FROM THE OFFICE OF PUBLIC AFFAIRS

I am glad to have had this opportunity to co-chair this 20^th anniversary session of the US-China Joint Economic Committee with Finance Minister Xiang. Let me also thank the People's Bank of China and other members of the Chinese delegation for their active participation at this JEC.

This year we have opened a new chapter in the relationship between our two countries - and in China's relations with the rest of the global economy. I remember well the last JEC, a year ago in Beijing. At that time, the questions of Chinese entry into the World Trade Organization, and the changes that it would bring, were also very much on all our minds. One year on, with the signing of our bilateral agreement for Chinese entry into the World Trade Organization, and the passage of legislation here in the US to grant China Permanent Normal Trading Relations status, China is closer than ever to becoming an integral member of the world trading community. But just as this new era for China brings new possibilities, so too does it bring new challenges - both for China and for the US-Chinese relations. That is where the sharing of experiences and ideas that we have seen here today can play such a useful role.

In this context we discussed a number of issues today, including economic developments in the global economy and in the US and China. Let me just briefly highlight three sets of issues with particular relevance to China's entry into the WTO, and to the broader question of China's closer integration with the global community.

• There was a clear recognition today on the part of our Chinese interlocutors that the prospect of closer integration with the world economy had raised the stakes considerably with respect to the pace and scope of economic reform. It can and must be a spur for continued reform of the state-owned enterprise sector, the financial sector and social safety nets, which are all so important to the sustainability and quality of long-term economic growth.
• As the Chinese authorities have suggested, China's growing private sector could play an important role in creating jobs as financial and state-owned enterprise reforms intensify. And in this context we discussed the need for further hardening of the budget constraints of state-owned enterprises, and the closure of non-viable firms.
• In the critical area of financial sector strengthening, we welcome China's intention to liberalize interest rates and also noted the importance of adopting international banking standards. And we noted that assistance through the World Bank/IMF Financial Sector Assessment Program would provide policy advice in this crucial part of China's reform agenda.
• More generally, we discussed the importance of building up strong institutions to underpin sustainable, market-led growth: particularly the importance of a functioning rule of law, and of efforts to improve governance and combat corruption.

• As global integration proceeds, there has been growing international recognition of the need to combat the "dark side" of integration: the fact that technological change and liberalization can support the growth of illegitimate economic activities as much as legitimate ones. In that sense our discussions on this subject were very timely.
• Financial abuse and money laundering pose an important threat to all our economies. But we were glad to note that this challenge is now a focus of strengthened efforts by the US, China and the broader international community: as, for example, in the recent agreement to establish an APEC working group that will conduct a survey of domestic legal and regulatory frameworks for fighting financial crime. This will provide an opportunity to enhance our cooperation in this area.
• With respect to China, we are pleased to note that our Chinese counterparts have welcomed our offer to increase U.S. technical assistance to Chinese agencies working to combat this problem more directly in China itself.

• Our meeting today also provided an opportunity to discuss other important enforcement issues that will continue to be of concern to the US and the broader global community as China becomes more integrated economically. Two issues that fall into this category that are a particular concern to the Treasury Department are the implementation of our Memorandum of Understanding on prison labor imports and enhanced customs cooperation.
• The issue of prison labor is very important to the United States. U.S. law prohibits the importation of goods made with prison labor. It is critical that China work closely with us to effectively address this issue under the existing Memorandum of Understanding and the supplementary Statement of Cooperation.
• With regard to customs issues, we support the continued progress of the Shanghai Model Port Project and look forward to its timely completion in the Fall of 2001, in time for the APEC Leaders meeting in Shanghai.

Let me conclude by highlighting the first US-China Financial Dialogue, led by the deputies from our respective finance ministries and central banks, which will be held tomorrow. In the past, such dialogues, for example with Japan and Korea, have been a very useful part of developing our bilateral financial relationship with countries as their economies mature.

The Dialogue will be an independent venue to enhance cooperation between our two countries on financial and capital market issues and share views and experiences on areas of common concern. In light of recent experiences in Asian emerging market economies, the question of how best to benefit from a strong and open financial market - while guarding against the risks - has emerged as a crucial economic issue for every emerging market. And the US and the broader global community have an enormous stake in China finding a successful approach. Thank you.