FROM THE OFFICE OF PUBLIC AFFAIRS

At the invitation of Finance Minister Xiang Huaicheng, Secretary Summers visited China. Minister Xiang and Secretary Summers co-chaired the 12^th session of the China-United States Joint Economic Committee (JEC). During the meeting, both sides held extensive discussions on a broad range of economic issues. The two ministers noted that mutual understanding and the bilateral relationship in the economic, fiscal and financial fields had been enhanced through dialogue on a regular basis in the JEC. They stressed their common desire to continue deepening cooperative relations between the two countries in general, and collaboration in international economic and financial affairs in particular.

The 12th session of the JEC addressed both domestic and international economic issues.

• On domestic economic issues, both sides discussed the progress and challenges they face in sustaining economic growth. The United States pointed to prudent fiscal and monetary policies on its side, and particularly to a federal budget surplus expected in fiscal year 2000, for the third consecutive year. China emphasized that it will continue its pro-active fiscal policy and appropriate monetary policy stance so as to maintain the balance of payments and therefore maintain the stability of the RMB exchange rate, thereby further boosting domestic demand.
• Meanwhile, China stressed its current efforts on further deepening the reforms of state-owned enterprises and the financial sector, and establishing a sound social security system so as to maintain the growth momentum of the national economy. The United States expressed support for these objectives. The United States and China have agreed to establish a more intensive process of dialogue on financial and capital market development issues, including the roles of foreign financial services providers in each of our countries, under the JEC mechanism. This process will be co-chaired by our Finance Deputies and Central Bank Deputies and will include securities market regulators and banking supervisory officials. This process is described further in the attachment.
• The two sides exchanged views on economic issues of mutual interests, such as domestic economic policies and goals. The two sides discussed the issues related to macroeconomic conditions, including the importance of sound macroeconomic fundamentals and strong financial systems. They also discussed the external position of both countries, including trade balances, investment flows, foreign exchange reserves, debt, and exchange rate policy.
• On international economic and financial issues, the two sides reviewed the current global economic situation, and touched upon the issues of financial crisis prevention and management. The two sides welcomed the creation of the new informal mechanism for dialogue among systemically important countries and the inclusion of key emerging market economies in this group. They looked forward to the opportunity, at the first meeting in December, to exchange views with their counterparts on important issues facing the world economy, including further steps to strengthen the international financial architecture.
• The two sides discussed the roles of the two countries in the regional and global financial system in the context of the Asian financial crisis. They also reviewed the external positions of both countries. In addition they discussed China's accession to the WTO.
• The two sides discussed money laundering and bilateral law enforcement agreements, including enforcement that applies to exports and imports of goods made by prison labor. They discussed what they could do to strengthen co-operation in this area and observe existing agreements so as to enforce them. They expressed satisfaction with the signing of a Customs Mutual Assistance Agreement since the last JEC meeting. They reiterated their belief that this Agreement will strengthen bilateral efforts to suppress international organized crime, narcotics trafficking, smuggling activity and violations of intellectual property rights. Both sides expressed satisfaction with progress made on the Shanghai Model Port Project under the auspices of APEC and hoped to achieve further concrete progress in the areas of technical assistance and professional training.
• Minister Xiang particularly drew attention to the following developments since the last JEC meeting:
• He stressed the importance of the constructive meeting between President Jiang and President Clinton in Auckland, New Zealand. Such a result will advance bilateral relations. He was of the view that the regular dialogue of the financial ministers would help to promote the cooperative goals set forward by the two presidents. He believed that maintaining high level bilateral contacts would deepen mutual understanding and further promote the bilateral relationship between the two countries.
• He pointed out that China had deepened reforms to move toward a market-based economy. China gave priority to restructuring state owned enterprises and the financial sector, and establishing a sound social security system.
• He noted that despite the Asian crisis, China had managed to keep a favorable external position.

Secretary Summers also remarked on a number of specific issues:

• He discussed recent developments in the U.S. economy, in particular noting that he expects the momentum of expansion to continue with strong growth and low inflation, subject to the normal ups and downs.
• He expressed his pleasure that China will participate actively in the new informal mechanism for dialogue among systemically important countries.
• He reiterated the hope that relations between the U.S. Treasury and the Chinese Ministry of Finance would continue to develop. He noted that there had been a significant expansion of contacts between officials of the two organizations, and expressed his hope that such cooperation could be further expanded.

Both sides recognized the potential problems related to the Y2K issue and have been cooperating to deal with them. They pledged to continue their cooperation with a view toward addressing any problems that may arise with the turn of the millennium.

The two sides agreed that the next meeting of the JEC would take place in Washington, D.C. in 2000.

The Chinese delegation to the JEC consisted of representatives of the Ministry of Finance, Ministry of Foreign Affairs, State Development and Planning Commission, State Economic and Trade Commission, Ministry of Foreign Trade and Economic Cooperation, the Ministry of Justice, the Peoples Bank of China, State Administration of Taxation, General Administration of Customs, China Securities Regulatory Commission, and State Administration of Foreign Exchange. The U.S. delegation included representatives from the Department of the Treasury, the Federal Reserve Board, the Department of State, the Office of the U.S. Trade Representative, the Office of the Comptroller of the Currency, the National Security Council, the National Economic Council, the U.S. Customs Service, and the U.S. Embassy in Beijing.

The United States and China have agreed to establish a more intensive process of dialogue on financial and capital market development issues, including the roles of financial services providers in each of our countries. This process will be co-chaired by our Finance Deputies and Central Bank Deputies and will include our national securities market regulators and banking supervisory officials as well as other experts, as appropriate.

Issues under discussion will include:

• Financial sector development, including regulatory and infrastructure issues;
• Capital markets development, including deepening the securities market;
• Policy challenges of capital markets integration; and
• Approaches to promoting product diversification and appropriate risk management procedures.

This process will foster cooperation in an area critical to China's development and future growth, contributing to increasing confidence while promoting dynamism in China's financial markets. The development of market and regulatory infrastructure will help contribute to efficient use of domestic savings and prudent interactions with global capital markets.

The first meeting will be held in early 2000. The Deputies will report back to the Ministers at the next JEC to be held later next year.