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May 9, 2000, Tuesday

SECTION: CAPITOL HILL HEARING

LENGTH: 5744 words

HEADLINE: PANEL TWO OF A HEARING OF THE SENATE COMMITTEE ON BANKING

SUBJECT: PERMANENT NORMAL TRADE RELATIONS WITH CHINA

CHAIRED BY: SENATOR PHIL GRAMM (R-TX)

LOCATION: 528 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 9:40 A.M. EDT DATE: TUESDAY, MAY 9, 2000

WITNESSES: MARC E. LACKRITZ, PRESIDENT, SECURITIES INDUSTRY ASSOCIATION GARY BENANAV, CHAIRMAN/CEO, NEW YORK LIFE INTERNATIONAL, INC. ON BEHALF OF THE INTERNATIONAL INSURANCE COUNCIL ROBERT P. MORROW III, MANAGING DIRECTOR/GROUP EXECUTIVE INTERNATIONAL CORPORATE BANKING GROUP, BANK OF AMERICA CORPORATION ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE

BODY:
SEN. GRAMM: Let me call our second panel.

(Pause while witnesses are seated.)

I want to thank members of our second panel for coming. Our first witness is Marc Lackritz, who is president of the Securities Industry Association. He's based here in Washington. Our second witness is Gary Benanav, who is chairman/CEO of New York Life Insurance International Incorporated. Our third witness is Robert P. Morrow III, who is managing director and group executive of the International Corporation Banking Group at Bank of America.

We have two members that haven't had an opportunity to make an opening statement, and what I would like to do is recognize them first. I think Senator Grams came first and then Senator Bennett, so let me recognize them for an opening statement. Then if Senator Crapo wanted to make an opening statement he could, and then we'll recognize the witnesses. Senator Grams?

SEN. ROD GRAMS (R-MN): Thank you, Mr. Chairman. I don't have an opening statement. I'm just eager to hear the testimony from our witnesses this morning. And I have to leave in a short period, so I'd rather get to them than any opening statement.

Thank you.

SEN. ROBERT BENNETT (R-UT): Thank you, Mr. Chairman. I've got a full committee markup in Appropriations. And having been a appropriator before you moved on, you understand how it's essential to make a quorum there. So I will have to leave as well.

But I just want to make this comment on this issue. Everyone has said we must keep the leverage of annual review -- that is everyone who is on the other side of the issue has said we must keep the leverage of annual review of the relationship with China. I've long since been convinced that is a lever which, if pulled, breaks.

It has no leverage at all. It's one of these threats which, if you carry it out, leaves you impotent. And we don't do ourselves any favors as a nation if we pretend that we have leverage and influence when, in fact, we do not.

The formalization of a permanent relationship with China is the logical next step towards establishing the kind of long-term rapport with the Chinese that will bring peace. Senator Bunning talked about the Chinese thinking in long terms; we must think in long terms, and this proposal that is before the Congress is one of the most long- headed and far-seeing proposals that anybody has ever made.

So I thank you, Mr. Chairman, for calling the hearings and giving us an opportunity to set the record straight. I've said privately, will repeat now, I'm very glad that Charlene Barshefsky negotiated this agreement rather than Donald Trump -- (mild laughter) -- and the United States came out very well as a result of her skill, and we have an agreement before us that we clearly, we clearly should ratify.

Thomas Friedman, in his book, "The Lexus and the Olive Tree," talking about globalization and the global economy, puts forth an interesting test, Mr. Chairman. You may be familiar with it. He calls it, I think, "the McDonald's factor," and it is his contention and has proven true that any two countries that have McDonald's never go to war. (Laughter.) There has never been a war between two countries that have achieved equality on the McDonald's front. (Laughter.) And China is a country where we have McDonald's -- (laughter) -- and -- Friedman has indicated that we're about to see that tested, because there are McDonald's in both Taiwan and China.

But I think that's symbolic of the way the world has changed in the last 50 years. There are local brands, but there are global brands, and there is global trade and there is global understanding of the benefits of trade, and anything we can do in the Congress to see to it that that's enhanced and encouraged, it's our clear responsibility to do. And with that, I apologize to the witnesses that I now have to go off and spend their money, but that's, unfortunately, the way the Congress is structured.

