Secretary Geithner's June 1 Meeting with Vice

UNCLAS SECTION 01 OF 03 BEIJING 001571 SIPDIS SENSITIVE STATE FOR EAP, EAP/CM AND E TREASURY FOR OASIA/DOHNER/WINSHIP TREASURY ALSO FOR IMFP/SOBEL/CUSHMAN NSC FOR LOI E.O. 12958: N/A TAGS: ECON EFIN PREL CH SUBJECT: Secretary Geithner's June 1 Meeting with Vice Premier Wang Qishan in Beijing Summary -------------- ¶1. (SBU) In a June 1 meeting in Beijing, Vice Premier Wang Qishan told Treasury Secretary Geithner that discussion in the Economic Track of the late July Strategic and Economic Dialogue (S&ED) should be strategic, include bilateral and global issues, and neither duplicate nor replace discussions in other fora. On North Korea, Wang said the U.S. and China pursue the same general policy direction toward North Korea. He appreciated the U.S. position on the RMB but added that the economic environment remains unstable. Wang said U.S. and Chinese responses to the global financial crisis are more similar than those of other countries. He believes the S&ED also provides a venue to discuss implementation of G-20 commitments and to coordinate positions for the next G-20 meeting in September, for which China sees three major issues: restore global economic growth, encourage international financial institution reform, and establish a framework for future economic growth. ¶2. (SBU) Summary, continued. Secretary Geithner told Vice Premier Wang that the economic track of the first S&ED should be comprehensive and strategic in nature, while also generating concrete results on financial, economic, and broader international issues. He urged China to work closely and cooperatively with the U.S. in responding to recent DPRK actions, and also hoped the two countries could work cooperatively to limit Iran's capacity to advance its nuclear program. He noted appreciation for China's actions to boost economic growth. Geithner briefed Wang on the U.S. economic and financial situation, explaining the USG is very committed to reduce its fiscal deficit over time. He noted U.S. support for IFI reform and a greater role for China. Geithner said the USG at this time is not contemplating a new set of initiatives and reforms for the next G-20 summit, as the world needs a period of calm and stability on the financial front to allow time for recovery. He also emphasized the need for China to continue to rebalance the economy (including through greater renminbi (RMB) flexibility),advance financial sector reform, and permit prices to play a greater role in allocation of resources. End Summary. 
 Private Meeting: S&ED, North Korea, Economy -------------- ¶3. (SBU) In a 20-minute one-on-one meeting with VP Wang on June 1, Secretary Geithner said he wants the S&ED to be results-oriented, with cabinet-level attendees including senior financial regulators and development of meaningful outcomes prior to the first session. Wang responded that discussion in the Economic Track should be strategic and neither duplicate nor replace discussions in other fora. He stressed the importance of the Presidents' special representatives for the S&ED's Economic Track having a strong channel of communication. ¶4. (SBU) On North Korea, Geithner noted that Treasury Under Secretary Levey would accompany State Deputy Secretary Steinberg to Beijing later that week and urged China to work closely and cooperatively with the United States in responding to recent DPRK action, including through developing effective financial sanctions. Wang said the United States and China pursued generally the same policy direction toward North Korea, with differences mainly over the intensity of particular actions. Wang suggested that other channels take the lead on this issue. Geithner also hoped the United States and China could work cooperatively to limit Iran's capacity to advance its nuclear program. ¶5. (SBU) Geithner noted his appreciation for actions China has taken to date to boost growth. He said he would support China's exchange policy in public statements, as publicly emphasizing U.S.-China cooperation is critical to shoring up investor confidence. However, in private China should understand clearly that the RMB needs to resume its appreciation versus the U.S. dollar. Wang said he appreciated the U.S. position on the RMB, but stressed that China's exchange rate policy has an important impact on economic stability and that the economic environment remains unstable, with analysts continuing to disagree over the near term outlook. He BEIJING 00001571 002 OF 003 said his article in the Economist magazine prior to the London G-20 Summit has stated clearly China's policy on its exchange rate and reserve management policies. ¶6. (SBU) On economic reform, Wang said the Chinese government wants to move faster, but has a responsibility to its 1.3 billion people. In the financial sector, he argued that China has been able to implement reforms in just a few years that took the United States much longer to implement. Geithner noted the U.S. Congress is close to passing approval of a U.S. contribution to the New Arrangements to Borrow and urged China to make an NAB contribution. U.S. Economy and the Global Crisis -------------- ¶7. (SBU) In their expanded meeting, which included Minister of Finance Xie Xuren, People's Bank of China Governor Zhou Xiaochuan, Vice Foreign Minister He Yafei and other senior officials, Geithner briefed Wang on the U.S. economic and financial situation. The USG is