COMMERCE SECRETARY GUTIERREZ'S MEETING WITH

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E.O. 12958: DECL: 03/28/2016
TAGS: ETRD KIPR BEXP EFIN PREL CH
SUBJECT: COMMERCE SECRETARY GUTIERREZ'S MEETING WITH
PREMIER WEN JIABAO, MARCH 28, 2006

Classified By: Deputy Chief of Mission David S. Sedney, Reasons 1.4 (B)
and (D)


1. (C) Summary. Secretary of Commerce Carlos Gutierrez
emphasized to Premier Wen Jiabao in March 28 meeting that the
next several weeks provide an opportunity for China to
demonstrate that the U.S. policy of engagement can lead to
tangible benefits to the peoples of both the United States
and China and for China to address increasing perceptions in
the United States that the trade and economic relationship
with China is skewed towards China's benefit. A successful
meeting of the Joint Commission on Commerce and Trade (JCCT)
on April 11 with tangible results for the United States will
be crucial to establishing an opportune climate for President
Hu Jintao's visit to the United States little more than one
week later. Premier Wen said that China is already taking
measures to increase imports from the United States, and that
such measures would not be one-time efforts but part of
forming a mechanism to address the bilateral trade imbalance.
The Premier highlighted steps to increase judicial penalties
to improve protection of intellectual property rights (IPR)
in China, and noted the long-term task of making every
Chinese business and individual recognize the importance of
IPR protection to China's goals of economic development and
becoming an innovative country. On the exchange rate,
Premier Wen said China will not engage in administrative
interference in the exchange rate and pledged that China will
continue its earnest work on exchange rate reform based on
market conditions. China will display positive messages and
actions on U.S. concerns, including on computer software
issues, and the Premier said he believes that the two
countries' efforts can make the April JCCT meeting into a
success. End summary.


2. (SBU) After welcoming comments about Secretary
Gutierrez's March 26-27 visit to Chongqing in western China,
during which Premier Wen said that most of the fifty thousand
U.S.-invested business operations scattered throughout China
are operating very well, the Premier acknowledged the
importance of the Secretary's visit and on-going preparations
for the seventeenth meeting of the JCCT (April 11 in
Washington). The JCCT should send a positive message to the
rest of the world that the bilateral trade and economic
relationship brings benefits to both the United States and
China and that when problems crop up in the relationship,
they can be addressed through consultations. U.S.-China
relations are a very important part of the overall
relationship and have a direct bearing on that relationship.
The Secretary's meetings earlier in the day with Vice Premier
Wu Yi and Minister of Commerce Bo Xilai should have already
shown the great sincerity of the Chinese side to those
problems popping up in the relationship.


3. (C) From his December 2003 visit to the United States
during which he put forward a five-point proposal to
President Bush to President Bush's November 2005 visit to
Beijing, during which he had put forward a three-point
proposal, the Chinese side has clearly shown a constructive
approach to mitigating and bridging differences, the Premier
continued. That rapid development of bilateral economic and
trade relations is the inevitable outcome of mutual needs is
a fact to be acknowledged. Development of those relations is
fundamentally in the interests of the peoples of both
countries and in the interests of the long-term overall
relationship. Both sides must face up to problems.

Premier on Three Major U.S. Concerns: The Trade Imbalance


4. (SBU) The Premier said he understood that the United
States holds three major concerns about its trade and
economic relationship with China, namely, in the areas of the
bilateral trade imbalance, IPR protection, and the exchange
rate for the renminbi. Judging from facts, the Chinese side
has been making many efforts on these issues for several
years. Rather than focusing on specific details of those
efforts, the Premier said he wanted to focus on the Chinese

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side's attitudes and positions. Attitude is the fundamental
basis from which to address our problems. Regarding the
trade imbalance, positive efforts to reduce the imbalance
should be taken. China does not pursue an overly large
bilateral trade surplus, but rather hopes to maintain a
relative balance in its trade with the United States. That
means attaining a relative balance in import and export trade
and a relative balance in China's international payments.
China should try to increase its imports from the United
States, rather than the United States trying to restrict
imports from China. Increased Chinese imports from the
United States would benefit both countries.


