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tv   Today in Washington  CSPAN  June 23, 2011 2:00am-6:00am EDT

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asked to look at the condition. >> the taking into effect not only the local conditions been hit the history of the institution. they don't analyze the older they are living through the builders are looking through the analysis by the bankers. well, it's -- i'm hoping that's an issue that can continue to be analyzed on the local level and the regulators will take into consideration the impact. the other issue we are getting a lot from the realtors and they are making comments on the qrm has included if we should not include the incentives, deal with it rather than this. can you give me your instinct on that where we should be going with it?''''' largest econ.
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>> good morning. it's encouraging to see such a major turnout for this event today, which is a look at the question of is chinese foreign direct investment in the united states a threat to the united
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states domestically or globally? and obviously the other side of the coin is, is it a threat to the united states not to get chinese foreign direct investment? this is what our speakers will be examining. the background for this event is the recent publication of the first major detailed study of foreign direct investment coming in to the united states. there has been interest in this subject, but there has not been a thorough assistical basis to assist in foreign meramericas o understanding what the benefits are and what the potential risks are. i expect that during the course of the discussion this morning, we will all get a better understanding of what the balance of those considerations is.
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our speakers, dan rosen and derrick scissors, or general experts in this area. dan is a -- what is it, a visiting -- >> fellow. >> -- fellow at the peterson institute on international economics, and derrick scissors is with the heritage foundation working on economic investment issues. >> among other questions. >> among other questions. both have long backgrounds in this field. the study which forms the basis for the discussion today was jointly sponsored by the asian society and the kissinger institute here at the woodrow wilson institute. jack garrity is with the asian society. jack, would you like to say a few words? >> good morning, everybody. we're pleased to have this debate, and basically as state mentioned, it all came out of the launch of this report with the asian society and kissinger
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institute written by dan and his colleague, pelo. we came out with this last may, last month, and we have some copies of the report. it's -- you can find it also on line. you can download it at the asian society web site. welby shell, who was one of the big movers of this report, unfortunately can't be here today, but he wishes he would. what happened, when we launched the report afterwards, dan and pelo were up here with state, and derrick was sitting off to the left. and, you know, derrick has also done a lot of work on foreign -- chinese foreign investment, and he was kind of chomping at the bit. he got one question in, but that wasn't enough. so when dan and i were walking out, i get this sms and it's from derrick. he says, how about a debate
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between dan and i? and i turned to dan and i said, what do you think? he said, great. so now we've got it today, and thanks to the state for putting it together with doug spellman, so it should be interesting. in one corner, i won't say he's the champion, but he's the lead contender is dan, and we have the challanger in derrick. so it should be fun. >> our format is going to be dan will lead off. we've given him up to ten minutes to lay out his case regarding chinese foreign investment in the united states. derrick will then have up to ten minutes to make his response. we'll then have perhaps some give and take up here, and then we'll throw the floor open for input from the audience to explore this issue in greater depth. sam, over to you.
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>> state, thank you very much, and good morning to everyone. it's a real pleasure to be here for this. my gratitude to the wolfen center, which was my very first job working in grad school with mary bullock when it was back on the mall and we had cherry on saturday afternoons. i hope that still happens. and the asian society and its dedication at the top which we're here to discuss. it's a pleasure to be here with derrick in particular who is a long-time friend and fellow scholar of what's happening in china and u.s.-china relations. he and i have far more in common on this issue than we have different between us. but we'll do our best to find the differences to make it fun to spend time with us here this morning. the arrival of chinese outbound foreign domestic involvement around the world as well as chinese recovery from the debacle, from the pre-reform era
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that they are still recovering from presents the united states with consequences both good and bad for our economic primecy in the world as others get back on their feet and also presents us with choices to make about how we are to respond to that economic development. to kick off the discussion of the topic of outbound direct investment, this morning i'll make just three points for consideration, for yours and derrick's, to get us started about the nature of these chinese companies going abroad now, really for the first time arriving on u.s. shores. the first point i want to make is that whatever conclusions we draw about american interests with regard to this investment should be based on clear information and analysis of what is actually happening coming out of the chinese side and as
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regards the american interest. not fearmongering about the nature of capitalism where some have a greater state of the economy than we prefer in the united states. it's impossible to apply that level of analysis now with the right kind of homework looking at what's actually happening in terms of chinese investment trends. second point i'm going to make is that based on that better information about what's actually happening rather than what we fear or are concerned about, we can start to see patterns in china's outbound direct investment which are diverse, largely non-strategic and commercial in their nature, and can be understood in terms of what american interests are, so we can match-up the pattern of what's happening with what we think our interests are in this
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area. and thirdly, to the third point i want to make, and i'll finish with, is that we can maintain america's traditional role as a beacon for international economic openness and competition rather than revert to a kind of isolationist attitude. we don't need to believe that the chinese government is going to put american interests over their own in order to reach that conclusion and stand by those really eternal american principles about our economic organization. we only have to make sure that we have a strong enough system to address whatever challenges might be inherent in this outflow investment from china. those are the three points i'm going to make to you, and i'm going to spend another five minutes just walking through a few slides which describe those three phenomena. first of all, in terms of the availability of clear
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information with which to gl grapple, let's consider the numbers. this is what is actually happening with chinese direct investment. it doesn't mean investing in treasuries or securities less than 10% ownership of companies. that sort of stuff is called portfolio investment. it's not the kind of stuff we're talking about this morning. until the mid-2000s, there is practically nothing. only come the mid-2000s did the absolute crisis urgency and china's need for raw materials, energy, compel them to start making direct investments around the world, and they happen almost entirely in developing countries that are recent exporters, not advancing economies like the united states. in 2003, the first year in the data stat that we explore in the publication that jack and stape
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described to get us started, this was the total set of chinese direct investments in america. it was virtually absent here. it wasn't part of the story at all even while it started to take off in places like africa, brazil, krzykstan and the like. 2003 to 2005 it starts to get a little more. 2007, 2009, 2010. we're looking at the first quarter and seeing a continuation of this trend. so the first thing to understand is we're not talking about something that might happen tomorrow. we are talking about a change in chinese company capabilities to invest in more advanced economies that is happening now. so this is a present situation, it's not a future maybe sort of thing. and most of that investment will happen without ever getting any kind of review for national security. only sent to the sectors are
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going to be what's called the committee for investment in the united states and only when there are merger acquisition investments. greenfield investments, and there are quite a bit, don't get a review. so we shouldn't kid ourselves to think that the majority of these inflows from china are even par sonable. that's my first point. second point i want to make is getting into the patterns we want to see in what is transpiring. this is the distribution of the 250 or so investments that have happened in china since 2003. when we start looking at the numbers in some detail here, and this is all in the study. you'll find this in our publication. the first thing that strikes us is that this is not a china that's simply cherry-picking out a very tiny number of high-tech industries. the pattern of investment inflow we're seeing is really across the spectrum of the economy. and in many cases, it matches up
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with the things china is best at already, not just with the things where it has no presence or no capability. so what we see is chinese firms moving downstream a bit in the industries where they're already dominant as a manufacturer. we see them doing things that pretty much anybody can do if you have enough capital, and they're easy to do like investing in utilities, which are like a fixed income investment, really. aes energy. int inter intergen in massachusetts now. these are things china knows how to do. they're not putting commercial aircraft in the sky. they serve as a mix of higher technology and lower technology, mirroring the breadth of the chinese and american economy, rather than cherry-picking out a high-tech america. when my colleagues and i look at what's happening, it matches up
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with what you would expect from a commercially motivated economy, not one that was run by a star chamber of officials trying to figure out how to improve china's technological capabilities. in fact, that matches up with what we know about competition on the ground in china. margins are getting squeezed tighter and tighter and tighter for chinese companies partly due to overcapacity in manufacturing and other factors. a complex story. for the first time they have the incentive to go abroad in search of all the margins that apple enjoys in cupertino rather than just being the 2%, 3% margin manufacturer with foxcon back in china. that describes what we see going on. the third point, then, to finish up what i wish to make is that the u.s. needs a china policy not contingent on the expectation that beijing has our best interests at heart and not his own. this is the numbers that
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describes the breakdown of the inflows into the united states we've seen thus far, and what we find is that by number of investments of 250, a data set of 250, about 70% or so of them are not government-controlled companies but are private companies. most of the individual deals being done are non-government chinese firms by which we mean less than 20% government ownership in china coming to the united states to try to do business. 30% of them are greater than 20% chinese state shareholding in the firm, so far as we can tell. by the value of the deal, it's more weighted to the government side. no surprise there. government-related companies have more capital in china and they're more clumped. so two-thirds of the investment coming in are from government-related firms. that doesn't really surprise me. but we have to ask ourselves
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now, is there some government-related threat laden in this picture of what's happening that we don't have a system designed to address ordeal with? and i would argue that our system has, in fact, been forged over a century, almost, to address the possibility that there might be government motives amongst foreign investors, not always just commercial motives. there was concern about this pre-revolutionary america that the steel mills here were british owned, and the cannonballs they would be making would be used against us. that turned out not to be the case. those mills were pressed into the service with washington's army before the british knew what had happened to their tea in the boston harbor. between wars, it was german chemical companies offering to come to american plants, and some in d.c. said, we shouldn't let that happen, because if we get into a scrap with the ger n germa germans, maybe there would be sabotage or something such as that. instead those plans were taken away from those germans, put
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under control of dupont which made material for the other side. taking that forward to today through middle eastern investment in the '70s with p petro dollars, the japanese in the '70s and '80s, all the claims through the decades that somehow we wouldn't have a system to look after the american interests turned out not to be the case. and the system we carefully protected and iterated and brought forward to date seemed perfectly well suited to what one might find in investments today. one more thing, and i'll pass it over to derrick, remember, please, the system in the united states is not the end of u.s. government oversight of chinese investment in america. it's just the very first bite at the apple. once a chinese company is established here, if it is, then it is fully subject to american counter-espionage law, national
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security law domestically. they'll be under the surveillance of stars and stripes like any other company would, they have to abide by all anti-competition law that all other firms have to abide by. so it's not the end of the story at all. it's not like it's our only chance to make sure that the firms operating here are operating in a manner which is consistent with our interests. with that, let me stop and i'll look forward to hearing what derrick's comments are. >> thanks, dan. i have a lot of people to thank, but i'm going to have far too much to say so i'm not going to thank them all. two groups of people. one, if there is anyone upstairs in the overflow room, thank you. if you feel like you have something to say and you didn't get a chance to say it, please come down after the event. i'd be happy to talk to you, and i'm sure dan will, too. i also want to thank dan for setting the stage for us because i did not want to go through all that, and he has high-tech stuff
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and i have things like this, which you'll see later. having said that, i will say one thing about champion and challanger. i started tracking chinese outbound investment in 1999. anyone here want to go that far back? so i think of myself as a champion and dan as the guy that gets all the publicity which is where that resentful let's-have-a-debate e-mail came from. in fact, dan and i, as he correctly said, are not that different in judging the current situation and not really all that different in judging the overall investment. so i'm going to have to work through some things where it seems like, hey, where is the debate here until we get to where we are different, which is in foreign policy. the potential now for u.s. investment access to the prc is not very well understood, potential value, and it's extremely large. potentially.
