TEXT: TREASURY SECRETARY RUBIN 9/25 REMARKS IN BEIJING
(Economic success depends on rule of law, transparency)

BEIJING -- Market forces, strong financial sectors, the free flow of information, the absence of corruption, the rule of law, transparency, and openness are central to economic success, according to Secretary of the Treasury Robert Rubin.

"(These elements) are essential to growth in developing countries and are among the challenges that China now faces," Rubin said in September 25 remarks at the People's University in Beijing, China.

"(The free flow of information and disclosure are) absolutely crucial to the well-being of financial markets and an economy as a whole, as the example of Hong Kong clearly demonstrates," Rubin said. "Indeed, I don't think there is any question that poor disclosure bears part of the responsibility for the recent financial instability in Southeast Asia, and the similar problems that existed in Mexico about two years ago."

Transparency and the rule of law are also critical components of economic success, Rubin said.

"Perhaps nothing is more important to the functioning of a market economy than the rule of law. Issues such as the enforceablility of contracts are critical to promoting development and attracting investment," he said.

Although economic success is a worthwhile goal, it must not be achieved at the cost of the environment, Rubin warned.

"Sustainable development -- economic growth that does not take place at the expense of the environment -- should be the goal of every society, because destruction of the natural heritage represents a step back, not a step forward," he said. "Environmental protection is an economic issue as well as a quality of life issue. Ultimately, damage to the environment is very expensive economically."

In striving for economic success, countries must also consider the effects of rapid economic change upon individuals, Rubin said.

"While in our view, market economies create benefits for the greatest number of peoples, the rapid changes of a market-based economy will create dislocation for some people," he said. "There the government has an important role with respect to training and to enabling people to quickly re-enter the economy. That is in the interest of the individual, and it is in the interest of the overall health of the economy."

Following is the text of Rubin's remarks, as delivered:

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Remarks as Delivered September 25, 1997

TREASURY SECRETARY ROBERT E. RUBIN

PEOPLE'S UNIVERSITY

BEIJING, CHINA

SEPTEMBER 25, 1997

Well, let me start by thanking you very much for being here and for having me -- giving me the opportunity to speak with you. Let me see if I can amplify a little bit on the very thoughtful remarks of your fellow colleague. In a discussion that I would like to focus on the issues, on the challenges, that China faces as it goes ahead and moves ahead, and on the challenge we both face as we work together as great nations in the years ahead.

I'm particularly honored to have this opportunity to speak in a university that has a long history and a distinguished history of educating young men and women of China to face the challenges of your great nation.

We meet today at a time when all of us throughout the world are adapting to enormous change. These are changes that were simply unimaginable when I was sitting were you are today as a student at Harvard University.

Today, I would like to talk about those changes and about the opportunities of the new global economy, the challenges the United States and China face in the years ahead and the mutual interests of our two great nations. My impressions of these changes are based on the experience that I have had in a career that has taken place in both the private and public sectors. I spent twenty-six years at the heart of the financial markets of the world, first as a trader and then as a managing partner of an international investment banking firm on Wall Street. During that time I worked with developing countries around the world as they worked to enter the global economy.

Five years ago I left that investment banking firm to join the Clinton Administration, first to work in the White House and then to become Secretary of the Treasury. And that has given me what is I think without question, the greatest opportunity of my life which is the opportunity to take all that I had learned about markets in the global economy when I was in the private sector and turn that to the larger issues of our nation and of our nation's integration with the global economy.

When I began on Wall Street, investments were recorded by hand in ledger and we all worked with a slide rule. By the time I left, intricate networks of computers recorded and accounted for billions of dollars that flows everyday. When I started, most developing countries were extremely poor and were viewed primarily, in fact practically only, as the recipients of foreign aid. Now the developing world contain some of the most dynamic economies on the earth and over forty percent of American exports go to developing countries.

Back then, American businesses were focused almost entirely on the American market, and our nation most certainly did not view itself as an integral part of a global economy. Then, many governments around the world were committed to protectionism, state enterprise and closed markets. Now, almost all large American businesses are intentionally focused on the international markets, and our nations leaders certainly view themselves as leaders of a nation that is but one part of a large global economy. Moreover, there is broad based agreement amongst the governments around the globe and we saw that at our IMF World Bank meetings in Hong Kong earlier this week, on the importance of strong market based fundamentals as the path to economic growth. Clearly, we live in a period of dramatic change.