5. (SBU) Premier Wen opined that the Secretary already knew
that China is taking effective measures to increase imports
from the United States. Those efforts are not to be one-time
measures but rather will serve as a mechanism to expand
purchases from the United States. China needs those U.S.
products, not only wheat and soybeans but also manufactured
goods like aircraft and cars and also high-tech items. The
Premier recommended that the United States open its market
more to Chinese purchases of high-tech items. China will
take multiple measures to create good opportunities for U.S.
products, including product promotions and strengthening of
bilateral economic cooperation, in order to stimulate U.S.
exports to China. Progress on the trade imbalance will be
seen before and after the seventeenth JCCT meeting, including
in those areas of biggest concern to the United States.

Premier on IPR


6. (SBU) In China's view, improvement of IPR protection in
China is not only a matter of facing up to international
disputes but also a necessary step to ensure the healthy
development of China's own economy. The Secretary's speech
in Chongqing one day earlier included many facts about IPR
protection problems in China, facts with which the Premier
said he is already familiar. China's IPR protection
situation still has problems, some serious. The Chinese
Government has already recognized that situation and is
making utmost efforts to resolve those IPR problems. The
government's efforts on IPR could be categorized into four
aspects: (A) establishment of a mechanism; (B)
administrative rectification; (C) judicial punishment; and
(D) international cooperation. While those four aspects are
interlinked, the most important one is judicial punishment.
China needs to ensure that each individual and each business
in China knows that IPR infringement is a crime. China has
taken steps to improve coordination between administrative
enforcement and judicial enforcement of IPR, and has lowered
the threshold for criminal penalties for IPR infringements.


7. (SBU) Time and much effort will be required for China to
attain its objective of having every individual and business
recognize the importance of protecting IPR. Attaining the
goal of widespread recognition of the importance of IPR
protection is the objective of a modern, rule-of-law country.
China will work towards that objective.

Premier on the Exchange Rate


8. (SBU) The Premier noted the visit to China one week
earlier by U.S. Senators Graham and Schumer. That visit had
helped the Senators learn more about China's exchange rate
reforms. In July 2005, China changed its exchange rate
formation system. Since that time, China has had a managed
floating exchange rate based on supply and demand conditions
in the market. In the more than 200 days since the exchange
rate reform, the renminbi has experienced depreciations and
appreciations against the dollar, with an overall
depreciation of three percent at present. Some U.S. friends
say that the three percent depreciation is too small a
change, but one should not forget that the U.S. dollar itself
has kept a relatively strong position during this period.
Renminbi appreciation against the Japanese yen and Euro has
been even higher than its appreciation against the dollar.

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In recent days, during which the U.S. dollar was getting
somewhat weaker, the renminbi's value vis--vis the dollar
has been going up again. The Premier related that at a press
conference earlier in March he said that China would not
impose administrative interference on the exchange rate.
China will continue its earnest work on exchange rate reform
based on market conditions.

Premier: China, A Developing Country, Needs Time


9. (SBU) The Premier said that after the Secretary's visit
to Chongqing in western China, he must realize that, despite
the remarkable progress and development in China, the country
still remains a developing country, one with very uneven
economic development across the country. China's market
mechanisms are far from perfect, the legal framework is not
yet perfect, the financial sector is reforming but still
vulnerable and needs to face up to potential risks. Claiming
that China is reforming itself, making progress on a gradual
basis, and that China deserves some time, the Premier
concluded his initial lengthy exposition.

