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Mr. SOLARZ. Is it your position that under the authorizing legislation for OPIC you are precluded from issuing new contracts because of the human rights situation?

Mr. ZEDER. Not only human rights, but there are other considerations, that, again the Congress wisely put into our operating procedures that prevent us from doing business not only in China but other places.

Mr. SOLARZ. So you would say in order to issue new insurance guarantees, there would have to be an improvement in the human rights situation in China? Mr. ZEDER. That is true.

Mr. SOLARZ. How about you, Mrs. Frame, would there have to be an improvement

in the human rights situation in China to go ahead with new TDP programs there?

Ms. FRAME. We are certainly sensitive to the human rights issues. We are not a policy making organization and we take our lead from the State Department.

Mr. SOLARZ. Are you in AID?

Ms. FRAME. We are an independent agency under the International Development Cooperation Agency which also houses AID and OPIC.

Mr. SOLARZ. So you are not issuing new contracts but it depends on the guidance you get from State?

Ms. FRAME. In the first instance, but as a practical matter, we would have to reassess whether it makes sense for us to fund particular studies in China. One of our main objectives is to generate exports. If the projects are not going to be financed or the U.S. business community is not interested in going to China, the exports are not going to follow.

Mr. SOLARZ. Mr. Ryan, I gather your position is that you are not issuing loans at Export-Import except in critical areas where people have been working on this for a long time and if they don't get the loan they might lose the business, is that it?

Mr. RYAN. Not exactly.

We would not take any application all the way to an approval of a preliminary commitment without reference to the State Department which, under the Chafee Amendment, has to make a determination as to human rights.

Mr. SOLARZ. What is the policy right now with respect to approving loan applications for China?

Mr. RYAN. It is to continue processing. It is to move, if you will, slowly, it is not to approve any application or any action unless it is demonstrably vital to the bidding process, and the American company would lose out.

Mr. SOLARZ. But is it possible to get an Export-Import Bank loan for China even now?

Mr. RYAN. Yes.

Mr. SOLARZ. You don't provide them to the GDR, Bulgaria, Czechoslovakia or Romania?

Mr. RYAN. That is correct.
Mr. SOLARZ. Why not?

Mr. RYAN. We cannot provide loans to Marxist-Leninist countries without a determination that it is in the national interest to work in those countries.

Mr. SOLARZ. Why is it in the national interest to provide loans to a Marxist-Leninist country like China but not the Gang of Four in Eastern Europe?

Mr. RYAN. One has to go back to the history under President Carter that that positive recognition was made with respect to China.

Mr. SOLARZ. Circumstances have now changed. In light of those changed circumstances are you saying there is a national interest in providing such loans to China but not to the other countries?

Mr. RYAN. Before we approve a loan, we go to the State Department for it to determine under the Chafee amendment whether or not we should make that loan.

Mr. SOLARZ. Why is it in the national interest to provide ExportImport Bank loans to China?

Nr. RYAN. That goes back over the history of ten years. It was thoroughly recognized by all parties concerned that that was in the national interest.

Mr. SOLARZ. Why?

Mr. RYAN. To give you my own reasons, China was making the right move toward liberalization, et cetera, and has made enormous progress in that regard. They have perestroika if not glastnost over the last ten years. They have been a tremendous market for the United States and until these recent unfortunate events doing business there has been a good thing.

Mr. SOLARZ. But in light of the recent unfortunate events, do you still believe it is in the national interest of the United States to provide loans to China?

Mr. RYAN. That is really beyond my competence. The State Department has to make the finding that the situation there is such that it is in the national interest not to do business. I cannot make that determination.

Mr. SOLARZ. Do you think you could provide us, for the record some justification for continuing to provide loans to China but not to these East European countries?

Mr. Ryan. I would certainly provide you an advisory opinion. It does not have the effect of the statute.

[The information follows:] The history of our relationship with each country is unique. Furthermore, it is an Administration policy not to compare one country's programs with another, as in the case of the People's Republic of China and the East European countries. With regard to Eximbank restrictions, Section 2(b)(2)(B)(i) of the Export-Import Bank Act, as amended, prohibits the Bank from financing any exports to Marxist-Leninst countries, unless the President of the United States determines that it is in the U.S. national interest to do so. There have been Presidential Determinations made pursuant to law, those presently in force permit the Bank to assist in financing U.S. exports_to Poland, Romania, Hungary, Yugoslavia and the People's Republic of China. Even though Eximbank may not be legislatively prohibited from financing a transaction in one of these countries, it is still required by legislation to find a "reasonable assurance of repayment” on any export transaction it supports.

Mr. SOLARZ. We would like your thinking on this. Now if we were not to provide new loans to China, would that make more money available for loans to other countries?