very committed to laying out a path to bring the fiscal deficit down over time, and the Federal Reserve, FDIC and Treasury all will unwind their extraordinary interventions as confidence in the system increases. The healthcare reform plan proposed by President Obama aims to decrease the rate of growth in health care costs; the plan will be implemented in a deficit-neutral manner, and over the longer term savings generated by the plan will help reduce fiscal deficits. ¶8. (SBU) Wang said U.S. and Chinese responses to the global financial crisis are more similar than those of other countries in terms of fiscal, monetary, and industrial policy, as well as actions to address social security and unemployment. Responses by European governments were less uniform. The Chinese financial sector is at a different state of development and has not been directly impacted by the crisis. China, however, remains highly dependent on U.S. and global demand, so it is not immune. Strategic and Economic Dialogue -------------- ¶9. (SBU) Geithner observed that the USG wants to build a relationship with China, similar to those with the G-5 and G-7 countries since the late 1970s, that would ensure bilateral communication on economic developments to forestall any "surprises." To that end, the S&ED economic track should be comprehensive and strategic in nature, while also generating concrete results on financial, economic, and broader international issues. ¶10. (SBU) Wang replied that, given USG institutional arrangements, the economic track will not include climate and energy issues. Outcomes should deepen mutual understanding and cooperation on major economic and financial issues and ensure that both economies maintain growth. ¶11. (SBU) For the Economic Track, Geithner and Wang agreed there should both be a joint outcomes document and a public joint fact sheet released at end of the S&ED meetings. Wang said the outcomes of the first economic dialogue should focus on deepening mutual trust and reflect cooperation in fighting the global financial crisis. G-20 Summit and Coordination -------------- ¶12. (SBU) Wang said the S&ED also provides a venue to discuss implementation of results from the two previous G-20 meetings and to coordinate positions for the next G- 20 meeting in September. Emphasizing the importance of 3Rbf0M4a7I}W*jVQ%ndon Summit, and to increase the IFI quotas of developing countries; and third, establish a framework for future economic growth. BEIJING 00001571 003 OF 003 ¶13. (SBU) Geithner said the U.S. supports IFI reform and a greater role for China. He agreed on the need to address the specific needs of the poorest developing nations, and provided an update on the status of legislation working its way through the House and Senate to provide additional funding to the IMF, including through the New Arrangements to Borrow. ¶14. (SBU) Wang said China committed in principle at London to funding the New Arrangements to Borrow (NAB) at the IMF. China has chosen to buy IMF bonds, and in the future will release information on their purchases through the State Administration of Foreign Exchange (SAFE). In response, Geithner emphasized the need for a multilateral approach such as the NAB to ensure sufficient permanent resources for the IMF, and said he hopes China can consider this modality. ¶15. (SBU) Wang said China places great importance on the third G-20 summit scheduled for September. Geithner replied the USG at this time is not contemplating a new set of initiatives and reforms, as we want to keep expectations and efforts focused on near-term reforms. ¶16. (SBU) Geithner observed that all parties now agree that the world needs a period of calm and stability on the financial front to allow time for recovery, that the USG will contribute to this, and that we welcome Chinese statements and actions that contribute to this process. He emphasized the need for continuing China efforts to rebalance the economy (including through greater renminbi (RMB) flexibility over time),advance financial sector reform, and allow prices to play a greater role in allocation of resources. Finally, Geithner said the USG recognizes that this increased RMB flexibility will require more time. In response, Wang agreed on the importance of stability. He reassured Secretary Geithner that Chinese officials will not take unhelpful actions; if a need for such action arises, the Chinese Government first will communicate with the USG. ¶17. (SBU) Comment: Wang repeated the line of other senior Chinese economic officials that China can not be assured of its recovery until the U.S. economy recovers. On China's exchange rate policy, Wang reiterated what we have heard from some other interlocutors: the Chinese view stability of the RMB vis--vis the U.S. dollar as an important nominal anchor at a time of exceptional global financial and economic volatility. This implies that when China is more confident that financial conditions and demand in its major trading partners have stabilized and begun to recover, it is likely to allow for greater bilateral exchange rate flexibility. This approach also attempts to put the burden back on China's trading partners to stabilize their economies before pressing China for greater exchange rate flexibility. Both sides appeared to agree that, while financial sentiment remains fragile, it is best to limit public expressions of concerns about financial assets or policies. PICCUTA