U.S.-CHINA STRATEGIC ECONOMIC DIALOGUE (SED)

UNCLAS SECTION 01 OF 02 STATE 136164

SIPDIS

SIPDIS, TREASURY FOR EVAN S. MEDEIROS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL
SUBJECT: U.S.-CHINA STRATEGIC ECONOMIC DIALOGUE (SED)
BACKGROUNDER



1. BEGIN SUMMARY: The U.S. Department of Treasury
Prepared the backgrounder information in paragraph 2
to assist posts in understanding the U.S.-China
Strategic Economic Dialogue (SED) and in discussing
the SED with host governments, and other interested
parties such as business groups and the media, if asked.
Treasury has already distributed this document to
interested parties, including Congress and others. The
SED was established in September 2006 as a vehicle for
high-level economic discussions between the United States
and China. Two such cabinet-level SED meetings have
occurred to date, with the third to be held in Beijing in
December. END SUMMARY.


2. The purpose of the SED is to manage the U.S.-China
economic relationship on a long-term, strategic basis.
This relationship is deep, broad, and complex. Stable
and prosperous bilateral economic relations are
increasingly important to both countries.


3. President Bush and President Hu established the SED
in September 2006, as a high-level mechanism to build on
shared priorities and to manage mutual concerns. The
Special Representatives of the two countries for the SED
are U.S. Secretary of the Treasury Henry M. Paulson, Jr.
and China's Vice Premier Wu Yi.


4. The SED has three broad goals: to enhance the
U.S.-China economic relationship, establishing new habits
of cooperation; to catalyze China's next wave of economic
transition; and to cultivate China as a responsible
global economic power.

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Progress
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5. Three metrics demonstrate meaningful progress in the
twelve months since the establishment of the SED.

(1) Direct Communication: The SED process has produced
an unprecedented level of direct communication between
the U.S. and Chinese governments at all levels, on multiple
issues, and across each nation's bureaucracies. Principals
and staff in the United States and China are actively
engaged in dialogues on a broad range of strategic
economic questions, including: capital markets reform,
more open and transparent investment regimes, energy
conservation, environmental protection, consumer safety,
and rule of law. One of the core SED principles is the
importance of direct and robust communication across the
U.S. and Chinese governments.

(2) Results: In its first year, the SED produced
concrete results. Tangible agreements made through the
SED process built confidence on both sides and showed
progress toward our long-term goals. Examples include:

- A breakthrough civil aviation agreement, for both cargo
and passenger flights;

- Greater market access for major financial services
sector banks, securities companies, insurance companies,
and asset managers;

- Enhanced energy security and environmental protection
through efforts on climate change, development of clean
coal technologies, and elimination of trade barriers on
environmental products;

- Appreciation of the Chinese currency, the RMB, by more
than 10 percent since July 2005, and widening of the band
of daily fluctuations of the currency; and

- Strengthened transparency, and protection of
intellectual property and rule of law.

(3) Catalyzing reform: The SED is more than an event
that occurs twice per year; progress is achieved
throughout the year. The SED seeks to broaden the scope
and accelerate the pace of economic reform in China and
beyond its WTO commitments. Our goal is to see China
move more quickly toward a market-driven, open, and
competitive economy. Change is occurring more rapidly
than would have been the case without the SED. Since the
last Cabinet-level meeting of the SED in May 2007, for
example, the Chinese have:


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- Acted to minimize market-distorting measures that favor
exports." and to address China's trade surplus by cutting
tax rebates on exports of 2,831 commodities;

- Sped up the timetable for lifting the moratorium on the
licensing of securities companies, including joint
ventures;

- Improved food and product safety, including forming a
State Council-level working group, agreeing to new work
plans with the Consumer Product Safety Commission, and
launching negotiations with the United States on new
MOUs on drugs, medical devices, food and feed; and

- Signed an Industrial Energy Efficiency Cooperation MOU
with the U.S. Department of Energy to promote energy
efficiency at energy-intensive factories in China that
will reduce greenhouse gas emissions.

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Looking Forward: Preparations for SED III
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6. Direct discussion with the Chinese will accelerate
during the Fall, highlighted by December meetings in
Beijing of the Joint Commission on Commerce and Trade
(co-chaired on the U.S. side by Secretary Gutierrez and
Ambassador Schwab) and the third round of the SED
(chaired on the U.S. side by Secretary Paulson).


7. The third Cabinet-level meeting of the SED will focus
on four areas: financial sector reform (including currency
and reducing limits on foreign equity participation in
China's financial sector); consumer protection and
product safety; climate and energy security; and open
investment.


8. Our discussions with the Chinese this Fall build on
two important meetings in the U.S.-China economic
relationship. In early August, 2007, Secretary Paulson
met with Chinese officials in Beijing, including President
Hu and Vice Premier Wu. Following up on issues discussed
at the May SED, the discussions focused on currency, energy
and the environment, and consumer safety. In September 2007,
on the margins of the APEC summit in Australia, President
Bush and Chinese President Hu met for over 90 minutes,
discussing currency, trade, climate change, and product
safety. These issues are being advanced through the
SED process.
RICE