Thank you, Mr. Chairman.

SEN. GRAMM: Thank you. Mr. Lackritz?

MR. LACKRITZ: Thank you, Mr. Chairman. Mr. Chairman, members of the committee, it's a pleasure to be here today to talk about the securities industries' position on PNTR with China and China's entry into the World Trade Organization.

We greatly appreciate this committee's specific support of initiatives to open foreign financial markets. This committee, along with the Congress and the administration have really worked diligently, I think, to open foreign markets and help the U.S. financial services sector continue our work in creating new opportunities for issuers and investors, both home and abroad.

We strongly support PNTR with China for the following reasons: First, opening the Chinese markets to both the goods and services sectors will bolster China's economic growth and, thereby, benefiting the United States economy through increased exports.

Second, PNTR will create new business opportunities for the U.S. financial services firms and, third, we reap enormous benefits from China's concessions to join and abide by the rules of the world trading system without our giving up anything in return; a win-win situation.

Let me talk specifically about the financial services sector. Low interest rates, low inflation and high productivity growth have helped to produce the longest period of economic growth and prosperity in our history. Our financial services sector is a vital component of our U.S. economic growth and development and we have played a critical role in fueling this current expansion.

The securities industry, for example, has raised more capital for U.S. business in the last decade of the '90s than the combined total capital raised in all previous years of U.S. history. Moreover, there are now 23-1/2 million more shareholders at the end of the decade than there were at the beginning of the decade. Financial services firms contribute about 8 percent of U.S. gross domestic product, and we employ about 6 million to support the products and services we supply.

The continued well-being of the financial services industry is really directly linked to our ability to sell our products in foreign markets.

This agreement, which has been discussed previously, really is an important first step, we think, towards opening the Chinese markets to both goods and services sectors. And we think that the concessions that the Chinese have made, including the reduction of tariffs and the elimination of many non-tariff barriers, are very real and very substantial. U.S. consumers, U.S. investors, and U.S. businesses all stand to benefit from the expanded access to this emerging economic giant. With more than 1.2 billion people, China is now the largest market in the world. In just over a decade, China's become our fourth leading trade partner, with aggregate trade flows between our two countries now topping $95 billion in 1999.

China has also had one of the fastest economic growth rates around the world. In the seven years -- eight years from 1990 to 1997, it averaged about 11 percent a year, meaning that their economy doubles every seven years.

Therefore, the opportunities for our exporters are just enormous in China. And the estimates of the Congressional Research Service and other objective observers indicate that this agreement by itself is likely to generate U.S. export growth of as much as $13 billion annually by 2005.

Many of our own leading member companies see China as the largest single emerging market and believe the WTO accession agreement now gives them the opportunity to strengthen their business operations there. Indeed, despite some difficulties that we've had in 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 grandfathering of existing activities in investment, 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.

In addition, financing China's infrastructure needs presents the 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.

But China's private and public sectors alone cannot mobilize the financial resources that are necessary for this kind of 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 our companies export their new products and services to China, they'll also bring with them the very best business practices and principles and values. And through these best practices, principles, and values, the Chinese people will be able to build on the economic and political reforms currently under way. China's -- America's bipartisan policy of maintaining trade ties with China has shown the positive change that's resulted from engagement, not isolation. PNTR gives us the opportunity in the coming years to use our influence in China's markets to achieve domestic reforms.

We feel strongly that granting China PNTR status is in the best interest of both the U.S. and China. And while our industry still faces some obstacles to entering and conducting business in China's burgeoning financial markets -- markets for financial services, this trade pact is clearly a breakthrough for U.S. trade policy. China's entry into the WTO, coupled with our extension of PNTR, creates a platform that will support further development of China's markets through a comprehensive and fully enforceable agreement. We think this is really a win-win situation since we benefit from these concessions without giving up anything.

We look forward to working with the administration, the Congress, and specifically with this committee to further expand the U.S. securities industry's access to China.

Thank you very much, Mr. Chairman.

SEN. GRAMM: Thank you.

Mr. Benanav.

MR. BENANAV: Thank you, Mr. Chairman. And good morning to all of you.

