“I welcome this healthy and fair competition because I believe it will spur us both to innovate and we both will benefit from it.”
by Liping Jin and Yang Wang
U.S. Vice President Joseph Biden arrived in Beijing on August 17, 2011. His visit, originally scheduled for July, was postponed due to the debt limit crisis. The U.S. economic downturn and subsequent challenges faced by the U.S. economy has become a backdrop for Vice President Biden’s visit.
China, who holds about US$ 3.2 trillion in foreign exchange reserves and over US$ 1.1 trillion in U.S. Treasury bonds, is the top holder of U.S. debt. As a result, China has a growing stake in the future of the American economy. At the same time, the economic power balance between China and the United States has been turning in China’s favor for many years, giving rise to much discussion on how the two countries should redefine their strategic relationship.
On the eve of his visit, Vice President Biden accepted a written interview with Caijing. He argues that the fundamental strengths of the U.S. economy remain, and critics who say America is in decline are wrong.
Caijing: The American economy is still weak with a high unemployment rate. However, the debt ceiling deal limits federal government spending, which has been the American government’s primary means of stimulating the economy for the past two years. What other options has the federal government been considering to revitalize the economy?
Biden: The President and I have been focusing on jobs and the economy since the day we were sworn into office in January 2009, during a month that saw the loss of more than 800,000 American jobs. Our top priorities have been stabilizing the economy to avoid a second Great Depression, which we successfully achieved with the stimulus, and promoting private sector job growth. We believe the recent agreement between Democrats and Republicans to raise the U.S. debt limit and to reduce the deficit will help keep the United States on a responsible financial path.
While we are proud of our accomplishments, we have a lot of work ahead of us. That’s why we continue to focus on strengthening the core foundation of the American economy by investing in areas like education, innovation, and infrastructure. These investments will help the American people develop the skills and tools required to remain globally competitive in today’s interconnected world and, in the long-run, help ensure that the U.S. continues to be the driver of global economic growth.
In the coming months, President Obama and I will urge Congress to enact substantial deficit reduction, as well as take additional measures to spark jobs and strengthen the U.S. economic recovery. Our Administration will also be working to modernize the U.S. patent system, to develop new manufacturing technologies, and to pass trade agreements that will increase global integration.
Of course, these economic challenges are not unique to America – they are global challenges. And working to promote sustainable, balanced global growth isn’t just the United States’ responsibility – all the leading economies have important contributions to make, as we’ve discussed in the G-20. China has indicated that one of its goals for the next five years is to promote greater domestic demand and consumption. That will not just make Chinese households better off, but it will be an invaluable contribution to the global economy.
Caijing: It is widely perceived that the U.S. government is likely to solve the debt problem by inflation or depreciating the dollar. Will there be QE3, since the FED’s monetary policy is not affected by the agreement on the debt ceiling? What will the U.S. government do to ensure the safety of China’s U.S. $ 3.19 trillion of foreign exchange reserves?
Biden: Let me be clear – the Obama Administration is deeply committed to maintaining the fundamentals of the U.S. economy that ensure the safety, liquidity, and value of U.S. Treasury obligations for all of its investors. This is first and foremost a firm commitment to U.S. citizens, who hold the large majority of all outstanding Treasury obligations and, also, to our foreign investors, including China.
The fundamental strength of the U.S. economy is due in part to the fact that we have an independent Federal Reserve not subject to direction by the Executive Branch. The Fed has a mandate to maintain maximum employment and price stability, and it has tremendous credibility as an institution and as an inflation-fighter.
Caijing: Some argue that the economic power of the United States will keep declining in the long-term. What is your comment on this opinion? And the United States has been regarded for decades as a responsible leader and the first engine of global economy. However, the debt crisis and the QEs aroused complaints from other countries. How should America properly handle its responsibilities to the global economy?
Biden: I’ve been in public service for a long time – 38 years, in fact. During that time, many people have said, as some are saying now, that the U.S. is in decline. They were wrong then, and they’re wrong now.
As President Obama recently reminded the American people, “For all of the challenges we face, we continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on earth. What sets us apart is that we’ve always not just had the capacity, but also the will to act – the determination to change our future, the willingness in our democracy to work out our differences in a sensible way and to move forward, not just for this generation but for the next generation.”
Frankly it’s the many strengths of the United States that have helped it withstand economic and financial challenges over the years – from the strength of its institutions, to its flexibility, to its ability to innovate, to its ability to give Americans, as well as those who come to the United States, the opportunity to pursue their dreams.
Our nation’s history speaks for itself – the U.S. has long been and remains a responsible, global economic leader. We were at the forefront of the post-WWII efforts to reduce barriers and create the global trade and investment environment that spurred unprecedented economic growth around the world, allowing many countries – including China – to thrive. And we continue to work to reach agreements that foster open trade and investment.
It was a U.S.-led effort to respond to the 2008 financial crisis that made the G-20 the premier global economic and financial institution. We strongly and successfully pushed for reform of international financial institutions to improve their governance and increase the representation of dynamic emerging markets like China. And we will continue to work with our global partners to ensure recovery, a stronger and more stable global financial system, and strong, balanced, and sustained global growth.
We also know that the path to overcoming our economic challenges begins at home. The excesses that led to the financial crisis and recession weren’t created overnight, and they won’t be solved overnight. It will take time to work through the problems in our housing sector, help U.S. households rebuild their assets, and put every American who wants a job back to work. But the fundamental strengths of the U.S. economy – its resilience, flexibility, and ability to innovate and grow – remain.
Caijing: China insists that navigation in the South China Sea is free and the international shipping lane is safe. Why does the Obama administration keep urging freedom of navigation in the area? What role does the U.S. want to play in the disputes over the South China Sea?
Biden: As a Pacific nation, the U.S. has an enduring national interest in freedom of navigation, the maintenance of peace and stability, and respect for international law in the South China Sea. We oppose the threat or use of force by any claimant to advance its claims, and we support a collaborative diplomatic process by all claimants to resolve their disputes without coercion.
We commend the recent announcement that ASEAN and China have agreed on implementing guidelines to facilitate confidence building measures and joint projects in the South China Sea. This is an important first step toward achieving a Code of Conduct and reflects the progress that can be made through dialogue and multilateral diplomacy. We encourage all parties to accelerate efforts to reach a full Code of Conduct in the South China Sea, and we call on all parties to clarify their claims in the South China Sea in terms consistent with customary international law, including the Law of the Sea Convention.
Caijing: The economic power balance between China and the U.S. has kept changing in favor of China for many years. What is your perception of this change? Is it an appropriate moment for the two countries to adjust their strategic relationship? From Washington’s point of view, how can the Sino-US relationship evolve in the next decade?
Biden: China has enjoyed rapid economic growth over the last three decades of “reform and opening.” Through hard work, perseverance, and with vision, the Chinese people have lifted hundreds of millions out of poverty and now help drive global prosperity – and for this they should be extremely proud.
It’s also clear that China’s growth has been made possible by an open and dynamic global economy and by the American power that has long helped create security and stability in the Asia-Pacific region. As China’s economy continues to grow, it has an increasing stake in the global system – and a responsibility to help maintain it.
Our two countries, now the two largest economies in the world, are bound by ever-growing ties of commerce and investment. There are many areas where we work together. But there are also areas in which we compete. I strongly believe that the capabilities of the American people are enhanced when there’s genuine competition from equally capable people. The Chinese people fit this bill. I welcome this healthy and fair competition because I believe it will spur us both to innovate and we both will benefit from it.