REMARKS TO CHINA DEVELOPMENT RESEARCH FOUNDATION SYMPOSIUM ON BUILDING THE FINANCIAL SYSTEM FOR THE 21ST CENTURY

Ambassador Clark T. Randt, Jr.
Ambassador of the United States of America to China
Renaissance Hotel Tianjin TEDA

June 24, 2006

DISTINGUISHED GUESTS, FRIENDS AND COLLEAGUES,
I WISH TO EXPRESS MY SINCERE APPRECIATION TO HARVARD LAW SCHOOL AND TO THE CHINESE DEVELOPMENT RESEARCH FOUNDATION FOR GIVING ME THE OPPORTUNITY TO ADDRESS SUCH A TRULY DISTINGUISHED AUDIENCE AT THIS IMPORTANT SYMPOSIUM.

THE UNITED STATES GOVERNMENT HAS BEEN A PROUD PARTICIPANT IN THE HARVARD LAW SCHOOL’S SYMPOSIA ON INTERNATIONAL FINANCIAL SYSTEMS IN JAPAN, CHINA AND THE EUROPEAN UNION SINCE THEIR INAUGURATION.

WE CONTINUE TO STRONGLY SUPPORT THE PROGRAM’S EFFORTS TO BRING TOGETHER GOVERNMENT OFFICIALS, ACADEMICIANS, BANKERS, LEGAL EXPERTS, INVESTORS AND OTHER MARKET PARTICIPANTS IN A SETTING CONDUCIVE TO FRANK AND OPEN DISCUSSION.
 
THE FOCUS ON BUILDING FINANCIAL SYSTEMS IS BOTH IMPORTANT AND TIMELY, PARTICULARLY FOR CHINA.  Inefficient financial intermediation HAS BEEN A DRAG ON CHINESE GROWTH AND A SOURCE OF ECONOMIC VOLATILITY AND FISCAL LOSSES FOR CHINA.
 
CHINA’S SUCCESSFUL TRANSITION TO A MARKET ECONOMY ULTIMATELY DEPENDS ON THE MODERNIZATION OF CHINA’S FINANCIAL SECTOR.
 
TODAY, I WILL FOCUS MY REMARKS ON TWO AREAS:  OUTBOUND CHINESE DIRECT INVESTMENT TO THE UNITED STATES AND THE ROLE THAT INBOUND FOREIGN DIRECT INVESTMENT CAN PLAY IN CHINA’S FINANCIAL SECTOR DEVELOPMENT.
 
WHEN I FIRST CAME TO CHINA AS THE EMBASSY’S COMMERCIAL ATTACHÉ IN 1982, I OFTEN SAT IN AUDIENCES LISTENING TO CHINESE OFFICIALS PROMOTING FOREIGN INVESTMENT IN CHINA. 
 
TIMES HAVE CHANGED AND OUR ROLES ARE REVERSED TODAY.
 
ACCORDING TO RECENT DATA BY THE STATE ADMINISTRATION OF FOREIGN EXCHANGE, THE AGGREGATE AMOUNT OF CHINESE FDI ABROAD IS $64 BILLION. I EXPECT THAT THIS NUMBER WILL GROW SIGNIFICANTLY IN THE YEARS AHEAD.
 
SEVERAL CHINESE FIRMS HAVE ALREADY SUCCESSFULLY INVESTED IN THE UNITED STATES.  FIRMS SUCH AS HAIER, WANXIANG, THE CHINA STATE CONSTRUCTION ENGINEERING GROUP AND LENOVO.
 
EVERYONE SHOULD BE CLEAR: THE BUSH ADMINISTRATION STRONGLY WELCOMES FOREIGN INVESTMENT.  THE UNITED STATES MAINTAINS A VERY OPEN AND TRANSPARENT INVESTMENT ENVIRONMENT.  AT THE END OF 2004, TOTAL FOREIGN DIRECT INVESTMENT IN THE UNITED STATES WAS $1.8 TRILLION.  WE MUST BE DOING SOMETHING RIGHT.
 
