TREASURY DAN WRIGHT'S SHANGHAI ACADEMIC MEETINGS

C O N F I D E N T I A L SECTION 01 OF 04 SHANGHAI 000452

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STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, ALTBACH, AND
READE
TREASURY FOR AMB HOLMER, WRIGHT AND TSMITH
TREASURY FOR OASIA - DOHNER, HAARSAGER, WINSHIP, CUSHMAN
USDOC FOR ITA/MAC KASOFF, MELCHER, AND MCQUEEN

E.O. 12958: DECL: 7/18/2017
TAGS: PGOV ECON EFIN ETRD CH
SUBJECT: TREASURY DAN WRIGHT'S SHANGHAI ACADEMIC MEETINGS

REF: SHANGHAI 444

CLASSIFIED BY: Veomayoury Baccam, Acting Pol/Econ Section Chief,
U.S. Consulate , Shanghai .
REASON: 1.4 (b),(d)




1. (SBU) Summary. During Treasury Managing Director for China
and the Strategic Economic Dialogue (SED) Dan Wright's June
26-27 visit to Shanghai, Shanghai academics agreed with Wright
that the talks needed to be focused and institutionalized to be
sustainable. Two academics urged more low-level discussions
between the United States and China before the next round and
emphasized the need for concrete outcomes at the next round of
SED talks. Wright's meetings in Nanjing were reported reftel.
End summary.

SIIS YANG JIEMIAN: CONCRETE OUTCOMES NEEDED
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2. (C) In their meeting with Wright, Shanghai Institute of
International Studies Vice President Yang Jiemian and SIIS
Department of American Studies Director Chen Dongxiao welcomed
the opportunity to exchange views on the SED process. Yang said
that academics in China paid great attention to the SED process
because it was the only "strategic" dialogue between the United
States and China. Noting that the talks between Vice Foreign
Minister Dai Bingguo and Deputy Secretary Negroponte were only
called "senior" dialogue, Yang said China wanted more strategic
discussions with the United States because these types of
discussions could help both countries to learn more about each
other's long-term goals.


3. (C) According to Yang, China did not want to challenge the
United States' primacy but would rather work together with the
United States on an equal basis. China was trying to develop in
a mutually beneficial, "win-win" way and not at the expense of
the United States. He added that some in the United States
joked that the United States did not have one unified foreign
policy. In some respects, this also applied to China. China's
entire foreign policy was not represented by its oil companies
and their plans to develop oil fields in Sudan. In addition,
when China received Venezuelan President Chavez, it tried to do
it in a low-key manner as to not irritate the United States.
Yang wanted both countries to work together to improve, update
and, eventually, establish a new international financial system.


4. (C) Yang agreed that the SED needed to become more pragmatic
to be sustainable. He acknowledged that there was significant
domestic pressure in both the United States and China for the
SED to have more positive outcomes and worried that the SED
would not survive past the United States presidential elections.
He considered the next round of talks to be the most important
and urged both sides to come to an agreement on a menu of items
to discuss. He was pleased that the third round of talks would
place at the end of this year, after the 17th Party Congress
when there would be more clarity on who were the key players in
China. He added that the fourth round of talks should occur
after the People's Congress meeting in the spring because,
generally speaking, the Chinese leadership would be more
flexible at that time.


5. (C) Wright agreed with many of Yang's views and said that
Secretary Paulson believed that the most important question of

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the 21st century was how to get the U.S.-China relationship
right. The SED was trying to answer this question. While there
were always many voices in the United States, the Bush
Administration fully supported the SED process. In fact, before
the last round of SED talks, there were five Cabinet-level
meetings on the SED, two of which were chaired by the President.
In addition, Secretary Paulson spent a great deal of time on
Capitol Hill discussing the SED with members of Congress.
Wright assured Yang that the United States was working hard to
institutionalize the SED and make it more sustainable. The
large number of ministers at the last round of talks helped to
establish the SED's credibility. However, one of the weak
points of the talks was that it became crowded with too many

