Copyright 2000 Federal News Service, Inc.
Federal News Service
May 23, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 1422 words
HEADLINE:
PREPARED TESTIMONY OF MS. CYNTHIA Y. VALKO EXECUTIVE VICE PRESIDENT NEW YORK
LIFE INTERNATIONAL, INC.
BEFORE THE HOUSE
COMMERCE COMMITTEE SUBCOMMITTEE ON FINANCE & HAZARDOUS MATERIALS
SUBJECT - PNTR: OPENING THE WORLD'S BIGGEST POTENTIAL
MARKET TO AMERICAN FINANCIAL SERVICES COMPETITION
BODY:
Mr. Chairman, members of the Committee, I'm grateful for the
opportunity to offer New York Life International's perspective on China's
impending membership in the WTO, and the implications for an American life
insurance company like ours. As Chair of the International Life Insurance
Committee of the American Council of Life Insurers (ACLI), I've worked closely
with colleagues throughout our industry to promote a China - agreement that
addresses our most pressing commercial priorities in that market. I'm glad to
report that we have much to be enthusiastic about in the far-reaching agreement
negotiated by U.S. Trade Representative Charlene Barshefsky's team.
In
the life insurance and pension products sector, the agreement truly shifts the
basis for foreign companies' participation in the Chinese market. I'd like to
cite a few key examples of how the agreement negotiated by the United States
will improve our prospects in China. I should note that last week's agreement
between the European Union and China appears to encompass a number of elements
which improve upon the deal negotiated by the U.S. team, particularly with
respect to accelerated phase-ins of Chinese market-opening commitments. Details
on the EU-China deal are still trickling out, so I will focus today on the
provisions of the U.S. agreement, which we've had a chance to study. But I want
to stress that our deal can only get better because of what the EU has
negotiated. Because China's final WTO package will be based on the "best" offers
on the table, American insurance companies will benefit from any enhancements
that the European Union has in fact achieved.
Today, the ability of our
company and many others to obtain a license to sell life insurance in China is
governed by a regulatory process that is unpredictable, non-transparent, and
frequently politicized. Under the WTO agreement, China has committed to granting
licenses based on clear-cut qualification factors, and without easily-
manipulated economic "needs tests" or quantitative limits on licenses.
Today, American life insurers face geographic restrictions determining
which Chinese cities are "open for business" to their activities. Under the WTO
agreement, these access restrictions will be eliminated fully within three years
of China's accession, and a specified list of cities will be fully opened even
before that period expires.
Today, foreign life insurance firms
operating in China are not allowed to offer the full range of financial
products. Under the WTO agreement, companies like ours will be able to sell
health products within four years of China's accession, and pension, group, and
annuities products within five years.
Today, foreign insurers in China
are limited in their form of ownership and restricted in their choice of joint
venture partner. Under the WTO agreement, we'll be able to select a Chinese
partner of our choice immediately upon China's WTO accession, with a provision
for a 50 percent share in equity.
China's commitments in the life
insurance sector represent a clear statement of the political will of China's
leaders to open China's financial services market to greater competition. In the
process, these reforms will significantly enhance the ability of China's
citizens to control their financial destinies. By sending this political signal,
and by committing China to fundamental reforms through binding WTO obligations,
China's leaders are giving the country's regulators and bureaucrats some
extremely significant marching orders. And that, in the final analysis, is what
really matters in this agreement.
The significance of these commitments
is particularly striking when one considers the future of the Chinese market for
life insurance, pension products and other personal financial services. Although
China has more than one-fifth of the world's population, it currently accounts
for less than two-tenths of a percent of the world's life insurance market. Even
though the Chinese have one of the highest individual savings rates in Asia,
China spends less on all forms of insurance than 28 U.S. states.
This
disparity between China's size and its currently underdeveloped insurance market
can be summed up in a single word: potential. The market-opening commitments
contained in China's WTO agreement are likely to lead to volume increases that
exceed 300 percent -- more than $4.8 billion.
China's
market liberalization steps will accelerate a process of awareness about life
insurance and other personal financial management tools that is already underway
in China, by virtue of changing attitudes about personal finance. As we have
seen so clearly in the Eastern European region, doubts about the solvency of
state-run pension systems are increasing the demand for privately-held pensions,
annuities and life insurance.
In China, this dynamic is particularly
relevant in connection with emerging strains on the traditional rural system of
old age support. As China's huge population ages, the sheer number of elderly
will stretch the traditional rural system beyond the breaking point. Recognizing
this, individual Chinese are increasingly moving to assure their long-term
social security by investing in life insurance, pension products, and other
personal financial instruments. The WTO agreement will accelerate that trend,
and will allow U.S. companies to participate more fully in it.
So the
terms of the agreement are clearly very good for U.S. providers of life
insurance and related financial products. But I think it is important to stress
that the financial services dimensions of the agreement will also contribute to
a process of positive societal change in China.
As members of the
Committee are well aware, one of the key debating points regarding
PNTR centers around the degree to which China's membership in
the WTO, and its associated economic and trade liberalization commitments, will
advance the development of a more stable and democratic China. We have to be
careful in this argument. I think it is unwise to portray WTO membership as a
sort of "silver bullet" that will rapidly transform Chinese society in a way
that addresses many U.S. policy concerns. There are no quick fixes to these
problems, and we should not pretend that the WTO will provide such a fix.
But I do believe that U.S. goals can be achieved most effectively and
most quickly by granting China PNTR status, bringing it into
the WTO and integrating its economy more deeply with that of the rest of the
world. Moreover, I'm convinced that the financial services dimensions of China's
WTO package speak eloquently to the power of WTO accession to foster positive
economic and social change in China.
We have seen over and over in the
"newly industrializing" countries that competitive, dynamic, and
transparently-regulated financial services systems are at the very core of
entrepreneurship and economic freedom. A mature and competitive financial
services market creates stable pools for investment in infrastructure, housing,
and other critical needs. Such a market also provides people with a larger set
of options about managing their financial destinies and long-term well-being. I
am convinced that the Chinese negotiators knew exactly what they were doing in
offering such far-reaching "concessions" in the financial services area, because
those very "concessions" are in fact critical to the development of strong
social safety nets and individual prosperity in China.
The investments
that millions of Chinese make in an expanding array of personal financial
instruments will be translated into a stronger financial foundation for the
country as a whole. And just as the insurance industry in the United States has
enabled some of this country's most significant investments in infrastructure
and productive enterprises, the expansion of China's financial services market
will reinforce the entrepreneurial spirit that is already at work creating a
"new China." New York Life very much looks forward to being part of that
process.
The bottom line is that China's participation in the World
Trade Organization is a truly momentous development in that country's evolution
towards greater economic reform and political freedoms. Congress, by approving
PNTR, can send a strong signal that it recognizes the benefits
-- for the citizens of both China and the United States -- of China's decision
to play by global trade rules.
Thank you for your attention, and for
inviting me to appear today.
END
LOAD-DATE: May
25, 2000 