Mr. RYAN. Yes, that is to say we would not use that portion of our loan budget which is very limited so we would have it to use in other areas. We could certainly use it.

Mr. SOLARZ. If we could use it in other areas, would there be any net loss for American industry or American jobs? In other words, we would presumably lose the income and jobs that would be generated from projects you would have financed in China but which now cannot go forward if you don't finance them.

You would presumably be financing projects in other countries which would generate income and jobs that otherwise would not have been generated because the money would not be available for those.

At the end of the day does it turn out to be a wash in terms of its economic impact?

Mr. RYAN. Looking at it in terms of the authorization and numbers I suppose one would have to say yes, but I think you have to add to that the strategic importance from a business point of view of China is very special. For example, one of our very latest loans is for a TV tube plant in China, a very important order for New York state I might add.

But to develop the TV industry in China has enormous potential for China, and also for the United States in follow on sales. For example, if you have telecommunications projects in China, since China does need telecommunications enormously, it is important for U.S. industry to get that order so that it can be in a competitive position as China grows to top the enormous market we referred to.

It is not for us to pick and choose. If we did not do business in China, we could do it elsewhere.

Mr. SOLARZ. Have we entered into discussions with our European allies and Japan on how to deal on a multi-lateral basis on this question of Export-Import loans for companies seeking to do business in China?

Mr. RYAN. I believe we have not formally. I say I believe because it is not the Export-Import's responsibility to do that. That is a government to government responsibility. I believe it will be discussed at the summit meeting as an agenda item and then inter-governmentally the communications would go around I believe. We have not started that process yet.

Mr. SOLARZ. If we were to suspend any new loans to China it would be desirable if the other countries did so as well?

Mr. RYAN. Yes, definitely. We would like to see that happen.

Mr. SOLARZ. The American firms that get loans from you for their operations in China or elsewhere, are those interest rates lower than they would be if they went to a commercial bank?

Mr. Ryan. Yes, very definitely. First, the loans of course do not go to the exporter, they go to the Bank of China to buy the U.S. product. The consensus loan level is 8.3 percent. For China to borrow in the private market while it is still a good credit risk, it would cost at least 200 basis points more than that in the private market.

Mr. SOLARZ. So in effect these Ex-Im loans to China are subsidized. Who subsidizes them?

Mr. Ryan. The U.S. taxpayers.

Mr. SOLARZ. Have the other industrialized countries suspended subsidized credits to China for the purchase of their exports?

Mr. RYAN. Of the G-7, the ones we are concerned about, our understanding is that France and the Netherlands have stopped but that Germany, Britain, Italy and Japan especially continues.

Mr. SOLARZ. Well let me thank all of you very much. This has been helpful and illuminating and we appreciate your willingness to wait so long. I am sorry if you missed the lunch hour. If it is any consolation some of us did, also. The hearing is adjourned.

[Whereupon, at 2:00 p.m., the hearing was adjourned.]

HUMAN RIGHTS AND POLITICAL

DEVELOPMENTS IN CHINA

Private Sector Views

WEDNESDAY, JULY 19, 1989

HOUSE OF REPRESENTATIVES, COMMITTEE ON FOREIGN AF

FAIRS, SUBCOMMITTEES ON HUMAN RIGHTS AND INTER-
NATIONAL ORGANIZATIONS, ON ASIAN AND PACIFIC AF-
FAIRS, AND ON INTERNATIONAL ECONOMIC POLICY AND
TRADE,

Washington, DC. The subcommittees met at 2:05 p.m., in room 2172, Rayburn House Office Building, Hon. Stephen J. Solarz (chairman of the Subcommittee on Asian and Pacific Affairs) presiding.

Mr. SOLARZ. The subcommittee will come to order.

Today the Subcommittee on Human Rights and International Organizations, the Subcommittee on Asian and Pacific Affairs, and the Subcommittee on International Economic Policy and Trade meet again concerning U.S. policy towards China in the wake of the Chinese government's brutal suppression of the democracy movement.

Last week we heard from representatives of the administration. Today, we hear from representatives of the business community, from policy specialists, and from two Chinese student leaders in the United States.

The issue before us today is the extent to which the United States Government should take further steps in addition to those already taken by the Bush administration and passed by the House and Senate, to restrict our cooperation with China. Among the questions to which we seek answers today are the following:

Should the United States continue to grant preferences to China that it does not grant to the more politically and economically orthodox countries of Eastern Europe, such as most favored nation tariff status?

Should the United States impose new economic sanctions on China which our friends and allies are unwilling to impose?

Should the United States impose new economic sanctions on China which hurt American interests or the Chinese people more than they hurt the Chinese government?

How, in the case of China, should the United States reconcile its obvious geopolitical and economic interests with its equally obvious commitment to democracy and human rights?

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