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that makes it a very powerful bargaining tool, and it's a unique bargaining tool because it is not coercive. we can get improvement in chinese behavior -- not perfect chinese behavior, but improvement in chinese behavior that i think one would want to see, and we can enrich the chinese relationship using u.s. access. first i want to give you some facts. heritage has a china global investment tracker. it goes back to 2005. it does not just focus on the u.s. the advantage it has over the research dan and his colleagues have done is it is global, the same database and same methods applied to all countries so you can make comparisons. it goes back, you know, farther than some current work outside of dan's that's being done in
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new york. the disadvantage is it's shallow. it's $100 million only. so dan's stake in the u.s. is deeper. he can draw more conclusions. the other important difference is we include portfolio investment outside bonds. so, for example, there is a $5 billion stake that tic bought in morgan stanley. we include that. it's not direct investment but we include it, anyway. why? because they are one block from the u.s. congress. there are differences in our data. there are instructive differences. i want to stipulate at the outset dan's stake is deeper. that's why i don't have those pictures, because his pictures are going to be better. there are some things we're going to agree on and disagree on. chinese investment right now is utterly trivial for the american economy. it's something like 2% in the
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gdp, luxembourg and invest more. you're going to have to see a very strong performance by china going forward. that's where our data -- i shouldn't say dan's data, but the data represented in the paper -- i'm going to have to call it dan's, too -- dan's data and our data are different -- exactly. that thing that dan did all by himself in a day. we have chinese investment stable in 2010 because we count portfolio investment which started in 2007. it's stable at $6 billion, a slightly larger number than dan had. we have a drop in 2011. we don't have a trend of a strong chinese investment performance. not yet. we have significant chinese investment in 2009 and 2010, but the trend right now is not actually clear. this is not a surprise bauecaus
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there is some drain on u.s. capital. the u.s. on our count is dominated by finance, is dominated by the state of new york. we saw some diversification in 2010 which was very encouraging and very healthy, but in 2011, we're not getting very much in the way of transactions yet. we have a troubled transaction data set all over the world, not just in the u.s. in the u.s., you all are familiar with the cases, the seno case is the emblema tirks c one, but there is also one in louisiana. there is an abo investing in a small private aircraft maker in minnesota. there are others. so there are notable problems in chinese investments in the u.s., which is one of the reasons we're talking here. we also have different numbers for soes. dan pointed out correctly that soes don't necessarily dominate by number of transactions. we have them dominating by
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volume. think about how that changes dan's volume figures. dan has about two-thirds figures in soes. that is a big part of the debate. on our count, a little different than dan's, soes dominate by chinese involvement in the u.s. does that mean anything? now i'm going to use my chinese props -- >> soes are state owned enterprises. when you use these acronyms, it might be helpful to let us know what they mean. >> thank you, ambassador. yeah, there could be a lot of questions about, what was he talking about? i'll try to slow down. i'm also going to have to move, so apologies to anyone who is inconvenienced by that. here's position 1 in my pathology. position 1 was represented to me two weeks ago in beijing when the senior administrator of commerce yelled at me for all the american barriers. not just me, yelled at our whole
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group. what are your concerns when he started yelling? there are problems in chinese investment in the u.s. the position that this is the main issue is not tenable in the u.s. policy today, it's really not tenable on the facts. there are people who argue it as a bargain position. i'm just laying this out because i have recent experience. if someone here wants to use falway? falway is not really important to anyone but their p.r. firms. it may be a bargaining position, it may be something people bring up for public relations reasons. the reason of american protectionism is not serious. now, the second position is what i would call the unilateral position, which is -- i'm just standing here by accident. i have no idea who represents this position. the unilateral position, which is, hey, let's make the decision based on what's best for the
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u.s. stop objesessing over china. we can talk about what's in the u.s., but that's how we make the decision based on what's best in the u.s. now i'm going to skip to this position. i'm going to go over and identify jack, a group i don't think he wants to be identified with -- >> can you stay close to the microphone? >> can i speak louder? how about that? >> well, real loud. >> i can speak real loud. jack is not identified with this position, okay? are we still having problems? i always cause trouble. i don't like sitting still. >> maybe you could just walk with the mic. >> no, they're not going to reach. >> this one might reach. >> we have a mic coming. sorry, everyone. this does not count against my ten minutes. i formally disassociate jack
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with this position. this is the american version. problems with the chinese investment is all china. china is a threat. investment with the americans is harmful. on balance, we should not allow china to invest in the u.s. there are people who believe that, i get e-mails from them all the time. i'm thankful this is not a position represented in the u.s. congress. we deal with congress all the time, they have problems, they have objections, they get angry, they don't think chinese investment is a net negative for the united states. there are people who hold this position. i welcome questions from them. it's not a serious position in the policy debate. and i'm thankful for that. now, the fourth position, and i don't know whether the ambassador wants to be associated with the position or not, but it's very respectable. and i want to argue a little bit against dan here, even though this is not my view. >> move over. >> this is the reciprocity position. reciprocity is the foundation of the w-2.
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the idea that reciprocity represents protectionism, anything can be aligned or misused. reciprocity is an entirely different position to take. there's variety to my position, there's variety to dan's position. we're not reciprocal investors. we don't want the same things the chinese do. we're not interested in the same sectors, so a blind application of reciprocity simply isn't going to work. not interesting. the u.s. and china are not mirrored images. we want different things out of the investment relationship. reciprocity works with the wto because there are many, many participants. with two participants, not the ideal solution, but it is a legitimate point to make. this is how you know this is the correct answer. it has a little asterisk next to it. >> that means footnotes. >> i'm reduced to a footnote. the heritage foundation is not used to being in the middle and compromising on anything, but
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that's where i ended up in this typology. this is actually the right position, and i'll tell you why. there are substantive and technical differences that i have with dan, but we do believe that china's investment is good for the u.s. and has the ability to be substantial over time. everybody who is in this community, the people up here, the people out there, certainly myself, has had this experience of how do we get china to change its behavior economically? we want the chinese to change. we want them to move toward the market. the chinese have been moving away from the market for a good five or six years now, but even if you don't buy that, we want china to move. when you're talking with members of congress, people in the administration, people in this room, people in the community, they always have the problem with, where is our leverage? the united states has huge rencrenc leverage. we threaten them, and people are hugely uncomfortable with this.
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it undermines the u.s. economy to some point. we have directly coercive leverage. we have coal, we have service with almost every service industry you can name. we have so much land that we're not land sensitive like the australians are, like many countries are. the history of chinese investment is not a history of diversification, it's a history of, we want to invest in the u.s. and we couldn't because of the seno deal, and that's when we started looking elsewhere. why? why does the u.s. have this potentially unique role? australia, canada, there are other countries that have protective organizations but they don't have a scale. we have a scale that absorbs chinese investment that no other country can get close to matching. forget chinese investment, not that it's not important, and dan is right not to talk about it.
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there is exactly one country in which china converts treasuries to: us. they can convert from one set of u.s. assets to another set of u.s. assets. that's what foreign exchange means. if china wants to diversify, this is it. we have something that's potentially -- not now -- extremely valuable to the chinese and it's a positive inducement to change chinese behavior. it's not a magic bowl, it's not going to get china to do what they want, that's ridiculous. but we'd really like to reduce or change the role of state-run enterprises. it's a legitimate american concern and has a lot of impact on u.s. trade as well, distorts the u.s. economy given china's size. it's directsly related to the world. so is the capital account. how about free flow of money in
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and out of china? all of these things are connected. they're huge issues for the united states. we feel like we've lacked leverage, or at least positive leverage, to move china. it's been a frustration for probably everyone in congress and most people in the room. it's not reciprocity. simple reciprocity doesn't work, we don't have the same interests. this is not a coercive tool. now i'm going to make a strong point. dan is blowing it. the unilateral approach blows this opportunity. we agree, we agree, we agree, we get to the end and here we disagree. i want to discuss those. the practical and principal arguments again this position, but i'll tell you what my trump card is. you want to open the u.s. to china really, not just talk about it? my argument wins in congress, not because i made it because congress wants something in return. thank you.
