STRATEGIC ECONOMIC DIALOGUE: MEETING WITH

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 000266

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SENSITIVE
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STATE ALSO FOR OES/WATSON AND DEROSA-JOYNT
STATE PASS USTR FOR STRATFORD, ALTBACH, WINTERS, CELICO
NSC FOR RHUNTER/JSCHRIER/KTONG
TREASURY FOR OASIA/INA DOHNER/HAARSAGER/BAKER/CUSHMAN
TREASURY FOR TAIYA SMITH
USDOC FOR 4420/MCQUEEN

E.O. 12958: DECL: 01/11/2015
TAGS: ECON EFIN ETRD PREL SENV ENRG CH
SUBJECT: STRATEGIC ECONOMIC DIALOGUE: MEETING WITH
PRESIDENT HU JINTAO

REF: A. BEIJING 259

B. BEIJING 262

C. BEIJING 263

D. BEIJING 264

E. BEIJING 265

Classified By: Acting Minister-Counselor for Economic Affairs Christoph
er Beede, Reasons 1.4 (B) and (D).


1. (C) Summary: President Hu Jintao congratulated the United
States Strategic Economic Dialogue (SED) delegation on a
successful first dialogue and stressed the importance of
United States-China economic ties to regional and world
prosperity. Treasury Secretary Paulson said the dialogue had
been productive and emphasized that future dialogues should
continue to bring concrete progress. The American public
will remain focused on currency flexibility. Secretary
Paulson pressed for liberalization of China's services sector
and raised the need to allow foreign ownership of securities
firms for further development of Chinese capital markets.
Secretary Bodman urged cooperation to build cleaner

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coal-fired power plants, while Secretary Gutierrez welcomed
positive news on the Westinghouse bid and USTR Schwab
expressed determination to work with China to bring the Doha
Round to a successful conclusion. President Hu said that
China will listen carefully to United States concerns, but
must proceed from China's actual conditions and follow the
will of the people in moving ahead with reforms. Secretary
Paulson concluded by urging a faster pace of reform progress.
End Summary.


2. (C) In a December 15 meeting, President Hu Jintao
congratulated the SED delegation led by Treasury Secretary
Paulson and accompanied by the Ambassador on a successful
opening session. President Hu expressed hope for
strengthened coordination and cooperation through future
sessions. Secretary Paulson said that the United States
delegation appreciates the importance of the United
States-China economic relationship and stressed that the
dialogue should show demonstrable progress in order to help
fend off growing protectionist sentiments. Currency
flexibility will continue to be a focus of the American
public looking toward the next SED session in May. Other
important issues include liberalization of the services
sector, protection of investors' rights, cooperation on
energy security and efficiency and environmental protection.

Capital Markets, Health, Energy, Doha, Westinghouse
--------------


3. (C) Secretary Paulson urged that China create conditions
for development of an efficient capital market in China and
allow 100 percent foreign-owned securities firms as other
developing countries have done. Health and Human Services
Secretary Leavitt told President Hu that his visits to rural

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Chinese health clinics and homes convinced him that China
faces major challenges and that, despite differences, it is
clear that both the United States and China have an interest
in continued global economic prosperity. Energy Secretary
Bodman outlined plans to organize technical working groups to
discuss alternative energy, clean coal and other topics.
Referring to the more than 100 coal-fired power plants
currently under construction in China, he suggested that
United States-China cooperation could address pollution
problems resulting from the use of old technology. USTR
Schwab told President Hu that China and the United States are
working hard to save the Doha round, as discussed between
President Bush and President Hu in their Hanoi meeting at
APEC. Commerce Secretary Gutierrez welcomed positive news
about sales in conjunction with his recent trade mission and
the positive development on the Westinghouse nuclear plant
bid.

China: U.S. and China Are Constructive Partners
--------------


4. (C) President Hu stated that the United States and China
maintain good cooperation on major regional and international
issues. He noted that, not only are the United States and
China stakeholders together, but that they are constructive
partners. He expressed China's appreciation of President

BEIJING 00000266 002 OF 002


Bush's commitment to maintaining close ties with China.
China and the United States have the fastest growing economic
and trade relationship in the world. Two-way trade has
increased 86-fold since the establishment of diplomatic
relations in 1979. United States exports to China were up 33
percent from January to August of 2006 and China has been the
United States' fastest growing export market for three years
in a row. From this, Hu concluded that United States-China
economic ties are a major contributor to regional and world
prosperity.

U.S.: Differences On Pace of Reform
--------------


5. (C) President Hu posited that it is natural for
differences to arise in this environment. He reasoned that
this makes it more necessary to establish candid dialogue and
seek to resolve problems. President Hu stated that China is
willing to listen to United States' concerns, but at the same
time the United States needs to take into account China's
actual conditions and the will of the people in pursuing its
reforms. China has made it clear that it does not intend to
pursue a large trade surplus with the United States,
President Hu underlined. He asked Secretary Paulson to pass
his best wishes for the New Year to President Bush.


6. (C) Secretary Paulson agreed that the dialogue had been
productive and said that the United States and China have
reached consensus on principles. We do have differences over
the timing of various measures, however, he stated. The
United States will continue to press its view that the pace
of China's reform progress should be faster.

PARTICIPANTS
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7. (U) Participants:

United States Delegation

--Henry Paulson, Secretary of Treasury
--Clark T. Randt, Jr. United States Ambassador to China
--Michael Leavitt, Secretary of Health and Human Services
--Samuel Bodman, Secretary of Energy
--Carlos Gutierrez, Secretary of Commerce
--Elaine Chao, Secretary of Labor
--Susan Schwab, United States Trade Representative
--Stephen Johnson, Administrator of the Environmental
Protection Agency
--James Lambright, Chairman and President of Ex-Im Bank
--Daniel Sullivan, Assistant Secretary, Department of State

Chinese Delegation

--Wu Yi, Vice Premier
--Jin Renqing, Minister of Finance
--Ma Kai, Chairman of National Development and Reform
Commission
--Xu Guanhua, Minister of Science and Technology
--Tian Chengping, Minister of Labor and Social Security
--Liu Zhijun, Minister of Railways
--Li Shenglin, Minister of Communications
--Wang Xudong, Minister of Information and Industry
--Bo Xilai, Minister of Commerce
--Gao Qiang, Minster of Health
--Zhou Xiaochuan, Governor of People's Bank of China
--Li Changjiang, Administrator of General Administration of
Quality Supervision, Inspection, and Quarantine
--Zhou Shengxian, Administrator of State Environmental
Protection Administration
--Zhou Wenxhong, Chinese Ambassador to the United States
--Xu Shaoshi, Deputy Secretary-General, State Council
--Yang Jiechi, Senior Vice Minister, Ministry of Foreign
Affairs
--Li Yong, Vice Minister, Ministry of Finance
--Liu Jieyi, Director General, Ministry of Foreign Affairs
--Liu Jianchao, Director General, Ministry of Foreign Affairs
--Luo Linquan, Director General, Ministry of Foreign Affairs
SEDNEY