Ambassador Locke's remarks at Goldman Sachs Macro Conference
Remarks of Ambassador Locke
Goldman Sachs Macro Conference
Four Seasons Hotel, Hong Kong, February 5, 2013
Thanks much David, for the introduction and it’s really an honor to be here, having been invited to the Goldman Sachs Global Macro Conference. I have to say first of all, it was a real treat to listen to Christina Romer, my colleague in Washington, DC, when we were both stationed there. And it’s also a pleasure to be here with Ambassador Steven Young, who’s the Consul General for the U.S. Consulate General, here in Hong Kong. Ambassador Young is going to be retiring this coming summer after having served well and with great distinction, in Taiwan, throughout the Mainland of China, many parts of Asia, and of course here in Hong Kong. Let’s give Ambassador Steven Young a big round of applause for his incredible service.
It’s a real special treat for me also to be back in Hong Kong. It’s a great city that has had a profound effect on me, for many, many years. My very first overseas trip ever was here to Hong Kong when I was 10 years old. And it was to visit my ailing grandmother. She lived in a very small compound in Kowloon. Her living unit literally was two and a half meters by two and a half meters. She had one tooth, and so the neighbors would puree her food, so she could eat. It was a time of water rationing, raw sewage pumped into the harbor, and refugees living on the hillside.
Over the ensuing decades, each time I’ve returned to Hong Kong, I stand in awe seeing just how far Hong Kong has come. The stunning skyline of Victoria Harbor as we see right over here resonates with me on a very, very deep, personal level.
Throughout its history, Hong Kong has served as a natural entry point to Southeast China and a vibrant link between East and West.
From a relatively unpopulated territory at the beginning of the nineteenth century, Hong Kong has grown to become one of the most important centers for trade worldwide.
Over the years and through upheaval, Hong Kong has transformed from a shipping center to manufacturing powerhouse to a global center for finance, law and innovation. In fact, change may be Hong Kong’s most essential strength. But the same principles that underlay Hong Kong’s success in the past still endure today.
First, Hong Kong remains a city that bridges East and West and looks outward in all directions. Where companies compete on the merits, and where economic opportunity is palpable and real for millions of people.
Second, Hong Kong is a city that under “one country, two systems,” values the rule of law, transparency, good governance, freedom of the press, an independent judiciary, and a vibrant civil society—all of which help explain why so many people choose to do business here in Hong Kong.
It is no surprise that Hong Kong stood out in the 19th Century, as it does today, as a gateway to the Asia-Pacific. But as a gateway especially today, to China, Hong Kong is playing a strategic role in China’s regional and global trade.
Last year almost half of the 112 billion dollars of foreign direct investment in China was conducted through Hong Kong, which was a 33% increase over the year before.
And, as Hong Kong and China continue to build stronger, more extensive ties, American and foreign firms in Hong Kong are finding opportunities for cross-border services, education, and trade. That is why American companies continue to flock to Hong Kong.
There are nearly 1,400 subsidiaries of U.S. companies in Hong Kong, 869 of which are either regional offices or headquarters. And more are looking to Hong Kong.
Hong Kong is central to America’s broader focus on the Asia-Pacific region as a whole. And why wouldn’t it be? Well, we believe much of the history of the 21st century will be written in the Asia-Pacific region.
The Asia-Pacific is home to more than four billion people, three of the world’s four largest economies, and some of its most vital ecosystems. Taken together, the region accounts for almost 60% of the world’s GDP. And the region is critical to addressing nearly every international challenge that we face today.
And the region’s central role will only increase because economic growth here outpaces most of the rest of the world. Last year, American exports to Hong Kong totaled 33 billion US dollars, almost triple from 10 years ago. And China is America’s largest export destination outside of North America, supporting 800,000 jobs in America.
American exports to China are actually growing at a rate one and half times that to the rest of the world. And our exports to Pacific Rim countries as a whole support more than five million jobs back home in America.
