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Federal Document Clearing House
Congressional Testimony
May 11, 2000, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2027 words
HEADLINE:
TESTIMONY May 11, 2000 MARC E. LACKRITZ PRESIDENT SECURITIES AND EXCHANGE
COMMISSION HOUSE BANKING AND FINANCIAL SERVICES IMPACT OF CHINA
NTR ON FINANCIAL INDUSTRY
BODY:
May 11, 2000
Statement of Marc E. Lackritz President, Securities Industry Association Before
the Committee on Banking and Financial Services United States House of
Representatives Chairman Leach, Congressman LaFalce, and members of the
Committee, I am Marc Lackritz, President of the Securities Industry
Association'. I appreciate the opportunity to present SIA's views on Permanent
Normal Trade Relations (PNTR) with China and China's entry into
the World Trade Organization ())VTO). We greatly appreciate this Committee's
support of initiatives to open foreign financial markets. The Administration,
Congress, and this Committee have worked diligently to open foreign markets and
to help the U.S. financial services sector continue our work in creating new
opportunities for issuers and investors both here and abroad. The securities
industry supports PNTR with China for the following reasons: 1)
opening the Chinese markets to both the goods and services sectors will bolster
China's economic growth, thereby benefiting the U.S. economy through increased
exports; 2) PNTR will create new business opportunities for
U.S. financial services firms; and 3) the U.S. reaps the benefits from China's
concessions to join and abide by the rules of the world trading system without
giving up anything in return - a "win-win" situation. The Financial Services
Sector is a Catalyst for U.S. Economic Growth Low interest rates, low inflation,
and high productivity growth have helped to produce the longest period of
economic growth and prosperity in U.S. history. The U.S. financial services
sector is a key component of U.S. economic growth and development, and has
played a critical role in fueling the current expansion. The U.S. securities
industry, for example, raised more capital for U.S. business during the past IO
years than the combined total raised in all previous years in U.S. history. In
addition, there are 23.5 million more shareowners today than in 1990 .2
Financial services firms contribute about eight percent of U.S. Gross Domestic
Product (GDP) and employ about six-million people to support the products and
services we supply. The voracious appetites of industrial and developing
countries for America's innovative products and services helped the financial
services sector turn in a record $16.5 billion of exports in 1998, with a trade
surplus of $5.9 billion. The continued well being of the financial services
industry is directly linked to our ability to sell our products in foreign
markets. U.S. Exports, Jobs Will Increase As China's Economy Grows In November
1999, U.S. and Chinese negotiators announced an historic trade agreement that
paves the way for China's entry into the WTO. The agreement is an important
first step toward opening the Chinese markets to both the goods and services
sectors. Chinas concessions to join the WTO - including steep reductions in
tariffs and the elimination of many non-tariff barriers - are real. U.S.
consumers, investors and businesses stand to benefit from expanded access to
this emerging economic giant. With more than 1.2-billion people, China is the
largest market in the world. In just over a decade, China has become America's
fourth-largest trading partner, with aggregate trade flows between the two
countries topping more than $95 billion in 1999. China has also exhibited one of
the world's fastest economic growth rates with real GDP growth approaching I 1
percent per year from 1990-97. Such incredible growth rates imply that China's
economy will double about once every seven years. The potential opportunities
for U.S. exporters in China are enormous. For example, the Congressional
Research Service expects China's WTO accession to generate U.S. export growth of
as much as $13 billion annually by 2005. Currently, U.S. exports to China are
estimated to support 200,000 jobs. As China becomes wealthier, it will demand a
higher level of U.S. exports. PNTR will make the most of the
opportunity for meaningful new business, additional jobs, and a positive impact
on the U.S. services trade surplus with China. Expanding Business Opportunities
for U.S. Financial Services Firm Many of our leading member companies see China
as the largest single emerging market and believe the WTO accession agreement
gives them the opportunity to strengthen their business operations there.
Indeed, despite difficulties entering and operating in China in the past,
numerous U.S. securities firms have established offices in China and have
participated in China's international securities offerings. The commitments from
China for the securities industry - which include provisions for minority
ownership in local securities underwriting, asset management firms, and advisory
companies - represent a first step upon which to pursue additional
liberalization of China's capital markets. Importantly, the Chinese commitments
for the securities sector also include the grandfathering of existing activities
and investments, national treatment, and the elimination of China's "economic
needs test." Additional improvements that can be achieved subsequently by the
European Union and other WTO members will only make the overall accession deal
with China better for the United States. Financing China's infrastructure
presents the U.S. financial services industry with an especially important
opportunity. Over the next decade, analysts predict that China will invest over
$1 trillion in transportation and communications infrastructure improvements and
energy-related capital equipment. However, China's private and public sectors
alone cannot mobilize the massive financial resources that are necessary for its
growth. Much of the infrastructure development will be funded through foreign
sources, and this opportunity has generated substantial interest by the U.S.
securities industry. China's markets will benefit from the new technologies,
capital, innovative products and services, and expertise of the U.S. securities
industry. As China's financial markets develop, Chinese firms will be better
able to raise low-cost capital and support job creation. Importantly, not only
will U.S. companies be exporting their new products and services to China, they
will also bring with them their best business practices and principles. Through
these best practices the Chinese people will be able to build on the economic
and political reforms currently underway. America's bipartisan policy of
maintaining trade ties with China has shown that positive change is the product
of engagement, not isolation. PNTR gives us the opportunity in
the coming years to continue to use our influence in China's markets to achieve
domestic reforms. The U.S. securities industry feels strongly that granting
China PNTR status is in the best interests of both the U.S. and
China. While the securities industry still faces obstacles to entering and
conducting business in Chinas burgeoning market for financial services, the
U.S.-China trade pact is clearly a breakthrough for American trade policy.
China's entry into the WTO, coupled with U.S. extension of
PNTR, creates a platform that will support further development
of Chinas markets through a comprehensive and fully enforceable agreement. The
U.S. benefits from these concessions without giving up anything in return - a
"win-win7' situation. Indeed, U.S. refusal to grant PNTR only
serves to put the U.S. at a disadvantage globally with our major European and
Asian competitors. We look forward to working with the Administration and
Congress to further expand the U.S. securities industry's access to China. Thank
you very much for the opportunity to testify, Mr. Chairman.
LOAD-DATE: May 12, 2000, Friday