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>> dan? five minutes to comment in response. >> i really just want to make two points, i think, in response to what i just heard. and it involves mobility. one of the great things about mobility is physical mobility that can evolve over time. i'm struck by what derrick just laid out because -- i hate to say this at the wilson institute, which is really the hearth of liberalism in america, and yet not all from the liberalism brought us stood the test of time. and there are two antiquated liberal international notions which derrick apparently s subscribes to, which i think we shouldn't go backwards to. the first is the notion that the american purpose in the world is to change everybody else and to save them and make them better
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like us. that our success, that our principles, whether we're, you know, for democracy or not, whether we're for capitalism or not, open investment and trade or not, depends on whether we can convert others to the cause. whether, you know, ricardo was right or not that it's good for england to be open to trade even if not everybody in the world is open to trade. that turned out to be correct, and i think that's still the correct notion. derrick seems to believe that. unless we can convince beijing to follow our mode of a anglo-american capitalism, which has shown some tarnish in the last couple years, we should be willing to withdraw aspects of our longstanding conviction about open global investment flows and the trade flows that are contingent upon the ability to invest in one another's economies. so i have great concern about this. and also my wife is a psychiatrist, actually, up in new york, and it took me a long time within my own family to realize that my happiness can't
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really be predicated on changing everybody else in my family. at some point you have to kind of accept that they are what they are. hopefully your example and what they do in life gives reason, people to meditate on doing things differently than how they're doing them, but you can't really pred indicate whic principles on that, on others mirroring you at the end of the day. so that's one old sort of liberal manifest destiny conceit which my teachers talked about in high school. to paraphrase what derrick just said, i believe he was quoting governor blagojevich in saying, this thing is golden, i'm going to use it. so we got this thing, which is
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called access to the american market, and if we don't get from the chinese what we want, we're not going to let them have it. the problem with that kind of politics is that it is a regulatory taking from somebody else in america. some american company has an asset and they want to sell it to whomever is willing to pay the highest price. and some other american company has an issue in china, market access, investment, something like that, that they want to get taken care of. and so they're going to the u.s. government, and the u.s. government is going to prevent some other unrelated company from being able to sell its oil company or whatever other assets it has to the highest bidder in order to get a trade-off on behalf of some other u.s. firm. once you open up that box and playing that game of taking away the market opportunities from some firms in order to fight a battle overseas for market
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access for some other firms, i don't know where it ends, actually. i don't know how you go back and fix the arithmetic to make everybody whole from that kind of state intervention in economic outcomes. it may be that the tools and analysis that harrison is able to develop may allow us to do that kind of intervention without screwing things up. i'm still skeptical of that, and i'd like to see a bit more evidence that we're ready to take that on before i endorse the idea of using this new positive leverage or whatever derrick described it as to get some other things done for some other interested parties. finally, you know, the principle the u.s. stands by only mattered to a company like falway, because it's just one company. and it's in telecom, and everybody has misgivings about
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telecom companies, anyway, right? one of the things said about falway is that its senior management has military background, for instance, and, therefore, it really should be treated as a special case. i've recently looked over the american companies in the fortune 500 and i've considered how many of them have in their c suites, in their chairman offices and top reports people with military backgrounds in the united states. i think there are about 40 or 50 leading firms that are going to find themselves put under a kind of scrutiny in china because of their senior managements that we're uncomfortable with if we decide to play that game because falway is the only company that should care how u.s. policy rae reads out on an issue like this. let me stop there. >> eric? five minutes? >> so we can get into more of the debate now, it will be more
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entertaining though probably less informative. dan is labeling me with -- he's reciprocity bashing and he's labeling me as one of those people. i'm not trying to change china to fit in our image, i'm trying to change china because we're going to gain from changing china. this is pursuing the national interest, right? dan thinks he's pursuing the national interest and i think he's blowing a gigantic opportunity to pursue the national interest. there are things that the u.s. has wanted from china for years very badly. most of the people in the room, i think, want them, although they may not agree with me on the ways to get them, and we haven't had a way to think about doing that other than threatening the chinese. and now this is a way. it's not a magic bullet, but it's a way to improve the u.s.-china relationship for the long term. so this isn't about changing china, this is about a gain for the united states. there are -- dan is a very colorful and engaging speaker and he always opens
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opportunities for colorful and engaging response, although in my case, i always go too far. the marriage comparison, as a practical matter, you don't just accept people, your spouse, the way they are necessarily, because there is the danger of divorce. right? and there's the danger of divorce in the u.s.-china relationship. so the idea that, okay, well, they're the way they are, and we're the way we are, and that's the way it is, not everyone in this city agrees with that, and there may not be people elected president, whoever it is, in 2012 that agrees with that. what we want to do here is strengthen the relationship. that's what i'm looking to do here. i'm looking to make the relationship more beneficial for the united states because it's in our interests and strengthen the relationship because it prevents the kind of potential tension you can see between the two sides. the great thing about dan's response is that i now want to be associated with governor blagojevich more than i want to be associated with secretary of state henry kissinger. i was aware of not necessarily
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wanting to be associated with secretary of state kissinger. i wasn't aware i wanted to be associated with governor blagojevich, but i've been enlightened. you know, talking about state intervention and how much it would distort the american economy or potentially, there was no chinese investment in this country essentially in 2005. we blocked the big one. did the u.s. economy suffer? did it require this gigantic regulatory apparatus? no. it didn't suffer in 2006, it didn't suffer in 2007, it didn't suffer in 2008. we didn't do them and it hasn't been necessary. i'm just going to push that aside. i'm also going to push falway aside because i don't care about wauway. it serves the people who want to have a bad chinese relationship. it serves the people who want to use wauway to hit the united states over the head. it sefshz trves the united stat
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say, look, it's a bunch of chinese people who want to take over the american economy. so i don't want to look at wauway because it's a distraction. it is often used that way. i do want to talk about something sort of related to wauway, which is in dan's original remarks. dan characterizes chinese investment in the u.s. as commercial non-strategic. i think that's probably right about the u.s., but i think it's misleading. why? because chinese strategic investment, non-commercial investment around the world, is really about resource acquisition. the reason that chinese investment in the u.s. isn't about resource acquisitions is because we wouldn't let them get the resources. it doesn't look particularly strategic or insidious or anything like that. if china were allowed to invest in the united states, you would see a focus, you would see strategic acquisitions. the going out program is
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directed by state-run firms. i don't think this is where i disagree with positions four and five over here that just because it's strategically directed and non-commercial in a lot of respects, that means it's bad for the u.s. and we have to block it, but i do think that one of dan's opening statements is misleading. chinese investment around the world is non-strategic. it is, in fact, commercial. it's different in the u.s. because we've restricted it to some extent, perhaps unwisely. i certainly think in some cases unwisely, but let's not follow ourselves. if we open the door to chinese investment to strengthen the connection the u.s. investment, that's why we need something in return politically. this is not going to get better, it's going to get worse. it's going to make the political strains worse. they're going to follow the rules, we have laws to deal with them. we need something politically in the united states to strengthen this relationship, because it is
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strategic, it is non-commercial and it is led by soe. >> we seem to have identified an area of difference which has to do with the question of whether foreign direct investment offers leverage possibilities. perhaps we could explore this a little further in order to try to understand it. the united states is a major investor abroad. presumably, then, if we can use chinese foreign direct interest in coming into the united states as a lever, foreign countries where the united states wants to engage in foreign direct investment can use that leverage back against us. can we explore this a little further? in other words, what are the
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implications of treating this foreign investment as leverage? another question has to do with much of the foreign investment, including the chinese, but broader than that, simply comes into the united states without being under any particular regulatory regime. it has to conform with u.s. domestic laws. but u.s. states, for example, are very active in trying to attract foreign direct investment into the states because it creates jobs, it creates tax revenues. how does the federal government get control of this type of investment so that it can use it as leverage, or do we only use leverage in circumstances where government approval of the investment is required in some form? both of you are free to comment in these areas. >> i for some reason feel these questions were aimed larged at me. reciprocity. it doesn't affect -- i mean, there are implications for investment around the world that we have to think about. it certainly doesn't affect u.s.
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investment into china because china already used their investment as a bargaining chip, they use it all the time, they use it with countries all over the place. that doesn't mean the u.s. should do it just because china does. that's not why i'm advocating it. i'm advocating it because they're used in games all over china all the time. it's an interesting question i haven't thought about. maybe dan, because he's more motivated, will point out other complications to this. my initial reaction to this would be, no -- i could be wrong -- because as i said, reciprocity is a fundamental principle in the wto. it's not as if the united states has gone crazy with this by adopting this idea of, we want something in return. but there could be complications and that's a fair point to raise, so i'll let dan try to make that argument. it's certainly not going to affect our relationship with china. they're already doing it. with regards to regulatory
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review, i didn't get into this in my points, and i think dan might have done the same thing because it gets very technical and very boring. we already have a review process of chinese investment in the united states. it's called congress. congress can reach out and review anything it wants and discourage it ask mand make tro. that's not the ideal situation. i would like that situation to change regardless of whether we can make progress with china, but the leverage comes from the fact that we have political interference, and it's unfortunate political interference. we can create a regulatory review process, but i think it's better than the process we have now, that would also give us leverage. i would separate the leverage question from the review question. we have a leverage that's given to us by congressional interference. that's not ideal, but if we created a regulatory process to kind of regularize -- regulatory regularize -- entry by chinese money, that would also be leverage. we can have leverage either way. wek we could improve our own
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regulatory environment -- i think dan would agree -- by limiting random regulatory acts. >> i think this sabre rattling threat that the congress will get somehow will interfere with these deals if we don't get what we want in our negotiations with the chinese is not a wise strategy, american china strategy for strategic interests. it hasn't worked very effectively for the decades i've been watching the relationship. and more important than congressional sabre rattling is law, which congress is also responsible for. and statutorily, under u.s. law passed by congress, there is only one mandate for the united states in screening inward direct investment and that is the national security. derrick, i believe, agrees with me that there does not appear to be any particular china national security threat from the inward investment we are seeing to date. he hasn't debated that or taken that on. instead he's saying that quite apart from that issue of national security, we might be
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able to get something else done unrelated to national security in china that's of a commercial nature of our interest in the course of allowing this chinese investment in. maybe, and maybe congress would like to debate that in trying it in u.s. law, but, in fact, for a century, the congress has been debating this issue, and that's the way the american system works. we need to work these things out in legislation and then have them signed into law by the president, and we have a regime that is the official united states position on inward investment. and it's worked very much to the american advantage. derrick pointed out that in 1999 there wasn't very much chinese investment in the united states, or 2005, for that matter. but look at 1900. look at 1800. foreign investment in the united states has played a profound and important and positive role in our economy since before our founding as a nation. i don't think the fact that
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china is only now at the developmental stage where it is starting to be a significant outward investor should be used to write off the importance, both in terms of the specific case of china and in terms of the principle, the principle, which the u.s. -- you know, we're only a nation of 300 million people in a big planet, and american interests rest on our principles and what we believe in, what we stood for, and the infidelity which people around the world have had toward our ideas are the soft power of our good ideas that have proven themselves to work. if we throw those by the side willy-nilly in this case, i think we do ourselves a global disservice which will definitely come back to haunt us in foreseeable ways. >> i'd like to respond to that. maybe it's the word willy-nilly that got me going there. what are we trying to bargain for? we're trying to bargain for the
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same principles that dan holds dear, and i do, too, that govern the american economy. it's not that we've departed from our principles to gain some self-u.s. interest, it's to promote the free flow of investment or to promote the protection of intellectual property. we're taking our principles, we're not demanding anybody do something, we're bargaining. that's what the wto round is, why do we have an fed? i'm not clear sometimes, but in principle, we would be bargaining. we would be bargaining that exact principle of open markets you're talking about. i am not looking to usher in protectionism, i'm not looking to gain a special advantage for the u.s. in china, i'm looking toward china to move toward principles that the u.s. has stood for for a long time because utsit's a gain for us. we are standing by our own principles. >> you are saying we need to depart from our principles in order to protect our principles.