Secretary Gutierrez: Strong JCCT Outcomes Needed to Overcome

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Perceptions and Prepare for Presidential Meeting


10. (C) The Secretary acknowledged that China has
accomplished much in a very short period of time, but
promptly turned the discussion to U.S. perceptions that the
Presidential visit of November 2005 had not achieved much for
U.S. workers and businesses. Thus there is much pressure in
the United States to achieve results at the JCCT, which is
the next step before Presidents Hu and Bush will meet in
Washington later in April. A strong set of JCCT outcomes can
help guarantee a very positive meeting for our Presidents,
and can even help turn the perceptions of some in the United
States that the relationship is balanced in favor of China
because of the trade deficit. In his meeting with Vice
Premier Wu Yi earlier on March 28, she had presented a
booklet about IPR protection in China to the Secretary. He
said that the information therein and China's plans to
improve IPR protection and enforcement will provide a great
foundation for China's goal of becoming an innovative
society. But the focus now must be on results.


11. (C) The Secretary requested that the Chinese Government
join with the United States Government to do everything
possible to make the April JCCT meeting one that is
substantive, with key tangible actions and results, so that
the U.S. public and U.S. Congress do not feel need to manage
the bilateral relationship through legislation. The
Secretary appreciates the good efforts and progress made to

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date to prepare for a good JCCT, but both sides need to do
even more. Tangible results relating to China's WTO
commitments and commitments made at earlier JCCT meetings are
required. One area that would have important symbolic as
well as commercial value for U.S. industries would be
computer software. The Secretary requested that the Premier
give attention to U.S. concerns about computer software sales
and related issues in China.


12. (SBU) Senators Graham and Schumer, the Secretary
believes, left China several days earlier feeling better
about the trade and economic relationship with China than
before they came. However, if nothing happens, if China does
not provide tangible results and tangible actions, the
pressure on the Senators will escalate and they will feel the
need to take very aggressive legislative action. The
Senators are expecting Chinese action on U.S. concerns in the
future.


13. (C) The Secretary urged China to turn his visit and the
upcoming JCCT and Presidential visit into events that will
address critics of the U.S. trade and economic relationship
with China. Further work by both sides could remove
lingering trade problems from the table. Much work remains
to be done. The United States wants to be China's partner

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but needs China's help to be able to do that. Much pressure
remains in the run-up to the JCCT meeting. A good JCCT
meeting will result in a good climate for the meeting of our
Presidents. JCCT outcomes that are not perceived as good and
meaningful will generate bad press and bad reports just as
our Presidents will be coming together. Both sides should do
everything to avoid that situation; the bilateral
relationship is too important.

Premier Wen: Yes, JCCT Important for President Hu's Very
Important Visit


14. (SBU) The Premier replied that he agreed with the
Secretary's point about the importance of the JCCT in the

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context of preparing for President Hu's visit to the United
States. First, Hu Jintao's visit is very important to
promoting the bilateral relationship. Therefore, more
consensus and more results must be achieved at the
seventeenth JCCT meeting.


15. (C) Second, China recognizes that the U.S.
Administration is facing tremendous pressure from the U.S.
Congress. The Premier again expressed his appreciation to
President Bush for repeated rejection of extreme actions
contemplated by some in Congress and rejection of Section 301
petitions. The President's actions have been very helpful in
safeguarding the bilateral relationship.


16. (SBU) Third, regarding U.S. trade and economic
concerns, China will display positive messages and actions
before and after the seventeenth JCCT meeting, including on
computer software as requested by the Secretary moments
earlier. The Premier reiterated that China's measures to
promote imports from the United States will not be one-time
actions, but rather measures that will be continued into the
future.


17. (SBU) Fourth, thirty years of bilateral economic and
trade relations have proven that harmony benefits both
countries, and discord harms both countries. The Premier
recalled a Chinese-language aphorism in which when one faces
a choice between two advantages, one should selected the
greater advantage, and when one faces a choice between two
disadvantages, one should select the one which is least
harmful or least injurious. Judging from the speed of
development of the bilateral trade and economic relationship,
there are many reasons to maintain an optimistic view.
Long-term, strategic perspectives are required by both sides
when looking at the bilateral economic and trade relationship.


