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Remarks at American Chamber of Commerce and Trade Development Council, Hong Kong

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Monday, May 17, 2010

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Secretary of Commerce Gary Locke
Remarks at American Chamber of Commerce and Trade Development Council, Hong Kong

Press release

Thank you, TDC Executive Director Lam for that kind introduction and for co-organizing today’s lunch with AmCham Hong Kong.

It is wonderful to be here in Hong Kong at this spectacular venue with such a diverse and impressive business gathering.  

AmCham is one of the pillars of this international business community and has helped make Hong Kong “Asia’s World City,” and a preeminent commercial hub.  Hong Kong’s magnetic pull was brought home to me at breakfast today where we were briefed jointly by the three American Chambers of Hong Kong, Macau and Southern China. 

I'm here this week on the heels of the announcement of the president’s National Export Initiative – which aims to double American exports by 2015 – on the Obama administration’s first Cabinet-level trade mission.

I’m happy to report that we just helped make a small contribution to that goal earlier today when we signed a memorandum of understanding to expand cooperation in wine related businesses between Hong Kong and the United States.  This agreement will help bring more American wine from all 50 states to Hong Kong’s consumers and we are very excited by this development.

Of course, the primary focus of this trip is another promising area of commercial cooperation: clean energy.

With me are 24 American companies of different sizes that operate in different industries.  But together, they represent a cross-section of the best that America has to offer in clean energy, energy efficiency, and electricity energy storage, transmission and distribution.

I’m eager to help them expand their business in Hong Kong, the Pearl River Delta Region and, indeed, across China; the most populous consumer market and the fastest-growing clean energy market in the entire world.  Here in Hong Kong, mission members will have 75 one-on-one business meetings, including with many people in this room.

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

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, of our economies, and of our nations.

But when I think about energy, I don’t necessarily think about it in these grand geopolitical terms.  Instead, I often think about a trip I took a decade ago with my family to my ancestral village of Jilong in Guangdong Province.

I remember visiting the small, one-room house where my grandfather had lived.  And as I sat in a chair in that room, I felt like I was being transported back 100 years.  There was no refrigerator.  No washing machine.  No computer.  The cooking was done over a small wood stove.

It was the same for many of the other houses in Jilong.

But in the last decade, millions of Chinese from villages like Jilong have moved out of poverty and into the middle class.  Along the way, they have embraced the energy-hungry amenities of modern life, from automobiles to air conditioning.

This 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.  China has 700 million rural inhabitants; many of whom will aspire to and achieve the comforts of middle-class living in the years ahead.  The story will be the same in many parts of India, South America and Africa.

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 even that makes it sound simpler than it is. . .

. . .because 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 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 moral suasion doesn't move us, then pure self-interest should. 

When climate change starts creating more desert and less water in northwest China and in the Southwest United States, and when rising sea levels start eating away at our coastlines, you had better believe:

  • that's 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 the opportunity.

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 our people 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.

And 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 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 implemented tough new efficiency standards for automobiles, appliances and consumer electronics.

Meanwhile, China has adopted the most aggressive energy efficiency program in the entire world, and they are on track to exceed many of their ambitious renewable energy adoption goals.

Both of our governments have committed to wide-ranging cooperation on clean energy.  The U.S. and China have committed $15 million each to develop 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, today, 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 appears committed to stopping and reversing these trends.

In fact, Prime Minister Wen – in speaking about China’s promise to improve its energy efficiency 20 percent over 2005 levels by the end of this year – 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 changes 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, I understand that Hong Kong has been looking at offshore wind farms.  Should an American company eventually win that contract, it would not only be good for that company but also be good for the local partner companies and their workers, who would innovate and create alongside their American counterparts.

And it would obviously be good news for the residents of Hong Kong, who would get access to clean, renewable power.

But it would also undoubtedly be 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 over 90 percent of their component parts in the United States

When an American clean energy company finds success here in Hong Kong, 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 policy 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 Shatin’s Science Park as in 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.

There is no question that Hong Kong has worked hard to become a welcoming place for investment and innovation.  It has an efficient, transparent legal system that offers rigorous intellectual property rights protection and an open government procurement process

Hong Kong is turning toward clean energy development by making significant direct investments in renewable and other cleaner power generation technologies, offering generous subsidies for energy and environmental upgrades and developing rigorous efficiency standards, for everything from consumer goods to commercial buildings

Many U.S. companies look to take advantage of the strengths Hong Kong has to offer as well as Hong Kong companies’ expertise and experience on the mainland, to enter that dynamic market. 

However, we do continue to have some concerns with the business environment in China.                              

As many of you know, last year, the Chinese government announced a new indigenous innovation accreditation system, which could provide domestic firms a leg up in bidding on government procurement projects.

Many U.S. businesses were surprised by this policy, which was made without any 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 we believe it will harm rather than stimulate China's innovation environment by limiting foreign direct investment and imports from abroad that have the potential to 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

This is especially true when it comes to intellectual property protection.

Tough IP laws are only as valuable as the civil and criminal penalties people face for breaking them – and China’s enforcement of IP laws is often uneven, and penalties assessed are often too mild to carry deterrent value. 

Ultimately, all 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 speak about the importance of open markets in China.       

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 us will be good for China as well.

As China increasingly moves 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 and free access to other markets.  And Hong Kong, with its open business environment and strong legal tradition, can play a critical role in moving this process forward.

In the long run, economies that don't have strong laws protecting innovation and market access will lose out on the jobs that come with producing new products and services.

This may not happen overnight.  I will freely admit that companies and countries can gain short-term advantages from lax intellectual-property laws or measures that prevent competitors from selling in their market.

But over time, if innovative companies perceive an unfriendly investment environment, one of two things will happen – they’ll either stop inventing, or they’ll decide to create and sell their inventions elsewhere.

In the next week, I will be discussing these concerns and other issues with my Chinese counterparts in private meetings, and 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; our imports 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 relatively small amount 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 in effect that year.

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

Instead of these counterproductive arguments, 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. 

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 our people.  We will help lead the world away from the brink of environmental disaster.

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

We must seize the opportunity.

Thank you.