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>> no, it is not departing from our principles with bargaining. we're trying to get to an outcome that is consistent with our principles more broadly. you're looking at one section saying dairk-- i called it unilateral -- you're looking at one many application of what the u.s. stands for and acting like it's the end goal. that's not the end goal. the end goal is we have a broad range of markets, not just in one area. >> let's open the floor and see whether your basic presentation of the issue which, if i may summarize, is basically china foreign direct investment is good, but how we should adopt a policy response to it, there are differences between the two presenters. let's start over here against
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the wall. please identify yourself. >> kerry dounbaugh from cna. i have a question. >> let's get the mic fixed in case there are viewers upstairs and elsewhere. is there another microphone here? >> it doesn't seem to be on. >> there is one coming. >> how about this? even i can hear me. kerry dunbaugh from cna. i have a question i want to address to both of you. both of you have talked about the u.s. congress, and this is -- the u.s. congress is
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really something that can cut both ways. for many years congress was objecting to the u.s.-china economic relationship because they saw, you know, jobs going overseas and american investment overseas. based on dan's map now, since 2003, we have suddenly investment coming into the states, and each of these states is made up of congressional districts. how do each of you see what kind of an influence this might have on congress's attitudes? are we going to have more of a negative attitude like with the c-nook or are members of congress going to see this investment as really in the interest of their district? can you comment on that? >> first of all, i think one thing i very much agree with derrick about is that it's very early days that i wouldn't say trivial any more, but we're still very much in the early days in terms of the total value
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of chinese investment in the american states. it is growing at an extremely steep clip. if you just look at direct investment, it's 130% year-end growth in the past two or three years leaving aside the inflation with the portfolio numbers for a moment. and so we have to see how it's going to play through the american political economy. it will be fascinating to see whether the chinese professor pops back up in the presidential election campaigning the way he did last time around. i bet he will, but we'll have to see how much resonance there is. we've seen already western governor association have a very different take from what these inflows of chinese firms mean for their states and their districts. a much more positive attitude of readiness to focus on the benefits and be more -- you know, ask for more specific explanation. if somebody thinks there is a
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national security threat -- derrick doesn't, but others do -- including some on the hill, and governors have starting to say show me what that threat is and why our system isn't adequate to address it. because it's not clear to me what that would be. i think we're going to see a more balanced discourse, in other words, as more local interests, which are cognizant of the job effects, the local tax pays effects, they're ready to stand up and say, hey, this has actually worked outd for us pretty well locally. >> i have an answer. i mostly agree with dan and the thrust of your question, kerry. there is this possibility. i get questions almost every day from a local delegation going to china. do you have anything to tell me from the state officials. i think that's a phenomena a lot of people have seen in this room. so that is starting to happen. it's not, as dan pointed out, it's too early as yet, it's too
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small to weigh against if you believe china's current policy is taking away millions of american jobs. i don't. but if you believe that or if you believe other chinese practices are taking away american jobs, which i think is much more reasonable, chinese investment is not a political counterway to that, at least in the congress. and, you know, we could see it grow into something of a counterweight. it's a ways away yet. so the question, if you're asking me, hey, could we manage the u.s.-china relationship for a while to such that we don't get any precipitous action and china becomes a potent religious sector in the u.s., yeah, maybe. we had a chinese delegation come in to heritage right after the crisis hit, and i gave the usual story, which is the one you just gave, that politically it would really help in the u.s. if there was more chinese investment because it would create jobs and we wouldn't get this lost job story when unemployment is rising, and the lead of the
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delegation said, one of our reviews of outward investment is it has to have a gain for china, obviously, and one of the points in our reviews is, why are you creating jobs overseas that you couldn't create here? chinese unemployment is actually worse than american unemployment. there are domestic pressures in china, too. dan is not making this point, but if you thought that china is not investing strategically, it would be very difficult to get an outcome -- you would have to get government orders to get mass job creating investment in the u.s. that's not what the chinese are looking to do, not cwhat chines companies are looking to do. so i think it will be a long time, because of chinese interests which are entirely reasonable, before they become enough of a force to offset traditional forces in the u.s. it doesn't mean they're going to force a policy change, it just means this counter that you're talking about is going to be a while developing. >> we have a number of questions from the overflow room, but i
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thought we would take one or two more questions here, and then i'll go to the overflow questions. yes? do we have a microphone? >> i'm pat maloy, i'm a member of the u.s.-china economic review commission, but i was also involved in 1998 in writing the law that provides that national security when i was general counsel of the central banking firm. as i look at it, both the wto and the imf, their preambles talk about mutually beneficial and balanced trade. warren buff wrote an article in fortune magazine in 2003 and it was entitled this: trade deficits are selling the country out from under us. warren buffet wrote that. he said by running massive trade deficits year after year, you're sending dollars out of the country, which they're not
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coming back goods, they're going to come back and buy you. he said the road we are on is to become not a shareholder economy, but a sharecropper econo economy. that's what warren buffett talked about. now, since 2001, the united states has won $6 trillion worth of trade deficits, $2 trillion with china. since 1979, when we gave china mfn, we have run $3 trillion of trade deficits, very interesting. china has $3.1 trillion in foreign currency reserves. chris cox, the former chairman of the s.e.c., when he spoke about this issue, said traditionally in america we have not wanted our own government large chunks of our own economy. he said on the road we're on, we're going to let chinese state owned enterprises and chinese owned companies and sovereign wealth funds owned by the government of china, we're going to end up with a foreign government owning large chunks of our economy. >> can you phrase your question? >> so the question is, is this
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the kind of road that the united states wants to be on or should we not make it a matter of very importance that we begin to rebalance our trade and move toward a balanced trade policy so we can stop the selling off of america to finance our trade deficits? >> either of you want to -- >> let me offer this. i think, you know, is this the road we want to be on? i think if in order to remedy its competitiveness challenges, the united states needs to block out holders of our dollars, of our currency, that earn them by manufacturing something we bought. if we have to keep them from bringing them back to america and using them in our economy to buy something, whether an asset or a good, then what does that say about our prospects as an economy? that, to me, is the road to surf dom. the one where you remain exposed to competitive players out
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there, even if they're doing really well this inning, i think, is the only one that is consistent with american long-term interests. if we don't adjust our policy regimes and our competitiveness, in light of competitive new players in the world economy, then i don't know what alternative we really have, i don't think. and, indeed, there are aspects of china's competitiveness which aren't market oriented in the way that we play the game, no question about that. but also, we have to remember which economy has allowed itself to be more open to foreign investment than any other in the world in the past 40 years and that's china, which has 1.5 trillion foreign direct investment assets in its economy, which relative to the size of its gdp is vastly large. every big american company has a big position in china. american telecom companies built
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the telecom economy to a great extent. and argue whether they get a fair shake. if they applied the same fear of sharecropper outcome tasks you just suggested, they would never have allowed motorola to go to china. or gm, or ford or anybody else. pat says for the benefit of folks upstairs that the american companies invested in american companies are not government owned companies. we, as you know, pat, you've been involved in the legislation, have considered over the years whether to treat government owned companies different in terms of their right to invest in the united states. and we have chosen not to. we have a slightly higher degree of screening for them under fensa after dubai. just dating back three or four years. but that's only for screening for national security. it doesn't have to do with them as an owner and player in the american economy. we have chosen not to take that route of having a two-tiered system. it worked pretty well for us to date, i would argue.
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derek in. >> yeah, quickly, you and i talked about the imbalances. i just want to make one point for everyone else's benefit. you're talking about your fear of china is a long-term fear. soes are so far away from owning a noticeable chunk of the american economy. it is just decades, not years. your real fear now is not china, it is us. we're messing ourselves up. and so, you know, what i -- this is a little bit off topic, but i don't want you to mix up the what might happen in the future with china's investment. and because i distrust chinese as i always do, but that danger is a long, long way off. with what you're worried about now, which is really ten years of bad american economic policy. >> hank levine. >> hank levine with the albright stone bridge group. just wanted to offer a very brief comment on derek's views
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but then pose a question to dan, actually, related to this state ownership question. on derek's views, i say it just strikes me that there is perhaps an undervalue or underweighting of the potential downside risk of your proposed policies. and that is to say that the historical record i think of the u.s. government using so-called leverage, excuse me, in the economic area to change chinese behavior is pretty poor, whether it was negotiations in the '90s before china was a wto member and we could slap tariffs on them willie nilly to use that phrase, whether it was president clinton's effort to link mfn to human rights, it hasn't worked. it strikes me that the more likely outcome of the course that you're suggesting is the u.s. then foregoing the benefits of the inward chinese investment and u.s. companies both investors and exporters suffering mightily in china as the chinese retaliate for what
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they perceive to be a discrimination against them in the u.s. it seems to me the downside risk here perhaps is a bit undervalued. for dan, at the rollout event here for your report, actually, there was a representative from the steel industry, who posed to me what was an interesting question. and while i sort of, you know, emotionally kind of agree with the notion of not discriminating between types of ownership of inward investment, the question arises, let's take the steel industry, to the extent that you have a chinese state-owned steel company, which can come and invest in the u.s., and then using cheap credit and other types of chinese support, chinese government support, could be in a position over a period of time to drive their u.s. competitors out of the market, who -- companies that face the rigors of the market. to what extent do you see this as a potential threat or a likelihood or an issue of
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concern in. >> thanks, hank. good question. it is a sensitive one and important one. i'll say this, that the final point i made in my opening remarks was that the process is just a first bite at the apple that the united states has. and once we have decided there is no classic national security threat to the united states from a foreign firm, be it tangen steel, there are other threats to the american economy which are governed under u.s. law. one of them is anti-competitive practices, predatory intent on the behalf of a firm, using its superior access to capital or resources or something else to drive other companies out of business. so if there is any evidence of
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that, driving competitors out, there is a good chance that the justice department would invoke u.s. competition law, anti-monopoly law to address that behavior in the sector. as they would against an american steel company that was doing the same thing, such as in the one that gave birth to competition law 120 years ago. also there is the anti-subsidies code under the wto that allows us to look at the capital structure behind chinese firms and if it is being provided to those firms in a discriminatory way back home, it is clearly designed to help them achieve an export objective, let's say. then we have those tools as well which are more multilateral, which we can pursue. if it turns out there is some new kind of economic poison associated with chinese companies in the world today, because china really is different than anything that has come before, if we can identify
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a new kind of economic phenomenon associated with the chinese state-owned enterprises, then certainly let's do a study on it, think about what the threat is. nobody has been able to really identify it yet. as derek said, there is such a tiny pet ans of chinese investment to date that it is hard to actually put your finger on any such abuse of market power yet. it is a fear factor that what might happen rather than looking at evidence of things that is happening. >> i want to respond quickly to your comment. i agree that the u.s. government has a decent chance of not implementing this properly. where i -- where we disagree is that there is a risk, pretty much -- anything the u.s. government does is probably going to get messed up. >> youe advocating doing a lot more. >> i don't think i am. that's one of our disagreements. where i disagree with you is the idea that the fear of chinese retaliation should prevent us from trying or there is that much of a risk.