18. (SBU) Lastly, both China and the United States face
their own problems in economic restructuring. Investment and
exports have played a large role in China's recent economic
development, while Chinese households have a high savings
rate and exhibit a sluggish consumption rate. Still, Chinese
consumption has been growing for the last several years at an
average annual rate of twelve percent, that is, higher than
China's GDP growth rate. U.S. economic challenges are on the
opposite side. The United States faces a double deficit and
has a low household savings rate. Neither nation has an
intention to interfere in the other's domestic economic
affairs. But China and the United States can join hands to
mitigate the challenges each faces through increased economic
cooperation. That is a long-term plan.

The Secretary: Show Results, Show that Engagement Works
Better


19. (C) The Secretary rejoined that the biggest advantage
to be selected now is to show the American people that
cooperation with China is better than taking a harder line
and enacting legislation to manage the relationship.
Cooperation and engagement has been the policy of President
Bush's Administration. The next three weeks or so provide
the opportunity to demonstrate that policy is the correct
one, rather than allowing the people to draw a different

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lesson from our trade and economic relationship with China.
The better advantage will be not having one side alone
winning at the JCCT. The public will be closely watching for
real outcomes from the JCCT and the visit of the Chinese
President, and considering what is the best way to deal with
China. The President's policy with China has been one of
engagement. Real results from the JCCT is the best way to
show that engagement is the best way to deal with China, the
Secretary reiterated.

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20. (C) Premier Wen concluded that he agreed with the
Secretary's final observations. The bilateral relationship

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should not be defined in opposition and confrontation.
Rather, the relationship should be and is based on dialogue,
engagement and cooperation. Using facts and reality, each
side should tell its respective people that the economic and
trade relation and cooperation is beneficial to both
countries' peoples. In Chongqing, the Secretary had
repeatedly said businesses and governments need to be seen as
credible and sincere. The Premier hoped that through his
meetings with himself, Vice Premier Wu Yi, and colleagues at
MOFCOM and the Foreign Ministry, the Secretary felt the
Chinese Government's sincerity and commitment to address
bilateral concerns. The Premier concluded by saying he hopes
and believes that the two sides can make the seventeenth JCCT
meeting a success.


21. (U) Chinese participants in this fifty-minute meeting
at the ZiGuangGe Pavilion in the ZhongNanHai leadership
compound included:

Premier WEN Jiabao
Minister of Commerce BO Xilai
Vice Foreign Minister YANG Jiechi
Ministry of Commerce (MOFCOM) Vice Minister MA Xiuhong
MOFCOM Director General for American and Oceanian Affairs HE
Ning
MOFCOM Protocol Department Deputy Director General ZHOU Ping
MOFCOM U.S. Affairs Director WANG Hongbo
MOFCOM U.S. Affairs Official LIU Haiyang
MOFCOM U.S. Affairs Official XUE Dong
MOFCOM U.S. Affairs Official TAN Yuwei
MOFCOM Protocol Dept. Interpreter Ms. XIONG


22. (U) USG participants in this meeting were:

Secretary of Commerce Carlos Gutierrez

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Ambassador Clark T. Randt, Jr.
Claire Buchan, Chief of Staff, Office of the Secretary of
Commerce
Rod Hunter, Special Assistant to the President and NSC Senior
Director for International Trade, Energy and Environment
Henry Levine, Deputy Assistant Secretary of Commerce
Craig Allen, Minister-Counselor for Commercial Affairs, U.S.
Embassy
Robert Luke, Minister-Counselor for Economic Affairs, U.S.
Embassy
Cheryl McQueen, Director, Office of the Chinese Economic
Area, Commerce Department
Christopher Beede, Deputy Chief, Economic Section, U.S.
Embassy (notetaker)
Eric Madison, Trade and Investment Policy Unit Chief,
Economic Section, U.S. Embassy
Ira Belkin, Trade Facilitation Office Director, Commercial
Section, U.S. Embassy
David Gossack, Commercial Officer, U.S. Embassy
Val Huston, Commercial Officer, U.S. Embassy
James Brown, Interpreter, U.S. Embassy
RANDT