Representing the International Insurance Council, whose member companies generate nearly 80 percent of all U.S. international insurance and reinsurance abroad, and as the CEO of New York Life's international business operations, I find myself regularly involved in public policy issues that have a bottom-line significance for our industry and for my company. And the issue of China's WTO membership and PNTR certainly fall into that category.

But the insurance industry's interest in this issue is much more than parochial self-interest. My industry is firmly convinced that China's integration into the WTO is profoundly in this country's broad national interest -- economically, geostrategically, and in terms of the values that are most important to us as Americans.

The arguments for a "yes" vote on this issue are compelling. U.S. and Chinese trade officials have concluded a WTO package that gives American manufacturers, farmers and service providers an unprecedented level of access to China's huge market. This alone provides a strong case for providing China with a permanent grant of the normal trading status that it has enjoyed uninterrupted for two decades. And yet we can't, and we don't, casually discount the arguments from the other side of this debate.

I know that members of Congress are deeply concerned about China's human rights record, its treatment of religious minorities, its posture towards its Asian neighbors and its view of global security issues. I'm not here to argue that those concerns are unwarranted. On the contrary, every American has a stake in seeing these concerns addressed effectively as part of the U.S.-China relationship.

One of the key debating points regarding PNTR centers around the degree to which China's WTO-related economic and trade liberalization commitments will advance the development of a more stable and more democratic China. We have to be careful in this argument. I'm not willing to portray WTO membership as a silver bullet that will rapidly transform Chinese society in a way that addresses all major U.S. policy concerns. There simply are no quick fixes to these problems, and we shouldn't pretend that WTO would provide such a fix. But I do believe that U.S. economic and foreign policy 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. And I'm convinced that the financial services dimension of China's WTO package in particular will foster positive economic and social change inside China.

Those of us in the U.S. financial service industry have much to be enthusiastic about in the far-reaching agreement negotiated by USTR Charlene Barshefsky's team. The agreement shifts the entire basis for foreign companies' participation in the Chinese insurance market. Under the agreement, gone will be the days of arbitrary and capricious needs tests and other artificial barriers to entry. Licenses to operate will be issued based on transparent, prudential criteria. The market for group policies, pension and annuity products will be open within five years of China's accession to WTO. The practice of imposing geographic limitations on the sales area of foreign insurers will be phased out within three years. Joint venture equity restrictions are likewise being relaxed.

The significance of these commitments is striking in light of the future of the Chinese markets for insurance and other personal financial service products. Although China has more than one-fifth of the world's population, it currently accounts for less than two-tenths of 1 percent of the world's life insurance market.

China spends less on all forms of insurance than each of 28 U.S. states spend individually.

This disparity between China's size and its underdeveloped insurance market can be summed up in a single word: Potential. Attitudes about personal finances are changing in China. Emerging strains on the traditional system of old-age support are leading individual Chinese to assure their future financial stability by investing in personal financial instruments. The WTO 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 insurance and other financial products.

But what will all this mean in terms of fostering a process of positive societal change in China? We've seen over and over in the newly industrializing countries that competitive, dynamic and transparently regulated financial service systems are at the very core of entrepreneurship and economic freedom.

A mature financial services market creates stable pools for investment in infrastructure, housing and other critical needs. Through its commitments in the WTO agreement, the Chinese government has taken the monumental step toward the strengthening of this market and the expansion of the financial horizons of Chinese citizens.

I think the Chinese negotiators knew exactly what they were doing in offering such far-reaching concessions in the financial services area, because those very concessions hold the potential to advance individual prosperity and capital mobilization inside China. So it's a true win-win arrangement for American economic and social values and for the Chinese people.

Now, what if we don't approve PNTR status? Rejection of PNTR will isolate America from China, will undermine the economic reformers in Beijing, will lessen the security of our allies, and will make confrontation in the U.S.-China relationship all but certain, as well as significantly diminishing America's ability to influence future changes in China's values and behavior.

The bottom line is that China's participation in the WTO is a truly pivotal development in that country's evolution towards greater economic reform and political freedoms. And by approving PNTR, Congress 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.

On behalf of New York Life and all the members of the International Insurance Council, thank you for your attention and for inviting me to appear.

SEN. GRAMM: Thank you. Mr. Morrow.

