • from power generation and transportation;
  • to manufacturing and construction. . .

. . .to run efficiently and economically with drastically reduced carbon output.

The question, of course, is how do we get from here to this promising energy future?  

The first step must be immediate and resolute action by our governments to invest in clean energy, and to set ambitious clean energy adoption goals. 

I’m proud to say that President Obama has already done more to mitigate climate change and invest in clean energy than any president in U.S. history. 

In just the last year:

  • He signed a Recovery Act that included $80 billion in clean energy investments; and
  • He implemented tough new efficiency standards for automobiles, appliances and consumer electronics.

And when you look at China, you see a country that has adopted the most aggressive energy efficiency program in the entire world, and is on track to exceed many of their ambitious renewable energy adoption goals.

Both of our governments have also committed to wide-ranging cooperation on clean energy.  Just last year, the U.S. and China pledged $15 million each for a joint research center where teams of scientists and engineers from the U.S. and China will work together on energy solutions.  We’ve also got joint action plans on important issues like electric vehicles and energy efficiency.

But this is only the beginning of what must be done. Even with these historic efforts, coal and other fossil fuels still provide the majority of American and Chinese energy. 

Just a few weeks ago, Chinese leaders were dismayed to find that in the past six months, China had the largest increase in human generated greenhouse gases of any country in history. 

And in the first quarter of this year alone, coal and oil sales in China jumped 24 percent – which is twice as fast as their economy grew. 

China had pledged to improve its energy efficiency 20 percent over 2005 levels by the end of this year – and despite these setbacks, Prime Minister Wen recently said, “we can never break our pledge, stagger our resolution, or weaken our efforts, no matter how difficult it is.”

But to get clean energy to scale, we’re going to have to mobilize and incentivize private sector innovation like never before.

It is important to remember that many of the technologies needed to successfully cope with climate change simply don’t exist yet.

It could be next-generation biofuels, modular nuclear reactors, electric cars charged by a smart electricity grid, or carbon capture and storage that completely change the way the world uses energy.

It could be all of the above.  Or it could be other innovations that we have not yet imagined.

Perhaps the original idea for these innovations will come from a government research lab. 

But if history is any guide, the commercialization and real-world application of these technologies will be pioneered by entrepreneurs and private sector innovators like the companies that have accompanied me on this trip.

As it stands now, these companies already possess cutting-edge technologies that can deliver immense benefits for the citizens of both the United States and China. 

For example, when an American company comes to Shanghai and wins a contract to build a wind farm, it is obviously good for that company. 

It is good for any Chinese partner companies and their workers, who get to innovate and create alongside their American counterparts.

And it is obviously good for the residents of Shanghai who are getting access to clean, renewable power.

But it is also undoubtedly good for American workers as well.

A single commercial wind turbine typically contains more than 8,000 parts, 200 tons of steel and 13 tons of fiberglass.

Someone has to design those turbines.  Someone has to make and assemble the nuts and bolts, the gear boxes and electric components.  That can, and often is, done in America.  Some of the companies with me on this trip produce in the United States over 90 percent of the component parts they eventually export.

When an American clean energy company finds success here in Shanghai, it creates economic value throughout its supply chain in China and in manufacturing towns across America.

That is the definition of a win-win for the United States and for China.

And it’s why a preeminent goal of government policies needs to be:

  • making it as easy as possible for private sector businesses to develop new energy solutions; and
  • bring them to market.

In today's global economy – where ideas are just as likely to be discovered in Shanghai as San Francisco – we need to do everything we can to keep markets open and allow for the free flow of capital and ideas across our borders.

Unfortunately, this is an area where American companies operating in China have substantial concerns.

As I talk to American business leaders, the overriding concern that I hear is that there is not enough transparency.  Businesses frequently don’t know what the rules are, how they will be enforced or how decisions are made. And there’s often no public comment period so companies can provide feedback about new rules and regulations.

Especially in the energy sector, where upfront capital investments can be in the hundreds of millions of dollars and have multi-decade time horizons, this uncertainty has the potential to inhibit foreign corporate investment in China.

A troubling example of this occurred late last year when the Chinese government announced a new indigenous innovation accreditation system, which could provide firms that perform their research and development in China a leg up in bidding on government procurement projects.

