July 14, 2016

Shelby Opening Statement at Hearing on Evaluating the Financial Risks of China

WASHINGTON, DC – Thursday, July 14, 2016 – U.S. Senator Richard Shelby (R-Ala.), Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, today delivered the following opening statement during a full committee hearing entitled, “Evaluating the Financial Risks of China.”

The text of Chairman Shelby’s remarks, as prepared, is below.  

“Today, the Committee will hear testimony on the Chinese economy and the risks it may pose to the United States.

“This hearing comes at a pivotal time, following last month’s Strategic and Economic Dialog between the U.S. and China, and prior to the G-20 Summit in September.

“China is currently seeking recognition by the World Trade Organization as a ‘market’ economy, rather than as a ‘non-market’ economy

“China is the United States’ largest trading partner and it has the largest banking sector in the world.  An economic downturn in China could have a serious negative impact on American jobs and businesses.

“The numbers speak for themselves: in 2015, the United States imported 482 billion dollars of total goods from China, and China imported more than 116 billion dollars in total goods from the U.S.

“In 2014, Americans invested almost 66 billion dollars in China, compared to just 9.5 billion dollars of Chinese direct investment in the United States.

“And, of course, China is the largest foreign holder of U.S. debt.

“Although our economic relationship with China is significant, experts argue that China has not followed through on its commitments to the U.S., such as enhancing fair trade policies, providing greater investor protections, and securing intellectual property rights.

“Rather than encouraging free trade and competition, China’s recent reforms appear to protect industries it considers to be strategically important.

“On the one hand, China’s tilt toward free-market capitalism has lifted many millions of its citizens out of poverty.

“In addition, since China began its free-market reforms in 1978, the economy has grown 70 times larger.

“On the other hand, however, China still has a long way to go.

“Despite the success of some free-market reforms, the Chinese government still plays a dominant role in the economy, either through its direct management of state-owned enterprises or its dictates from the central government.

“In its Third Plenum of 2013, the Chinese government committed to allowing the free market to play a greater role in the economy in order to ‘rebalance’ away from investment and export-driven growth and toward greater domestic consumption.

“Many question the Chinese government’s commitment to change, however. 

“American businesses and investors recognize a variety of risks in the Chinese economy such as its slowing growth, volatile financial markets, currency policies, potential capital outflows, and aggressive pursuit of U.S. intellectual property.

“Some believe that China’s economic stimulus following the 2008 financial crisis has left the financial system with an unusually high percentage of bad debts.

“China’s total public and private debt has almost doubled from 150 percent of GDP in 2007 to nearly 300 percent today.

“Last year, the imbalances created by China’s debt-fueled economic stimulus resulted in a stock market crash and an overnight devaluation, which caused many to rethink China’s ability to maintain its high economic growth rates.

“These are just a few illustrations of China’s risky policies that could lead to future crises.

“I look forward to hearing from our panel of experts regarding the current state of the Chinese economy and the potential risks it may pose to the United States.”