MR. MORROW: Good morning. I'm pleased to have the opportunity today to speak on behalf of the Financial Services Roundtable. Bank of America is one of approximately 100 financial institutions which are members of this organization. My responsibilities at the Bank of America include overseeing all of the bank's international wholesale banking activities, including our activities in China. Prior to my current position, I have had responsibility for Bank of America's operations in Asia-Pacific, Europe, Middle East and Africa, and our corporate banking activities in the United States. In this capacity, I have lived in London, Hong Kong and San Francisco.

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.

I'd like to, before beginning my remarks, formally thank Chairman Gramm for holding this important hearing and inviting the Roundtable to testify. The Roundtable strongly supports extending PNTR relations to China. Passing this historic legislation, which is necessary for the United States to glean the benefits of China's accession to the WTO, will provide unprecedented benefits for the financial services firms.

Although Bank of America is a diversified financial services firm undertaking banking, securities and insurance activities on a global basis, I will combine my remarks this morning specifically to the banking industry. My fellow panelists have already addressed issues as it pertains to insurance and securities.

Today Bank of America's operations include activities in Hong Kong, PRC and Taiwan. We've operated in Hong Kong since 1959, in Taiwan since 1965, and the PRC since 1981. It is interesting to note that we originally opened an office in Shanghai in 1949, only to close it shortly thereafter for obvious reasons. We presently employ approximately 1,600 associates in this market, of which approximately 75 are directly involved in the PRC, with full branches in Beijing, Shanghai and Guangzhou.

I'd like to stress that Bank of America's experience in these markets -- Hong Kong, Taiwan and the PRC -- are quite different. We find that the current legal and regulatory practices in the PRC are significantly more restrictive, limiting our ability to serve clients and expand our franchise there.

Let me take a moment to discuss the banking provisions included in the bilateral agreement. Under the agreement, China must allow branching, provide national treatment for all newly permitted activities, and impose license conditions solely based on their merits. We in the banking industry will be permitted to provide foreign exchange services to all banks and businesses, both local and foreign, as well as Chinese individuals (among accession?).

U.S. banks will be allowed to engage in local currency business with foreign businesses immediately and with Chinese businesses starting after two years, and with Chinese individuals after five years. Banking and local currency will be phased in with no geographic restrictions after the fifth year. Under current rules, most U.S. banks may only do wholesale banking business in foreign currencies, and even then, only with foreign companies and under limited restrictions. While Bank of America and Citibank do have licenses to provide local currency transactions, we are permitted to do so only in and around Shanghai.

Let me also talk about specific products and services that will be available for U.S. firms. Under the agreement, China will allow non-bank financial services companies to provide auto financing immediately upon accession. Five years from accession, foreign banks will be able to offer any products currently offered by Chinese banks to anyone in their country. Commercial leasing is currently not permitted for any entities, Chinese or foreign. However, it will be allowed for U.S. and foreign banks once it becomes legally permissible for activities for the Chinese institutions themselves.

These commitments collectively constitute a new benchmark for all subsequent accession agreements. More importantly, the agreement will be a useful tool in soliciting better commitments in financial services for existing WTO members, especially other developing countries.

Now let me turn to some indirect benefits that will accrue even to U.S. banks that do not participate and have operations in China. For example, U.S. banks that provide export credit, trade finance and foreign exchange products to U.S. companies that export to China will benefit as tariff levels decline from an average of approximately 25 percent to below 10 percent for all industrial goods after five years.

U.S. banks that lend to the U.S. agricultural sector will benefit, if tariffs fall, in agricultural products from an average of 31.5 percent to 14.5 percent. The U.S. Department of Agriculture estimates that farm exports will grow by approximately $2.2 billion a year. U.S. banks that lend to the high-technology sector will benefit, since China's agreement to sign the information technology agreement obligates it to lower tariffs on electronic products from an average of 13.3 percent at present to zero within five years.

U.S. banks that lend to the auto industry will especially benefit if tariffs decline from an average of 80 to 100 percent today to 25 percent by July 2006.

Finally, there is one point that I would like to reiterate that has been made by several individuals this morning that is worth bringing up again, which is this concept of "win-win" for American business. The concessions that I just pointed out and the additional concessions by the Chinese government to other industries are unilateral.