In the midst of this new world stand China and the United States, the largest developing nation on earth and the largest developed industrial nation on earth. In the not too distant future, our two countries will have the largest economies in the world. As such, it is absolutely critical that we build strong and stable relations between our two countries. Each of us has an enormous interest in realizing this objective so that we can work together on bilateral issues but also on the issues of the global economy and beyond that in providing leadership on the issues of the post-Cold War world.

Let me now say a few words if I may about some of the elements, based on my experience, that I believe are essential to growth in developing countries and are among the challenges that China now faces.

First, is the importance of market forces, an issue that your recent Party Congress addressed in a very dramatic way. Market forces trigger competition which unleashes private initiative and fosters economic growth. There is no question that there are some tasks that government must undertake because the market simply will not or cannot do them effectively. But it is also very clear that in most areas of an economy, government-managed enterprises tend to be inefficient and effective, and developed and developing countries around the world have been engaged for sometime now and are continuing to engage in a process of privatization or -- to put it differently -- diversifying the ownership over what had previously been state enterprises. China faces a great challenge in diversifying ownership of the state-owned enterprises but it is absolutely crucial in our judgment, and in my judgment, to the long run economic well-being of this great country.

Second, as you look across both developed and developing countries one of the common features of economic success is a strong financial sector. Conversely, when you see economic difficulties, almost always they have either been begun by problems in the financial sector, particularly in the banking system, or if they've begun elsewhere, they have been greatly increased by problems in the financial sector. We learned this lesson the hard way in the United States with our own savings and loan crisis, which had an enormous cost to our country. Building strong financial systems is extremely difficult, but it is absolutely critical to an economy. During a period of now well over one hundred years, the United States has developed a strong well-developed financial sector and we would very much like to use the experience that we have gained, much of that experience based on the mistakes we have made, to help China meet its challenges.

Third, is the free flow of information and disclosure. This is absolutely crucial to the well-being of financial markets and an economy as a whole, as the example of Hong Kong clearly demonstrates. Indeed, I don't think there is any question that poor disclosure bears part of the responsibility for the recent financial instability in Southeast Asia, and the similar problems that existed in Mexico about two years ago.

In this regard, in regard to the free flow of information, I am delighted that Xinhua News Agency is moving toward an agreement that it will regulate foreign providers of financial information in a way that will enable them to serve their customers, and also this great country, in a manner that meets the needs of both effectively. It suggests to me that Chinese authorities appreciate that you cannot have effective financial markets in an effective financial sector without access to the latest and best financial information. But the free flow of information is also critical to society at large. Economists, scientists, doctors all need the free flow of information if they are to remain on the cutting edge.

Fourth, is effectively combatting corruption, which was highlighted at the 15th Party Congress. I think it is clear, based on what I have seen, in country after country after country, that corruption is corrosive with respect to economic development. Corruption produces poor allocation of resources and it undermines financial systems and in some cases even governments.

Combating corruption is a moral issue and a social issue -- but it is also, leaving those aside, at the heart of economic development in all countries. The United States has strongly urged the World Bank and the International Monetary Fund to take the lead on fighting corruption and to put the fight against corruption at the core of their development efforts, and that is happening. We have also taken the lead in pressing our fellow members of the OECD to criminalize bribery and eliminate the tax deductibility of bribes. And the members of the OECD, which includes all of the major industrial nations, have committed to taking those steps. Now it is necessary that they fulfill those commitments.

Fifth, perhaps nothing is more important to the functioning of a market economy than the rule of law. Issues such as the enforceablility of contracts are critical to promoting development and attracting investment. I have visited many developing countries around the world as Treasury Secretary, but when I do, I always meet with the American Chamber of Commerce because it gives you an understanding for people who are doing business in the country as to the issues that businesses face, particularly businesses in countries that are more recently opened to foreign investment. Among the issues they mention, predictable rules and mechanisms to resolve conflicts are always at or near the top of the list.

The sixth element is transparency. One of the things I hear time and again from business people who are trying to do business in China is the great difficulty in knowing how regulatory, procurement, and other official decisions are made. And that creates great uncertainty to the business climate and is a deterrant to the attraction of the greater amounts of foreign investment that China could so easily attract and that could contribute so greatly to economic development, economic growth, in this country.

