SED III: OPENING SESSION, DECEMBER 12, 2007

UNCLAS SECTION 01 OF 03 BEIJING 007579 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM SECOR/YAMAMOTO STATE PASS USTR FOR STRATFORD/WINTER/MAIN STATE PASS EX-IM BANK FOR LAMBRIGHT/MYROW E.O. 12958: N/A TAGS: ECON ETRD EFIN EINV CH SUBJECT: SED III: OPENING SESSION, DECEMBER 12, 2007 (U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS. ¶1. (SBU) At the December 12 opening session of the third round of the U.S.-China Strategic Economic Dialogue (SED),Vice Premier Wu Yi said the SED has improved not only bilateral business ties, but also overall Sino-U.S. relations and has attracted widespread international attention. Wu said the theme of SED III focused on how to capitalize on the benefits of globalization and how to address the challenges globalization presents. Wu said the two sides would use the SED forum to discuss policy steps to meet the challenges of globalization, including the integrity of trade, product safety, balanced economic development, energy issues, and environmental protection. ¶2. (SBU) Vice Premier Wu raised two priority issues. First, she said both sides should fully appreciate the importance of their bilateral relationship, and should recognize that business ties are its most important aspect, with the capacity to boost cooperation in other areas. Since the visit of President Nixon in 1972, she said, bilateral trade between the countries has developed to nearly $300 billion, and that the United States and China now represent each other?s second largest trade partners and fastest growing markets. Second, she noted that, in the course of rapid bilateral growth, difficulties have occurred. She said that such challenges can only be resolved through consultation and dialogue, and that our countries? historical relationship has repeatedly shown cooperation to be more effective than finger- pointing and confrontation. ¶3. (SBU) Wu Yi raised two suggestions for the SED meeting. First, she said both sides, as stakeholders and constructive partners, should make concerted efforts to cooperate to gradually ease the bilateral trade imbalance and resolve trade disputes, thus laying a stronger foundation for future growth. Second, she said both sides should work to strengthen mutual trust and enhance understanding through deepened dialogue and consultation to address each other?s concerns. Wu Yi: U.S. Protectionism Will Harm Relations -------------- ; ¶4. (SBU) Vice Premier Wu said both countries must not allow interest groups to harm the development of business interests, and should oppose the politicization of important issues. Wu expressed her personal concern with the ?more than 50 China-related protectionist bills in Congress,? which she said can only be counterproductive. If adopted, she said, they would severely undermine United States business ties with China, and would have grave consequences. She said she welcomed a July 30 letter from Secretary Paulson, Secretary Gutierrez, and Ambassador Schwab to the Senate Finance Committee opposing such bills. Similarly, Wu also said she welcomed a September 26 joint letter from 106 multinational corporations and business associations emphasizing that trade sanctions are the wrong approach to resolving problems, and are harmful to United States business interests. Wu expressed her hope that the administration will heed the voice of industry and will recognize the importance and overall beneficial nature of the bilateral trade relationship. ¶5. (SBU) Wu stressed the need to adopt more creative policy measures to address problems that may occur, raising product quality and food safety as an example. The issue has become a global one, she said, and therefore both countries must assume their due share of the responsibility to ensure the quality of the lives of their citizens. BEIJING 00007579 002 OF 003 ¶6. (SBU) On bilateral trade imbalances, Wu said China has no intention to seek large a trade surplus with the United States, but only wishes to maintain a basic balance in its international payments. She called on the United States to relax export controls of civilian high technology products to help increase United States exports to China. Wu cited President Hu?s remarks that China would continue to grow by significantly increasing domestic consumption while also improving energy efficiency. Thus, China?s demand for energy-efficient, environmentally friendly products will increase considerably. Paulson: Deeping Interdependence -------------- ¶7. (SBU) In his opening remarks, Treasury Secretary Henry Paulson explained that, when Presidents Bush and Hu created the SED in 2006, their intent was not to replace the many other important bilateral dialogues between China and the United States. Rather, he said, they envisioned an overarching, senior-level, long- term, and strategic forum that could also address immediate, sensitive issues as they arise. ¶8. (SBU) Paulson highlighted two points in his introduction of SED III: the deepening interdependence between the United States and China, and the rise of nationalism and protectionism in both countries. Addressing the first, he said that both countries? interests overlap on most issues. As bilateral economic ties increase, he explained, citizens must have confidence in the goods they buy, which raises the challenge of food and product safety. The December 11 signing of the MOUs on food and product safety was a critical step toward this end. ¶9. (SBU) Paulson continued that the United States welcomes the rise of a stale and prosperous China, but noted recent concerns over the overheating of the Chinese economy, asset bubbles, macroeconomic policies, and inflation. Especially in this environment, he said, a flexible currency is important to solve China?s internal and external challenges. At the same time, Paulson said, aspects of the United States economy ? such as its housing market ? are also facing challenges, but that the deep and liquid United States capital markets are playing a role in mitigating the impact of these problems. China, Paulson suggested, should further open its own markets to gain access to the capital it needs for continued economic growth. Simultaneously, he said, the United States and China should also share responsibility for ensuring clean and reliable energy supplies and protecting the environment. A healthy environment and strong economy are not mutually exclusive, he said; they are mutually necessary. ¶10. (SBU) Addressing the rise of nationalism and protectionism in both countries, Paulson said that whereas trade was once a source of bilateral stability between the United States and China, it has recently become a source of tension. He called on both countries to resist attempts to reduce transparency and raise obstacles to protect domestic industries. Paulson noted that the Bush administration has to date resisted anti-China bills in Congress, but warned that many people remain unsure that the benefits of trade are fairly shared between the United States and China, and urged that China continue to keep its markets open to alleviate such concerns. ¶11. (SBU) In conclusion, Paulson said the focus of the SED is to keep the bilateral economic relationship on an even keel in times of tension and in times of calm. He noted that the success of the dialogue will be judged by what progress both sides are able to achieve. BEIJING 00007579 003 OF 003 ¶12. (U) SED III Delegates: United States: Henry M. Paulson, Jr., Secretary of Treasury Clark T. Randt, Jr., U.S. Ambassador to China Carlos M. Gutierrez, Secretary of Commerce Michael O. Leavitt, Secretary of HEALTH and Human Services Susan C. Schwab, United States Trade Representative Stephen L. Johnson, EPA Administrator Clay Sell, Deputy Secretary of Energy Reuben Jeffery III, State Department Under Secretary for Economic, Energy and Agricultural SIPDIS Affairs James H. Lambright, Chairman Export-Import Bank China: Wu Yi, State Council Vice Premier Xie Xuren, Minister of Finance Zhou Wenzhong, Chinese Ambassador to the U.S. Yang Jiechi, Minister of Foreign Affairs Ma Kai, National Development and Reform Commission Chairman Shang Yong, Vice Minister of Science Technology Hu Xiaoyi, Vice Minister of Labor and Social Security Sun Zhengcai, Minister of Agriculture Chen Deming, Acting Minister of Commerce Chen Zhu, Minister of HEALTH Zhou Xiaochuan, People?s Bank of China Governor Li Changjiang, AQSIQ Minister Zhou Shengxian, State Environmental Protection Administration Administrator Zhu Lieke, State Forestry Administration Vice Administrator Shao Mingli, State Food and Drug Administration Administrator Zhang Qiong, State Council Legislative Affairs Office Vice Minister Liu Mingkang, China Banking Regulatory Commission Chairman Shang Fulin, China Security Regulatory Commission Chairman Wu Dingfu, China Insurance Regulatory Commission Chairman Li Ruogu, China Import-Export Bank President Liu He, Central Leading Group on Finance and Economic Affairs Vice Minister Randt