The only action the U.S. must now take is granting PNTR status to China. I believe that China will receive benefits of freer trade regardless of whether the U.S. takes this important step. China's accession to the WTO seems virtually guaranteed. The only question is whether or not the U.S. service firms and other businesses will be allowed to benefit from the opening of Chinese markets.

There are over 50 foreign banks with licenses in the PRC today. If the PNTR vote is postponed or lost, our European, Latin American and Asian competitors will certainly seize this opportunity to put the United States at a disadvantage.

Chairman Gramm and ranking member Sarbanes, in conclusion, the Roundtable appreciates the opportunity to provide our comments in this historic agreement and urges Congress to extend PNTR to China. Thank you very much.

SEN. GRAMM: Thank you. Let me thank each of you for coming. Let me say that I think in each of these three areas the agreement on Chinese accession is a dramatic improvement in market opening. I have been somewhat disappointed that the securities section was not stronger than it was.

I felt when the premier was here and offered the agreement in the spring, that had we consummated the deal then and demanded the opening for the securities market instead of protection for textiles that ultimately produced a marginally poorer deal from the point of view of trade and job creation that we might very well have done a better job of opening securities markets.

And with a quite high savings rate in China, there's no doubt both Chinese savers and American firms would have been a substantial beneficiary. And I don't know about the McDonald's test. I think it is a good test. I'm always suspicious of a country's economic freedom when I visit it and I don't see the Golden Arches.

But I would love to give both leaders and followers in China a chance to own stocks like Enron and Texas Instruments and First Bank of (Snook ?) -- (laughter) -- in my state on their stocks.

Let me ask each of you -- I have looked at the Chinese market for a long time and basically tried to assess, if I were actually in business trying to make money, and I -- what I would think of the Chinese market. And I think it's possible intellectually to construct a case both ways, but I'd like to just pose one question and we'll be through.

And that is with the high savings rate in China, based on this agreement, I'd like to get each of your views about the potential we have for developing a real customer base in China -- in your particular area -- in securities and in insurance and in banking.

MR. LACKRITZ: I can start off, Mr. Chairman. I think that there's -- there's actually a fairly good tradition in China of saving, investing and markets. And unfortunately it got interrupted. It's been interrupted rather significantly for the last 45 to 50 years. But there is a very good tradition of investing and market structures in China, and in fact there is rapid growth, as I understand it in China of Chinese individuals investing in Chinese securities on both the Shanghai and the Shenzun (ph) exchanges. And that's been growing very rapidly, so the number of shares has been increasing rapidly.

I think with this agreement, and hopefully with the economic development further, that that will also recycle into more savings, which will help to build the markets. And as the transparency improves and as the base improves, that should create a huge opportunity I think for securities firms to serve as retail customers. And so I think there's a tremendous growth opportunity there.

MR. BENANAV: We too are very, very optimistic about the long- term future of the Chinese insurance market, life insurance market in particular, based on the savings rate. Let me give you two facts that I think support that.

A company called China Life, which is the offshoot of -- from the old PICC Life -- is about five years old now. That company has sold more insurance last year -- sales of insurance for that one five-year- old company exceeded, in dollars, the aggregate sales of the top five U.S. companies here in the U.S.

Our policies are huge in relation to theirs. Theirs are very small policies. They just sell a lot of them. They have -- they have offices all around the country. And that company, which is the largest life company, has done fantastically well. The American companies who are there -- particularly AIG, who was granted the first foreign license -- has also done very, very well, and there doesn't seem to be, on the market level, any discrimination against an American company who has Chinese agents selling products almost on a door-to-door basis.

So when we see the low penetration of insurance, we see the rapid growth that the dominant Chinese company can achieve, and the fact that the market doesn't discriminate, we believe once the market is opened and we have a level playing-field, tremendous opportunity for us.

MR. MORROW: Senator, with respect to the pure banking product, we too -- I would agree with the panelists. We too see great opportunity. I think it really manifests itself in two ways.

On the wholesale or the corporate banking side, as I indicated earlier, we have been at this game for some time and with some high degree of frustration. The limitations that are put on us today, as I stated in terms of what we can do and where we can do it, and the difficulty of obtaining a license is really prohibitive to making a lot of money there.

So that the market -- you may have heard this from others -- the market while vast is also elusive in terms of profitability. So we think that unless there is a more level playing-field that not only the banking industry but many other people will continue to experience this gap between imagined success and actual success. So I think this is a real opportunity to close that gap.

