CODEL HASTERT VISITS SHANGHAI

UNCLAS SECTION 01 OF 03 SHANGHAI 000535

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E.O. 12958: N/A
TAGS: ECON ENRG ETRD EFIN SENV PREL CH
SUBJECT: CODEL HASTERT VISITS SHANGHAI

(U) This message is sensitive but unclassified. Not for
distribution outside USG channels.




1. (SBU) Summary: On August 10- 12, Representative Dennis
Hastert (R-IL),Representative John Shadegg (R-AZ) and two staff
members from the House Committee on Energy & Commerce visited
Shanghai to engage U.S. businesses energy, environment and
business climate issues. Representatives from GE showed the
delegation its R&D labs and discussed the business potential
created by an increased interest in fuel efficient energy and
improving the environmental. During a separate meeting,
Caterpillar representatives said the company was trying to align
itself with the government's environmental and energy objectives
by, among other things, actively working with coal mines to
extract and efficiently use methane. The delegation also toured
the Illinois Tool Works Paslode Fasteners plant and discussed
the company's experience in exporting fasteners. During a
roundtable meeting, Shanghai AmCham and U.S. China Business
Council (USCBC) members discussed energy sector-related business
opportunities in China and urged more USG work on market access
and standards setting issues. The group also voiced concern
over the China-related trade bills pending in Congress. The
delegation also met with members of the Shanghai Municipal
People's Congress and a member of the National People's Congress
to discuss potential areas of cooperation on energy issues. End
Summary.

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GE - A Lot of Room to Grow in China

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2. (SBU) GE's China Region Infrastructure CEO Andy Solem
briefed the delegation on GE China's six business groups and the
company's potential for growth in the China market. Of all GE's
business opportunities in China, the energy sector had the most
potential, especially in the sale of turbines. In 2006, GE did
approximately 3 billion worth of energy-related business in
China. GE could produce twice as many wind turbines as it
currently does and still not meet the demand in China. China's
water problems also created opportunity for growth because GE
had the experience and technology to help with water
conservation and purification. The health care market was also
poised for growth, although political issues had temporarily
chilled the atmosphere. GE also worked on such projects as
turning coal into feed for plastics. Solem noted that except
for inland areas that lacked financial resources, the Chinese
Government was only looking for products not financing. GE
has aligned its strategies with Chinese Government industrial
policies and priorities and had been able to sign several
memoranda of understanding with the Chinese Government.

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Caterpillar (CAT)
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3. (SBU) The delegation also met with Caterpillar China General
Manager for Business Ventures Danny Davis, Vice President of CAT
Logistics Patrice Groisiller, Marketing Manager of CAT
Remanufacturing Adrian Koh, and other CAT representatives.
Davis provided a presentation on Caterpillar's business in China
and its various JVs with Chinese companies. The company's main
strategy was "to produce in China for China." Caterpillar
established an office in China in 1996 and now has thirteen
facilities, seven of which are manufacturing centers. They
produced hydraulic excavators, compactors, diesel engines,
undercarriage, iron castings, motor graders, track-type
tractors, wheel loaders, remanufactured products machinery
components, and electric power generator sets. Caterpillar
estimated its total investment in China would be USD 4 billion

SHANGHAI 00000535 002 OF 003


by 2010.


4. (SBU) Davis particularly noted Caterpillar's work with coal
mines to help extract and efficiently use methane gas.
Caterpillar has aligned itself with the Chinese Government's
strategy to improve the environment and viewed this as a great
business opportunity. Davis added that if the Chinese
Government did a better job enforcing environmental laws, it
would create even more business for the company. Koh discussed
the growing demand for remanufacturing in China as the country
had realized the potential monetary savings as well benefits for
energy conservation and the environment. Caterpillar mainly
remanufactured locomotives. Groisiller said that CAT's
logistics services generated over USD 2.4 billion a year and
that China was moving to "just in time" supply. Given that
China's transportation infrastructure was still developing, CAT
focused on bringing reliability to the supply chain.

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Meeting with Illinois Tool Works (ITW) Paslode Fasteners
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5. (SBU) During a visit to Illinois Tool Work (ITW) Paslode
Fastener, General Manager Tian Yan Ci gave a short presentation
on the company's Shanghai factory. Tian said the company
established its factory in the Songjiang Export Processing Zone
in March 2006, with the initial investment USD 30 million. The
factory produced fasteners for use in construction, furniture
making and other relevant industries. All of the company's
products were exported to the United States and the company had
experienced rapid growth since it was established. Tian also
noted the company faced anti-dumping issues in the United States.

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U.S. Business Sees Opportunity in China's Drive for Sustainable
Energy
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6. (SBU) In a roundtable hosted by AmCham Shanghai and
U.S.-China Business Council, business representatives discussed
energy sector-related business opportunities in China, U.S.
competitiveness, market access and standard setting issues, as
well as the current China-related bills in Congress. Managing
Director for Emerge Logistics Jeff Bernstein opined that the
U.S. may be at risk of falling behind China in important
energy-related technologies and said China's emphasis on such
technologies presented a huge business opportunity for U.S.
firms. For example, U.S. companies were selling precipitators
to coal burning power plants. Applied Materials China Vice
President and Chairman Vice President Chen Rong added that his
company had experienced great success in selling solar energy
products and saw more growth potential as China focused more on
environmentally friendly growth. URS Consulting Shanghai
Managing Director and AmCham Shanghai Energy Committee Chairman
Simon Lee noted that his committee has worked with Chinese
regulatory authorities to influence the regulatory framework and
promote opportunities for U.S. businesses that are compatible
with environmentally sustainable growth. Although China has
sound environmental laws, the laws are unevenly implemented and
enforced, which has disadvantaged U.S. businesses.


7. (SBU) On general business climate issues, Emerge Logistics
Managing Director Jeffrey Bernstein said the United States.
Should focus more on market access issues, saying non-tariff
barriers are still a major impediment to U.S. exports to China.
Also, the United States has fallen behind the E.U. in standards
setting and urged the congressmen to increase support for U.S.
Department of Commerce standards setting efforts. The Vice
President of Tyson Foods Shanghai Rep Office noted that many

SHANGHAI 00000535 003 OF 003


U.S. businesses in Shanghai are concerned about the current
China-related bills in Congress that may negatively affect
trade. He added his own company has already suffered from
trade retaliation by the Chinese and pressed for engagement
rather than conflict with the Chinese. Representative Hastert
agreed that it was better to pragmatically engage China and
added that many of the bills were simply "saber rattling." He
also urged businesses to help Congress understand their
perspective on how to best make America competitive. Companies
also should educate their employees in the United States that
their jobs depend on American firms being able to operate in a
global environment.

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Meeting with Shanghai Municipal People's Congress
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8. (SBU) During a meeting with Deputy Chairman of the Shanghai
Municipal People's Congress (SMPC) Zhou Muyao, SMPC Member Qian
Yongming, and National People's Congress Member Yang Bailing,
Rep. Hastert noted that China and the United States faced
similar energy-related issues and both had vast coal resources.
The two countries should work together; China's large talent
pool and U.S. technology could solve many problems. Rep.
Hastert noted that it was ironically easier for U.S. companies
to unlock some of the energy problems in China than in the
United States because of regulatory restrictions. Zhou agreed
that China and the United States faced similar energy-related
issues and said the main issue is how both sides can make the
most efficient use of its energy resources. China has set a
goal to make more efficient use of energy resources, reducing
energy intensity 20 percent by 2010. Since China and the
United States had similar goals, it made sense for the two to
work together.


9. (U) Codel Hastert has cleared this cable.
JARRETT