FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you. It's a pleasure to speak with you this morning. As students and faculty of international business and economics, you are in the vanguard of China's reforms and global opening. You will help lead China into a new century - one in which the potential for growth and prosperity is enormous.

As a businessman for many years and as Treasury Secretary now, I've traveled to many corners of the world. No matter where I go, in rich nations and poorer ones, I find a universal wish for prosperity. There is a universal hope for betterment, a hope held out by students like yourselves. I am sure that you are eager to work hard and take advantage of opportunities to improve the quality of life for the people you care about most - for your families, for your neighbors, and for your fellow countrymen. This universal desire fuels my belief that people around the world can achieve wonderful progress toward development and prosperity. This is especially so here in China. I am eager, on behalf of the US government, to encourage you in your strivings and to offer to share our experiences in the United States for your information and possible adoption or adaptation to your own situation as you move forward.

China is experiencing strong economic growth, little affected by the slowing of the rest of the world. The steps you have taken to free up your economy have supported this growth, especially in your cities and coastal regions. This is not my first trip to China. As a businessman, I have visited your economic zones and major cities several times, seeing for myself the progress you have made. You have successfully managed foreign joint ventures and welcomed wholly foreign-owned companies as well, creating higher paying jobs for millions of Chinese workers. You have allowed foreign firms to profit, which is crucial to ensuring a continued flow of investment into China, continuing industrial job creation and technology transfer -- including the teaching of management techniques -- to the benefit of domestic entrepreneurs.

Allowing price competition has created a boom in retail commerce - so that the citizens of China have greater access than ever before to affordable products to improve their own living standards. Improved living standards are evidenced by such things as the spreading availability of consumer durables like air conditioners and refrigerators - not only do more Chinese own these, but they also have more dependable electricity as price reforms have made shortages a much diminished problem. These are concrete steps toward higher living standards that we all want to see in every corner of the world. President Bush and his Administration envision a world of better health, greater opportunity, and more comfortable living for people in every part of the world.

We in the United States are eager to see China's growth continue, both because we have a moral obligation to contribute to the betterment of people's lives around the world and because growth here and throughout Asia is crucial to global prosperity.

There is no question that such a rapid pace of change is difficult. And yet the benefits, in the lives of the Chinese people, far outweigh the dislocations. We in the United States have learned that flexibility in our economy, combined with assistance for those in transition, keep our economy moving forward and prospering. I want to encourage you as you progress with the reforms you are pursuing now: privatization, banking reforms, WTO accession, and fiscal reforms.

One of the most important endeavors you are currently engaged in, corporate governance reform, is crucial to continuing China's growth. Placing profit incentives and management efficiency as the highest priority, rather than government targets, will ensure that China's economy flourishes and Chinese firms succeed.

I learned this lesson very personally in the 1980s in the United States. US manufacturers had become complacent, protected from the competition that stimulates innovation. We woke up one day to find stiff competition from Asia. We went through major corporate restructuring, which was painful for some at the time, shutting down unproductive operations and laying off workers. But it led to a rebound in US productivity growth that fueled America's boom of the last 15 years. Placing a strict priority of profit incentives and management efficiencies made existing US firms more successful, and created an environment that welcomed upstart small businesses to compete and create jobs for those who felt the dislocations of restructuring.

Clearly, corporate reform is a much bigger operation in China. The size of the challenge only makes it more important that you rise to meet it. You have already begun to introduce modern corporate structures like boards of directors and stock share ownership. But stock sales are more than just a source of funds. These steps hold businesses accountable. They are crucial to a flourishing business sector. Success will follow as you continue down this path of reform. It will lead to transparent reporting of actual financial performance and accurate balance sheet data. Reform can empower owners to change ineffective management-it can even empower markets to change a company's owners.

Resistance to corporate reforms come from two places: first, the government agencies who control many of these corporations now, and second from the workers who fear the dislocation that accompanies change and growth.

Many government agencies rely on the profits of the companies they own to supplement the tax revenues that don't provide enough operating funds. The collection and distribution of funds by government is diffuse, difficult to understand or track, and therefore open to misallocation and fraud. If government agencies relied upon a central budgeting process to designate operating funds for each agency, there would be much greater accountability for the use of government funds. A centralized treasury system in China would reduce the need for government agencies to control corporations and siphon their revenues for political use.

In the United States, virtually every central government payment comes from one place - the US Treasury. Departments and other agencies must request payment from the Treasury and must supply appropriate documentation. This system is highly transparent, so that every taxpayer can see where their tax dollars are spent, and can hold the government accountable for any misuse of funds. This system may not be immediately applicable to your situation but it is important to get the central idea in place.

In November, Executive Vice Minister of Finance, Mr. Lou, is coming to Washington, in part to discuss Treasury management. I am eager to welcome him and make available to him whatever assistance our experience can provide as you make this important transition in China.

Worker resistance to corporate reforms is understandable. Until recently, a change of jobs could cost a worker his housing, health care and pension. China has taken steps to delink these basic necessities from employment. These steps will make job transitions less traumatic for workers, and I welcome the progress you have already made in delinking housing from employment. Two things will make labor movement far easier on China's families: a better social safety net and continued growth that creates new jobs. China's journey to prosperity will quicken as workers find it easier to move to new sectors and new locations, constantly increasing their productivity and their wages.

Although China's economy is growing, new job growth has not been high enough to absorb both laid-off workers and new entrants into the labor force. The best way to improve the quality of growth is to make it market-driven. Ultimately, consumer demand is the best source of sustained growth. I applaud China's efforts to strengthen private enterprises and improve their access to bank credit and to capital markets. Consumption-based demand will also come from higher rural incomes, and I am encouraged by steps China is taking in that direction. A strong consumer-oriented middle class-in both urban and rural areas-is the key to sustained growth and accelerated job creation.

Let me conclude by saying that my hopes for you are boundless, and the US stands ready to support and encourage your progress. You are making the right choices, embracing market reforms, joining the world economy, and promoting private entrepreneurship. Each of you young people gathered here today is embarking on an adventure, filled with opportunities and discoveries that will lift your nation to ever better standards of living. Your futures are bright, and I wish you every success.