HM Treasury News Release
185/98 10 November 1998
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FIRST UK-CHINA FINANCIAL DIALOGUE MEETING
CHANCELLOR WELCOMES GREATER PARTNERSHIP
IN DEVELOPING ECONOMIC LINKS WITH CHINA
Following the first UK-China Financial Dialogue meeting today,
Chancellor Gordon Brown and Chinese Finance Minister Xiang
Huaicheng welcomed agreement on the need for further
strengthening of prudential regulation and financial systems in
emerging markets. They also agreed on the scope for greater
partnership between the two countries in financial sector
development and commercialisation of state owned enterprises in
China.
The full text of a communique issued following the meeting is
attached.
Mr Brown said :
"I was very pleased to welcome Finance Minister Xiang and
his colleagues to London for the first in a regular series
of meetings between the Finance Ministries, Central Banks
and Financial Regulators of our two countries.
"China's economic transformation over the past twenty years
has been remarkable. It is now amongst the largest
economies in the world, and is increasingly becoming
integrated into the world economy. As such we clearly have
a common interest in pursuing greater dialogue on financial
and economic issues.
"Indeed, with one quarter of the world in recession, the
ongoing world economic turmoil has highlighted more than
ever before the very real interdependence of national
economies and financial structures in today's globalised
economy. Both the UK and China therefore have a clear
mutual interest in seeing a positive resolution to both
short-term problems facing the world economy today, as well
as the challenges for the longer term.
"The meeting today with Minister Xiang sets the ground for
increased cooperation and partnership on all then economic
and financial challenges that both our countries face."
NOTES TO EDITORS
1. The UK-China Financial Dialogue represents a key element in
new framework for enhanced partnership agreed during the
visit of the Prime Minister Tony Blair to China in October
1998.
2. The programme for the first UK - China Financial Dialogue
comprised a series of meetings between both Ministers,
senior officials from the Treasury, Bank of England and
Financial Services Authority, with counterparts from the
Chinese Ministry of Finance and the People's Bank of China.
3. If you have access to the internet, you can find this press
release and material on other Treasury issues at
http://www.hm-treasury.gov.uk.
Joint Statement of the UK-China Financial Dialogue,
10th November 1998
1. At the invitation of the Chancellor of the Exchequer
Gordon Brown, Finance Minister Xiang Huaicheng visited
the United Kingdom and held talks with the Chancellor
and Governor of the Bank of England Eddie George in
London on 10th November 1998 on the occasion of the
first UK-China Financial Dialogue. Minister Xiang also
met with United Kingdom Prime Minister Tony Blair.
Throughout the day, as part of the Dialogue, senior
officials of Her Majesty's Treasury, the Bank of England
and the Financial Services Authority also held extensive
discussions with their counterparts from China's
Ministry of Finance, the Ministry of Foreign Affairs and
the People's Bank of China on a broad range of both
economic and financial issues.
2. Both sides noted the deepening cooperative relations
between the United Kingdom and China, and the
comprehensive new framework for an enhanced partnership
between the two countries agreed by Prime Minister Tony
Blair and Premier Zhu Rongji in China in October 1998.
The UK-China Financial Dialogue represented a key
element of that new framework to which both sides were
committed, recognising the growing global
interdependence of national economies and financial
structures.
3. Discussions ranged widely over both domestic
macroeconomic and microeconomic policies, and
international economic and financial issues.
Domestic issues
4. The United Kingdom set out the action taken to build a
stable economy capable of sustained and steady growth,
including:
the new monetary policy framework which had removed
politics from interest rate decision-making by giving
operational independence to the Bank of England. Long-
term interest rates were now the lowest for 35 years and
inflation was at its 2 1/2 target, compared to nearly 10
per cent in the early 1990s;
the new fiscal policy framework and the Code for Fiscal
Stability. Borrowing had been cut by #20 billion in the
Government's first year, and as a result of prudent
spending plans, even with more moderate growth next
year, the Government remained on track to meet its tough
fiscal rules. It was set to repay #2 billion of debt
this year and to achieve current surpluses totalling #33
billion over the next five years;
proper funding of public services to build a fairer
society, including further investment of #40 billion
extra in schools and hospitals;
provision of employment opportunities for all through
greater employability, increasing skills and family
friendly employment;
a new single regulator was proposed to remove the scope
for duplication, gaps and inconsistency in financial
regulation, together with new powers to tackle market
abuse; and
with the Pre-Budget Report, a strategy to address the
fundamental structural weaknesses that had held back the
British economy in the past, with proposals to raise
national productivity through a strategy for innovation,
investment, competition and skills.