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all those linkages didn't cause many problems. if you think the status quo is okay, it is not worth it to take this issue as dan points out, there is drawbacks of trying to use this. you think the status quo is really bad, it is worth it even though the u.s. government might mess it up. my response to your question is i don't think the downside risk is so high, but if you think the status quo is fine, why do it? if you think the status quo is not fine, you have powerful motivation. >> i'm going to move to the overflow room and combine three questions which have a linked content. what are the national security implications for the united states of chinese foreign direct investment in latin america and africa? and if chinese investments over and across countries are -- are they becoming more or less strategic? and if chinese investment in the united states is strategic and
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noncommercial, what are its strategic objectives? >> okay. i will point out we have a global database and dan doesn't. so we know the numbers for chinese investment in latin america and sub-saharan africa. sub-saharan africa the concern and now latin america the concern. i think the national security implications are that it is summarized by, if you snooze, you lose. we have opportunities to improve our economic relationships with these countries. we have the clom olombia and pa free trade agreements year after year after year. if you're worried about the ties to the countries, expand. so, yes, there could be national security implications if chinese investment in these countries, but it has to do with our own passivity, inaction, opposition to open trade, has to do with us
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more than china. i think the -- i'll leave the strategic part of the investment in the u.s. to dan because he does have better data there. it look like it is becoming a little less directed. the original go out was the big resource grab, the way a lot of people characterize china's investment. there is a lot of that, don't get me wrong. the largest state investors by china are the two state owned oil companies, cic, sovereign wealth fund, third, next is the -- the fourth oil company, an aluminum company, there is a lot of resource grabbing going on. it looks like, looking at global data for the last seven years, it looks like you're starting to get more large investments by private firms and more diversification. if you took the whole sum of it, talking to the people on the -- you're still going to get it elects directed, strategic, all state dominated, no doubt about it. it look like that is starting to ease in a perceptive question by whoever asked it. i'm not saying anything
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definitive. i of data. as we both pointed out, there is not much data. >> we have a global study coming up at the end of the year. >> years. >> apples and oranges. clear cut. >> the only differences we're interested in are on the subject of this report. >> that channel is to be continued. we have somewhat surprising to me, already established here that we don't really think there is much of a strategic impulse in the pattern of chinese investment in the united states to talk about here at this table. yet, i guess. but there does not appear to be on the table for our discussion, from the presenters here, a clear identification of a national security risk, which i
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actually might think there is a little bit more than we're discussing. but let me turn to the other side of the question that we are talking a bit about, the implication, even though our data set is not published yet, we have a few ideas that we have published over the years on this topic. in a study that trevor houser and i did about four years ago called china energy, a guy for the perplexed, we looked very closely at chinese energy sector investments around the world. and how they related to china's sense of its energy security needs. one of the surprising things we found is this. that after chinese oil firms, national oil companies invested in, say, sudan and used as much political capital and treasures as they could muster in the u.n. and every other global venue to protect the interests of petro china, if back home they didn't
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allow gas stations to raise the price of -- at the pump for petr petrol, then the state owned companies took that oil from sudan and sold it to the japanese. when their own government, when their own party, when the communist party was telling them bring it home, we need it at home. there gasoline lines around the block. they said, screw that, if you don't raise the price of gasoline, our refineries are gown for maintenance, sorry, we're going to sell it to the koreans and japanese. that's how they behaved. yes, we have seen some strategic rhetoric around china's investment in a place like africa, but in how these firms actually behave, it looks a lot more recognizable to me as typical profit oriented international oil company behavior than some agent of the state. >> i need to respond to that. i partly agree with dan. not entirely. there is some commercial behavior. there is also heavily -- heavy
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intervention by the state. what investments are approved? where financing comes from, what you're allowed to pay. the classic example recently si in sinopec, nobody was close to them and that was fine. we do have some commercial pavier by tpav behavior by the firms. >> let me add one more thing on this topic while we're on the question. the origin of china's restrictions on outbound direct investment that date back all the way were a neuroses about foreign exchange, having hard currency, right? it is coming from a moment in the 1970s where they couldn't afford to buy, you know, so much as a drill bit to develop a
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field. they had to rely on loans and friendly relations with the russians, which were not something i ever want to rely on after my family left in 1892. from that time of terrible neuroses about the availability of foreign exchange, right through very recently there was an allergy to allowing firms to take foreign exchange abroad. why not create job at home. oddly today, china has the opposite problem. it is concerned with an overabundance of foreign exchange that is contributing to inflation, severe macro economically disrupted inflation inside the chinese economy. as rarts policy toward investment, it is no longer for most outbound investors required to give permission deal by deal. only above a certain very large number for outbound glows.
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or in geopolitically complicated cases like oil sands. for the vast majority now, notification alone is necessary from the chinese company rather than asking for approval anymore. the rules that describe how the government treats out bound investment in china evolved somewhat over recent years. we should be mindful. >> two more questions from the overflow room. pete's comment on chinese foreign direct investment and the gaming sectors in the united states and does either of your positions help to promote greater transparency and include corpora corporate. not much to think about, yeah.
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mohican sun in connecticut would be out of business if it were not for the chinese. not as direct investors but as gamblers. i would only say on this question of picking out specific sectors that i prefer to revert back to principles and say as concerns american policy, the only thing we need to be concerned about is our classically defined national security. i don't see any china specific threat to the gaming sector, to the strategic gaming secretarier in the united stat-- sector in states. it can stand without scrutiny. in terms of governance, i have a few things to say. but let's turn to derek. >> there is a lot of potentially a lot of chinese money that would go into gaming.
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i think if you're all familiar with what macau looks like now, you know that. i don't know -- i had a different reaction. i didn't know if the person was asking a question because they were threatened or wanted that chinese money to come in. gaming will be one of those industries where there is a lot of chinese investment and some people will oppose and some will be in favor of it. it is hard to imagine this being a strategic threat to the united states in any way. it is not really an important politically to those outside the industry. obviously, i mentioned at the beginning, one of the things about the way soes behave, the way they're subsidized by the government. lack of transparency is a huge issue. this is something the u.s. want chinese behavior to improve on and this is something that china has a big stake in saying no. we get back to the difficult question for american negotiator and members of congress who i mostly deal with, you get china to change. you don't get them to change by
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saying it is in your interest to do what we want. that doesn't work. some involve threats. i think corporate governance, transparency, i'm not promising a magic bullet. but there are ways to get china to change its behaviors, using the bargaining i'm talking about. they may not work. but if you want china to change, the strategies the u.s. has been following to this point left a lot of people unsatisfied. >> i'll add one thought on governance, i don't think using our leverage we can get aging to conceit to improve governance by 12% next year. it is just not going to happen that way. it will take deep change over time to create the conditions. i'm told nothing in our stance for the national security
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adviser ability, preincludes us from saying a firm may only operate here if it is able to -- it is able to abide by the full set of u.s. law. and has the governance tools available to it to comply with u.s. law. if it does not, it will not be licensed to operate in the united states or if it departs from its ability to do that, it can be shut down on that basis. let's not think that we have one chance to say no to a poorly governed country. let's keep the door open and then we have got -- we'll wake up to the fact that governance isn't just something you do because it is a nice democratic thing. you do it because it is good for profit. and when companies like the blowups now that raise profound questions about the chinese government, i want to learn that and figure it out. i don't want to give anybody the
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excuse of saying, the reason we're not in america is because they won't let us in. not because we don't have the skill to do it? >> i have -- i understand the sensitivities of security raine practical and emotional dealings with china. i'm wondering, in five or ten years, we're going to be talking about india. is there a way to approach this so we're laying the ground work for a globalization of our policy. we'll have the same issues with other developing countries. >> i'm not sure that's true. there is this idea there is a set of emerging markets and they're all going to follow in china's footsteps. if that were true, we shouldn't be giving the chinese so much
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credit. there is not going to be a lot of money pouring into the u.s. not a huge surge. the chinese mol is a little different as we know. it led to the accumulation of a lot of cash that can't be used at home. i'm not sure we're going to have globalization along the lines you're talking about. there is a perception in the united states with some justification that china is different. there are interian state owned enterprises without getting into too much detail. we don't have an equivalent in terms of size come down the pike. we don't don't have an equivalent in the nature. what dan referred to very eloquently over and over again is the u.s. policy will rule in most of these cases.
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we're not running huge trade deficits. we run a small trade deficit. i'm not sure that we have to worry about globalization of u.s. policy. u.s. policy is generally fine. the question is whether it is fine with respect to what the world's second largest company. it is treated as a rival from japan politically differently in the city. >> yes, back there. >> i used to work at world bank. i had a couple of questions. don't we need to worry about the law of unintended sequences. if we try to overcorrect something, it may go in a different way than it does for
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reali reality. you make the point this is a spre small part of the economy. where it is going to be, that is one point. there is quite a lot of aanalysis that says foes are less effective. 92% of manufacturing gdp -- so this suggests that actually the private sector is a lot stronger, maybe what we want to try to do is encourage the public sector that has two constraints now. one is finance. the other is labor costs which are rising. we have seen chinese companies move. trade barriers and labor costs. should we be trying to encourage chinese fdi into the us you because it will do what fdi has
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done from other countries in the past. i'm from the genius of the u.s. is to take other people's resources and use them to grow its only economy. the final point i have is do you see a difference between french soes and chinese ones? does it make any difference, the is that any different from china? >> good questions. thank you. let me start and go backwards a little. not just french soes, but but this is a time we have taken more time to do our database. it would be easy to collect up all the sovereign wealth funds doing mere portfolio investment around the world and say that
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says something about their nation's competitiveness. by which standard the middle east would be the most economically competitive region of the world rather than just the purveyor of black oil stuff in the ground. not a competitive threat to american aviation. france somewhere in the middle, pretty advanced economy. and china, further down, further down the road. in the late-term, very much going in a direction, globally significant. i didn't touch on our long-term estimates of what the value of chinese outbound investment is likely to be. in the study, we put it forth a boundary of $1 trillion to $2 trillion. we're starting to talk about real money. not just over the next nine or ten years time frame. then finally, i very much do
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agree with one of the implications in your point which is that this outward investment behavior by chinese companies, whether it is companies going to vietnam because of labor costs or private chinese kfts are picking up and saying, well, to hell with it, we'll go to california and put our operations there. it is quite benign and desirable from the american perspective in the same way a lot of the european investment that built america wasn't just building america, it was turning its back on europe. we're going to go some place with a different attitude to compete than we have of our best interests back home in the old world. we should continue to be the new world here and not throw in our lot with some -- defend what we got, rather than double down our bet on competition and the world markets going forward.
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>> your answer about french and china, we can get into the details of their operating behavior, but politically that's not the issue. the answer -- the question is the little dog and the big dog. the commercial with chinese private investment, we would have to do that that been doesn't want us to do to do that. it should -- i agree with you. i know a lot of chinese entrepreneurs who feel squeezed and are looking for foreign opportunities because they feel squeezed at home. but they're competing with the same state firms sweding in the home and have access to capital and on and on and on. we have to act, we have to do
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something to change the pattern of chinese commercial development, which would require some desire by the u.s. to say private chinese company is good, i didn't go down that road for a reason, becauses it complicated and i suggestion -- >> i think you're going to have to go down that road if you want to execute on your point of view. we have to maybe the calls. what is a government company, what's not? it will be tough for you to do that and stick with your principles at the same time. >> i don't have to go down that road. he's wrong. >> here is "broader question. global dndz on chependence on c growing. who china's foreign direct investment abroad mitigate this
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risk in terms of the stability and diversification of china's wealth worldwide? >> i don't know i understand the supposition that global dependence on china is growing. this gets back to global growth demands on china. global growth does not depend on china and will not depend on china until they start running the normal trade process. there are some countries that have -- depend on china. those countries are tied into japanese investment patterns. looking for resources, not just natural resources that feed its current both pattern. we need a decision to actually change the chinese vimt model. not to talk about changing it. they have been talking about changing it for seven years and
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consumption and investing continues to rise. you run a balance of surplus, no way about it. the outwere the investment is not solving the problem, it comes back to an unbalanced chinese government. you change that, everything else changes including -- i would say that this inflexion that we are just now seeing, of chinese outbound investment in more advanced economies, such as the united states, is, in fact, exhibit a to say something is fundamentally wrong. as derrick correctly said, earlier, the starting point for me is don't take a dollar overseas unless you have to. if you can create a job at home, create a job at home.
