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Cablegate: Jan 13 Us-China Interparliamentary Dialogue: Taiwan, North

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1. (SBU) Summary: Taiwan arms sales and trade issues dominated the
5th session of the U.S. China Inter-Parliamentary Group (IPG), which
took place in Beijing January 13. Senator Patty Murray (D-WA) led
the U.S. Senate delegation to the IPG, which also included Senators
Christopher "Kit" Bond (R-MO) and Roland Burris (D-IL). During the
morning session, Chinese delegates, including National People's
Congress (NPC) Vice Chairman Lu Yongxiang and NPC Foreign Affairs
Committee Chairman Li Zhaoxing, denounced U.S. arms sales to Taiwan,
stressing the sale negatively impacted China's "core interests." On
Iran and North Korea, the NPC members advised the United States to
be patient and focus on diplomacy rather than sanctions. During the
afternoon plenary, Senators Murray, Bond, and Burris stressed the
need to reduce the U.S.-China trade imbalance, reform China's
exchange rate regime, and better protect intellectual property. The
Senators highlighted concern with new PRC "indigenous innovation"
government procurement rules that favor Chinese companies over
foreign firms. Chinese delegates argued that U.S.-China trade would
be more balanced if the U.S. lifted restrictions on high-tech
exports. Changing the RMB exchange rate, the Chinese side argued,
would only cause the U.S. trade deficit to shift to other low-cost
countries. They denied that the indigenous innovation rules
discriminated against foreign firms. Following the plenary
sessions, the U.S. delegation met with NPC Chairman and Communist
Party Politburo Standing Committee Member Wu Bangguo. Wu offered a
positive assessment of U.S.-China relations and voiced support for
increasing inter-parliamentary exchanges. Differences over Taiwan
and other issues, Wu said, should not be allowed to detract from the
overall relationship. End Summary.

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5th Session of Senate-NPC Dialogue

2. (U) Senator Patty Murray (D-WA) co-chaired the 5th session of the
U.S.-China Inter-Parliamentary Group (IPG) meeting held January 13
in Beijing. Senators Christopher "Kit" Bond (R-MO) and Roland
Burris (D-IL) also participated. National People's Congress Vice
Chairman and Communist Party Central Committee Member Lu Yongxiang
acted as co-chair for the Chinese side. The dialogue consisted of
morning and afternoon plenaries followed by a meeting with NPC
Chairman and Communist Party Politburo Standing Committee Member Wu

Morning Plenary: Taiwan Arms Sales

3. (SBU) In his opening remarks, Lu Yongxiang gave a positive
assessment of U.S.-China bilateral ties, noting the "smooth
transition" to the Obama Administration and President Obama's
successful visit to China in November. Senator Murray emphasized
the state of Washington's close historic and trade ties to China.
Virtually every business in the state had an interest in China,
Senator Murray noted. Nevertheless, she added, the economic
relationship had several hurdles to overcome, including reducing
intellectual property theft, improving market access for U.S.
companies, and boosting green energy cooperation.

4. (SBU) Much of the morning session was dominated by denunciations
of U.S. arms sales to Taiwan by the Chinese delegates. NPC Foreign
Affairs Committee Chairman (and former Foreign Minister) Li Zhaoxing
criticized the U.S. approval, reported in the media the previous
week, of the sale of arms, including Patriot PAC-3 missiles, to
Taiwan. China was "disappointed and indignant" about the planned
sale. The sale violated the third U.S.-China Joint Communique, Li
asserted, and jeopardized cross-Strait stability. The United States
could not use the excuse of the Taiwan Relations Act, which was a
domestic law, to sell arms to Taiwan and interfere in China's
affairs. The United States should change its "Cold War mentality"
and respect China's "core interests," particularly regarding Taiwan
and Tibet, Li said.