5. China outlined the measures implemented throughout the
course of the year to stimulate its economy and to
ensure sustainable growth, including more proactive
monetary and fiscal policies. On monetary policy, money
supply had been increased and credit control quotas
abolished. On fiscal policy, an additional RMB 100
billion (equivalent to about #7.3 billion) of
government bonds had been issued to the state commercial
banks, earmarked for infrastructure with a view to re-
igniting domestic demand. Despite these efforts to
further stimulate economic growth, it restated its aim
to pursue over the long run relatively tight monetary
and fiscal policies.
6. China also reiterated its commitment to moving towards
a socialist market economy, particularly to
restructuring both its state-owned enterprises and its
financial system. The next steps include:
restructuring of China's central banking system by
abolishing the geographically-oriented branch network;
accelerating commercialisation of its state banks,
strengthening of provisioning policy in line with
international norms and practices, implementing of
prudent and internationally accepted accounting
standards, and initiatives to establish a financial
asset management corporation and deposit insurance
systems;
further reform, restructuring and innovation of state
owned enterprises and improvement of their efficiency by
strengthening accountability and better supervision;
and better provision of a social safety net to the laid
off workers from state owned enterprises.
7. Both sides recognised the importance of China's
contribution to international financial stability via
its positive, commendable and responsible policy with
regard to the Renminbi exchange rate, and agreed on the
importance of an orderly and progressive approach to
capital account liberalisation.
8. Both sides recognised how the two issues of enterprise
and financial sector reform were inter-related, and how
recent experience elsewhere in Asia highlighted the need
for sound financial and regulatory systems. Both sides
agreed to pursue greater partnership in developing their
enterprises and financial sector institutions. The UK
welcomed the grant of an insurance licence to Royal and
Sun Alliance and a branch licence in Beijing to Standard
Chartered earlier this year and looked forward to the
continued opening up of the financial services sector in
China, with the economic benefits this will bring.
9. The two sides also noted the numerous bilateral schemes
aimed at assisting with the development of the financial
services infrastructure within China, including:
the Financial Sector Training Scheme (FIST) to promote
the acquisition of skills and experience through work
attachments at major UK financial organisations;
a seminar on financial sector supervision and regulation
for representatives of the People's Bank of China at the
invitation of the Bank of England and the Financial
Services Authority; and
a partnership between the People's Bank of China and the
Department for International Development to study the
implications for the banking system of state-owned
enterprise reform.
International issues
10. The discussions between the Chancellor Gordon Brown and
Minister Xiang Huaicheng also focussed on international
issues.
11. The Chancellor set out the measures agreed by the G7,
under the Presidency of the UK, to modernise the
financial system and put in place new rules and
procedures to promote international stability and
growth, including:
the agreement to implement new arrangements for finance
to deal with contagion, including an enhanced IMF
financing mechanism;
the commitment to develop and implement international
principles and codes of best practice on fiscal policy,
financial and monetary policy, corporate governance and
accounting and legal standards; and to work to ensure
that private sector institutions comply with new
standards of disclosure;
pursuing proposals to establish a new process for
surveillance of supervisory regimes, bringing together
the international institutions and national regulators
to cooperate and coordinate their activities, and to
exchange information more systematically on risks in the
international financial system; and
the promotion of adoption of policies that better
protect the most vulnerable, including the development
of general principles of good practice in social
policies.
12. Minister Xiang recognised the importance of addressing
both immediate problems and longer term weaknesses and
noted the G7 initiatives in this regard. In particular,
he emphasised:
the need for further strengthening of prudential
regulation of financial systems and of short of capital
flows, especially the supervision of hedge funds,
including via the enforcement of international standards
and practices and better and more transparent
information on such capital flows;
the need to design programmes to assist crisis-affected
countries to achieve short-term stabilisation, and in
the longer term, restructuring, recognising the distinct
time frameworks needed for each objective. These should
include a clear social dimension, minimising the
possibility of social unrest and protecting the most
vulnerable groups in society;
the need to fully incorporate emerging market economies'
interests in the design and implementation of the reform
of the global financial system, particularly their
specific local conditions and different stages of
development; and
the need for industrialised countries to continue to
create conditions for strong domestic demand-led growth
and exchange rate stability, and further opening of
their markets. These policies are essential to improve
the outlook for sustainable growth of the world economy.
Next steps
13.
The two sides agreed to take forward the UK-China
Financial Dialogue in China within the next 18 months.
# = pounds sterling