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issues. There are more than 50 bilateral dialogues such as the
Joint Commission on Commerce and Trade (JCCT) between the United
States and China. Many of the issues from these dialogues were
elevated to the SED. There is an interagency process doing a
thorough review to bring more focus to the SED and limit the
number of issues discussed. At the same time, the USG wanted to
maximize the effectiveness of the bilateral dialogues


6. (C) Yang agreed that the SED needed to be institutionalized.
He suggested that both countries work together on economic
issues such as capital markets and the Asian Monetary Fund as
well as coordinate on important meetings such as APEC. This
would make the economic relationship more strategic. He added
that Track II talks in which academics could exchange ideas and
float proposals would also be useful. He also thought it was
important to find a linkage between the SED and U.S.-China
discussions in other fields, namely political and security.
SIIS American Studies Director Chen shared some of the same
views. He urged that the talks also be used as a platform to
reduce tensions, rather than a channel to spotlight tensions.
According to Chen, there was a huge gap in how the two
governments viewed the SED and how the media in both countries
viewed it. More needed to be done to educate the Chinese and
U.S. domestic audience about the positive aspects of the SED.

SASS HUANG RENWEI: PRIORITIES NEED TO BE CLARIFIED
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7. (C) Shanghai Academy of Social Sciences (SASS) Vice
President Huang Renwei shared many of the same views as his SIIS
counterparts. He said both the SED and Vice Foreign Minister
Dai Bingguo and Deputy Secretary Negroponte's Senior Dialogue
had elevated the relationship. He noted that while he did
advise Vice Foreign Minister Dai on the Senior Dialogue, he did
not speak directly to Vice Premier Wu Yi. Like Yang, he
believed that the SED needed to be more pragmatic. According to
Huang, the current SED model in which there were lots of
high-level ministers led to "higher expectations, less
outcomes." The SED needed substantive outcomes to be
sustainable. He suggested that there be substantive discussions
at lower levels before the next round of talks. These
discussions could prepare agreements and deliverables for the
next round. In addition, such a long-term dialogue should have
several "phases" in which plans were made well in advance. For
example, Shanghai had a three-year planning cycle for its
economy. Huang added that the SED also needed to have more
realistic targets. Outside pressure was beneficial and helped
China to change. However, unrealistic demands were ineffective.
For example, one could not ask a junior high school student to
do PHD work. According to Huang, China was still using its old
economic opening policy from the 1980's, which was no longer
suited to the economy. It was still unclear whether China was
willing to change and how long it would take to realize this
change.


8. (C) Huang urged that there be more discussions between the
two countries on priorities for the SED. As for China's
priorities, Huang cautioned that even those staying at the
leadership compound in Zhongnanhai probably did not know.
However, he believed that China's priority should be fixing the
RMB exchange rate. This issue was not only important to both
sides, but also affected other important economic issues such as
the trade deficit and China's capacity to purchase energy and
technology. Both sides also needed to come to an agreement on
the pace of reforms. These issues needed to be discussed in a
small room among a few talented individuals.


9. (C) Huang noted that both countries were in a fragile
political period and it was not clear who would be in charge of
the SED process in the future. The SED needed to bear concrete
fruits to convince Paulson's and Wu Yi's successors to continue
with the process. According to Huang, there would be no
fundamental leadership changes on the Chinese side. Both Hu and
Wen would be in power for the next few years.


10. (C) Huang noted that he has been involved in many Track II
dialogues. Some of these dialogues worked and others did not.

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However, if the United States wanted to institutionalize the
SED, then it would be useful to have sub-dialogues or working
groups to work through issues. He offered to help organize an
academic conference in Shanghai where there could be a more open
exchange on issues. Huang also thought it would be important
for a majority of the players who worked on SED issues to remain
in government even after the change in leadership in the United
States. He noted that the WTO accession negotiations occurred
during a difficult period in U.S.-China relations. The
negotiations were successful, in part, because there were few
changes in the personnel working on the negotiations. Huang
added that the SED would be more difficult than the WTO
accession negotiations. The SED was dealing with some of the
issues that resulted from China's accession to the WTO. China
did not realize how fast its economy would develop after it
entered the WTO. This rapid growth caused many of the problems
that the SED was now trying to resolve such as the trade
surplus. He said that both sides should draw a lesson from this
episode and carefully think through what they would like to
happen after the SED.


