CHINA’S IMPACT ON THE NORTH CAROLINA ECONOMY: WINNERS AND LOSERS FIELD HEARING IN CHAPEL HILL, NORTH CAROLINA HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED TENTH CONGRESS FIRST SESSION _________ SEPTEMBER 6, 2007 _________ Printed for use of the United States-China Economic and Security Review Commission Available via the World Wide Web: www.uscc.gov UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION WASHINGTON : OCTOBER 2007 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION CAROLYN BARTHOLOMEW, Chairman DANIEL BLUMENTHAL, Vice Chairman Commissioners: PETER T.R. BROOKES Hon. WILLIAM A. REINSCH Hon. C. RICHARD D’AMATO Hon. DENNIS C. SHEA MARK ESPER PETER VIDENIEKS JEFFREY FIEDLER MICHAEL R. WESSEL KERRI HOUSTON LARRY M. WORTZEL T. SCOTT BUNTON, Executive Director KATHLEEN J. MICHELS, Associate Director The Commission was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Public Law No. 106-398, 114 STAT. 1654A-334 (2000) (codified at 22 U.S.C.§ 7002 (2001), as amended by the Treasury and General Government Appropriations Act for 2002 § 645 (regarding employment status of staff) & § 648 (regarding changing annual report due date from March to June), Public Law No. 107-67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the "Consolidated Appropriations Resolution, 2003," Pub L. No. 108-7 (Feb. 20, 2003) (regarding Commission name change, terms of Commissioners, and responsibilities of Commission); as amended by Public Law No. 109-108 (H.R. 2862) (Nov. 22, 2005) (regarding responsibilities of Commission and applicability of FACA). The Commission’s full charter http://www.uscc.gov/about/charter.php and Statutory Mandate http://www.uscc.gov/about/overview.php available via the World Wide Web ii CONTENTS _____ THURSDAY, SEPTEMBER 6, 2007 CHINA’S IMPACT ON THE NORTH CAROLINA ECONOMY: WINNERS AND LOSERS Opening statement of Chairman Carolyn Bartholomew ……………………… 1 Opening statement of Commissioner Kerri Houston, Hearing Cochair………. 2 Opening statement of Commissioner Jeffrey Fiedler, Hearing Cochair ……… 3 PANEL I: NORTH CAROLINA’S CHANGING ECONOMY Statement of Mr. Rick L. Weddle, President & CEO, Research Triangle Foundation of North Carolina, Research Triangle Park, North Carolina………… 4 Prepared statement ……………………………………………………………… 7 Statement of Dr. Patrick J. Conway, Bowman and Gordon Gray Professor of Economics, University of North Carolina, Chapel Hill, North Carolina…………. 7 Prepared statement ……………………………………………………………… 10 Panel I: Discussion, Questions and Answers ……………………………………. 10 PANEL II: HOW CHINA TRADE HAS AFFECTED NORTH CAROLINA’S ECONOMY Statement of Dr. Gary Gereffi, Director, Center on Globalization, Governance & Competitiveness (CGGC), Duke University, Durham, North Carolina………….. 32 Prepared statement ……………………………………………………………… 37 Statement of Dr. Betty McGrath, Manager, Policy Program Evaluation and Research, Employment Security Commission, Raleigh, North Carolina…………. 37 Prepared statement……………………………………………………………… 42 Panel II: Discussion, Questions and Answers …………………………………… 42 PANEL III: CASE STUDIES OF CHINA’S IMPACT ON THE FUNITURE, TIRE, TEXTILE, AND CLOTHING INDUSTRIES Statement of Mr. Harris Raynor, Vice President, UNITE HERE, Union City, Georgia……………………………………………………………………………. 55 Statement of Mr. Darryl Jackson, President, United Steelworkers Local 959, Fayetteville, North Carolina………………………………………………………. 60 Panel III: Discussion, Questions and Answers ………………………………….. 62 iii PANEL IV: CASE STUDY OF CHINA’S IMPACT ON THE NEW ECONOMY Statement of Mr. Michael Chen, Vice President of Corporate Marketing, Red Hat China Group, Research Triangle Park, North Carolina ………………………… 77 Panel IV: Discussion, Questions and Answers…………………………………. 79 PANEL V: HOW EXISTING REMEDIES TO UNFAIR TRADE HAVE PERFORMED IN NORTH CAROLINA: THE BEDROOM FURNITURE INDUSTRY AND THE TEXTILE INDUSTRY Statement of Mr. Wyatt Bassett, President, Vaughan-Bassett Furniture Company, Galax, Virginia……………………………………………………………………. 90 Prepared statement………………………………………………………………. 93 Statement of Mr. James Chesnutt, President & CEO, National Spinning, Inc., Washington, North Carolina………………………………………………………. 98 Prepared statement………………………………………………………………. 101 Panel V: Discussion, Questions and Answers……………………………………. 101 PANEL VI: THE HUMAN COSTS TO NORTH CAROLINA OF CHINA TRADE, AND AMELIORATING THOSE COSTS Statement of Mr. Thomas J. White, Director, Business and Industry Services, North Carolina Department of Commerce, Raleigh, North Carolina…………………… 117 Statement of Dr. H. James Owen, President, Piedmont Community College, Roxboro, North Carolina…………………………………………………………. 