CHARGE REQUESTS CLARIFICATIONS ABOUT THE XINHUA

C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 001158 SIPDIS SIPDIS STATE PASS USTR FOR STRATFORD, READE, WINTER, MCCARTIN, ALTBACH GENEVA PASS USTR TREASURY FOR OASIS/ISA DOHNER, CUSHMAN NSC FOR SHRIER, TONG STATE FOR OFM TED STRICKLER E.O. 12958: DECL: 02/16/2017 TAGS: ECON ETRD EFIN KPAO KIPR ECPS PREK ABLD CH SUBJECT: CHARGE REQUESTS CLARIFICATIONS ABOUT THE XINHUA REGULATIONS REF: A. ALTBACH - MADISON FEB. 13 E-MAIL ¶B. BEIJING 622 ¶C. 06 BEIJING 24029 Classified By: Charge d'Affairs a.i. David S. Sedney. Reasons 1.4 (b/d) Summary -------------- ¶1. (C) The Charge raised United States Government concerns about Xinhua News Agency's recent actions that linked renewal of foreign financial information distributors' annual licenses to the September 2006 media regulations with Xinhua News Agency's Vice President Lu Wei on February 14. Vice President Lu insisted that the regulations were not an obstacle to the free flow of information but rather assisted foreign financial news providers to do business in China. VP Lu said that while the new regulations mandate that foreign financial information providers act through a Xinhua-designated distributor, the China Economic Information Service (CEIS),signing an agreement with CEIS requires no payment and that CEIS offers three choices: -- A full service agency; -- The right to select services with CEIS, or -- Merely a requirement to notify CEIS of actions, but still have direct dealings with customers. VP Lu defended the regulations, stating that they were implemented two months ago and have created a better market for foreign information distributors that now enjoy higher profits. The Charge noted that under WTO obligations, no new regulations should be introduced to the market constricting the flow of information and that under China's WTO commitments the regulations should be published in the Ministry of Commerce Gazette and that the regulations raised a number of other concerns including giving a competitor (Xinhua) information via a regulator, and national treatment. End Summary. Charge Seeks Clarification about Xinhua's Media Regulations -------------- -- ¶2. (SBU) Drawing from points in Ref A, the Charge told Xinhua VP Lu Wei that the United States Government is concerned by reports from United States and foreign financial information providers that Xinhua has been pressuring them for several months to designate the China Economic Information Service (CEIS),a de facto part of Xinhua, as their distributor before Xinhua will renew their annual business licenses. If true, such an action by Xinhua would seem to not only violate China's specific WTO commitment not to impose new restrictions on financial information providrs but also contradict Premier Wen's promise to the international community on September 13 that the Xinhua regulations would not affect foreign information providers. Xinhua's actions would impose a barrier, in the form of a Xinhua-affiliated intermediary, between the financial information providers and their customers. The manner in which Xinhua is implementing the regulations raises questions about China's commitment to publish trade-related regulations in the Ministry of Commerce Gazette. The Charge asked for clarifications. Xinhua News Agency Vice President: New Regulations Aim to Help Foreign Information Providers -------------- ¶3. (C) VP Lu insisted that Xinhua's goal via the regulations is to serve both foreign and domestic information providers, not to be an obstacle to the free flow of information. The regulations will not affect the business of foreign financial information distributors but protect them, media organizations, and the Chinese Government. As long as the foreign providers abide by Chinese law and regulations, Xinhua will encourage their business. He claimed that the new regulations are less restrictive than the regulations issued in the mid 1990s, which did not allow subscribers to BEIJING 00001158 002 OF 004 deal directly with foreign information distributors. Xinhua: Register with CEIS - It's the Law and It's Free -------------- -------------- ¶4. (C) VP Lu said that foreign financial information providers are legally mandated to sign with a Xinhua-designated distributor, but that signing an agreement with CEIS will incur no costs. Over the past few months, enforcement of these regulations has led to the discovery of some unregistered foreign information distributors who have evaded taxes. He insisted that CEIS is forbidden by law to exploit the relationship for its own gain. Furthermore, CEIS is enjoined to protect the trade secrets and intellectual property of foreign financial information providers. Three Choices! -------------- ¶5. (C) Foreign financial information providers can choose from three types of Agency agreements with CEIS: 1) A full service Agency agreement where the information distributor authorizes CEIS to seek subscribers, negotiate with them and have CEIS handle the entire business relationship; 2) CEIS and the information distributor seek subscribers together and CEIS provides some Agency services; or 3) The information distributor itself seeks subscribers, only informs CEIS and otherwise has a direct relationship with its