What's your interest in the opening up of China? Is it going to be loans or branch banking?

Well, there are supposed to be 900 million Chinese. And if you go out for a walk there on Sunday, you'll believe it. It's an enormous marketplace. Citibank first opened in China in 1902. We had eighteen branches there at one time. We once issued their currency--dollar bills printed in Russian up in Harbin,[8]  as a matter of fact.

Today,[9]  there isn't any real business in China. I went over there to get our travelers checks accepted, which they now are; to get a correspondent relationship, which we now have; and to negotiate the old claims,[10]  on which we have a team operating.

But let me give you the same facts that I gave the Chinese. First, we have the Johnson Act, which makes it illegal for a U.S. bank to lend money to a country that's in default on its obligations. China's in default, so you can write all the articles you want to about lending opportunities in the wonderful new world of tomorrow, but it's illegal. Any financing you want to do has to go through the Eurodollar market,[11]  because the Attorney General doesn't perceive that the Johnson Act goes offshore.

Second, a recent ruling by the Solicitor General says that in a communist country, or as we say now, socialist country, you have to aggregate all the borrowers when computing your legal limit. We have, I think, the largest legal limit of any bank in the world. It's around $179 million today. So, that's the largest loan we can make--period. If you add up the legal limits of all the banks in the United States, you're still not going to get over $2 billion. So the noise in the market exceeds what's transpiring. But there will be Eurodollar market loans to China--there's one being put together right at the moment--and they will be floated on a syndicated basis.

China's exports, we think, are about $8 billion, enough to support $30 billion of debt. The knowledgeable oil people are not very excited about the prospects for offshore oil. It's the same kind of geological structure as in the Baltimore Canyon, where there's been no outstanding success so far.

So, there are a lot of shopping lists over there, but not much is being sold to them yet. Maybe I'm not as excited about the potential for the market as I should be. I do think we're going to clear up all these technical details. It's reminiscent of when banks started lending to the Soviet Union. A lot of bankers ran out and made twelve-year loans at 6 percent. I really don't think that's going to happen in China.

Basically now, the Japanese are financing them and moving into this orbit. There's no question that there will be business. There's no question that a market exists. But I'm not as ebullient about the immediacy of it as some of my colleagues in banking.

[8] The capital of Heilungkiang, Manchuria.

[9] February, 1979.

[10] Foreign-owned assets in China were seized by the revolutionary government in 1950. In retaliation, Chinese assets in U.S. banks were frozen. This led to a series of claims and counterclaims which are still unsettled.

[11] Eurodollars are U.S. dollars deposited in banks outside the United States. The Eurodollar market began with an outflow of deposits from checking accounts in the United States, where by law they could earn no interest, to other countries where they could. The Eurodollar market expanded dramatically during the 1970s from well under $100 billion to well over $600 billion. Loans made in Eurodollars typically are not subject to the same restrictions that apply to other lending and, hence, may differ in size, terms and ease of transaction.