With respect to retail banking opportunities, I think by just statistically, you would almost assume it is endless because of the fact that you've got, you know, 1.2 billion individuals there. And if you're familiar with the current state of the Chinese banking industry, by our standards, it would be significantly arcane. I mean, checking accounts are in fact very rare. Most people in China -- it's not uncommon to go into a large department store and see an individual purchasing a new suit and literally paying cash for that. The concept that we have of checking accounts, credit accounts, et cetera is relatively unknown in China although it's changing.

So there's tremendous opportunity for banking products. I think that the acid test will frankly be whether or not we're given an opportunity to compete effectively. And I think that -- I think these, the regulations cited here -- certainly give us a significantly better opportunity to. So we're very encouraged by the potential and the implementation will be the acid test.

SEN. GRAMM: I'm just checking to see if Senator Crapo is coming back, if he -- if we find him out there, we'll continue. If not, I think I'm finished.

Let me just pose one other question. Would you say it is fair at this point that -- to say that while we have made investments in China, that to this point we were investing based on what we hoped would happen -- like Chinese accession -- and that the viability of those investments really depend on continued actions like Chinese accession, rather than simply the ability to nurture the investments you've already made to income-yielding maturity based on the current situation? Yeah.

MR. MORROW: I'll speak first, if I might. A good example of that would be the application that Bank of America went through to get a local currency license in Shanghai. It took us over three years to get that license. The economic benefit of that is de minimis. But we viewed it all along as a step along a path. So we would -- we would never have gone to the time, energy and trouble to get that license based on the merits that it present to day, but we viewed it as a stepping stone.

And so if this particular bill fell by the wayside, or if this agreement fell by the wayside, you know, we would probably view it as, you know, money not as well-spent as we would have. So yes.

MR. LACKRITZ: I agree. I give people a lot of advice about going into China. And the first advice I give them is if you're looking to make a quick buck, this is the wrong place. This is a long-term investment for anybody who goes into that market. And it's a risky investment today, because the risk is: will the continued economic reforms progress in China?

If the clock turns back 10, 15 years, all the investments that have been made to date are going to be very, very -- in very poor state. We are counting on China's market opening, we are counting on more entrepreneurship, we are counting on state-owned enterprises becoming privatized.

And WTO accession and PNTR is just a natural step in that progress. Without it, and with a loss of face to the economic reformists in China, and a return to the hard-liners who may still believe in what I think is now a pretty outdated economic theory called communism -- I thin if those people get their hands back on the tiller, it will not be good for American businesses.

SEN. GRAMM: Well, let me thank each of you for coming and for your excellent testimony. I hope and believe that we're going to pass the bill giving China normal trade relations on a permanent basis. Obviously the close vote is in the House. And I'd like to urge you and all of the businesses you represent to make it clear to our brothers and sisters in the House that while religious freedom in China is not what we would like it to be -- I remember in China, the president of China telling me that they didn't mind people practicing religion, they just didn't like people proselytizing.

To which I gave him, for him, the bad news -- that he didn't know proselytizing. I told him, "Wait till the Mormons get there." (Laughter.)

MR. : They are there.

SEN. GRAMM: And it is true that no poor country in the world has the worker rights we have. And China is not the perfect world partner. But the point is, will those -- all of those problems be better or worse if people in China don't have the right to buy American insurance, to buy American securities and to use American banking products?

It seems to me, and the driving force in my own motivation in this is that we're talking about a vast expansion in the economic freedom of people of China. And freedom is like pregnancy. You can't have just a little of it. It takes on its own life. And we saw in Taiwan and Korea -- countries that had never had either capitalism or democracy before -- when people got economic freedom, they wanted real political freedom. They demanded it and they got it.

So I want to urge you in talking to people in the House, it's not as if anything that is being said in criticizing China is untrue. It's all true. But the point is it all gets worse if we don't do this, go forward with this agreement, and all of the problems get better, improve, if we move forward.

So, I want to thank each of you for coming. And the committee stands adjourned.

MR. : Thank you, Mr. Chairman.

SEN. GRAMM: Thank you.

END

LOAD-DATE: May 10, 2000

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