Good afternoon,

Mr. Alfred Jay, President of the Ottawa Chapter
of Hong Kong Canada Business Association,
Ms. Nancy Lin, Membership Chair of the Association,
Mr. Peter McArthur, Vice-President of the Association,
Ladies and gentlemen,

First of all, I'd like to thank the Ottawa Chapter of Hong Kong Canada Business Association for the kind invitation & its efforts in putting together this event. I am very pleased to have this opportunity to speak to such a distinguished audience today. I understand many of you present today have been active supporters of the development of business and economic co-operation between Hong Kong and Canada, which has now become an important component part of Sino-Canadian relations. Today I'd like to share with you some of my personal views about China's economic development in the midst of the Asian financial crisis.

As we all know, despite the measures taken by the individual countries and the international financial institutions, the East Asian financial crisis is far from over. Some of the countries in Asia are experiencing the worst economic recession in decades and even social turmoils. As a result, the international financial market is in constant shock and the world economy is slowing down with a dismal picture ahead.

In my opinion, the causes for the prolonged financial crisis in East Asia are multifold, both domestic and external. Domestically, irrational and unbalanced economic structures, unsupervised financial institutions and bad policies are the root cause of the crisis. While, the inability to adapt to the changes of the world economic environment, rampant speculations by irresponsible international funds are the external factors. Today's world economy is undergoing globalization and integration, which is bringing new phenomena we are not familiar with. Though the financial crisis started in East Asia this time, it has now become a global problem. Therefore, all the countries in the world should work together in times of trouble and take their due responsibilities. The developed countries should adopt a responsible attitude to stimulate economic growth, boost domestic demand and expand import by means of fiscal and monetary policies, and refrain from resorting to trade protectionism. They should also increase financial assistance to the crisis-stricken countries and make proper arrangements to reduce their debt burdens in order to help them stabilize the finances and recover the economy. In doing so, they will not only help these countries tide over the difficulties, but also serve their own interests. At the same time, we should also respect the independent choices made by countries or regions on overcoming the crisis, because the level of economic development and historical tradition varies from country to country, the cause and impact of the crisis also differ. Therefore, there is no, and can not be, a fixed model or single remedy to tide over the crisis and revitalize the economy. Instead, they should be given the much needed support in taking measures in the light of their own specific conditions. Developing countries should make necessary readjustment of their economic structure and policies, properly handle the prominent problems in their economic development.

People are asking why China has so far appeared relatively insulated from this wide-spread contagion? Or rather what has China done to limit the adverse effect of the financial crisis on its economy? This is the question I'll try to answer. As an East Asian country, China has also been affected by the current financial crisis. Due to the economic recession and devaluation of currencies in Southeast Asian countries and the stagnation of Japanese economy, China's exports to these countries dropped considerably and direct foreign investment in China from these areas diminished to a large degree. Furthermore, large parts of China, from the northeast to the south, were hit by the unprecedented heavy floods this summer. More than 200 million Chinese people are affected and the total direct economic loss is estimated at US$ 30 billion. Despite of all this, the Chinese Government has taken a highly responsible attitude since the very beginning of the breakout of the financial crisis. Proceeding from the goal of the maintenance of development and stability in East Asia, China made the decision not to devalue its currency RMB. We have sustained great pressure and made tremendous sacrifices to stick to our promise. China has also provided financial assistance, US$ 5.5 billion in all, to the relevant countries in the region through both the arrangements made within the framework of IMF and bilateral channels. At the same time, China's economy has kept the growth momentum against this backdrop. China's GDP registered a growth of 7.2% in the first 9 months of this year on the basis of an 8.8% of growth last year. Within the first 9 months of this year, our total trade volume reached US$ 232.7 billion, an increase of 2.4% over that of the same period last year, among which export grows by 3.9%. During the same period, the amount of direct foreign investment in China reached US$ 31.4 billion. Since August of this year, our economy has shown a greater momentum of growth. In the 3rd quarter of this year, the GDP of China increased by 7.6% in comparison with the same period of last year.

In view of the unabated Asian financial crisis and even negative growth in some countries, it is by no means easy for China to score the above-mentioned economic achievements. In my personal view, the following are the main reasons behind China's success:

Firstly, political stability in China. We have always emphasized the importance of political stability to economic development. That is not the unique experience of China, neither is it a political cliche or truism. Mr. Stephen Knack and Mr. Philip Keefer, two economists of the US, after making a detailed analysis of the different economic growth rate in 28 developing countries, they drew the conclusion that the stability of a country's political system is closely related to its economic growth. The strong leadership of the Chinese Government and China's political stability are the precondition for China's competence to withstand the effects of the financial crisis and conquer the heavy flooding. We will continue to run the country under the rule of law, further enhance democracy, improve the legal system and safeguard human rights so as to ensure social progress and political stability in China.

