FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you Mr. Minister. On behalf of our delegation, let me say how pleased we are to be back in Beijing for this 12^th session of our Joint Economic Committee. On the sidelines of the World Bank/IMF Annual Meetings in Washington, Finance Minister Xiang and I spoke about organizing this next session of the JEC. I am delighted to be here less than one month later.

Little did I expect that this trip would take me all the way to Lanzhou, a city on the path of the old silk road, located in what is now one of the poorest provinces in China. This visit gave me fresh insight into the challenges and opportunities that China faces in extending the benefits of market-led reform to the interior provinces. I would like to thank Premier Zhu and Minister Xiang for making that trip possible.

These JEC sessions are only one of the many opportunities we have to meet each year, but they play an important role in helping us to understand each others' economies and economic policies, and to exchange views on a wide range of issues of critical concern to both our countries. They have become well-established fixtures on our respective calendars - and I hope they will remain so.

A great deal has happened in the 17 months since our last JEC, including some happy events in our bilateral relations, but also some difficult and painful ones. I am pleased to say the relationship between our Treasury and your Finance Ministry has remained productive throughout this time.

Let me say a little about five key issues on our agenda today:

• Important recent developments in the global economy
• Domestic macroeconomic conditions in the United States and China
• Chinese financial sector and state-owned-enterprise reforms

• External economic issues and integration
• And key issues regarding cooperation in international law enforcement

The most significant global economic events during this period have been the move toward recovery in the East Asian crisis economies - and the financial crises in Russia and Brazil. These developments have given fresh impetus to international efforts to build a stronger and more stable global financial architecture - efforts in which China has played a very active role.

In its participation in regional fora such as APEC and the Manila Framework grouping, and in broader meetings of the G-22 and G-33, China has made a welcome contribution to building the stronger regional and global economy in which it has such a growing stake. Its participation will be further cemented by China's membership in the G-20. This permanent informal mechanism for high level discussion of economic and financial issues among the G7 and key emerging market economies will meet for the first time in December.

Turning to our respective domestic economic environments, our two economies appear to have weathered recent storms in regional and global financial markets quite well. But while the United States economy has performed extremely well during the 1990s, we recognize that this has come in large part from making difficult decisions - especially with respect to taming our federal budget. We recognize that we cannot afford to take these good times for granted.

During the same period China has also continued to grow and to work to implement difficult macro-economic and structural reforms. We will be interested in hearing how you view the prospects for the Chinese economy going forward, the role of fiscal and monetary policies in that outlook, and your views on how best to address the formidable challenge of deflation.

The questions of how best to address deep-seated financial sector problems - and prevent them being repeated - is scarcely unique to China. Countless other economies have faced some of the same challenges in recent decades. The United States learned a number of costly lessons in the course of the 1980s savings and loan crisis - lessons that we have since been working to apply in the 1990s. Most recently, Congress appears to have reached agreement on major legislation to revamp our financial system and its regulation with the goal of improving its ability to allocate capital efficiently, within an appropriate framework of regulation and supervision.

I know that you recognize that resolving the problems in your financial sector will be critical to the success of China's economy in the years ahead. At last year's JEC, you told us about your plans to increase the independence of the Peoples' Bank of China and to grant greater autonomy and market-orientation to the four state-owned banks. We will be very interested in learning about the progress made since then, and how you plan to proceed from here. We would like to explore the possibility of intensifying our dialogue on the crucial issues in capital market development, including securities markets.

We also spoke last year about your intention to address the problems of state-owned-enterprises, and allow market forces to operate more broadly in your economy. Since then we have seen your important reform achievements in the coal and textile industries, but we would be interested in an update on the steps being taken throughout the enterprise sector to meet your goals. We are also interested in hearing about your efforts to untangle and separate the complex web of services that state-owned enterprises provide, such as housing, health care, and education.

We also wish to exchange views about trade prospects and economic openness, and how our joint trade agenda can be moved forward. In our view, the openness of our own economy has been an important key to America's prosperity over the long term. It has brought us the benefits of goods, capital, services, and ideas from abroad. It has also brought periods of tremendous challenge to our producers, forcing them to reassess their business practices and strategies. And it has brought us foreign savings when our own savings have fallen short of our investment demands.

In the past two decades China has clearly become a major trading partner for the United States, and has benefited greatly from access to the United States and global markets. We will be interested in learning more about your thoughts on our respective external situations, including steps that can be taken to address the imbalance in our bilateral trade. More broadly, we will be interested in discussing the ways that greater opening of the Chinese economy and financial sector could help support and accelerate other aspects of China's economic progress - notably SOE and financial sector reform.

International crime poses great difficulties in all of the world's economies, and it is essential that all countries work together to fight it. I hope that we can agree that both sides should observe fully the terms of the Memorandum of Understanding and Statement of Cooperation on prison labor. We welcome the conclusion of the Customs Mutual Assistance Agreement, and hope that we will be able to strengthen cooperation in other areas, including combating international organized crime, narcotics trafficking, counterfeiting, and money laundering.

This is a very full agenda for a one-day meeting. I would like to end at this point, so that we can move forward to the dialogue on specific issues. I hope, as in the past, that the discussions will be conducted in a spirit of openness, friendliness, and a desire to learn and exchange views. Disagreements are inevitable in a relationship of this size and complexity as that between our two nations. But I think our relationship is strong enough that we can address such issues frankly, to better improve our mutual understanding and move us forward.

Before I return the podium to Minister Xiang, I'd like to introduce the key members of the U.S. delegation who will be participating in the discussions today: Federal Reserve Governor Meyer will co-chair this morning's working group; and Assistant Secretary of the Treasury for International Affairs Truman will co-chair this afternoon's session. Thank you very much. I look forward to a fruitful meeting.