FEDERAL, STATE AND LOCAL GOVERNMENTS DO NOT DISCRIMINATE BETWEEN FOREIGN COMPANIES OR DOMESTIC COMPANIES IN TERMS OF SECTOR-SPECIFIC REGULATIONS, SAFETY STANDARDS, LABOR LAWS, TAXATION OR CORPORATE GOVERNANCE.  SPECIFIC SECTORAL RESTRICTIONS ON FOREIGN INVESTMENT ARE NARROW AND TRANSPARENT.
 
ONLY IN VERY RARE CIRCUMSTANCES DOES THE U.S. GOVERNMENT PRE-SCREEN PROPOSED FOREIGN INVESTMENTS.  IN VERY LIMITED CASES WHERE THERE ARE SPECIFIC NATIONAL SECURITY CONCERNS, THE INTERAGENCY COMMITTEE ON FOREIGN INVESTMENT IN THE UNITED STATES, USUALLY REFERRED TO AS CFIUS, CHAIRED BY THE TREASURY DEPARTMENT, COULD REVIEW SPECIFIC TRANSACTIONS THAT MAY AFFECT THE U.S.’S NATIONAL SECURITY PURSUANT TO CLEAR PROCEDURES AND TIMELINES. 
 
NATIONAL SECURITY IS THE ONLY CONSIDERATION IN THE CFIUS PROCESS. 
 
I WANT TO BE CLEAR: CONSIDERATIONS OCCASIONALLY RAISED BY THE PUBLIC AND OUR CONGRESS OTHER THAN THOSE RELATED SPECIFICALLY TO NATIONAL SECURITY ARE NOT PART OF THE CFIUS INVESTMENT REVIEW PROCESS.  I UNDERSTAND YOU WILL HEAR MORE ABOUT CFIUS THIS AFTERNOON.
 
PRESIDENT BUSH HAS MADE CLEAR TIME AND AGAIN THAT HIS ADMINISTRATION FIRMLY ADHERES TO A POLICY OF MAINTAINING AN OPEN INVESTMENT CLIMATE IN THE UNITED STATES.
 
I RECOGNIZE THAT THERE ARE ASPECTS OF THE CHINESE ECONOMY THAT MAKE THE UNITED STATES POLITICAL CLIMATE FOR CHINESE FOREIGN DIRECT INVESTMENT MORE CHALLENGING.  WHEN LARGE INVESTMENTS ARE MADE BY STATE-OWNED ENTERPRISES, THERE ARE CONCERNS IN THE UNITED STATES THAT THESE AFFILIATES WILL NOT OPERATE ON COMMERCIAL TERMS.  LIKEWISE, WHEN FOREIGN INVESTORS RECEIVE FINANCING FROM STATE-OWNED BANKS THERE ARE CONCERNS THAT SUCH FINANCING IS NOT ON COMMERCIAL TERMS. 
 
OUR INDEPENDENT CONGRESS WILL REFLECT ON AND RESPOND TO THESE CONCERNS.  WE CAN AND MUST WORK TOGETHER TO ADDRESS SUCH CONCERNS.
 
RISING GLOBAL TRADE IMBALANCES ALONG WITH barriers to u.S. exports and investment abroad feed the impression IN THE UNITED STATES that trade and investment opportunities are not balanced OR FAIR.
 
WORKING WITHIN THE WTO TO SUBMIT AN AGGRESSIVE OFFER TO OPEN CHINA’S FINANCIAL SERVICES SECTOR WOULD ATTRACT FOREIGN CAPITAL, MANAGEMENT EXPERTISE, TECHNOLOGY AND KNOW-HOW AND HELP ACCELERATE NECESSARY FINANCIAL RESTRUCTURING IN CHINA.
 
Financial sector liberalization and modernization are central to this transformation.
There has been notable progress on banking reform. Foreign strategic investors – including some of you in this room – have invested more than $17 billion in Chinese banks.    In addition, international institutional investors have invested MORE THAN $21 billion in the Hong Kong IPOs of tHREE of China’s five largest banks.