Secondly, precautions measures taken by China before the financial crisis. The breakout of the financial crisis in East Asia attributes largely to the overheated economic growth and bubble economy in some countries of this region. Several years ago, some sectors of China's economy experienced the similar phenomena and this caught the attention of the Central Government in China. As early as in 1993, the Chinese Government started to strengthen macro-economic controls, enabling China's economy to make a soft landing. The inflation rate in China was down to 6.1% in 1996 from 24% in 1994. In 1997, the retail price of commodities in China was only 0.8% more than that in 1996. And our national economic development has now transformed from a pattern of "high growth with high inflation" to one featuring "high growth with low inflation".

Thirdly, the sound and stable economic foundation developed in China over the past 2 decades. Ever since China adopted the policy of reform and opening-up in 1979, our economy has been developing with a high speed and our comprehensive national strength has increased rapidly. Over the past 20 years, China's GDP has registered an average annual growth rate of 9.8%. China has attained ahead of schedule the goal of quadrupling the GDP Of 1980 by the end of the century. In 1997, China became world's 7th largest economy as far as GDP is concerned. We have kept a good balance of international payments, enjoying surplus under both current account and capital account. By the end of 1997, our foreign exchange reserve has reached over US$ 140 billion, ranking second in the world.

Fourthly, the gradual and systematic approach adopted by China in carrying out reform. Ever since the day China began its policy of reform and opening up, we have attached great importance to the maintenance of a good balance among reform, stability and development. In the process of transforming from a planned economy into market economy, we did not take the extreme and radical measures like "shock therapy". The experience of the former Soviet Union proved that such a measure would only give "shock" and provide no "therapy". Instead we adopted a gradual approach in our reform according to the specific conditions in China. In China's reform of financial system over the past several years, we have taken a series of measures of liberalization and internalization in opening up our financial services, such as developing stock markets on a trial basis, making RMB convertible under current account, etc. On the other hand, we have also adopted some policies to provide the necessary protection to our underdeveloped financial sector, such as strengthening our monitoring over the size, structure and investment orientation of foreign funds in China, improving our management of both banking and non-banking financial institutions. China has always kept its eyes wide open on its foreign debt and paid special attention to its structure. Of the US$ 130.96 billion foreign debt China has by the end of 1997, 86% are long-term and medium-term debt and short-term debt only accounts for 14%. To be frank, the Asian financial crisis has sent us a warning, reminding us that the establishment of a sound financial order is the key to economic development. We are speeding up the financial restructuring so as to enhance our ability to guard against and dissolve financial risks.

Fifthly, appropriate and drastic measures were taken to stimulate the domestic market in China. Since the breakout of the crisis, China has realized that the external environment for its economic development will be gravely worsened and that the push for its economic development will have to mainly come from its domestic consumption over a relatively long period of time in the future. Because of the measures taken to cool down the overheated economy, China's domestic consumption has been sluggish over the past 2 years or so. In order to meet with the pressure both external and domestic on China's economic development, we have adopted measures one after another to stimulate our domestic consumption market since the 4th quarter of last year. We lowered the interest rate three times, reduced the reserve rate against deposit and increased largely our investment and loans issued by banks. Recently, the Chinese Government issued 100 billion yuan RMB of 10-year government bonds to inject investment into infrastructure construction (equivalent to 20 billion C$). China will soon begin a large scale reconstruction in the flood-hit areas and this will create a new demand for materials.

Although China has so far withstood to the tests in the financial crisis, we could not afford to loosen our prudence in dealing with the problems facing us. Neither would we slow down or stop our reform because of the change of the world economic environment. At present, the reforms of our state-owned enterprises, financial system and housing system and the slashing of government employees are being carried out in real earnest. It is my firm belief that China's economy will keep the momentum of rapid and sustained development.

