Developing Sino-US economic and trade relations serves the fundamental interests of both peoples. Following the establishment of diplo"imatic relations between the People's Republic of China and the United States, bilateral economic and trade ties have grown fast, featuring complement and mutual benefit. Occasionally, however, frictions and differences took place. At present, the issue of bilateral trade balance -- much too stressed and even exaggerated by the United States -- has hindered the healthy development of economic and trade relations between the two countries. It has also caused concerns among relevant countries and regions. In our bid to develop Sino-US relations and promote bilateral trade, we think it necessary to make clear the position and viewpoints of the Chinese Government on the issue.

I.Soaring Trade Between China
and the United States

In January 1979, the People's Republic of China and the United States established formal diplomatic relations. Six months later, the governments of the two countries signed the ``Agreement on Trade Relations Between the People's Republic of China and the United States of America'' granting each other the most-favoured-nation trading status. Since then, Sino-US trade and economic relations entered a period of fast growth. According to Chinese statistics, Sino-US trade volume was 2.45 billion US dollars in 1979 but rocketed to 42.84 billion US dollars in 1996, with an accumulative volume of 260.6 billion US dollars over the past 18 years. The United States became China's third largest trade partner in 1979, and rose to the second place in 1996. According to US statistics, bilateral trade was 2.37 billion US dollars in 1979 and topped 63.5 billion US dollars in 1996, totalling 376 billion US dollars in the past 18 years. Among trade partners of the United States, China ranked the 24th in 1980 and claimed the fifth place in 1995. Despite statistical discrepancies, trade figures of the two sides both suggested an average annual bilateral trade growth rate of more than 18% over the last 18 years. This has been the mainstream in the development of Sino-US economic and trade relations.

Chinese statistics indicate that, in 1996, US products accounted for 11.6% of China's total imports, while US statistics show 5.42% of its imports last year came from China. The United States is one of the fastest growing markets for Chinese exports while China is also one of the fastest growing markets for US exports. Both countries' statistics suggest that between 1990 and 1996, US exports to China grew by more than 16% a year on average, far exceeding the overall US export growth in the period. China is one of its trade partners with which the United States scored the highest export growth. This is mainly attributable to the marked differences in the two countries' resources, economic structures, industrial setup and consumption levels, and to the fact that their economies can be complementary to each other. China is a developing country with low labour costs, but suffers from capital constraint and relatively under-developed scientific and technological development. The United States is a developed country with abundant capital and highly advanced technologies, but suffers from high labour costs. China mainly sells to the United States labour-intensive products such as textiles, garments, shoes, toys, electric home appliances and luggage. The United States mainly sells to China capital- and technology-intensive products such as aircraft, power generation equipment, machinery, electronics, telecommunications equipment and chemical machinery, as well as agricultural products including grain and cotton. So complementary and mutually beneficial is the structure of their exchanges of goods that it has greatly pushed the development of bilateral trade.

The sustained growth of Sino-US trade has played an active part in the economic development and creation of jobs in the two countries. For the United States, its direct exports to China alone have created 300,000 jobs while bilateral trade development has created at least 1 million jobs for the US industry and service sectors, and such a trend is marked by a continuous growth from year to year. China's relatively low labour costs have cut the prices of daily necessities such as shoes, garments and toys on the US market, and have helped easing inflation in the United States, bringing practical benefits to US consumers. A 1994 World Bank report noted that US consumers would have had to spend an extra 14 billion US dollars per year if the United States had had to import similar products from other countries instead of China. For China, millions of workers are involved in the processing and assembling business for exports to the United States. This has promoted the economic development of China's coastal areas. China's imports of some relatively advanced technological products from the United States also help its modernization.

Sino-US trade is marked by two characteristics: the bulk of the trade is conducted through entrepot trade and processing trade. Both China's exports to the United States and US exports to China are largely conducted through a third partner, mainly the Hong Kong region, while an overwhelming majority of China's exports to the United States are processed products -- finished goods made of imported raw materials, auxiliary parts or primarily-processed items. The domination of entrepot and processing trade has promoted the fast growth of Sino-US trade volume, but, at the same time, resulted in a relatively large deviation between the statistics and reality of trade figures of the two countries.

Apart from trade exchanges, US investment in China has also witnessed extensive development. By the end of 1996, 22,240 projects with US investment had been launched in China with a committed investment volume of 35.17 billion US dollars. Paid-up investment in those projects totalled 14.29 billion US dollars. Excluding the regions of Hong Kong and Taiwan, the United States is the second largest investor in China, next only to Japan. In the mean time, US service exports to China also have recorded fast development.