The next Premier of China speaks to U.S. business leaders

December 20, 2012, 7:01 PM UTC

Former Morgan Stanley CEO John Mack and Chinese Vice Premier Li Kequiang talk about the evolving relationship between the U.S. and China.

Chinese Vice Premier Li Keqiang (4th from left, front row) with members of a delegation of U.S. executives.

FORTUNE — Earlier this month, a delegation of U.S. business leaders led by former Morgan Stanley CEO John Mack traveled to China as part of the Sino-US Business Leaders Partnership Initiative.

The Americans—who included Ray Dalio, CEO of hedge fund Bridgewater Associates, Ari Emanuel CEO of William Morris Endeavor, Martin Koffel, CEO of engineering and construction firm URS, Wes Edens, Co-Founder, Principal and Co-Chairman of the Board of Directors of Fortress (FIG), and Jim Murren, CEO of MGM Resorts International (MGM) along with me—met with Chinese CEOs—including Li Ruogu, President of the Export-Import Bank of China, Chang Zhenming, Chairman of  CITIC Group, Edward Tian, chairman of CBC Venture, and Fu Chengyu, Chairman, of Sinopec Group—in series of discussions and sit downs with Chinese government officials.

The goal: To foster greater understanding, cooperation and of course ultimately commerce between the U.S. and China. One of the highlights of the trip was a meeting with Chinese Vice Premier Li Keqiang, who is soon to be Premier (effectively the number two person in the Chinese government after the incoming President, Xi Jinping.) Mack and the vice premier were also joined by Madame Deng Rong, Vice President, China Association for International Friendly Contact, and the daughter of Deng Xiaoping, the former leader of China. What follows are the edited remarks of Mack and Li.

LI: It is a pleasure to meet with our friends from the American business sector. I have heard that dialogue at the “Chinese-American Business Leaders Cooperation Plan” which you have come to attend has been successful, and for this I express my congratulations. I would like to express my appreciation for the long term efforts that you have made to promote and push forward the development of China-US economic and trade relations, and I trust that your cooperation, and the in-depth conversation and frank exchange of ideas between economic and financial sector leaders on both sides, will help to promote the continuing healthy development of China-US relations.

MACK: Thank you very much, Vice Premier Li. We can see that you are very busy based on TV and newspaper reports. Thank you very much for finding time in your busy schedule to meet with us.

We are a relatively informal delegation, composed of executives from companies in the United States. We have had some personal and business relationships with some important Chinese company executives. We hope that this open and informal exchange will be able to establish a bridge for communication and cooperation between our two countries. This is our third exchange event. The first time Jim Owens, Erskine Bowles, Dan Akerson, Jerry Speyer and I were in Beijing and the second time was about a year ago in Washington, when we saw Secretary of State Clinton, Secretary of the Treasury Geithner, and former U.S. Trade Representative Kantor, and also met with U.S. business leaders and the president of the U.S. Chamber of Commerce.  The main purpose of these dialogues and exchanges was to promote cooperation between the United States and China. One of the specific topics that we discussed was the development of infrastructure. We also discussed certain projects with our Chinese partners such as the Export-Import Bank of China led by Li (Ruogu) and we not only hope that we will get a relatively good return on our investment, but we also hope to promote the building of much needed infrastructure in the United States.

We discussed other issues including how to do business in the United States and China. I still remember a certain conversation that I had with Fu, former Chairman of CNOOC, where he said that he had considered the acquisition of a company [UNOCAL] in the U.S. state of California. Although he offered the highest bid, in the end the acquisition was a failure. So, [business deals] are not just an issue of price, but are also related to political issues.

Another thing we want to do is educate American politicians. They only focus on domestic politics in the United States, and are less concerned about the goings on in the rest of the world. I remember a few years ago when I met with New York Senator Charles Schumer when he had just visited China. I asked him how many times he had visited China during his 37 years as a representative. He replied he had only been once. Therefore, one of our goals as business leaders is to encourage these politicians elected by popular vote in the United States to learn more about China.

