Copyright 2000 Federal News Service, Inc.
Federal News Service
May 11, 2000, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 859 words
HEADLINE:
PREPARED TESTIMONY OF MR. JOHN LIPSKY CHIEF ECONOMIST AND DIRECTOR OF RESEARCH
THE CHASE MANHATTAN BANK ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE AND THE
COALITION OF SERVICES INDUSTRIES
BEFORE THE
HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
SUBJECT - ACCESSION OF CHINA TO THE WTO
BODY:
I am John Lipsky, the Chief Economist and Director of Research of the
Chase Manhattan Bank. I also serve on the Bank's Management Committee. I would
like to thank the Committee for the opportunity to testify today on behalf of
the Financial Services Roundtable/i, and the Coalition of Services
Industries/ii.
The sustained expansion of market-based international
trade under the GATT and the WTO -- including trade in financial services -- has
provided a critical boost to the United States' recent economic success.
Continued progress in opening foreign markets to U.S. firms will help to extend
that success into the future. It is only logical, therefore, that the member
firms of the Financial Services Roundtable and the Coalition of Services
Industries strongly support the establishment of Permanent Normal Trade
Relations (PNTR) with China under the terms of the bilateral
agreement. Approval of PNTR will create significant new
business opportunities for U.S. financial sector firms, benefiting both their
shareholders and their employees. In addition, expanded opportunities in the
financial sector will aid other U.S. firms engaged in business in China and
elsewhere. More broadly, Chinas' accession to the WTO under the terms of the
bilateral agreement will represent a significant step forward in creating a
fairer, more efficient, and more open world trading system.
The benefits
to U.S. financial services firms from the bilateral agreement with China on WTO
accession are both straightforward and fundamental. Today, foreign equity
ownership is limited, and the licensing process for foreign banks is neither
transparent nor based entirely on commercial considerations. Under the bilateral
agreement, China will allow bank branches and joint venture partnerships upon
accession. Within five years, 100% foreign ownership will be permitted.
Today, there are significant national treatment problems for foreign
banks in China. In general, foreign banks are only permitted to engage in
wholesale business, to offer only foreign currency products and transact only
with foreign-invested enterprises. Under the bilateral agreement, China upon
accession will allow foreign banks to handle all foreign currency transactions
for foreign clients. In addition, such transactions will be allowed with Chinese
businesses and individuals, subject to an already-agreed timetable. Moreover,
within 2 years foreign banks will be allowed to handle local currency
transactions for Chinese businesses (subject to the geographic phase-in), and
within 5 years for Chinese individuals without geographic restriction.
Upon accession, non-bank financial institutions will be allowed to
provide auto financing, and foreign financial information providers will be able
to operate without special restrictions. Within two years after accession,
foreign firms will be allowed to issue credit cards for local currency
transactions, and to offer wholesale credit (such as mortgage lending). Within
five years alter accession, non-bank institutions will be allowed to engage in
consumer financing. Finally, when China allows commercial leasing, both Chinese
and foreign enterprises will receive identical treatment.
Foreign
securities and asset management firms also will receive new powers under the
bilateral agreement. Of course, the Chinese securities industry is in an early
stage of development, and major steps will be required to complete a modem
regulatory and legal framework. Thus, it is understandable and appropriate that
the liberalization of China's financial markets will be most accelerated in the
banking and insurance sectors. It should be noted, however, that the Chinese
Securities Regulatory Commission is working actively on plans to develop the
domestic industry that will include foreign participants.
Other benefits
will flow from the PNTR agreement with China. For example, by
establishing a pre-agreed timetable for implementation, this agreement sets a
new, higher standard for future negotiations with other countries on opening
financial services industries to international competition. In essence, there
are no negative aspects to this agreement for U.S. financial sector firms: the
only action required by the United States for U.S. firms to benefit is the
establishment of PNTR with China. However, if China's WTO
accession were to proceed without the U.S. granting PNTR
status, U.S. financial sector firms would be put at risk. Without any doubt,
non-U. S. firms operating in China would seek to take advantage of such a turn
of events.
Endnotes:
i The Financial Services Roundtable is a
national association whose membership is reserved for 100 companies selected
from the nation's 150 largest integrated financial services firms. The member
companies of the Roundtable engage in a wide range of financial activities,
including banking, securities, insurance, and other financial service
activities.
ii The Coalition of Services Industries (CSI) members
include an army of leading US services companies in all the financial sectors.
Members also include firms in a wide variety of other service industries.
END
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