Cablegate: Sed Iii: Opening Session, December 12, 2007

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UNCLAS SECTION 01 OF 03 BEIJING 007579

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SENSITIVE
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STATE FOR EAP/CM SECOR/YAMAMOTO
STATE PASS USTR FOR STRATFORD/WINTER/MAIN
STATE PASS EX-IM BANK FOR LAMBRIGHT/MYROW

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV CH
SUBJECT: SED III: OPENING SESSION, DECEMBER 12, 2007

(U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED.
PLEASE HANDLE ACCORDINGLY. NOT FOR DISTRIBUTION
OUTSIDE USG CHANNELS.

1. (SBU) At the December 12 opening session of the
third round of the U.S.-China Strategic Economic
Dialogue (SED), Vice Premier Wu Yi said the SED has
improved not only bilateral business ties, but also
overall Sino-U.S. relations and has attracted
widespread international attention. Wu said the theme
of SED III focused on how to capitalize on the
benefits of globalization and how to address the
challenges globalization presents. Wu said the two
sides would use the SED forum to discuss policy steps
to meet the challenges of globalization, including the
integrity of trade, product safety, balanced economic
development, energy issues, and environmental
protection.

2. (SBU) Vice Premier Wu raised two priority issues.
First, she said both sides should fully appreciate the
importance of their bilateral relationship, and should
recognize that business ties are its most important
aspect, with the capacity to boost cooperation in
other areas. Since the visit of President Nixon in
1972, she said, bilateral trade between the countries
has developed to nearly $300 billion, and that the
United States and China now represent each other?s
second largest trade partners and fastest growing
markets. Second, she noted that, in the course of
rapid bilateral growth, difficulties have occurred.
She said that such challenges can only be resolved
through consultation and dialogue, and that our
countries? historical relationship has repeatedly
shown cooperation to be more effective than finger-
pointing and confrontation.

3. (SBU) Wu Yi raised two suggestions for the SED
meeting. First, she said both sides, as stakeholders
and constructive partners, should make concerted
efforts to cooperate to gradually ease the bilateral
trade imbalance and resolve trade disputes, thus
laying a stronger foundation for future growth.
Second, she said both sides should work to strengthen
mutual trust and enhance understanding through
deepened dialogue and consultation to address each
other?s concerns.

Wu Yi: U.S. Protectionism Will Harm Relations
---------------------------------------------

4. (SBU) Vice Premier Wu said both countries must not
allow interest groups to harm the development of
business interests, and should oppose the
politicization of important issues. Wu expressed her
personal concern with the ?more than 50 China-related
protectionist bills in Congress,? which she said can
only be counterproductive. If adopted, she said, they
would severely undermine United States business ties
with China, and would have grave consequences. She
said she welcomed a July 30 letter from Secretary
Paulson, Secretary Gutierrez, and Ambassador Schwab to
the Senate Finance Committee opposing such bills.
Similarly, Wu also said she welcomed a September 26
joint letter from 106 multinational corporations and
business associations emphasizing that trade sanctions
are the wrong approach to resolving problems, and are
harmful to United States business interests. Wu
expressed her hope that the administration will heed
the voice of industry and will recognize the
importance and overall beneficial nature of the
bilateral trade relationship.

5. (SBU) Wu stressed the need to adopt more creative
policy measures to address problems that may occur,
raising product quality and food safety as an example.
The issue has become a global one, she said, and
therefore both countries must assume their due share
of the responsibility to ensure the quality of the
lives of their citizens.

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6. (SBU) On bilateral trade imbalances, Wu said China
has no intention to seek large a trade surplus with
the United States, but only wishes to maintain a basic
balance in its international payments. She called on
the United States to relax export controls of civilian
high technology products to help increase United
States exports to China. Wu cited President Hu?s
remarks that China would continue to grow by
significantly increasing domestic consumption while
also improving energy efficiency. Thus, China?s
demand for energy-efficient, environmentally friendly
products will increase considerably.