Many U.S. businesses and other businesses around the world were surprised by this policy, which was made with little input from affected businesses and was not subject to any public comment.

While this practice may have the laudable goal of nurturing a stronger innovation ecosystem in China, it has the potential to significantly disadvantage foreign companies interested in bidding for contracts worth an estimated $85 billion annually.

And in the long run it will harm China's innovation environment by limiting foreign direct investment and imports that can deliver new products and services to the Chinese people, and enhance innovation within Chinese partner companies.

American companies have also been frustrated by the fact that even when there are strongly worded laws promoting fair market access at the national level, implementation is often inconsistent at the provincial and local level.

Ultimately, all that the United States seeks is a level playing field for its companies, where the cost and quality of their products and services determines whether or not they win business.

Now, I know I am not the first U.S. official to come to China to speak about the importance of open markets.       

And perhaps there are some in the audience who perceive this as U.S. self-interest masquerading as friendly advice.

But I would encourage you to consider another option – that in many areas, and especially in clean energy, the interests of China and the United States are tied together.  And reforms that are good for America will be good for China as well.

Take for example, the U.S. position on the protection of intellectual property.

Intellectual property violations are a big concern for America because our businesses lose billions of dollars a year in China from the theft of their ideas and their technologies.

But as China’s companies increasingly move up the economic value chain from low-cost manufacturing to higher, value-added research and development, they too will count on protections for their innovations.

China is already the third largest investor in research and development, and as a result, China’s patent office is also third in the world in the number of patent applications it handles each year.

In the long run, economies with poor intellectual property protections will lose out on generating great new ideas.  And they’ll lose out on the jobs that come with producing new products.

This may not happen overnight.  I will freely admit that companies and countries can gain short-term advantages from lax intellectual-property rules or measures that restrict foreign competition.

But over time, if innovators fear that their inventions or ideas will be stolen, one of two things will happen: they’ll either stop inventing or they’ll decide to innovate elsewhere.

In the next week, I will be discussing these concerns and other issues with my Chinese counterparts in private meetings and when I am joined by other members of President Obama's cabinet at the upcoming Strategic & Economic Dialogue. 

But as we consider these areas of disagreement, it is important to put them in context.

China is America’s second-biggest trading partner and we are China’s top trading partner. 

In the past 20 years:

  • U.S. exports to China have increased by a factor of 12;
  • Imports from China have increased more than 30-fold. 

The disagreements we have are an inevitable byproduct of the growing and mature trade relationship between our countries.

Although it’s become something of a sport to portray every trade disagreement between the United States and China as evidence of an impending trade war, it is important to remember that such disagreements cover a very small fraction of the trade between our two countries. 

For example, based on trade data for 2009, less than 3 percent of imports from China were affected by antidumping or countervailing duty orders.

While the United States and China will not always agree on everything, our economies and our environments are closely linked, and we have to strive to solve our problems through dialogue and cooperation.

We do ourselves no favors by pretending otherwise.

Last year, for example, as international climate talks intensified, we heard some claim it was unjust to ask nations like China to reduce their carbon emissions, when countries like the United States have spent 150 years using coal, oil and other dirty fuels to grow their economies.

That's an understandable point – but one of no concern to Mother Nature.

She doesn’t discriminate between carbon that comes from the United States or China, Europe or India.

And she will ignore attempts to explain the sins of the future by pointing out sins others made in the past.

As inhabitants of this planet, we will rise or fall together.

The best way forward is for us to draw on our respective national strengths to conquer our energy and climate challenge.

Think of the remarkable contributions the Chinese have made to civilization over thousands of years – from the arts and architecture to philosophy and religion.  The Chinese invented the compass, the clock, paper and the seismograph.

Now, China has another chance to make its mark on history.  Working together, China and the United States can lead a second industrial revolution, where cleaner and more efficient technologies power the world’s factories, cars and homes in the 21st century. 

In the process, we will create new opportunities for both our peoples.  And we will help lead the world away from the brink of environmental disaster.

This is our chance to join together to write a glorious new chapter in the world’s story.

We must seize the opportunity.

Thank you.