The repeated financial crises in the 1990s, especially the deepening of the crisis in East Asia this time, have led people to wonder if there is anything wrong with the current international financial order, particularly the world financial system. The spread of the financial crises in the world is a wake-up call that something must be done to reform the entire world financial system. We in China believe that the international financial system should be restructured and improved so as to ensure a safe and orderly operation of the international financial market. Big powers with influence in international finances are duty-bound to take effective measures to improve the supervision and regulation of the flow of the international financial capital, contain over-speculation of the international hot money, and enhance the capability for the forecast and prevention of financial risks and for their relief. It is essential to deliberate the establishment of a new international financial order which conforms to the interests of all sides, through dialogue and consultation between developed and developing countries in compliance with the principle of equality and mutual benefit and on the basis of extensive participation by the international community.

Today we are at the threshold of entering a new millennium. What would the situation be like in Asia in the new century and what would be its position in the world? This has become a question of concern to all of us.

Several years ago, when people in the West predicted that the 21 century will be a century of Asia, China didn't agree to that overoptimistic outlook. Now that sentiment has been replaced by overwhelming pessimism, but we in China still have confidence in the future of Asia. In my opinion, one should not expect a country, a region or the world to be completely smooth in its economic development. Therefore, it is not strange for the East Asian countries to meet with some difficulties in their economic development. Despite of the various difficulties in some East Asian countries, there are still quite a few positive factors favorable to the development of this region. Firstly, the basic conditions and fundamental elements for Asian economic growth are still there. Asia has laid a very good foundation for its future development through its fast development in the past. Secondly, Asian countries are now undergoing economic structural changes, which will eventually lead to a healthy financial system. This will help to restore the vigor and vitality of the Asian economy. Thirdly, the market potential in Asia, particularly in East Asia is yet to be tapped. This will be beneficial to the sustained growth of this area in the future. Fourthly, the traditional values of Asians developed in the process of Asian economic growth, including diligence and frugality, modesty and eagerness to learn, will help them to assimilate the development experience and advanced science and technology in the world. After a painful overhaul of its economic structure and establishment of a sound financial system, this financial crisis may turn out to be a blessing in disguise for Asia. In fact, we've seen signs of slow but sure recovery in some of the Asian economies.

Now I'd like to say a few words about Sino-Canadian bilateral relations. As we all know that, both China and Canada are important countries in the Pacific Rim. Over the years, the friendly relations and co-operation between our two countries have been developing very smoothly. We are now making joint efforts to establish a cross-century partnership of all-round co-operation.

Economic and trade ties are an important part of this bilateral relationship. According to the report of Statistics Canada, the two-way trade volume between China and Canada is C$ 8.468 billion last year, an increase of 10% over the year before and China is Canada's fourth largest trading partner. If Hong Kong is included, the trade volume between China and Canada goes up to C$11.3 billion, making China ranking 3rd among Canadian trading partners. The two-way trade volume in the first half of this year is C$4.53 billion, an increase of 17.7% over that of the corresponding period of last year. Up to June this year, Canada has invested directly 3753 projects in China with a negotiated investment amount of US$5.8 billion, among which US$1.5 billion are realized.

However, greater potential is yet to be tapped. Our trade volume is still comparatively small while in comparison with the scale of our two economies. China's export to Canada only accounts for 2.11 % of Canada's total import while Canada's export to China takes up less than 2% of China's total import.

China will open up its markets continuously and steadily, step up the endeavor to build energy, transportation and other infrastructure installations, encourage the involvement of foreign capital in the reorganization and upgrading process of the existing enterprises in China,, especially the small and medium sized ones and continue to implement certain preferential policies on the import of equipment for foreign-funded projects. China is going to invest US$750 billion in its infrastructure construction in the next 3 years. In the coming few years. China's total volume of foreign trade is expected to hit US$ 400 billion by the year 2000.

We have every reason to believe that China-Canada business relations will register an even greater development in the foreseeable future. China's economic development needs Canada' s capital, technology and natural resources and it also provides Canadian companies with a broad market. The prospects of Sino-Canadian economic and trade co-operation are very bright and promising. In his recent visit to China, Prime Minster Jean Chretien and Premier Zhu Rongji set out three goals for the next five years: to double direct bilateral investment; to boost the number of small and medium-sized enterprises operating in each other's country, and to exchange high-level visits with trade missions. And China promised to increase its import of Canadian goods to raise our trade relations to a higher level. In the promotion of the trade and economic ties between China and Canada, the Hong Kong Canada Business Association has a special role to play, you have many advantages in information, knowledge and marketing networks and channels. You can help Canadian firms in their access to the Chinese market.

In this endeavor, you can always count on the full support & assistance of my Embassy. The Hong Kong Canada Business Association has done a wonderful job in building bridges between business communities of our two countries, I wish you greater success in the new year.

Thank you very much for your attention.