How the U.S. Congress views China: the Senate's rising star on Chinese trade and finance issues sits down for a chat. A TIE exclusive interview.

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TIE: A lot of people are worried about China--they see inventory starting to stockpile, and they worry that by next year Chinese exporters will have begun heavy discounting. The United States already has a current account imbalance approaching 7 percent of GDP. Is there any concern in Congress that at some point, China will try to export its way out of its overcapacity problem?

Graham: China and the United States have negotiated a textile agreement that's a good start on better relations. China is overbuilt in many ways. It's overbuilt in office space capacity. Its banks have a bunch of loans outstanding that are probably no good. The Chinese economy is too dependent on exporting. There is not enough consumerism in China.

Here is what I'm suggesting we worry about. We need to worry about Chinese business practices. The economies of scale in China are never going to change. That country has a lot of bright people who can do many terrific things. I've tried to get the Chinese to buy into an international business model that will allow us to have productive relationships, and move away from this confrontational model. As long as China manipulates the value of its currency to create a discount against all other currencies, it will be seen by manufacturing competitors as unfair. Without a system for protecting intellectual property rights, China will lose a lot of business investment and we're going to have a ton of friction between the Congress and China. As long as China engages in rampant transshipment and piracy, we're going to have problems. When they want to, the Chinese have the ability control piracy. Chinese-made movies don't get pirated. But American-made videos and movies get pirated to death. The transshipment issue, where goods assembled in China are sent to other countries to get the benefit of a trade agreement China is not party to, would stop if the government intervened.

So my goal, working with Senator Charles Schumer (D-NY), is to tell the Chinese we want trade between our countries to be a win-win situation. When China signed up with the WTO, it was expected that they were signing on to a new way of doing business. But their business practices still follow the old way, which is the China-first model, which won't work.

TIE: There is a sense in the markets that you and Senator Schumer were moving at eighty miles an hour and now you've deliberately slowed down to say twenty miles an hour. Is it because Alan Greenspan, the U.S...

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