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you get that from every village official so mayor to governor, right up to the top. that is our attitude. the fact that these companies state owned and others with are actually taking value out of the activities and putting big investments overseas to do that means that something is different about the competition, t they have more interest in the economies they are investing around the world, does mean to me. we're in a independent in circumstances than we were before. the calculus has to be different. it is not just let's take care of what happens in china. we're not yet ready to worry about what is happening in and the rest of the world.
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>> i agree with the stake holder part but not the change in the where the inflation point is. it comes from the imbalances. you might say that will signal some sort of change in chinese policy, we haven't seen a change in policy. i do agree with you. i think we're not seeing a change 234 the chinese development model. there sip creasing interindependence. >> let's say this with us. who is fascinating about china. i've never expected policy to lead the chinese marketplace. i don't think it has been policy leading the way toward growth and achiefment in china. it was government getting out of the way and letting people go back to work and stop wasting their lives making me dollians
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or something like that. i think that the behavior affirms saying, man, margins are this rifrning to nothing because of wages, because of new enforcement of environmental rules in shanghai, for any number of reasons, are forcing them to -- and policy will catch up as it has to and explain after the fact what chinese firms were supposed to be doing years ago. >> okay, here is a question, is u.s. antitrust law adequate to deal with anti-competitive practices by chinese state owned inters pro invest here. do we need new mores and will we have to wait until the enterprises pushed domestic cometers out of witness or damaged them severely before our laws will kick in? >> we have known each other for a while, are you a lawyer?
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neither of us are lawyers. that's going to be a problem answering your question. i'm going to give you the -- a very weak answer. apologize. we should be able to anticipate to some kent laws in u.s. antitrust law. there are a lot of people in this room and city who know how chinese soes behave. if we can't figure up what they're doing, you know what they might do, that's our problem. what i would want to get -- what i worry about is the idea that something we can't possibly control is going to happen. this is not a mystery. we know what chinese toe ez do and their behavior. it is not something that should take us by surprise. there might be flaws but i'm not qualified to address that.
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>> i think it hasn't -- i haven't seen it demonstrated that the competition policy challenge, associated with chinese investment, somehow is unique or different or new compared to the challenges that we encounter with japanese firms that were aled to have had superior act tess to low cost capital. we debated whether they should be blocked from buying u.s. assets because of that. or if they're willing to overpay, their taxpayers will fit the bill for that, then all to the of the u.s. vespa. we kept that line. that line has been maintained through the present day, including yesterday. they said we're going to stay
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with that reagan era line on this. not start drawing new lines in the sand around investment just because their cost of inputs might be ours. >> i'll come back to you. yes. >> thank you. dan and derek, you obviously -- at the united states, my question is that currently which side is more -- has more influence to the white house and the congress right now? and how about -- according to your predictions, chinese, 2
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billion years later, and from angle, a lot of prizes market access to the united states. the biggest risk is that they don't know what is the risk. right now it is like security as a reason to bend the transactions. but, you know, it is very abstract word. and it is very communicated. the united states needs more transparent reveal process. what is your comment about that? you asked should it say much mo
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more. >> geographically you could say heritage is closer to congress. but there may be other factors. >> that is sufficient. you answered the question, i think. i think we have position two have position three. maybe there is somebody from the white house in here or upstairs. i would say that if derrick's position is the more influential, then chinese entrepreneurial firms and others have yet reasons to be concerned. after they invest millions of dollars, they come over and travel, they spend money on expensive washington lawyers, they do their homework. then they have a good deal, no national security problem with it and it gets blocked because of some political games that need to be played to take care of carlisle's interests in ch a
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china. there is no way to predict that. it is not about principle. it is about this golden thing we're going to use it. this reciprocity, right. that's open ended. i would believe that the administration white house since reagan have taken a position closer to number two that it is not in the u.s. interest to have the ambiguity about what our attitude is about. we're -- our interests are maximized if we get other people it play with us rather than opening up opportunity for k street lawyers to get more fees to make sure you run the traps.
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reciprocity is a good principle, it is -- the principle i'm outlining is to push for open markets beyond just chinese investment in the u.s. let me tie in the second part of your question, who has more influence now? i have no influence over this administration at all. none. zero, zich. i could play golf next sunday and still have no influence. influence over congress say different thing. it changes. who is going to have influence 20 years later? it is not about i have more influence than dan now and he'll have more influence 20 years later. the positions will move. one reason i want to solidify the relationship, there will be forces buffeting it, including negative forces. we haven't talked about the stuff outside of economics. i will say i'm not sure that dan is exactly right, that the
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administration is at position two. the administration is in charge. why is the definition so vague? i agree. it is too big. too big in china to. too big in a lot of countries. they like the vainness. there is no move to clarify. there is an advantage to doing that. everybody involved in the decision making process, even if they agree with dan in interesting this tactical maneuvering. we don't like it that our leverage is mostly negative. so that's a political reality. it will wax and wain over time. but the very fact that this administration and all previoused amrlgss have lost national kurt to be vab intercats to you that they with different from the congress, but they see the advantages as well. >> did the administration right that law?
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>> the administration wrote that law. >> president bush sign it or president bush. >> president bush. >> that's the only law that you ever had. >> yes. has the administration done anything to clean up? >> let's talk about what needs to be cleaned up. i need to know what not works. we need to fix the process for better drafts. >> right. this is confusing because i flip sides. i say it is in response to your question. i said this there is a legitimate complaint and i heard it loudly from after come not a lot of staring in the -- as a critt is of united states, it is
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real. the american response is not interested in that. we like the vague definition or it has some advances. we're not quoing to change it because you don't like it. maybe we want something from you. >> let me -- if we can take another 30 seconds on that. i have advised folks in government now to argue back to that. that, in fact, our definition of national security is not so big. it is pretty narrow in terms of what we consider a threat. >> we haven't upped up a -- and the virtue of the direct investments rather than the portfolio, also, is we can say back to our friends in -- how much more than 130% a year
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growth in chinese investment into the united states do you need to be happy? how much more would it take for you to stop blaming our screening process for the fact that chinese firms aren't here in droves and start -- they're all on borders because it is so -- it is so exceptional and idiosyncratic how to operate in china that companies can't take it abroad very easily. we totally flipped sides on you. there is one way we stuck to the terms of the original debate. there is clear evidence now, there are members whom i have no influence whatsoever who see the vague in in certain cases. the main one that comes to mind is that it is the equipment supply deal for print. which is not technically under a mandate, went fair amount aways
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and then told to go home. if you were concerned and the administration was at dan's position, that would have been handle differently. there would have been changes after that, some statement to the fact we don't want to do this anymore. the administration sees some advances in the way our current syst system. >> good morning. ben lossen, army staff. my question is about the fear in the u.s. of china and how this could affect our republicanship. could it negatively out -- there is plans to allow us for the future. >> i like this guy. >> it will take a couple of beers to i think get through that. we have -- this is round one. there will be 20 rounds of
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chinese firms coming, everybody will dredge up the story. so -- and then, you know, it will ourn ought that -- they're not so alien once i had them operating, we debt our hans on what these things are doing and they're not. a few cycles of anxiety and then that settling down which recapitulates the original. the chinese are like us. they're rustic, god loving, good people, they just have bad government around. they need to control for bad government. to the craziness of the era to done xiaoping in a canada hat,
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and then dogling back and forth. we'll see the same thing play it way through with regard to direct investments. >> part of my concern as somebody who des with members of cook who send a lot lot of time acting. is it available to a shock. the next year's election could be that shock. who is going to -- are you going to stay out a position it make a name for yourself? donald trump tried that. hopefully it discredited that way of thinking. there is a lost stuff in play. we're reliant for good recessions with china on north korea of all people. there is a lot of risk here. it is not skaektly relevant to this study. i'm concerned, dan is right, thrill be cycles, i'm worried about one of the tips being bad.
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>> pat malloy, thank you, mr. zo. i'll go through this and i thank. i did frog -- for the fact, the original which i work on was put into law in 1988. and it did not distinguish between regular and government owned. it was amended in 1991 to make the distinction. they got into trouble because treasury did not treat it as a government purpose. that became a political problem. i raitt a book by mit-- read a about state owned enterprises.
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i do not know if that's true or not. but i read that book and found it very interesting. i did see recently that a lot of the heads of the state owned oil companies got rotated. one of them was running a state oil company and then suddenly running a provincial government. there must be something different from an american corporation. if you have expansion of state owned enterprise in the united states, whether subs or anything else but controlled by the state owned enterprises, does that present a problem that the communist party has greater access to the american political system because of our citizens united decisions and other things along that line? these are issues i think we need to talk about and thrash out because i think they are things that concern people on the hill. >> the party doesn't have great influence. it determines who runs state owned enterprises. they're appointed. they do switch positions in the government and all that.
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talking about party political access to the u.s., again, i have this thing where you're talking about some future development that makes it impossible to say that will never happen. we have no evidence. and so i don't want to make policy on the basis of something a long way away and we don't have evidence for. if you wanted to worry about chinese political access, let's look at ourselves in the courtroom. all of us can be bribed. lots and lots of bribes. it is happening in washington and people are worried about it. nothing to do with direct investment. a lost access where i don't think chinese foreign direct investment, there may be a problem. i don't think chinese foreign investment will add to that. >> let's take two questions here. yes.
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>> i have a question to both of you. it is about industry structure. china is industrial. it is about informing, the second set. but for u.s. is the raid industry. so my question to iraq vet, do you think china, you know, the china's advantage by the act parts. but about the fbi, which should the enterprise should come to the u.s. it is the opportunity to rate in
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the oil industry, do you think china could -- threats u.s. with its -- you said that in the future, the fdi will be increased greatly. what do you think about the opportunities, the located in which candle industry? if -- that's all, such. >> one question back in the rear. let's take it. >> thank you. my name is michelle. i am a senior associate at wtri. my research has us focusing on the kind of overseas investment.