These numbers reflect how closely America’s future is linked to Hong Kong, China and the Asia-Pacific. And the reverse is also true. The future of the Asia-Pacific is no doubt linked to the future of America.
Recognizing the critical importance of this region to American interests, President Obama from the very beginning identified engagement with the Asia-Pacific as one of his top foreign policy priorities and set out to substantially increase our engagement in this part of the world.
This “rebalancing” policy, that many people have heard about, is based on a realistic assessment of American priorities in the 21st century and will remain a cornerstone of our foreign policy. And that rebalancing includes even more engagement with China, at all levels—military-to-military, political leaders, cultural.
Our economies are so intertwined, and so the United States welcomes a prosperous China that takes on greater responsibility in the affairs of the world.
Now while the U.S. economy and those in the Asia Pacific are well positioned to grow together, our continued progress will be determined by how we respond to current challenges. In fact you might say that we can all take a page from Hong Kong’s book: embrace change. And we must start with the most urgent task before us -- realigning our economies in the wake of the global financial crisis. This means pursuing a more balanced strategy for global economic growth -- the kind that President Obama and President Hu Jintao have embraced and what General Secretary Xi Jinping and other Chinese leaders have promoted since the start of the leadership transition in November.
Our leaders in the United States and Asia face challenges that were virtually unknown four decades ago, and our challenge is to understand the changes happening around us but to also maximize the opportunities to increase our practical cooperation in ways that serve all of our interests.
To continue on the path of economic prosperity, rigorous reforms must be implemented by all nations including the United States, China and the countries of Asia. We in the United States are in the middle of a necessary transition, and Christina Romer talked a lot about that. America must save more and export more.
Our partners in Asia must also meet these challenges with reforms of their own and there’s no way around it. This is because long-term growth requires stronger and broad-based domestic demand in today’s high-saving Asian economies. This will raise living standards across the region, create jobs, improve business, and help stabilize the global economy.
China has shown positive leadership in implementing domestic reforms. Over the past year China has agreed to grant foreign companies greater access, for instance, to the auto insurance market. It’s agreed to lower its tariffs and taxes on imported goods which will expand domestic consumption and imports from all around the world. It’s taken steps to free up bank interest rates which will generate higher returns for families with savings and a more efficient allocation of capital.
China’s also moved down the path of better protecting intellectual property rights. It’s got a long ways to go, but it’s making progress. Recently China approved five foreign banks to trade on the Shanghai Stock Exchange as a further indication of the country’s willingness to open up its capital markets to foreign investors.
China’s new leadership is also calling for more positive and substantive domestic economic reforms.
During his December trip to Shenzhen, General Secretary Xi Jinping indicated clearly that reform and opening up is a guiding policy, and that China must stay on this path. He also vowed that there will be no stop in reform and no stop in opening up.
In the same spirit of reform Vice Premier Li Keqiang has called for expanding domestic demand in order to stabilize economic growth. Indeed, he argued that this is a principle to which China must commit.
These are encouraging messages from the new Chinese leadership and such economic reforms will bring significant benefits to both Chinese and world economies.
Many of the keys to China’s future are on clear display right here in Hong Kong.
All of our nations have to update the way we do business, both internally and externally, and above all we must reach agreement on the rules and principles that will anchor our economic relationships in the coming decades.
One key element that will ensure stable and continued progress for any society is the rule of law where laws apply equally -- equally to all, and are not subject to the self-serving interests of select individuals or groups. A transparent rules-based society is not only good for social development and stability, but it’s also necessary for sustainable economic development. And Hong Kong has helped give shape to these principles and proved their value to the world.
Hong Kong is a testament to the power of rule of law, transparency, good governance, freedom of the press, an independent judiciary, and a vibrant civil society. All of which, I repeat, help explain why so many people choose to do business here.
A growing number of Asian nations are also proving the value of these principles. Leaders today realize that investors are not willing to tolerate the arbitrary application of the law that imperils their ability to make a profit or the lack of an impartial means for seeking redress.