subscribers. VP Lu reiterated that under the third option, the actual transmission of information would move directly from the foreign information distributor to its customers and not pass via CEIS. Charge: CEIS as Intermediary is an Obstacle -------------- ¶6. (C) The Charge (CDA) noted that in the financial world, time is money, and that the new regulations create an intermediary which risks delaying economic information, preventing foreign information distributors from providing timely information and having Chinese customers. The introduction of an intermediary has changed the situation foreign information distributors now face, and has created a market barrier that did not exist prior to China's WTO accession. Moreover, the intermediary's purpose remains unclear as it does not provide any new function to facilitate the distribution of financial information. Xinhua: No WTO Violation, and No Foreign Company is Suffering -------------- -------------- ¶7. (C) VP Lu claimed that Xinhua had studied the WTO angle on its own and is confident the regulations comply with China's commitments. None of the foreign industry reps have told Xinhua that it has violated WTO rules. Vice President Lu added that the number of Bloomberg's subscribers has increased since the regulations were issued and that the market has improved after the implementation rules were released two months ago. He argued that the issuance of the regulations has created better results, with both Bloomberg and Reuters enjoying higher profits. As for transparency, Lu offered to publish Xinhua regulations in any media foreign governments and firms required. Taiwan, Real Estate, National Treatment, and More -------------- -------------- ¶8. (C) During the extraordinarily long meeting, originally expected to be one hour, but stretching to two and one-half hours, VP Lu and CDA engaged in a spirited exchange that hit multiple levels of United States concerns and Chinese sensitivities. In addition to the above, the CDA: BEIJING 00001158 003 OF 004 -- Emphasized the good relations between the United States and China, including between our Presidents who had agreed we should have more open and effective economic relations, a goal the new regulations moved away from; -- Reminded VP Lu that Deng Xiaoping's "reform and opening up" was the basis for China's amazing economic growth and that the new regulations were counter to Deng's successful policies; -- Pressed hard on the potential for the new regulations to delay or deform information reaching financial consumers in China, thereby handicapping Chinese consumers vis--vis the rest of the world; -- Pointed out that the exemption of the China Daily's (CD's) financial news service from the regulations gave the CD a competitive advantage and might violate the WTO requirement for national treatment; -- Sought a reason for the new regulations; -- Contested VP Lu's assertion that CEIS was independent of Xinhua; -- Hit VP Lu hard on the commercial dangers posed to foreign firms by having to offer software, business models and other proprietary information to its competitor Xinhua; and -- Noted the supervisory role the Communist Party played in China vice the freedom Xinhua has to operate in the United States. Vice President Lu: -- Insisted that the regulation "changed nothing;" -- Rebutted the CDA's comments on Deng Xiaoping by claiming Xinhua followed Deng's guidance; -- Alleged that the China Daily did not have an exemption from the regulations; -- Claimed that foreign news firms, especially Reuters, had allowed into China "dangerous" political stories that said Taiwan was an independent country; -- Acknowledged the Party's role in Xinhua; -- Said that, while China had its own laws it had to enforce, Xinhua was prepared to consider the views of the foreign firms and the United States; and -- Raised the alleged refusal of the United States to allow Xinhua to buy property in the United States as evidence of United States hostility to Xinhua (CDA offered to discuss the Xinhua property issue in another forum.) Xinhua News Agency's Participants -------------- ¶9. (U) Xinhua News Agency's Participants: --Lu Wei, Vice President --Zhou Zongmin, Director General, Foreign Affairs Office --Yuan Xiaoping, Deputy Director, Administrative Department --Liang Xiangbin, Deputy Director, News and Information Center --Sun Xin, Director, Foreign Information Administration Center --Wang Jianxin, Interpreter Comment -------------- ¶10. (C) After Xinhua had rebuffed attempts by the Embassy BEIJING 00001158 004 OF 004 and visiting USTR officials to seek urgent clarifications about the Xinhua regulations at the working level in January and early February, the Charge sought the meeting with Lu Wei, a Vice Minister-level Xinhua official. The meeting lasted over two and a half hours, with Lu frequently dodging the core issues. Near the end of the meeting, Lu Wei confessed, "I thought this meeting would consist merely of diplomatic niceties. I didn't expect such a serious discussion!" Lu, who invited the Charge to meet with him again to discuss the issue, obviously realizes the United States Government attaches great importance to this issue and is not satisfied with the response it has received thus far. End comment. SEDNEY