AUSTR STRATFORD'S MEETING WITH MOF A/S ZHU

UNCLAS SECTION 01 OF 03 BEIJING 006168 SIPDIS SENSITIVE SIPDIS E.O. 12958: n/a TAGS: ECON ETRD EINV CH SUBJECT: AUSTR STRATFORD'S MEETING WITH MOF A/S ZHU GUANGYAO Summary -------------- ¶1. (SBU) In a wide-ranging discussion September 13 with Ministry of Finance Assistant Minister Zhu Guangyao, Assistant USTR for China Tim Stratford outlined U.S. expectations for the upcoming Joint Committee on Trade and Commerce (JCCT) and discussed the status of various follow-up items from the Strategic Economic Dialogue (SED) meetings in May. He said that USTR was eager together with other relevant USG departments to continue cooperation begun at earlier SED meetings in the areas of investment, illegal logging, transparency, and enterprise annuities. Zhu emphasized the importance of the SED in managing trade and economic issues as well as discussing long-term strategic issues. He asserted that China had met its commitment on enterprise annuities made in May at SED II and hoped for further progress on a number of issues raised by Chinese officials, including bank licensing, tourism, and a SED hotline. AUSTR Stratford said he hoped there would be continued progress on streamlining the approval process for financial institutions wishing to enter the enterprise annuity market. JCCT -------------- ¶2. (SBU) Looking ahead to mid-December, AUSTR Stratford said it would be an important and productive week for U.S.-China economic relations. The third meeting of the Strategic Economic Dialogue (SED) would follow the 18th meeting of the Joint Committee on Commerce and Trade (JCCT) and a seminar on innovation (note: the innovation seminar is a SED II outcome). Regarding the JCCT, Stratford informed Zhu that USTR and Commerce had recently presented two lists to MOFCOM: 1) a menu of potential agenda items; and 2) suggested areas of cooperation. He planned to meet with MOFCOM Director General He Ning during the week of September 17 to further discuss the JCCT agenda. He said the U.S. negotiators were optimistic about a productive round of talks, but noted that the discussions would not always be easy. ¶3. (SBU) Zhu noted that as two important global economies, it is difficult to avoid problems and frictions. Our job, he asserted, was to solve these problems. In this context, the Strategic Economic Dialogue offered a strategic framework to discuss issues, find solutions, and reduce tensions. Working together in a cooperative manner and with a "frank and open" spirit would contribute to improving relations. Investment -------------- ¶4. (SBU) On investment, USTR and the State Department were leading productive discussions on a bilateral investment treaty and had further bilateral meetings scheduled between now and SED III. Deputy USTR Bhatia was also planning to discuss these issues with MOFCOM during an early October visit to Beijing. In addition, the Treasury Department was conducting a broader discussion on investment issues. Illegal Logging -------------- ¶5. (SBU) On the issue of illegal logging, Stratford informed Zhu that AUSTR Mark Linscott held useful discussions with the State Forestry Administration on September 10 in Beijing. Linscott proposed, and the Chinese side accepted, an outline of next steps leading up to the December SED meeting. The U.S. would soon present draft text on a bilateral cooperation agreement followed by a digital videoconference to discuss the language in the text and a visit led by State Department OES Assistant Secretary Claudia McMurray and AUSTR Linscott in late SIPDIS October. Stratford said he was pleased that MOFCOM and Chinese Customs officials were represented at the SFA meeting and stressed that interagency cooperation would be essential for future progress. Zhu replied that the discussions should not frame the issue as solely a trade issue, and that the Chinese side hoped BEIJING 00006168 002 OF 003 to have a broader discussion to include issues such as forestry management. He said the MOF had helped coordinate the recent discussions, reflecting Wu Yi's interest in the issue. Transparency -------------- ¶6. (SBU) Stratford said transparency was a fitting topic for SED discussions because of its strategic significance and importance for long-term economic growth and sustainability. Increased transparency would greatly benefit the overall relationship as greater understanding leads to greater trust. U.S. officials had recently met in Washington to discuss ideas for the December SED meeting, and it was agreed that transparency was one of the key issues that should be emphasized going forward. As agreed during SED II, the two sides were preparing to hold a joint seminar on administrative rule-making in late October/early November in Beijing followed by a visit by Chinese officials to Washington. In Washington, the Office of Management and Budget would share with the Chinese delegation ideas on how to use cost- benefit analysis when considering new or revised rules and regulations. ¶7. (SBU) Zhu noted the PRC was preparing to issue several new laws next year, including an employment promotion law, that would place a great deal of pressure and responsibility on government officials and agencies. This would require significant funds in order to disseminate