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i assume they believe in climate change. so -- >> she is a former intern at the heritage foundation. >> that was kenya's call. i have a green heart. anyway, you know that a significant portion of china's overseas investments goes to energy and resources sector. china has been building lots of summer power plants in hydro dams in developing countries like india and brazil and how to channel china's overseas investment to low cap and development is a really important problemic. so i understand that the driving force we have to come from the government be and that's the focus of our work. the perspective what kind of international neck nix we can lefrnl it to chi-- i'm adding t
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final question, i'm been saving. has former ambassador to china taken the stance or compressed views on the question. during his time as ambassador. you have two minutes between you to answer the questions. >> plet me try to touch on three thing here. the questions are related. what particular opportunities for the united states arising from the glflowing outflow development. i see lots. wherever there is a comparative disvaek for china, there is a correspondenting advantage. that entails almost anything to do with intellectual property, creation, the truth is china
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demonstrated little xafs -- to increasingly looking to joint venture and investing and places like the united states, in order to improve their ability to innovate and think about innovation. they'll invest in sectors that are like buying into a annuity, into u.s. power utilities, not because they're learning anything new, but just because they understand that. and how it works. so wills' to capital formation. i see a pretty broad swatch there. in terms of low carbon and energy koys in particular. i'm anazed to here that they tie work from heritage. >> the most effective thing for the united states to do is to
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embrace carbon policy for is elf. with we don't fix our own energy systems to deal of little -- let's do a major investment fro. you have to start with good energy policy in the u.s. if government gets more activist in the economy, i would rather see us have an energy policy rather than an industrial policy to influence international investment flows per se. he said vaguely positive things about the value of international investment flows. it is only at this poemt, this year, that the american debate of ambassador lock will be stepping up to say more about
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the issue. it is only becoming a front burner issue now. >> i agree with that about before huntsman. i rail one statement he made on the topic and very milquetoast, lukewarm positive. that's probably was appropriate in his position. but the debate we'll see played out i think not as the main event but on the sides of the republican policy will learn more about what thinks. there is a huge intentive for which to -- othebuy coal fields australia and burn the coal there. and a lot of other countries. i don't think this gets back to ike. i'm a macro xhoeist at heart.
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until you change the investment in heavy industry and inpra structure, they won't be able to fight against that incentive. the incentives, the american insectives are too faurful. chinariesed it has done very significant damage to its economy, its environment and now we can move stuff offshore. unless you change the development of the chaedz economy, there will be no low carbon investment. i am a we hate the environment or something like that. i understand your question. i understand your question is can chinese fdi haurt the u.s. vaek and services? a mnser is there the market answer, which is the u.s. has a huge advantage in services. comes from a lot of din things, training, production of intellectual property.
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if we blow that advantage, it is not going to be because of chine chinese. china should be able to -- the idea of comparative advantage is we have this great services industry, your services industry is weak. there is some trades we can make here. chinese investment will not harm the u.s. advantage and services. we have to do something systemic to do that and hopefully we won't. >> i don't think we exhausted the subject. but i think the two presenters here have enlightened us on some of the issues that we need to think about as chinese foreign direct investment of the united states becomes more significant in the years ahead. thank you for coming and let's thank our --
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people here in front are much
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better behaved than the older people who usually filled this room. [laughter] so i really appreciate it. as a point of personal privilege, i do want to note the presence of the secretary of war edwin stanton from the lincoln cabinet -- no, no, that's kevin kline. [laughter] [applause] >> if you haven't seen the movie the conspirators it is an extraordinary movie, and kevin is brilliant in the world secretary war stanton, so i guess it's not a violation of our senate ethics rules to plug a good movie. by historical content. [laughter] today as i have traditionally done with a good cause, going to turn the german's cowal o2 senator collins and recognition
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of her longstanding leadership on behalf of diabetes research particularly for children, and her truly passionate advocacy for federal support for that research. so, without further ado, i give the devil to my friend and colleague, the great senator from the state of maine, susan collins. [applause] thank you. thank you so much, mr. chairman. i am particularly grateful that you are allowing me to conduct this hearing. this issue is near and dear to my heart, and this actually represents the sixth hearing of the children's congress that i've been privileged to conduct. i very much appreciate the opportunity to hold this hearing
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to examine what is often a devastating impact that the juvenile diabetes has had on an estimated 3 million american children and their families. i also want particularly to welcome our distinguished witnesses and the more than 150 children who have traveled to washington from every state in the country and from around the world to tell congress exactly what it's like to have diabetes, just how serious it is and why a this so important that we work together to fund the research necessary to find a cure. and i want to give a special
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welcome to the delegate from maine who is here, 14-year-old caroline jacobs. she will be testifying later. i want to also recognize senators shaheen who has joined us this afternoon and i think senator lautenberg is going to becoming as well. both of them have a longstanding commitment to issues affecting children with diabetes and their families. senator shaheen is also my co-chair on the senate and diabetes caucus, and her daughter has been the chair also with the juvenile diabetes research foundation to help put together the children's congress. so we are very delighted she could join us as well as our colleague, senator akaka and senator brown. there will be others coming in and out today.
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senators have so many different duties and obligations but the daycare a lot about this issue and others will be dropping by as well. i do also want to acknowledge someone who was not able to be with us for the first time since the children's congress and that is mary tyler moore. i talked to mary yesterday and she sends her best wishes. she's recovering from some surgery. she's doing really well. but i know we miss her but she's here in spirit and she's delighted that another famous american, kevin kline is joining us today. thank you, kevin, as well. diabetes is a lifelong condition, and it's one that does not discriminate. it affects people in every age, race and nationality. it's the leading cause of and
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not what updated medical problems. moreover, it says to me taibbi these accounts for more than $174 billion of the nation's annual health care cost and one out of three medicare dollars. medical cost for a child type 1 taibbi these are six times higher than the cost for a child without the disease. these statistics are overwhelming. but what really motivated me to devote so much energy and time into this issue was meeting with families whose lives have been forever changed by diabetes. i will never forget has a new center in 1997 meeting with the family whose son had diabetes. this was the first time i really learned about type 1 diabetes
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and this one little boy looked out to me and said he wished he could just take one day off from having diabetes. just one day, his birthday or christmas. but of course, for those who have diabetes, you can never take a day off. but it doesn't mean that you cannot accomplish great things. and i am delighted to learn many of you yesterday had the opportunity to meet with supreme court justice sonya sotomayor and hear of her personal story. but it's so important that to travel to washington today to tell your story. you put a human face on all of the statistics and helpless better focus on what congress can do to better understand and ultimately find a cure for this
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terrible disease. in the individuals with type i diabetes, the body's immune system attacks the pancreas and destroy his the shells that produce insulin to read an average child with diabetes will have to take more than 50,000 insulin shots in a lifetime. our particular concern is the fact that the incidence of type i diabetes is increasing particularly in children under the age of four. while the discovery of insulin was a landmark breakthrough in the treatment of diabetes, it is not a cure. people with type 1 diabetes face the constant threat of developing life-threatening complications and can face the reduction in their quality-of-life.
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but thankfully there is good news. since i founded the senate to diabetes caucus in 1997, funding for diabetes research has more than tripled, and now approaches more than a billion dollars this year. and as the consequence, we have seen some encouraging breakthroughs. and we are on the threshold of a number of important discoveries. i talked today with several of you who have insulin pumps for example, advances in technology like continuous glucose monitors are helping people with diabetes, children control their blood to glucose level which is key to preventing complications. we are also moving closer to our goal of an artificial pancreas. it would revolutionize diabetes
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care. an artificial pancreas is an external device that people with type 1 diabetes could use to do with their bodies will not come in and that is automatically control both high and low blood sugar levels of around the clock. this new technology has the potential to dramatically improve the health and quality of lives for individuals with diabetes. and we are going to hear from federal officials today who will tell us about the important clinical trials that are going on that are so promising. the fda has played a pivotal role in moving this research for word and making the artificial pancreas one of its critical paths initiatives. we are making progress in the
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battle against diabetes, but this is no time to take your foot off the accelerator. we have two choices. we can sit back and continue to pay the bills and endure the suffering, or we can aggressively pursue a national strategy aimed at touring this disease. thanks to your efforts and you're coming to washington, there is increasing understanding and support in congress for diabetes research funding. last year we were able to pass legislation to extend the special diabetes program for two additional years and that program represents more than one-third of our federal commitment to diabetes research. as such it is critical to our efforts to find better
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treatment, a means of prevention and ultimately a cure. so welcome to washington. we are glad that you're here. senator lieberman, thank you. thank you, senator collins, and really what i want to say is amen to everything you said. so i will be brief. use it at the beginning i look forward to these hearings every session, and i do because they are so constructive in a city in which in a government in which too often too little happens that's constructive these days, this is a cause that unites people across party lines and has enabled us certainly in
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recent years to come together to be supportive of diabetes research and to help facilitate some of the really miraculous advances that have occurred in dealing with diabetes and our time. the fact that you children are here, young people are here is the most important thing of all because you are the best advocates for this cause. first off, you show how well you were doing triet to show everybody how well you're doing dealing with diabetes but the second thing is you make us all want to make the investments that are necessary to make sure we not only better treat diabetes but really, in your lifetime to have a cure for diabetes, and it's with that sense of optimism but i'm really honored to welcome you and ought
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of the witnesses here today, and thank the chair, senator collins. >> thank you, mr. chairman, mr. chairman, madam chairman. [laughter] cementer akaka? >> thank you very much, senator collins. i deem it an honor to join you hear and to say thank you very much for sharing this important hearing again on type 1 diabetes and to share a commitment and passion in trying to move this along to improve the lives and quality-of-life for young people and people of the country and i also want to welcome you and our distinguished panelists to this
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hearing who have been so committed to this issue and a very special aloha to those chililwaiting to testify and thn audience all of you seated here. these are courageous young ambassadors who have traveled from all over the country and the world to educate us to share their stories of their own experiences to bring a human dimension to the policy debate. this shows how critical research and support is for diabetes and the hope for a cure. maybe it is a significantly held a problem in my home state of hawaii, and it is an increasing challenge for the nation.
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it is an issue that we will look at in the indian affairs committee. will be part of the legislation that i plan to introduce, and it is a subject of the ongoing budget and regulatory policy debate. in this context, i am proud to support the development of the artificial pancreas, and i will continue to support funding for research at nih which gives the chance for better detection and treatment and hope for a cure. all the more reason i am so pleased to see the children here every two years. they remind my colleagues and me about the struggle of living with type 1 diabetes and the importance of supporting
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diabetes research. and i would like to extend a special thanks to aaron, a child away from honolulu with his mom to meet with me today. if you are sitting here please just hold your hand. there you go. yes, thank you, aaron, from coming of the way from hawaii. i look forward to continuing to work with all of you to improve the lives of individuals with diabetes. glad to be with you and joining you in this. think you very much. thank you, senator. [applause] senator brown? >> thank you, madame chair, mr. chair good to see a lot of the kids here and their families coming out and supporting i had the honor of having to have met before young people from
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massachusetts jackson savage, john thune deals and joshua fish who i see some of them out there in the audience and give a lot of good information i've been aware of our families have been working on long before i got to washington so i want to thank you for your leadership and i look forward to hearing of our witnesses and what you're to be bouncing back and forth but i look forward to staying as long as i can. >> thank you, senator. senator shaheen, i mentioned senator shaheen is the co-chair with me at the diabetes caucus and the head of the special connection to this particular congress, and we are delighted to have you here. >> thank you, madame chair and to senator lieberman and both of you for holding this hearing today. i have a statement i would like to support for the record but i know we want to get to our panelists, so i just want to take a minute to introduce my granddaughter, a,i was a
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delegate at the children's congress, thank you and her mother, stephanie and father, craig cochairing the children's congress this year and also want to recognize abigail and her mother jeneane from merrimac hampshire. thank you both for being here well and to families and all the delegates who are here today. i'm very happy and proud and be happy to join you and advocating for research for a cure for juvenile diabetes and also moving forward as quickly as we can at the development of an artificial pancreas. so again, thank you all very much for being here. thank you. [applause] >> senator lautenberg we are delighted that you could join us again this year i mentioned in my opening statement that you to have a personal connection in leadership in this area.