They recognize that disappointed foreign investors will vote with their feet and take their resources to other markets that they feel are more secure. That loss is quantifiable in, for example, forfeited opportunities for collaboration and reduced capital flows and trade.
And the United States believes deeply in these principles of openness, freedom and transparency—because their value has been proven time and time again, not only in times of prosperity, but also in times of hardship. These principles have nurtured a system of entrepreneurship and innovation that, for instance, allowed three young technicians to found a small computer startup called Apple. And today our thriving research and development industry continues to make breakthroughs in technology, medicine, alternative energy and other fields that benefit the entire world. This is due in no small measure to the fact that America has strenuous protections for those that engage in the long and costly endeavor of research that may not produce tangible results for many years if at all.
To put it simply, companies and entrepreneurs won’t risk being innovative and developing new technologies without strong intellectual property protections. It’s a fact of life. People are discouraged from innovating and inventing in an environment that does not reward and protect their creations.
The spirit of entrepreneurship and the drive to innovate are by no means innate or unique to the United States. Rather they are activated by our society which we work hard to keep open, free and transparent. A model that has its imperfections, but remains the most powerful foundation for building a prosperous society. In fact all who benefit from an open, free and transparent society have a vital interest and indeed a responsibility to follow the rules and to bring more countries into a rules-based world economy.
Year after year the world’s commerce with developing countries continues to grow thus leaving developing countries out of a rules-based system would render the system unworkable, and that, ultimately, would leave everyone in the world worse off.
The businessmen and women of Asia seek benefits that these principles offer. From Malaysian manufacturers to Indian technology firms to Chinese entrepreneurs. All are seeking access to markets overseas, fair treatment when they invest abroad, and protections for their innovations and products from piracy.
At the same time the United States is promoting these principles around the world through multilateral and regional institutions and new trade agreements, to enlist us all in the quest for inclusive sustainable growth.
It starts with our commitment to APEC, the premier organization for pursuing economic integration and growth in the Asia Pacific region, and extends to a full spectrum of international institutions -- the G8, the G20, IMF, the WTO, and others. With all of these, we’re working to level playing fields and to encourage robust, fair and sustainable economic activity.
As a second step, we’re pursuing enhanced regional economic integration through the TransPacific Partnership—the TPP. The TPP brings together 11 like-minded economies from across the Pacific, developed and developing alike, into an ambitious, regional trade negotiation.
We’re working to complete TPP negotiations this year, to realize a high standard agreement aimed at existing and emerging trade and investment issues we face in this 21st Century.
In closing, I want to underscore that as the world changes around us we must not only keep pace with that change, but we must also maximize opportunities for our shared success. And while the United States and Asian nations are well on track to grow together, our continued prosperity will be determined by how we respond to current economic challenges.
This means pursuing a more balanced strategy for global economic growth in which all nations embrace rules and principles that define our economic relationships in the decades to come. Hong Kong is an excellent example of what can be done and how important it is to lead in the economic realm with the principles of openness, freedom, and transparency.
It’s also an example that China can learn from and in doing so, optimize China’s own progress and development.
These enduring principles remain the most powerful foundation for building a stable and prosperous global economy, and it’s up to us, all of us, to translate these ideals into common practice, shared prosperity, and opportunity for as many people as possible on both sides of the Pacific.
To accomplish this we need visionary leaders in both government and business throughout the world, but those leaders also need to be guided by these principles because openness, freedom and transparency transcend public and the private sector. They go beyond geographic borders.
The people of the world are especially looking to China and the United States for leadership because in fact we are the two largest economies in the world, and I firmly believe that so many of the challenges that we face in the world cannot be solved unless both China and the United States are actively partnering together and collaborating to tackle them—whether climate change, whether weapons of mass destruction, nuclear proliferation, disease, famine. The world is counting on our two great countries and we simply cannot let the people of the world down.
But working together—and there are patterns of great partnership already—working together, I’m confident that we can achieve real results that will bring real benefits not just to the people of China, the United States or the Asia Pacific region, but indeed the entire world.
Thank you very much.