11. (C) Huang had a more nuanced view of Congress. He said
that many people in China still saw Congress and the U.S. media
as a negative factor in the relationship. However, the U.S.
media and Congress were changing. Major newspapers such as the
Wall Street Journal were publishing more balanced reports on
China's economy. In addition, more and more members of Congress
were making efforts to better understand China. He urged that
the Administration work more closely with Congress. He thought
it was very useful for Vice Premier Wu Yi to speak on Capitol
Hill during the last round of SED. This forced Wu Yi and others
within the Chinese government to learn more about Congress.


12. (C) Wright repeated many of the same points that he made
during his conversation at SIIS. In particular, he emphasized
that one of the functions of the SED was to create a stable
dialogue at the highest level and that Secretary Paulson
believed the most effective way of dealing with problems was
through dialogue and not passing legislation.

FUDAN ACADEMICS AND STUDENTS: THINK LOCAL
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13. (C) During a lunch with Fudan University Center for
American Studies academics, many of the younger academics
worried about the influence of domestic interest groups and
Congress on the SED process. One academic characterized the
talks as "think local" because U.S. demands were being driven by
domestic political considerations. He noted that the general
perception in China was that China had to make big concessions,
while the United States did not make any concessions during the
talks. Another young academic said China had its own domestic
political agenda and it was difficult for it to make many
economic concessions during this period. Like Huang, he
believed that the United States was putting too much pressure on
China and had set unrealistic goals.


14. (SBU) During a roundtable at the American Studies Center at
Fudan University, Wright engaged a group of nine students and
five professors who hailed from different parts of China and
studied a range of majors. Students asked a number of questions
mostly regarding the views of the Congress and the
Administration on the SED and China in general. One student
inquired what the Administration's strategy was for pacifying
Congress on China issues and if the SED was part of that
strategy. Another asked how the SED could improve relations
between the U.S. and China and if there were divergent views
between Congress and the Administration on the SED and the RMB
issue. A third asked what the possibilities were for the next
administration to take a hard line on China. A professor
remarked that many Chinese believed the United States was
putting most of the burden of "rebalancing" the economic
relationship on China, rather than focusing on what the United
States could do to rebalance the relationship.


15. (SBU) In response to the students' questions, Wright said
the importance of the SED was that it "asked the right

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questions," namely how can the two nations get the economic
relationship right? As the relationship between the countries
matured, tension was natural, and the SED helped stabilize the
relationship. In addition, Wright emphasized four points
regarding the SED: 1) the SED was a process, not an event; 2)
the SED was a framework for issues to be prioritized and
elevated; 3) the SED was a vehicle to deal with tensions; and 4)
the SED did not replace other bilateral discussions. Regarding
different views between Congress and the Administration, Wright
reminded the students that both represented the American people.
On how the SED benefited China, Wright said there were
long-term and short-term benefits for both China and the United
States. In SED II, China received specific benefits in energy
cooperation, financial services, and other important areas.

COMMENT
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16. (C) Huang and Yang are considered to be the two of the most
prominent scholars in Shanghai. Both have close ties to the
Chinese government. We are not surprised by Huang's claim that
he advises Dai on the Senior Dialogue. Yang is the brother of
Foreign Minister Yang Jiechi and was rumored to have been the
author of Vice Premier Wu Yi's May 17 Wall Street Journal
editorial. It is reassuring to see that both have thought
deeply about the SED and agreed with many of Wright's points.
Both could play positive roles in any SED Track II discussions.


17. (U) Director Wright cleared this message.
SCHUCHAT