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estimate a granddaughter also i'm fortunate enough to have come and to the chairman and the chairman for inviting me today. and i appreciate the chance to work with you, senator lieberman but particularly with susan collins the colleague from maine. she has been so diligent, so persistent, so determined to help our country by making sure those with diabetes can conduct their lives with a decent attitude of participation in all of the activities, and i learned it when i heard the news a couple of years ago that my granddaughter who was here during the obama commemoration for the inauguration, and i saw that she looked pale. i saw that she seemed tired, 13 years of age, 12 actually, and i
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said to my daughter and there's something wrong with maddie and she said i don't think so, but some signs tell me we have to get to the doctor, and therefore who they did that come in and her look from thai year and pale , we visited her in the hospital a day after she got back to florida and she had first insulin she was bright, positive, hopeful, and i thought of this devastation that came upon us when we learned that she had diabetes, and i can tell you that kid of mine is on a soccer running for the state championship in florida she's never too tired to take on it and she's been an inspiration to my life just as all of you are an inspiration here. you don't know how much you do for us. you know we try to do things for
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you but you do more for us when we see your faces and smiles and see your parents and know that life is good for you and we are going to keep working to make it better and i think our friends here and all of my colleagues for participating in this hearing. thank you, susan collins. >> thank you, senator. [applause] >> senator pryor, welcome. >> thanks for having me. i think everybody understands this now but we want to make sure everybody in the stands the trend is adequate you haven't the guts get one more hand. [applause] and i really just want to say one thing. i know davis more from arkansas is here. you are making a difference. alf thank you for coming to washington and fighting a good
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fight. it is certainly a fight worth having and thank you for all the things you represent and are going to accomplish. thank you. >> thank you, senator. [applause] >> leading off the first panel this morning is academy-award winning actor maaskant long time jdrf advocate kevin kline. one of our country's finest films and stage actors as senator lieberman mentioned mr. kline may have been virtually unrecognizable in his recent appearance as edward stanton of the secretary of war in the movie the conspirator. but he is no stranger to us he testified before our committee ten years ago at our 2001
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hearing, and i am delighted that he's made a return performance and encore i guess i will call it, and because i look forward to hearing his perspective on the progress that has been made during the past decade and the road ahead. so welcome. we are delighted to have you here. >> [inaudible] hello? talk, he says. time remaining? [laughter] a bitter talks quickly. senator collins, thank you, senator lieberman, thank you and for the mice mention of the conspirators and my performance as a historical figure. members of the committee, thank you all for inviting me to appear today with this distinguished panel and a mixed this collection of such remarkably policed self
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possessed quiet but ultimately very vocal delegates. ten years ago as you mentioned i had the honor of joining mary tyler moore and the 100 plus delegates at the 2001 jdrf congress. since then, i am happy to report that we have made remarkable progress in understanding this disease. we are many steps closer to a cure and even as we are gathered here today, new tools are being developed to improve the day-to-day management of type 1 diabetes but we still have a way to go which is why we are here now. not only championing the science, but pushing to accelerate programs. today these great young delegates are getting the attention that they so richly deserved. but i would like to take a few moments to recognize all of the parents and siblings and other
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special people that these young advocates have brought with them today. they know firsthand the challenges we face as we shepard our children and loved ones through life with the added burden of diabetes. when a child is first diagnosed with type 1 dalia these the parents are thrust immediately to the additional role of doctors, nurses, nutritionists and even psychologists. they are on duty 24 hours a day, seven days a week, 365 days a year monitoring the child's blood sugar levels, physical activity counting carbohydrates in their meals and snacks, calculating insulin dosages, giving injections as well as managing the emotional stress which come from dealing with the daily rigors of this disease. each day, as i am sure these children will testify, brings its own unique challenge to control blood sugar levels.
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even with the best of plans and the use of the latest technology, it's not unusual for parents routinely to wake up in the middle of the night to check their children's blood sugar to make sure it didn't become too high or too low to result in a seizure or a coma or worse. these blood sugar emergencies are all too common and a number of parents here have had to call 911 to save their children's lives. many parents have become their children's advocates in the fight to cure diabetes by joining jdrf. as jdrf's national walk to chair person i have a great pleasure of rallying people across the country to join me the jdrf walk to cure diabetes and i am happy to report things to the outpouring of enthusiastic support, we have raised millions of dollars worth of a walk and jdrf has put this money to work in a direct and efficient manner to support research for better
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treatment, prevention and ultimately for a cure for type i diabetes. the federal government has also played a critical role in the fight to cure diabetes in particular with a strong bipartisan support for the special diabetes program. i thank you, senator collins, for your leadership and your colleagues in the senate and the house who recognize the great return on the investment from the special diabetes program and supported the two year 300 million-dollar extension this past december. together, jdrf and the federal government have made and will continue to make powerful partners in advancing research to cure, treat and prevent type 1 diabetes. since i testified here before this panel ten years ago, more than 40 of the jeans have been discovered which put people at risk of type 1 diabetes.
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numerous therapies to halt the autoimmune attack which causes type 1 dalia these are being tested in human clinical trials. they're a piece have also been shown on only to halt the progression of dietetic disease to improve the vision in those who already suffer from it. and finally, the artificial pancreas has gone from being merely a theory to a cutting edge technology that has been shown in early trials to prevent dangerous low and high blood sugars. apart from finding a cure from the artificial pancreas represents a watershed moment in the management of diabetes, and happens to also be the parent's dream come true. imagine, if you will, going to bed at night without having to worry about dangerous night time high or low blood sugar levels. or knowing that your child will have a great day at school without the burden of pricking his or her figure come
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accounting carbohydrates, taking the right amount of insulin and treating high and low blood sugars or just getting so caught up in being a kid and forgetting to do some of these things and coming home from school dangerously ill. this will come imagine knowing your child will live a long and productive life. since these artificial pancreas technologies have the potential to keep him or her healthier longer, forestalling or completely circumventing the devastating complications until a cure is found. i know the food and drug administration has made the artificial pancreas a priority, and i commend the commissioner for her leadership. but there is more that the fda needs to do. many of these children here today are in fact wearing the components of what would ultimately comprise an artificial pancreas, namely insulin pumps that deliver insulin as well as continuous of
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glucose monitors, which give sugar readouts every few minutes. the challenge that we face now, however, is to control -- to get these devices which don't yet work together automatically, to get them to sort of talk to each other and to control blood sugar levels. in other countries there are devices now available that take the first step in this process buy automatically shutting off the insulin pump when someone is going low. this is an important step, one that we need to take in the united states right now. and we can do more than jdrf and federal law funded research have in hospital settings tested artificial pancreas technologies to automatically turn insulin both on and off, and the results
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have been overwhelmingly positive. the next step is testing these artificial pancreas devices and real-world settings. to do this without delay, however, the fda needs to provide common needs to provide clear and reasonable guidance. many of the world's best diabetes researchers and leading clinician organizations have joined together with jdrf to propose artificial pancreas guidance to the fda. and the majority of the senate and house urged the fda to get this proposal immediate consideration. we now need the jdrf fda to act. parents out every night worrying every day about their children simply cannot afford to wait any longer. it is past time for the artificial pancreas technology to be tested in the real world settings. we urge and implore of the fda to issue a draft guidance for
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public comment on the artificial pancreas so that our outpatient trials can begin and the burdens of type i diabetes can be lifted from the millions of americans as soon as possible. thank you for the opportunity to participate in the hearing today and i would be pleased to answer any questions. [applause] >> thank you very much for that excellent testimony. we are going to do questions for the whole panel after we hear from the rest of the panel. so next, we will hear from dr. griffin rogers who is the director of the national institute of diabetes and digestive and kidney diseases at nih. he will be able to bring us
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up-to-date on the advances and researchers, and i also hope that he will provide some examples of the research that is specifically supported by the special diabetes program. dr. rogers, thank you. >> thank you very much. tester chairman, senator collins, members of the committee, as the director of the national institute of diabetes digestive and kidney diseases or niddk i think you for testifying ought to be to this hearing on diabetes and on behalf of niddk and the other institutes on behalf of an ideal for the national institutes of health, i am pleased to report that we are vigorously pursuing research to prevent, treat and ultimately cure type 1 diabetes and its complications. through collaborative and coordinated research efforts with our partners, including the juvenile diabetes research
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foundation, with the support of the special statutory funding program for type i diabetes making critical studies and critical steps towards these goals that i outlined. before i highlight some of that exciting advances, i would like to acknowledge the important contribution of my fellow witnesses. here in spirit near you continue to motivate us with your unwavering devotion to improve the lives of others with type 1 diabetes. kevin kline, you raise awareness of the disease and to promote efforts towards the cure. i am also pleased to share the table today with dr. zimliki who will describe the complementary efforts of the fda to at the of the artificial pancreas. i also like to acknowledge the children, parents and families who will testify and proudly representing their states and the many other americans with
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type 1 by moody's. many of you have participated in clinical trials to help improve diabetes care not only for yourself, but for future generations. we are inspired by your dedicated efforts and your enthusiasm. now, research and type 1 diabetes has made a tremendous impact on the health and quality-of-life of people with this disease. i will reference to the handouts during my testimony to illustrate this point, and of these handouts are attached to the copies of my written testimony. on the first hand out, a bar graph shows the survival rates for people with type i diabetes has dramatically improved over time where people diagnosed flexible in the 1950's represented by the blue bar on the floor level on the side of the graph to read only about 70% survived for 25 years worth of the disease. this number has dramatically increased so about 95% for
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people diagnosed in the 1970's represented by the purple are on the far right side of the draft. look at even brighter for today's children due to improvements in diabetes care and technology. still, of the burden of living with diabetes, as my colleagues mentioned is enormous comes of it is critical to build on progress to find ways to prevent and cure the disease. on the second hand out, you will see that even before type 1 had diabetes becomes apparent, the immune system of people who will develop the disease are destroying their insulin producing beta cells, leading to a decrease in the data cell mass, and i will describe how the in on the beach is focusing our research on different stages of the disease progression. now, as indicated on the far left of this graph, understanding the causes of

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