Cablegate: Austr Stratford's Meeting with Mof a/S Zhu

DE RUEHBJ #6168/01 2630257
P 200257Z SEP 07




E.O. 12958: n/a


1. (SBU) In a wide-ranging discussion September 13
with Ministry of Finance Assistant Minister Zhu
Guangyao, Assistant USTR for China Tim Stratford
outlined U.S. expectations for the upcoming Joint
Committee on Trade and Commerce (JCCT) and discussed
the status of various follow-up items from the
Strategic Economic Dialogue (SED) meetings in May. He
said that USTR was eager together with other relevant
USG departments to continue cooperation begun at
earlier SED meetings in the areas of investment,
illegal logging, transparency, and enterprise
annuities. Zhu emphasized the importance of the SED
in managing trade and economic issues as well as
discussing long-term strategic issues. He asserted
that China had met its commitment on enterprise
annuities made in May at SED II and hoped for further
progress on a number of issues raised by Chinese
officials, including bank licensing, tourism, and a
SED hotline. AUSTR Stratford said he hoped there
would be continued progress on streamlining the
approval process for financial institutions wishing to
enter the enterprise annuity market.


2. (SBU) Looking ahead to mid-December, AUSTR
Stratford said it would be an important and productive
week for U.S.-China economic relations. The third
meeting of the Strategic Economic Dialogue (SED) would
follow the 18th meeting of the Joint Committee on
Commerce and Trade (JCCT) and a seminar on innovation
(note: the innovation seminar is a SED II outcome).
Regarding the JCCT, Stratford informed Zhu that USTR
and Commerce had recently presented two lists to
MOFCOM: 1) a menu of potential agenda items; and 2)
suggested areas of cooperation. He planned to meet
with MOFCOM Director General He Ning during the week
of September 17 to further discuss the JCCT agenda.
He said the U.S. negotiators were optimistic about a
productive round of talks, but noted that the
discussions would not always be easy.

3. (SBU) Zhu noted that as two important global
economies, it is difficult to avoid problems and
frictions. Our job, he asserted, was to solve these
problems. In this context, the Strategic Economic
Dialogue offered a strategic framework to discuss
issues, find solutions, and reduce tensions. Working
together in a cooperative manner and with a "frank and
open" spirit would contribute to improving relations.


4. (SBU) On investment, USTR and the State Department
were leading productive discussions on a bilateral
investment treaty and had further bilateral meetings
scheduled between now and SED III. Deputy USTR Bhatia
was also planning to discuss these issues with MOFCOM
during an early October visit to Beijing. In
addition, the Treasury Department was conducting a
broader discussion on investment issues.

Illegal Logging

5. (SBU) On the issue of illegal logging, Stratford
informed Zhu that AUSTR Mark Linscott held useful
discussions with the State Forestry Administration on
September 10 in Beijing. Linscott proposed, and the
Chinese side accepted, an outline of next steps
leading up to the December SED meeting. The U.S.
would soon present draft text on a bilateral
cooperation agreement followed by a digital
videoconference to discuss the language in the text
and a visit led by State Department OES Assistant
Secretary Claudia McMurray and AUSTR Linscott in late

October. Stratford said he was pleased that MOFCOM
and Chinese Customs officials were represented at the
SFA meeting and stressed that interagency cooperation
would be essential for future progress. Zhu replied
that the discussions should not frame the issue as
solely a trade issue, and that the Chinese side hoped

BEIJING 00006168 002 OF 003

to have a broader discussion to include issues such as
forestry management. He said the MOF had helped
coordinate the recent discussions, reflecting Wu Yi's
interest in the issue.


6. (SBU) Stratford said transparency was a fitting
topic for SED discussions because of its strategic
significance and importance for long-term economic
growth and sustainability. Increased transparency
would greatly benefit the overall relationship as
greater understanding leads to greater trust. U.S.
officials had recently met in Washington to discuss
ideas for the December SED meeting, and it was agreed
that transparency was one of the key issues that
should be emphasized going forward. As agreed during
SED II, the two sides were preparing to hold a joint
seminar on administrative rule-making in late
October/early November in Beijing followed by a visit
by Chinese officials to Washington. In Washington,
the Office of Management and Budget would share with
the Chinese delegation ideas on how to use cost-
benefit analysis when considering new or revised rules
and regulations.

