Cablegate: Reaction to the Global Economic Crisis; Codel Moran Visits
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2609/01 2540811
ZNR UUUUU ZZH
R 110811Z SEP 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 6012
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE
UNCLAS SECTION 01 OF 02 BEIJING 002609
E.O. 12958: N/A
TAGS: CH ECON EFIN EINV ETRD OREP
SUBJECT: REACTION TO THE GLOBAL ECONOMIC CRISIS; CODEL MORAN VISITS
REF: (A) Beijing 1571; (B) Beijing 1556; (C) Beijing 1586
This cable is Sensitive But Unclassified (SBU) and for official use
only. Not for transmission outside USG channels.
1. (SBU) SUMMARY. Representative James Moran (D-VA) and Joint
Economic Committee Chair Carolyn Maloney (D-NY) visited Beijing
September 1 to 3 to meet with key financial, sovereign wealth, and
Chinese government leaders. Responding to entreaties to open an
office in New York, China's sovereign wealth fund explained they are
deciding between New York and Hong Kong. Bankers and researchers
confirmed that the U.S. dollar's international reserve position is
currently unthreatened, and China will continue to buy dollar
assets. Interlocutors disagreed on the prospect for near term
rebalancing in China, with the central banker more sanguine than
researchers. An official at China's reserve management agency also
downplayed the prospects for Renminbi exchange rate adjustments in
the near future. Officials expressed some interest in investment in
the United States, but showed concerns that the American banking
system still has unrealized liabilities. END SUMMARY.
2. (SBU) On September 1-3, the delegation met with representatives
from the China Banking Regulatory Commission (CBRC), the People's
Bank of China (PBOC), Minsheng Bank, the State Administration for
Foreign Exchange (SAFE), the National People's Congress (NPC), China
Investment Corporation (CIC), China International Capital
Corporation (CICC), and the China Center of International Economic
ENCOURAGING CIC BRANCH IN NYC
3. (SBU) In a meeting with Gao Xiqing, President of CIC (China's
sovereign wealth fund), Representative Maloney explained the
advantages to CIC of opening its first overseas office in Manhattan.
Given CIC's existing investments, including Morgan Stanley and
Blackstone, and the fact that New York City offers the world's
deepest and most liquid capital markets, the city is a natural
choice. Gao responded that he could not give a specific office
opening timetable and it may take two or three years to "get the
right people together." Gao said he sees New York as a logical next
step for CIC, but noted that some feel Hong Kong would be a more
appropriate choice for CIC's first office outside the mainland.
4. (SBU) Lin Shoukang, Managing Director at the CICC (a large
investment banking and research company tied to CIC), told the
delegation that CICC plans to open an office in New York City by the
end of this year.
DOLLAR STILL KING
5. (SBU) CICC's Lin stated that the U.S. dollar's role in
international markets likely would not change over the next few
decades. China, in addition, has no choice but to continue to invest
in USD-denominated assets. However, Lin speculated there will be a
gradual diversification in Chinese-held assets as China's outbound
investment environment continues to open. Zeng Peiyan, CCIEE
Chairman and former Vice Premier, asserted that, as long as the
dollar remained stable, China would continue to purchase
REBALANCING: STIMULUS, CONSUMPTION, RMB
6. (SBU) Representative Moran emphasized in his meetings that China
can contribute to U.S.-China relations by increasing imports from
the United States and establishing businesses there, rather than
continuing to rely on exports to the United States to drive growth.
He called rebalancing economic and trade relations a "win-win"
situation for both countries. PBOC Governor Zhou Xiaochuan agreed
that China should greatly increase imports from the United States,
in conjunction with further opening, deregulation, and rebalancing
of the Chinese economy. The Chinese Government is considering
additional fiscal stimulus spending to further social security and
health care reform programs to help encourage consumption.
7. (SBU) Other interlocutors struck a less positive note about the
prospects for rebalancing. Zhang Lanlan, Managing Director of
CICC's Research Department, said that China's position as an
exporter is based on its price advantage and that Chinese
consumption will not replace U.S. consumption overnight. CCIEE's
Chairman Zeng also opined that China's high savings rate was the
result of cultural and consumption habits, and would take many years
to change. He claimed the trade imbalance between the United States
and China cannot be addressed easily, since the imbalance arose from
a reasonable global division of labor.
8. (SBU) Deng Xianhong, SAFE Deputy Administrator, observed that we
have "a long way to go" to correct economic imbalances, including
reform of the international economic system as well as greater
regulatory cooperation between countries. Readjustment of RMB
exchange rates would be a "long and complex process," and any
reforms need to be both gradual and comprehensive, including
domestic prices and the social safety net. If China focused on
BEIJING 00002609 002 OF 002
exchange rate issues immediately, then enterprises already hurt by
the global crisis would suffer more.
INVESTMENT IN US: "YOU HAVE TO CLEAN THE COURTYARD"
9. (SBU) Zeng stated that many Chinese companies come to CCIEE for
help finding appropriate investments in the United States, but
claimed there are barriers to Chinese investment. Offering an
example, Zeng claimed the United States blocked the sale of Hummer
to a Chinese company for national security reasons. Representative
Maloney countered that the concern actually had been the Chinese
company's intention to take the factory to China, resulting in a
loss of American jobs. To attract more Chinese investment in the
United States, especially the financial sector, CBRC Chairman Liu
Mingkang commented regulators will, "have to clean the courtyard
before having guests."
BANKING REGULATION CONCERNS
10. (SBU) CBRC Chairman Liu and Director General Han Mingzhi
discussed the two countries' economic regulatory challenges.
Chairman Liu noted that not all the economic recovery signals are
good in the United States: "Parts of private sector appear
profitable but you don't know where the profit comes from. The
progress of some firms hides the fact that there has been huge
intervention and support to companies; this is only temporary
progress; TARP and other remedies are not working." In addition,
Liu feels that an exit strategy is missing and that financial
institutions cannot yet stand alone.
11. The delegation did not clear on this cable.