5. (SBU) Senator Bond responded that the United States did not
support Taiwan independence and the Taiwan Relations Act did not
recognize Taiwan as a separate country. Senator Bond noted that
mainland China continued to target 1,200 missiles at Taiwan, and he
urged the mainland to demilitarize the Taiwan issue. If Taiwan and
mainland China could come to a "permanent agreement," then Congress
would revisit the arms sales issue, Senator Bond said. Li retorted
that missile deployments were China's own affair and if the United
States deployed missiles in Texas or Alaska, "China would not care."
The arms sales only increased the "arrogance" of pro-independence
forces on Taiwan and were unacceptable to China, Li argued.

North Korea and Iran

BEIJING 00000462 002 OF 003

6. (SBU) Senator Bond stressed the importance of both the North
Korea and Iran nuclear issues, noting that the United States wanted
to restart the Six-Party Talks with North Korea. Senator Bond urged
China to work with Russia and the United States to resolve the Iran
nuclear issue although, Bond added, he knew China was less
supportive of sanctions against Tehran. Chinese delegates urged
patience on both Iran and North Korea. NPC Deputy Secretary General
Cao Weizhou said China also wanted to achieve denuclearization of
the Korean Peninsula. However, Cao said, China believed that the
long-standing lack of trust between the United States and the DPRK
was part of the problem, and the United States should emphasize
diplomacy rather than sanctions. NPC Deputy Wu Xiaoling, a former
deputy governor of the People's Bank of China, said that like the
DPRK, China was once saddled with a failed planned economy. The
DPRK, she predicted, would change, although reform of the North
Korean system would be gradual and the United States should exercise

People-to-People Exchanges, Visa Issues

7. (SBU) NPC deputy Cheng Jinpei commented on the need to boost
people-to-people contact and increase the role of young people in
bilateral relations. Cheng voiced support for the Obama
Administration's goal for 100,000 American students to study in
China over the next four years. Cheng noted that Chinese students
were having a much easier time obtaining visas to the United States
than previously was the case, though he also said that Chinese
technical experts seeking to attend scientific conferences continued
to experience visa denials and delays. Cheng said the United States
should adopt a more "objective, rational and reasonable" visa policy
toward Chinese scientists. Senator Burris agreed with Cheng on the
need to increase student exchanges. Citing his own experience as an
exchange student in Hamburg, Germany, Senator Burris said such
programs were crucial for improving understanding between the United
States and China.

Afternoon Plenum: Trade Gap, Exchange Rate, IPR
--------------------------------------------- --

8. (SBU) Senator Murray, who chaired the afternoon IPG session, told
the NPC delegates the United States was committed to economic
rebalancing for more sustainable growth, and that China also would
benefit from policy adjustments to rebalance its economy. She said
one bilateral issue in need of continuing collaboration was the
trade relationship, as one in three jobs in Washington State were in
some way tied to trade. The benefits of trade for both countries
were obvious, but the bilateral imbalance was a growing concern,
with many Americans blaming China for U.S. job losses. In the past
year, new measures by both countries had further strained the
relationship. Among U.S. areas of concern in China were the value
of the RMB and the exchange rate system, IPR protection, market
access for U.S. farm products, and financial service sector access
for American firms. Senator Murray sought new approaches on energy
security and the environment, where U.S. and Chinese interests were
closely aligned. On climate change, she said both countries were
committed to emissions reduction, but we needed new policies and
strong, decisive steps together.

RMB Exchange Rate

9. (SBU) Responding to the Senator's concerns about China's exchange
rate, Wu Xiaoling said that although the RMB's exchange rate
appeared undervalued, it was necessary to consider relative costs,
including China's low labor and resource prices, which distorted the
exchange rates. The exchange rate was a consequence rather than a
cause of economic structure, and addressing the U.S.-China trade
imbalance required more than exchange rate changes, which alone
would only shift the U.S. trade deficit to other low-cost countries.
China needed to increase the flexibility of its exchange rate
system to better reflect market levels; as it did so, the United
States should open more of its high-technology exports to China.
Senator Bond agreed that China's exchange rate system should be more

