FROM THE OFFICE OF PUBLIC AFFAIRS

At the invitation of Secretary of the Treasury Robert E. Rubin, Finance Minister Xiang Huaicheng visited the United States and co-chaired the 11th session of the China-United States Joint Economic Committee (JEC). During the meeting, senior officials from 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, financial, and law enforcement fields between the two countries had been enhanced through dialogue on a regular basis in the JEC and other fora. They stressed their common desire to continue deepening cooperative relations between the two countries, which will be advanced by the upcoming state visit of President Clinton to China.

The 11th session of the JEC addressed both domestic and international issues.

• On domestic issues, both sides reviewed the policies that have contributed to their strong growth and moderate inflation, and discussed the challenges they face in sustaining this performance. The United States pointed to prudent fiscal and monetary policies on its side, and particularly to the expected budget surplus in fiscal year 1998. China emphasized that it will continue a prudent fiscal and monetary policy stance, while sustaining a growth rate of 8 percent and deepening economic reform. It also touched on the recent slowdown of GDP growth, and the steps being taken to stimulate the economy. The two sides discussed the complex issues of social welfare policies and their relationship to the restructuring of state-owned enterprises.

  The two sides also discussed financial issues, with the Chinese side noting the steps they were taking to strengthen their banking sector and financial regulatory systems. The two sides agreed on the importance of competition in the financial sector, and on the sector's key role in promoting economic growth through lending on commercial terms. They also discussed how they might increase bilateral cooperation in furthering these goals, including the possibility of increased technical assistance by the U.S. in areas that support China's reform objectives.

• The discussion of international issues was dominated by the Asian financial crisis. The two sides discussed the external positions of both countries, including trade balances, investment flows, reserves, debt, and exchange rate policy in the light of the crisis and of domestic developments in each economy. The Chinese side reiterated the policy commitment to maintaining the stability of the exchange rate of the renminbi as a responsible member of the international community. Both sides agreed that bilateral and multilateral cooperation had been important in dealing with the Asia crisis, and expressed the desire that such cooperation would continue.

  They also discussed the lessons to be drawn from the crisis, including the importance of sound macroeconomic fundamentals, of transparency, and of strong financial systems. The two sides discussed China's accession to the WTO, including the role of financial services, and how progress can be accelerated consistent with WTO rules and obligations. Both sides agreed on their determination to make significant progress on the financial services negotiations before the Presidential visit.

  The two sides also discussed issues of international law enforcement, including the enforcement of their laws that prohibit exports and imports of goods made by prison labor. They discussed what they could do to strengthen cooperation in this area and observe existing agreements so as to enforce their laws. They expressed the intention of successfully completing the negotiations on a Customs Mutual Assistance Agreement in the coming months. They also reiterated their intention to strengthen bilateral cooperation in combating international organized crime, narcotics trafficking, counterfeiting and money laundering through the JEC and other fora, including the recently formed Joint Liaison Group for Law Enforcement, which was envisioned in the Joint Communique issued last October in Washington, D.C. at the end of the Summit between Presidents Jiang and Clinton.

Minister Xiang particularly drew attention to the following developments since the last JEC meeting:

• China had reaffirmed its commitment to further reforms to move toward a market-based economy. It had put forward a number of reform measures to restructure state owned enterprises, the financial sector, including the role of the central bank, and the government service. To support these broad objectives, China was also pursuing reforms in the areas of housing, medical care, investment finance, taxation, and grain distribution.

• Despite the Asian crisis, China had managed to keep a favorable external position; its exports, the trade surplus, and investment flows all continued to rise through the first quarter of 1998.

Secretary Rubin also remarked on a number of specific issues:

• He welcomed China's active participation in the international financial system, particularly in the context of the Asia crisis. He took particular note of China's offers of support to countries in difficulty, and of its active participation in the Manila Framework and the Special Meeting of Finance Ministers and Central Bank Governors, held in Washington in April.

• He reiterated the hope that relations between the U.S. Treasury and the Chinese Ministry of Finance would continue to develop, and he noted that there had been a significant expansion of contacts between officials of the two organizations. He took note of the technical cooperation that Treasury and other U.S. agencies had undertaken with Chinese agencies, and expressed the hope that such cooperation could be expanded and increased. He took note of the technical and law enforcement cooperation that Treasury and its bureaus as well as other U.S. agencies had undertaken with Chinese agencies, and expressed the hope that such cooperation could be expanded and increased.

Both Secretary Rubin and Minister Xiang recalled the successful visit by President Jiang to the United States and looked forward to a successful visit by President Clinton to China, agreeing that these exchanges of visits further promote the bilateral relationship between the countries. They both agreed that a team from the Treasury Department would visit China to discuss the possibilities for increased cooperation. They also agreed that the next meeting of the JEC would take place in Beijing in 1999.

The Chinese delegation to the JEC consisted of representatives of the Ministry of Finance, the People's Bank of China, and the Chinese Embassy in Washington. 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 Council of Economic Advisors, and the U.S. Embassy in Beijing.