120 Prepared statement……………………………………………………………… 123 Panel VI: Discussion, Questions and Answers…………………………………… 123 iv CHINA’S IMPACT ON THE NORTH CAROLINA ECONOMY: WINNERS AND LOSERS _________ THURSDAY, SEPTEMBER 6, 2007 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION Washington, D.C. The Commission met at the University of North Carolina at Chapel Hill, The Kenan Institute of Private Enterprise, Kenan Conference Center, Chapel Hill, North Carolina at 8:30 a.m., Chairman Carolyn Bartholomew, and Commissioners Jeffrey Fiedler and Kerri Houston (Hearing Cochairs), presiding. OPENING REMARKS OF CHAIRMAN CAROLYN BARTHOLOMEW CHAIRMAN BARTHOLOMEW: Good morning, everyone, and welcome to our hearing. My name is Carolyn Bartholomew. I'm the chairman of the U.S.-China Economic and Security Review Commission. We are, as many of you know, an advisory body to the U.S. Congress. We were created by legislation in 2000 to advise Congress on policy toward the People's Republic of China. We hold eight hearings each year, and we produce a book-length annual report to Congress, which includes our recommendations for legislation and other actions related to U.S. policy on China. One of those hearings each year is dedicated to going out to a state in the country and listening to witnesses and citizens of that state. We have been to Dearborn, Michigan, to Akron, Ohio, to Seattle, Washington, northern California, southern California, Columbia, South Carolina, and this year I am very pleased to say that we are here in North Carolina. I should point out that I'm not a newcomer to the Tarheel State. I attended graduate school up the road at Duke University. I have many fond memories of North Carolina, especially, of course, the basketball teams. I would most particularly like to thank today Mr. Tom Martineau for the work he has done in coordinating the hearing, providing the meeting room and many of the arrangements, and for suggesting witnesses for our hearing. He seems to wear many hats here at the University: China Projects Manager; Associate Provost for International Affairs and for the Institute for Global Health and Infectious Diseases. He took time from his busy schedule to help us, and for that we are grateful. We want to thank also the University of North Carolina for hosting the Commission on this beautiful and amazingly growing Chapel Hill campus. With that, let me introduce the cochairs of today's hearing: Commissioner Kerri Houston who is standing in for Dennis Shea, who had an emergency and was unable to be here today; and Commissioner Jeff Fiedler. Thank you. Kerri. OPENING STATEMENT OF COMMISSIONER KERRI HOUSTON, HEARING COCHAIR HEARING COCHAIR HOUSTON: Thank you. Hello and thank you all for coming. The Commission chose North Carolina for its annual field hearing because it has a great deal of experience with the challenges of globalization and with competition from China which is rapidly developing into the world's factory floor. As we will hear during this hearing, the clothing and textile manufacturing industry here has been forced to retrench. Many of its workers, among the most productive in the world, have to find other jobs, take early retirement, lower-paying jobs, or leave the state. Part of the problem we look forward to hearing more about is that there is no level playing field. It is difficult to reach the goal line when you're forced to run uphill to meet your opponent. China's industries benefit from direct government subsidies. Many of China's industries are the government. They also benefit indirectly from an artificially depressed currency, which they keep that way and that makes their exports cheaper and ours more expensive. The solution is for the Chinese to allow their currency to float on the international currency markets, as we've heard through many of our previous testimonies, but Beijing has refused to do so. The government of North Carolina continues to meet the challenges of globalization by recognizing that the future requires different skills and we hope to gain a lot of information about how that is being done in this state during this hearing. We will be hearing just how the state through the Research Triangle high tech and biotech is providing graduates of its excellent college systems with lasting jobs and the community college system is - 2 - also helping the current workforce to adapt to today's global pressures. We look forward to hearing a full day of testimony today. Thank you. I will turn it over to my cochair, Commissioner Fiedler, for his opening remarks. OPENING STATEMENT OF COMMISSIONER JEFFREY FIEDLER, HEARING COCHAIR HEARING COCHAIR FIEDLER: Thank you. As you have heard, the Commission is here in North Carolina today to gather information on the state's economy which has been buffeted by the winds of globalization, particularly those from China. North Carolina's