Finally, a vital area is greater openness and integration into the global economy. This involves both opening markets to trade and investment and engagement in international institutions. And it provides the opportunities to bring all of the benefits of the global economy to the Chinese economy with respect to capital, expertise, and the like. And let me mention on this point that with respect to the international institutions, China has already begun playing a far larger and very constructive role, for example with respect to the IMF, the World Bank, APEC, and in the recent financial support package to Thailand.

These elements -- market forces, strong financial sectors, free flow of information, absence of corruption, rule of law, transparency, and openness -- are central to economic success. But as I said a minute ago, markets are not the answers to all of a society's problems. There are some issues that markets, by their nature, simply will not deal effectively with. And let me briefly describe two that both the United States and China face.

First, while in our view, market economies create benefits for the greatest number of peoples, the rapid changes of a market-based economy will create dislocation for some people. Economic change, though the key to economic success, always creates dislocation for at least some members of the society. There the government has an important role with respect to training and to enabling people to quickly re-enter the economy. That is in the interest of the individual, and it is in the interest of the overall health of the economy.

Second, development and economic growth can also harm the natural environment. Sustainable development -- economic growth that does not take place at the expense of the environment -- should be the goal of every society, because destruction of the natural heritage represents a step back, not a step forward. Moreover, environmental protection is an economic issue as well as a quality of life issue. Ultimately, damage to the environment is very expensive economically.

As I said earlier, the United States has an enormous interest in a successful China. As China grows economically and becomes more integrated into global economies, and our economies become more closely linked, we need to work together on a wide range of fronts -- on bilateral issues, leadership on the issues of a global economy, and more generally, leadership on the issues of the post-Cold War world.

Having said that, we will have our differences. Let me mention one well known area of disagreement in particular: human rights. The United States has a traditional commitment to human rights and liberty that goes back to the very founding of the republic. Throughout our history we have been a strong advocate of human rights throughout the globe. No nation, including our own, could claim perfection on these matters. But respect for human rights is part of our identity as a people, and we believe these rights to be universal.

Within that context, this issue will continue to be an important part of our dialogue and our discussions with countries around the world, including China. I might add that respect for human rights leads to more open debate, more vigorous exchange of ideas -- and therefore also, in our view, promotes economic development.

One thing is certain: we will only understand each other further by continuing to engage in dialogue, and my hope is that my visit will contribute to that effort. One purpose of my visit is to co-chair this year's meeting of the United States-China Joint Economic Committee, a dialogue between economic experts from both countries on the issues that are of importance to both countries. Next month we will have a landmark opportunity as nations to exchange views, when President Jiang visits the United States, which we expect will be a major step in advancing the dialogue between our two nations.

For myself, my visit to China has given me an enormous appreciation for China's greatness as well as for the challenges it faces. In the last two days, a very brief visit, but my first to China, I have been fortunate to have been able to observe elements of both China's dynamic present and its magnificent past. On my way to Beijing, I spent a day in Xian, where I visited the extraordinary terracotta army dating from the Qin dynasty, and learned about the empire which even in that day, covered sixty percent of what is modern China. That was a truly remarkable accomplishment. As a citizen of a country with a history of only a few hundred years, though a history of which we are very proud, I was impressed to observe a history that is a few thousand years old. In Xian I also visited a factory which had turned to the capital markets to expand and to create jobs and prosperity in the heart of China, where it is so badly needed. In that one brief trip to Xian, I have seen both the old and the new in China, the glory of its past and the enormous potential for its future.

One lesson from China's history has been the centrality of education as a source of China's strength. As students, you represent China's future: you are China's leaders of tomorrow. And you will soon be entering the work force of a country -- and a world -- undergoing rapid and immense change. In some respects, as our two countries continue to grow and strengthen ties, you will play a key role in America's future, too.

Let me leave you with one more thought, if I may. As I said a few moments ago, one of the great opportunities I've had is to take what I learned in the private sector and use it to try to make a contribution in the public sector. I would urge you, as you think about your future careers, to consider what you can do for China at this moment of enormous importance and enormous promise in China's history. Thank you very much.

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