information about the new rules. Zhu commented that any discussion of transparency needed to take into account Chinese law and ChinaQs current conditions. Stratford said China had taken many steps to increase transparency in recent years, but that it had yet to implement a mandatory public comment period for new and revised rules. This limited public confidence in the rule-making process because the public would not know what is being hidden. Zhu suggested that the U.S. side continue its discussions with the State Council Legal Affairs Office (SCLAO) on the distinction between QshouldQ and Qmust.Q Stratford agreed this would be an important topic for further discussions. Enterprise Annuities -------------- ¶8. (SBU) Regarding ChinaQs SED II commitment to streamline the approval process for enterprise annuities, Stratford said this would likely be discussed during the upcoming JEC talks. The U.S. viewed this issue as an opportunity to share ideas and offer suggestions as China continues to reform its pension and retirement system. Zhu replied that the Chinese government intended to strengthen the CountryQs social safety net and to develop its annuities and capital markets as part of ts economic reforms. He said China could learn a great deal from the United States and the international community, but that China was a large country with large differences between the urban and rural populations. Zhu said there was an ongoing debate within government agencies, particularly the Ministry of Labor and Social Security (MOLSS),regarding Qfirst lineQ and Qsecond lineQ forms of social welfare. ¶9. (SBU) Stratford said it would be important for China to coordinate policies among its regulatory agencies and expressed hope that China would provide further details on its SED II promise to streamline the process. Adding that he expected this issue would be discussed in more detail during the JEC deputies meeting next week, Stratford expressed the hope that all financial institutions would have important roles to play as China moved forward in reforming its social welfare system. Zhu replied that MOLSS had recently concluded three agreements with the Department of Labor covering unemployment insurance, labor statistics, and pensions (enterprise annuities) thus fulfilling ChinaQs SED II commitment on this issue. Stratford said he was not aware of these agreements, but stressed the importance of continuing efforts to streamline the approval process for financial institutions offering enterprise annuities prior to BEIJING 00006168 003 OF 003 SED III. Zhu insisted that from ChinaQs perspective, MOLSS had satisfied the commitment made at SED II and that if the United States wanted to raise additional points on this topic, it could do so during SED III. He noted that MOLSS officials had not participated in recent SED III preparatory meetings, and that the U.S. would need to engage quickly on this topic if it expected MOLSS to be at the table in December. Stratford said he was concerned there might be an important disconnect between U.S. and Chinese expectations regarding this SED II outcome and that he would immediately check with other USG agencies to confirm. Other SED Topics -------------- ¶10. (SBU) Zhu informed Stratford that the New York Stock Exchange had received authorization to open a branch office and that Chinese regulators were waiting on additional information from NASDAQ. FinAtt David Loevinger noted that NASDAQ had recently submitted additional information and was waiting for regulatory approval. ¶11. (SBU) DOC China Office Director Cheryl McQueen informed Zhu that the September 17-19 Express Delivery Symposium would be a good opportunity to further dialogue and cooperation in this field. On the subject of tourism, Zhu noted that China was not prepared to offer multiple entry visas as Chinese tourism officials were concerned with Qlosing control of Chinese tourists who went to the United States. ¶12. (SBU) Zhu asked for an update on pending applications by two Chinese banks to open branches in the United States. Loevinger replied that Federal Reserve officials had visited China in July to review the applications, but that he was uncertain when a decision would be made. He noted that this topic was on the JEC agenda and that U/S McCormick had asked for a report from the Fed on the pending cases. ¶13. (SBU) Zhu raised the issue of Great WallQs frustration with the slow pace of OFACQs review, noting the United States had exceeded the usual amount of time needed for the review. Loevinger said OFAC was examining the case but had requested additional information from Great Wall. He informed Zhu that Treasury U/S for Terrorism and Financial Intelligence Stuart Levey was planning to visit Beijing October 10- 11 and that this would be a good topic for him to discuss with Chinese officials. ¶14. (SBU) In closing, Zhu expressed appreciation for the letter Secretary Paulson, USTR Schwab, and Secretary Gutierrez had recently sent to Congress SIPDIS urging a balanced approach to U.S.-China trade issues. He said he hoped that an agreement would soon be finalized on a SED hotline between Secretary Paulson and Wu Yi, modeled on the presidential hotline between Presidents Bush and Hu. ¶15. (U) AUSTR Stratford cleared this cable. RANDT