7. (SBU) Zhu noted the PRC was preparing to issue
several new laws next year, including an employment
promotion law, that would place a great deal of
pressure and responsibility on government officials
and agencies. This would require significant funds in
order to disseminate information about the new rules.
Zhu commented that any discussion of transparency
needed to take into account Chinese law and ChinaQs
current conditions. Stratford said China had taken
many steps to increase transparency in recent years,
but that it had yet to implement a mandatory public
comment period for new and revised rules. This
limited public confidence in the rule-making process
because the public would not know what is being
hidden. Zhu suggested that the U.S. side continue its
discussions with the State Council Legal Affairs
Office (SCLAO) on the distinction between QshouldQ and
Qmust.Q Stratford agreed this would be an important
topic for further discussions.

Enterprise Annuities

8. (SBU) Regarding ChinaQs SED II commitment to
streamline the approval process for enterprise
annuities, Stratford said this would likely be
discussed during the upcoming JEC talks. The U.S.
viewed this issue as an opportunity to share ideas and
offer suggestions as China continues to reform its
pension and retirement system. Zhu replied that the
Chinese government intended to strengthen the
CountryQs social safety net and to develop its
annuities and capital markets as part of ts economic
reforms. He said China could learn a great deal from
the United States and the international community, but
that China was a large country with large differences
between the urban and rural populations. Zhu said
there was an ongoing debate within government
agencies, particularly the Ministry of Labor and
Social Security (MOLSS), regarding Qfirst lineQ and
Qsecond lineQ forms of social welfare.

9. (SBU) Stratford said it would be important for
China to coordinate policies among its regulatory
agencies and expressed hope that China would provide
further details on its SED II promise to streamline
the process. Adding that he expected this issue would
be discussed in more detail during the JEC deputies
meeting next week, Stratford expressed the hope that
all financial institutions would have important roles
to play as China moved forward in reforming its social
welfare system. Zhu replied that MOLSS had recently
concluded three agreements with the Department of
Labor covering unemployment insurance, labor
statistics, and pensions (enterprise annuities) thus
fulfilling ChinaQs SED II commitment on this issue.
Stratford said he was not aware of these agreements,
but stressed the importance of continuing efforts to
streamline the approval process for financial
institutions offering enterprise annuities prior to

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SED III. Zhu insisted that from ChinaQs perspective,
MOLSS had satisfied the commitment made at SED II and
that if the United States wanted to raise additional
points on this topic, it could do so during SED III.
He noted that MOLSS officials had not participated in
recent SED III preparatory meetings, and that the U.S.
would need to engage quickly on this topic if it
expected MOLSS to be at the table in December.
Stratford said he was concerned there might be an
important disconnect between U.S. and Chinese
expectations regarding this SED II outcome and that he
would immediately check with other USG agencies to

Other SED Topics

10. (SBU) Zhu informed Stratford that the New York
Stock Exchange had received authorization to open a
branch office and that Chinese regulators were waiting
on additional information from NASDAQ. FinAtt David
Loevinger noted that NASDAQ had recently submitted
additional information and was waiting for regulatory

11. (SBU) DOC China Office Director Cheryl McQueen
informed Zhu that the September 17-19 Express Delivery
Symposium would be a good opportunity to further
dialogue and cooperation in this field. On the
subject of tourism, Zhu noted that China was not
prepared to offer multiple entry visas as Chinese
tourism officials were concerned with Qlosing control
of Chinese tourists who went to the United States.

12. (SBU) Zhu asked for an update on pending
applications by two Chinese banks to open branches in
the United States. Loevinger replied that Federal
Reserve officials had visited China in July to review
the applications, but that he was uncertain when a
decision would be made. He noted that this topic was
on the JEC agenda and that U/S McCormick had asked for
a report from the Fed on the pending cases.

13. (SBU) Zhu raised the issue of Great WallQs
frustration with the slow pace of OFACQs review,
noting the United States had exceeded the usual amount
of time needed for the review. Loevinger said OFAC
was examining the case but had requested additional
information from Great Wall. He informed Zhu that
Treasury U/S for Terrorism and Financial Intelligence
Stuart Levey was planning to visit Beijing October 10-
11 and that this would be a good topic for him to
discuss with Chinese officials.

14. (SBU) In closing, Zhu expressed appreciation for
the letter Secretary Paulson, USTR Schwab, and
Secretary Gutierrez had recently sent to Congress

urging a balanced approach to U.S.-China trade issues.
He said he hoped that an agreement would soon be
finalized on a SED hotline between Secretary Paulson
and Wu Yi, modeled on the presidential hotline between
Presidents Bush and Hu.

15. (U) AUSTR Stratford cleared this cable.


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