Paulson: Deeping Interdependence
--------------------------------

7. (SBU) In his opening remarks, Treasury Secretary
Henry Paulson explained that, when Presidents Bush and
Hu created the SED in 2006, their intent was not to
replace the many other important bilateral dialogues
between China and the United States. Rather, he said,
they envisioned an overarching, senior-level, long-
term, and strategic forum that could also address
immediate, sensitive issues as they arise.

8. (SBU) Paulson highlighted two points in his
introduction of SED III: the deepening interdependence
between the United States and China, and the rise of
nationalism and protectionism in both countries.
Addressing the first, he said that both countries?
interests overlap on most issues. As bilateral
economic ties increase, he explained, citizens must
have confidence in the goods they buy, which raises
the challenge of food and product safety. The
December 11 signing of the MOUs on food and product
safety was a critical step toward this end.

9. (SBU) Paulson continued that the United States
welcomes the rise of a stale and prosperous China,
but noted recent concerns over the overheating of the
Chinese economy, asset bubbles, macroeconomic
policies, and inflation. Especially in this
environment, he said, a flexible currency is important
to solve China?s internal and external challenges. At
the same time, Paulson said, aspects of the United
States economy ? such as its housing market ? are also
facing challenges, but that the deep and liquid United
States capital markets are playing a role in
mitigating the impact of these problems. China,
Paulson suggested, should further open its own markets
to gain access to the capital it needs for continued
economic growth. Simultaneously, he said, the United
States and China should also share responsibility for
ensuring clean and reliable energy supplies and
protecting the environment. A healthy environment and
strong economy are not mutually exclusive, he said;
they are mutually necessary.

10. (SBU) Addressing the rise of nationalism and
protectionism in both countries, Paulson said that
whereas trade was once a source of bilateral stability
between the United States and China, it has recently
become a source of tension. He called on both
countries to resist attempts to reduce transparency
and raise obstacles to protect domestic industries.
Paulson noted that the Bush administration has to date
resisted anti-China bills in Congress, but warned that
many people remain unsure that the benefits of trade
are fairly shared between the United States and China,
and urged that China continue to keep its markets open
to alleviate such concerns.

11. (SBU) In conclusion, Paulson said the focus of the
SED is to keep the bilateral economic relationship on
an even keel in times of tension and in times of calm.
He noted that the success of the dialogue will be
judged by what progress both sides are able to
achieve.

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12. (U) SED III Delegates:

United States:
Henry M. Paulson, Jr., Secretary of Treasury
Clark T. Randt, Jr., U.S. Ambassador to China
Carlos M. Gutierrez, Secretary of Commerce
Michael O. Leavitt, Secretary of Health and Human
Services
Susan C. Schwab, United States Trade
Representative
Stephen L. Johnson, EPA Administrator
Clay Sell, Deputy Secretary of Energy
Reuben Jeffery III, State Department Under
Secretary for Economic, Energy and Agricultural

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Affairs
James H. Lambright, Chairman Export-Import Bank

China:
Wu Yi, State Council Vice Premier
Xie Xuren, Minister of Finance
Zhou Wenzhong, Chinese Ambassador to the U.S.
Yang Jiechi, Minister of Foreign Affairs
Ma Kai, National Development and Reform
Commission Chairman
Shang Yong, Vice Minister of Science Technology
Hu Xiaoyi, Vice Minister of Labor and Social
Security
Sun Zhengcai, Minister of Agriculture
Chen Deming, Acting Minister of Commerce
Chen Zhu, Minister of Health
Zhou Xiaochuan, People?s Bank of China Governor
Li Changjiang, AQSIQ Minister
Zhou Shengxian, State Environmental Protection
Administration Administrator
Zhu Lieke, State Forestry Administration Vice
Administrator
Shao Mingli, State Food and Drug Administration
Administrator
Zhang Qiong, State Council Legislative Affairs
Office Vice Minister
Liu Mingkang, China Banking Regulatory Commission
Chairman
Shang Fulin, China Security Regulatory Commission
Chairman
Wu Dingfu, China Insurance Regulatory Commission
Chairman
Li Ruogu, China Import-Export Bank President
Liu He, Central Leading Group on Finance and
Economic Affairs Vice Minister

Randt

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