WHILE CHINA’S FINANCIAL SECTOR WELCOMES ADDITIONAL CAPITAL, THE CONTRIBUTION OF FOREIGN STRATEGIC INVESTORS TO FINANCIAL SECTOR DEVELOPMENT GOES WELL BEYOND THAT IN WAYS THAT BENEFIT THE BROADER ECONOMY.  FOREIGN INVESTORS CAN PROVIDE TECHNOLOGY AND MANAGERIAL KNOW-HOW.  THEY TRAIN LOCAL STAFF, MANY OF WHOM GO OFF TO RUN DOMESTIC VENTURES.  THROUGH BOTH THE DEVELOPMENT OF THEIR OWN BRANDS AND THE REPUTATION OF THEIR HOME REGULATORS, THEY REASSURE PORTFOLIO INVESTORS AND DEPOSITORS, ENHANCHING DOMESTIC FIRMS’ OWN BRANDS AND CONFIDENCE IN CHINA’S FINANCIAL SYSTEM.
IN ADDITION TO RESOURCES, Foreign portfolio investors RAISE EXPECTATIONS FOR transparency, corporate governance and profitability.  both foreign and domestic investors CAN SEND IMPORTANT MARKET SIGNALS TO BOTH MANAGEMENT AND regulators.
FOR THESE REASONS, The UNITED STATES GOVERNMENT believes it IS in China’s best interest to allow more competition and market forces into the FINANCIAL sector, in particular, by REMOVING ownership caps on foreign stakes and expanding the scope of products FOREIGN FINANCIAL INVESTORS can offer. This WOULD ALLOW SMALL AND MEDIUM-SIZED BANKS AS WELL AS SECURITIES COMPANIES TO ATTRACT MUCH NEEDED EXPERTISE AND CAPITAL.  lOOK WHAT FOREIGN PARTICIPATION HAS DONE TO CHINA’S HOSPITALITY INDUSTRY, A WIN-WIN RESULT.
ON AVERAGE, Chinese households save 25 percent of their income, mostly in the form of low interest-earning bank deposits.  These savings reflect the Chinese public’s concerns about a weak social safety net and access to healthcare.
Increasing the range of financial products available to private citizens in Chinese households, SUCH AS retirement annuities, insurance and other financial products to manage risk, is therefore a critical component for helping China increase consumption relative to investment and exports.
Individual savings could be reduced by insurance policies covering disability and catastrophic illness, by the ability to finance education and other major expenses and by making higher return investment options available to private citizens, including OPTIONS overseas. Given their expertise in these areas, foreign investors in the Chinese financial sector could help promote thESE TYPES OF BENEFICIAL REFORMS.
IN CONCLUSION, GREATER FDI, BOTH BY U.S. FIRMS IN THE CHINESE FINANCIAL SECTORS AND BY CHINESE FIRMS IN THE U.S. WILL FURTHER INCREASE THE LINKAGES BETWEEN OUR ECONOMIES AND BETWEEN OUR TWO GREAT NATIONS.
 
ON BOTH SIDES OF THE PACIFIC, WE NEED TO CONTINUE OUR EFFORTS TO MAINTAIN A POLITICAL CLIMATE SUPPORTIVE OF OPEN INVESTMENT POLICY.  JUST LIKE RIDING A BICYCLE, INVESTMENT POLICY MUST CONTINUE TO MOVE FORWARD OR VESTED INTERESTS WILL TOPPLE IT OVER.
 
THE BUSH ADMINISTRATION IS COMMITTED TO A MUTUALLY BENEFICIAL, OPEN AND WELCOMING FOREIGN INVESTMENT POLICY.  SUCH A POLICY HAS HELPED MAKE THE AMERICAN ECONOMY STRONG AND WILL DO THE SAME FOR CHINA.
 
THANK YOU.