Intellectual Property

10. (SBU) Senator Bond observed that China had made efforts and
progress on IPR protection, but more steps could be taken. Senator
Burris commended China's efforts at the national level, but
questioned its success at local levels. Failure to protect IPR hurt
China's relations with other countries, Senator Burris added, as
well as China's own economic growth. NPC delegate and Shandong
University President Xu Xianming responded that China had made
"remarkable progress" on IPR protection, including the 2009 revision
of the Proprietary Law, and put in place a legal framework and

BEIJING 00000462 003 OF 003

national program. China employed a dual system of administrative
and judicial protection, which together handled about 30,000 IPR
cases per year. China was attempting to promote IPR protection
through educational and public awareness programs. Lu Yongxiang
added that the Chinese government and people understood the need to
ensure a fair environment for creators of intellectual property, but
said that "frankly" that IPR protection remained a problem,
especially with local governments and small and medium-sized
enterprises (SMEs) that were the "weak link." He noted recent
revisions of patent, trademark and copyright laws. He said
arbitration provided a lower-cost means to resolve IPR disputes.

Indigenous Innovation Rules in Public Contracts
--------------------------------------------- --

11. (SBU) Senators Murray, Bond and Burris all expressed concern
about new "indigenous innovation" government procurement regulations
that would give preference to products developed and patented in
China. Senator Bond said the new regulations appeared to be a
"glaring trade barrier" that went far beyond legitimate protection
for patents and trademarks. Many companies had moved tens of
thousands of jobs to China and shared their technology; the new
regulations would deter them from doing so. The Chinese delegation
denied the rules discriminated against foreign companies. Lu
Yongxiang said the Chinese government had emphasized independent
innovation in recent years, but still relied on foreign countries
for eighty percent of its science and technology. He said
indigenous innovation included innovation by foreign companies in
China. Cheng Jinpei opined that the translation "indigenous
innovation" was inaccurate and that "open innovation" might be

Wu Banguo: "Meaningful Year" in Bilateral Relationship
--------------------------------------------- ---------

12. (SBU) Following the conclusion of the 5th IPG session, Senators
Murray, Bond and Burris met with NPC Chairman and Communist Party
Politburo Standing Committee member Wu Bangguo. Wu reviewed
accomplishments in U.S.-China relations in 2009, including the
November visit by President Obama and cooperation on multi-lateral
and regional issues such as North Korea, Iran and the Copenhagen
climate change summit. Wu noted that he and Speaker of the House
Nancy Pelosi had exchanged visits in 2009. Looking ahead, Wu
forecasted that 2010 would be an important year for bilateral ties,
with President Hu traveling to the United States and the second
session of the Strategic and Economic Dialogue.

13. (SBU) Wu noted that given the "multi-polarity" of the world,
China and the United States were increasingly inter-twined and
inter-dependant, a reality that demanded close cooperation to
address new challenges. Although the two sides still had
differences, such as on the issues of Tibet and arms sales to
Taiwan, each side understood the other's stance. Wu hoped that both
the United States and China could proceed from a strategic and
long-term perspective and refrain from allowing these differences to
detract from the overall relationship.

Local/Trade Issues

14. (SBU) CODEL Murray members told Wu that the U.S. and Chinese IPG
delegations had held "intense" discussions on a range of issues. Wu
said that he hoped the inter-parliamentary discussions would enhance
mutual trust. Senator Bond noted the utility of inter-parliamentary
exchanges in advancing local issues and goals. Bond mentioned that
Chinese air freight companies had expressed interest in establishing
a hub at Lambert-St. Louis International Airport. Senator Murray
noted that Boeing would have its new 787 Dreamliner available to
Chinese airlines soon. Wu said that during his recent visit to the
United States he had touched upon cooperation with the U.S. firm
Honeywell and he had later facilitated the opening of the first
solar power plant in China.

15. (U) This message was cleared by the CODEL.

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