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the abrogation of existing and legally binding credit


We do not want to leave our exporters, who have

relied on Eximbank, exposed to financial penalties, other costs

or legal liabilities because the exporters cannot implement a contract. Furthermore, our understanding from our contacts with export credit agencies of other OECD governments is that they are not considering termination of existing commitments or outstanding offers supporting their suppliers' bids.

The impact of suspending Eximbank new financing offers for

China would be felt immediately by u.s. exporters currently requesting our financing. However, unless the suspension of ' government export credits for China were widespread, there would

be little impact on China.

An action by the U.S. alone, or only

a few countries, would still allow China to import from others

with government export financing, and the U.S. suppliers and labor would suffer the losses. The ability to cause changes in

Chinese government behavior, even by multilateral export credit

sanctions, can be seriously questioned on eeconomic grounds.

Chinese foreign exchange reserves are quite large, roughly $19


Also, even before recent events, China had adopted a

policy of retrenchment that was expected to reduce import demand

and foreign borrowing.

Depending on China's willingness to pay

market interest rates and Western bank willingness to resume new term lending to China, the Chinese could continue to import some

items most desired from the West using commercial credits.

I will be pleased to answer any questions you may have.

Thank you.

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STATEMENT OF FRED M. ZEDER Mr. ZEDER. Thank you, Mr. Chairman. It is a pleasure for me to appear here before you today to discuss OPIC's program in the People's Republic of China. As you know, this is an extremely busy time for my office because we have been very much involved in the President's Poland and Hungary initiative. I do want to take this opportunity to thank Members of the Foreign Affairs Committee for the leadership you have taken in responding to the President's request, made April 17, 1989, in his speech in Hamtramck, requesting authorization for OPIC's involvement in Poland and Hungary. I think it is commendable how quickly your committee acted and responded to that request.

I am joined at the table by Howard Hills who is now general counsel for OPIC and our vice president for insurance, Felton Johnston, on my right. I have a written statement to be submitted. I request that that be made part of the record of today's proceedings.

Mr. SOLARZ. Without objection.

Mr. ZEDER. I have a quick statement summarizing OPIC's position on our programs in China. OPIC currently is party to investment insurance contracts for 29 U.S. business ventures in China. These will be honored in accordance with their terms. As far as new contracts are concerned, Congress included in OPIC's authorizing legislation numerous requirements with respect to human rights, workers rights, environmental safeguards, economic impact on the host country and here at home, and other foreign policy goals.

No further contacts will be approved nor contracts written prior to a full review of the impact of the recent events in China. We are determined to make sure that OPIC programs and projects are in full compliance with our statute in both spirit and letter. OPIC will proceed in accordance with the State Department's guidance and in consultation with other concerned agencies of the Administration in making that review.

Mr. Chairman, in direct response to your question earlier as to whether or not OPIC is now in a state of suspension, OPIC is in a state of suspension with respect to China. OPIC programming activities for China are not going forward and that is in compliance with the existing statute. This situation is pending further reviews of the policy review committees.

We take our statutory mandate very seriously. In recent years we have in compliance with our statute, stopped operating in Chile, Paraguay, Nicaragua and Ethiopia. For the same reason stopped doing business in China. In addition, I would note that if social and political conditions in China do not improve soon, U.S. investors will continue to be less interested in what we have to offer.

There is nobody beating down our doors today seeking any support for new ventures in China. A while back I went to a meeting of the U.S.-Chinese Business Association. I had a number of people come up to me asking if they were too late to obtain insurance cov

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erage in China; and they were too late because we are not writing any insurance right now.

To sum up, consistent with our statutory mandate, we are not doing any new business in China nor do we intend to do any new business in China until the Administration completes its comprehensive review of U.S. policy in China.

You asked earlier for specific responses to questions. I appreciate the questions we got. They were very good, and I hope we have some good responses for you. I will not go into our long responses. They are all in the report I am submitting, but here are a few answers that I think might be pertinent to today's discussion.

One question asked was if all OPIC-supported projects in China resulted in claims that would have a financial impact on OPIC, what would it amount to in dollars, how much? The question was asked, would the taxpayers be stuck with that bill? The answer to the first question is that we have about $100 million of insurance out and about $50 million of that might be under jeopardy.

The answer to the second question is that the taxpayers will not get stuck. OPIC is a rather unique agency in the Federal Government in that we make money and we have established adequate reserves to cover any exposure we have; so, it would not be a burden on the taxpayer.

The second question was: when did OPIC suspend its activities in China? As soon as we could after the June 4 Tiananmen Square incident. Actually, we had one contract that was in a very advanced state of negotiations, it had been going on for a long time and it was completed on June 6th. That was a contract with the H.J. Heinz Co. for a $6 million baby food plant in China. We were insuring that against political risk for problems in China.

The other question you asked was how many pending projects do we have in China. We have roughly 15 active cases going on right now. Four or five have been processed, but they are not signed, and will not be signed. You asked what the pipeline for projects in China was. We have about 80 registrations, but only about 15 of them are active. Again, those are all on hold and they are pending.

You also asked us to describe the activities of the Overseas Private Investment Corporation related to China. You wanted us to compare the services provided by OPIC to similar programs by other countries.

Our insurance programs are a little different from the ExportImport Bank where they insure the product. We do not insure against the inconvertibility in China; that is not an issue because nobody can get the currency anyway. We do insure against expropriation and physical damage by upheaval. In Beijing, we have insured a Nabisco cookie plant. I don't know if it is a fortune cookie plant, but I don't think anybody would destroy a cookie plant or a baby food operation. We think they are pretty safe investments.

Another question, and we have a similar answer to that of Export-Import Bank, is yes, we are very competitive. We have a lot of competitors doing business. I think if OPIC pulled out the void would be quickly filled. As far as insurance availability is concerned, we find that most foreign countries have taken the same attitude as the U.S. In the first place, they don't have any customers and secondly, they say let's wait and see until this situation sorts out. The other case is our close neighbor to the north, Canada, which said they are going to continue to do business in China.

You asked here another question, a lot of this has been answered already. I think I answered that too. You asked if Japan would continue to insure. They might. If there are any other questions, I will be glad to answer.

Mr. SOLARZ. Mr. Zeder, I want to compliment you for the best testimony to date. I appreciate your responsiveness, your candor, your willingness to answer all the questions. It has been very helpful.

I am particularly pleased to hear that OPIC follows the legislative mandate quite closely. I think it is that kind of policy which generates the kind of confidence in the Congress which makes it possible to have real and constructive cooperation.

I will ask Mr. Gejdenson to temporarily take the chair while I see somebody in the next room.

[The prepared statement of Fred M. Zeder follows:













JULY 13, 1989

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