LI: China and the United States are the world’s two largest economies – the United States is a developed country and China is a developing country. The last 40 years have proven that bilateral cooperation between our two nations, especially economic and financial cooperation, has brought tangible benefits to the people of our two nations, and has also provided benefits to the rest of the world. The people of China and the United States have created great civilizations. Although there are differences in our civilizations, through mutual respect and equitable dialogue, we can appropriately narrow the differences that may exist between us. More important is that a convergence of interests exists between our two countries, and these common interests can continue to expand. Based on our experience in the past 40 years, it is clear that this convergence can expand beyond expectations and I personally believe that there is unlimited potential for expansion. Cooperation based on mutual interest benefits both sides and allows for the realization of a “win-win” situation. All of you here have probably participated in a number of economic and trade activities in China, or the companies with which you are affiliated have investments or other economic and trade involvement in China. I trust that you have seen what a huge market China represents. China is not only a huge market, it will be an increasingly open market. China and the United States are in different stages of economic development, and we have a strong economic synergy – for example the American high-tech and service industries as well as some of United States’ most important products are highly competitive on the Chinese market.

China also has its own advantages – you just talked about cooperation with China in infrastructure construction. In the 30 years of China’s reform and opening up, the construction of [China’s] infrastructure has attracted worldwide attention, and this is something not frequently seen in human history. That is to say, in terms of infrastructure construction, China has two generations of people that exist simultaneously – our technology and experience as well as our competitive labor force. This is just one example. But in comparison to America’s high technology (sector), both China’s infrastructure and products are far less value-added than U.S. That is to say we are highly complementary.

You just said that you hope that U.S. politicians will be able to come to China more often and take a look around so that they can understand the actual situation here and I think this is quite necessary. This is because China up to the present has been, and going forward for the next several decades, will be, a developing country and the road to modernization remains long still. In order to achieve modernization, China must adhere to the path of peaceful development. China and the United States are partners, not adversaries. Of course, we may be competitors, based on fair rules, since business cooperation also necessitates competition, and without competition there is no vitality. This vitality arising from competition can not only stimulate innovation in the United States, it can also stimulate the development and innovation of Chinese companies.

You mentioned that American politician who for the last several decades only came once to China. This reminds me that I visited the United States twice before I became part of the Central Government here in China.

DENG: You haven’t been (to the US) since joining the Central Government, right?

LI: No, I haven’t. But I would like to say that I’ve met with countless American friends since entering the Central Government. This is because the two sides have common interests that can be continuously expanded and the mainstream in the development of China-US relations will necessarily be cooperation.

I believe that our common interests can transcend the differences in our civilizations, cultures and institutions. At the same time, as we focus on and share common interests, our cultures will also be able to learn from one another. China will continue to increasingly open up to the outside, and we also hope that the United States will also continue to open up, including an opening up to investments from China.

MACK: I totally agree with what you said. First of all, all of us here believe that China and the United States must have a good relationship of mutual trust. That trust needs to be realized through meetings such as this one and mutual investment. We as entrepreneurs, have interactions to varying degrees with politics – for instance contact with Washington or various state governments. When I return to the U.S. from China, I will be meeting with certain companies that have a competitive relationship with Chinese companies. But if they are able to work together with China there will be a very positive impact and they will be able to solve certain problems – it is our sincere hope that this goal will be realized. The background of all of us here (on the U.S. side) is relatively varied: there are investors and businesspeople as well as individuals from infrastructure industries such as railroads and engineering construction. We believe that as long as Chinese and American entrepreneurs strengthen mutual exchanges, as time goes on, both sides will be able to gain a balanced and in-depth understanding of the other side’s culture.

LI: Everything that you have said is of great significance. I very much agree with your point of view, Chinese and American entrepreneurs, especially economic leaders such as those of you seated here, should continue to make contacts and engage in dialogue, as well as take action. China can maintain sustained and healthy economic development will depend on the expansion of domestic demand. According to our estimates, over the next five years, China’s total imports will reach 8 to 10 trillion USD. If the other side does not impose high-tech export restrictions, China’s imports will be increasing more quickly. At the same time, we would like to gradually promote the opening of the service sector; we also want to be able to increase our direct investment in the United States, so that both sides can become more economically integrated  and we can maintain the healthy development of our relationship. As far as I know, as of now direct investment in the United States by China is only 0.5% of all direct investment that the U.S. receives from abroad, a proportion that is even less than Singapore. You also all know that Chinese investment in the U.S. is subject to many restrictions, including review by U.S. authorities, with security concerns often cited. Frankly speaking, China has no intention of, and would be completely incapable of, influencing the national security of the United States. We maintain political trust with the United States. For example, China’s leaders often ride in Boeing (BA) aircraft, all the aircraft that I have ridden since entering the Central Government have been Boeing. When I get on the plane I think, this is a Boeing aircraft, so it should be safe.

It is evident that this world is an open one, and the trend of globalization is inevitable. There are many companies that covet the Chinese market, and these companies are not just limited to those in the U.S. I hope that U.S. companies do not miss this opportunity. Cooperation is often peer-based – if investment in the U.S. by Chinese enterprises increases, China can gain a lot of management experience from the U.S. Of course, we do not support and are firmly opposed to the infringement of intellectual property and we have to respect the laws of the host countries, but doing so is not just in the interests of the United States, but also in China’s interests. Given that China has developed to its current stage, if we do not rely on technological innovation, we will have no future. To promote technological innovation, intellectual property rights need to be protected, including the intellectual property rights of Chinese inventors.

I believe that U.S. policies of friendliness and cooperation with China and in particular the affection that exists between the American and Chinese people will not change. I remember when I visited the United States in the 1980s my visit happened to coincide with the U.S. presidential election. I visited the campaign headquarters of both parties and those in charge of the campaigns would come down to meet me and quietly told me that I should not listen to party positions regarding China in the debates – once the election was over, they said, both parties’ policy towards China would be the same and there would not be any changes.

At the beginning of China’s reform and opening up, Comrade Deng Xiaoping famously said that time is money. Missed time or delays are in fact a monetary loss. We do not want certain domestic factors to influence the swift and positive development of China-US relations. I also hope that our entrepreneur friends seated here today will make efforts in American politics and among the American people and tell the American people the true situation and prospects for China-U.S. cooperation.

MACK: Thank you. I trust that all of my colleagues seated here will communicate with members of the political community after they return to the U.S., sharing their impressions of China and telling them of success stories involving cooperation with China, including positive examples of cooperation in infrastructure construction, asset management and even the entertainment industry. The areas where our two nations can cooperate are too numerous to list, and we want to see a fair competitive environment, and furthermore we hope to be treated fairly, just as we intend to be fair to Chinese enterprises. The only way to achieve this goal, is through good communication on both sides, and risks may even need to be taken sometimes. We believe that through communication and dialogue, we will be able to realize further contributions to the development of US-China relations.

LI: I would like to again express my approval for what you are saying. China-US cooperation will certainly run into its share of problems, and these problem will become increasingly numerous. Why is this? 40 years ago when our two countries were practically  isolated from one another, we did not really have any issues, at most our problem was that we did not cooperate at all. Problems encountered during the process of cooperation may increase and the most important principle in resolving these issues of cooperation is the principle that you just mentioned: fairness and equitability. I completely agree. There is also another critical principle, which is dialogue and communication. I like the directness of Americans – you have brought up all relevant issues – I also hope that you’ll like the directness of Chinese people. We will resolve these problems one at a time during dialogues using the principle of fairness, allowing China-US economic and trade relations and China-US cooperation to move forward.

MACK: Once again, thank you very much for taking the time to meet with us. You just mentioned that you like the directness of Americans and I think that directness is one of the strong suits of everyone seated here today. We also believe that open and honest exchanges are the only way to progress. Also, thank you again for listening to how we have cooperated with some of our Chinese colleagues.

LI: We are all busy, but we should all spend more time and more effort to promote the development of our bilateral relations and expand areas of cooperation. I wish you a successful visit!

The Chinese have an old saying: “strangers the first time, friends the second time.” The next time we meet we’ll be old friends. Vice President Deng Rong just reminded me that the next time we meet will be the “third time” we meet. We welcome you back to China at anytime!