CHINA/G-20: FOUR WANTS, ONE DON'T WANT, AND A

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 002525

SIPDIS

STATE PASS EEB/DAVID NELSON
NSC PASS LOI
TREASURY PASS IMB

E.O. 12958: DECL: 09/01/2029
TAGS: ECON EFIN CH
SUBJECT: CHINA/G-20: FOUR WANTS, ONE DON'T WANT, AND A
DON'T KNOW

Classified By: William Weinstein, reason:1.4 (a) and (b)


1. (C) Summary: The Ministry of Foreign Affairs (MFA) is
drafting China's G-20 Pittsburgh Summit position paper, under
the direct guidance of Vice Foreign Minister He Yafei. VFM
He would like the summit communique to contain statements
endorsing macroeconomic stimulus plans, calling for
North-South economic rebalancing, promoting international
financial institution (IFI) reform, and forgoing
protectionism. MFA does not want the communique to address
climate change financing. The Chinese have not developed a
position on peer review. Looking forward, the MFA generally
supports the continuation of the G-20 process. End Summary.


2. (C) Econoff was asked to meet on August 30 with MFA
International Organizations Department Division IV official
Chen Zushan regarding the Chinese positions on the upcoming
Pittsburgh G-20 Summit.

Communique Should Not be Too Detailed
--------------


3. (C) Chen said that the MFA is finalizing its G-20 position
paper, under the close supervision of Chinese VFM and G-20
Sherpa He Yafei. The drafters are awaiting the U.S. draft.


4. (C) Chen noted that the U.S. National Security Council
(NSC) and Treasury Department have passed China a large
number of overview papers. China has concerns that these
papers are too detailed and they should not necessarily form
the basis of the communique.

Four Wants...
--------------


5. (C),Chen conveyed that VFM He would like the following
elements included in the G-20 communique:


6. (C) Macroeconomics: Chen said that despite positive
global economic signs, the communique should still focus on
macroeconomic stabilization. This should include endorsing
continued monetary and fiscal stimulus. Exit strategies can
be discussed, but China stresses the need to be cautious
about including this topic in a public communique.


7. (C) Development Imbalances: According to Chen, He Yafei
believes the root cause of the economic crisis was not
"trade, financial, or savings/consumption imbalances," but a
"North-South development imbalance." He said that as
consumption contracts in the United States, it would need to
be replaced by growing consumption in many countries; the
world could not rely on Chinese consumers to absorb all of
the excess production. (Note: Upon further discussion, it
became clear that Chen didn't understand the economics of the
global rebalancing debate, and was reciting points. Other
MFA officials in the room were similarly unable to clarify
this point. End note.)


8. (C) IFI reform: Speaking for "developing countries", Chen
said the developing world felt the momentum had shifted away
from necessary IFI reform. He stated that China supports
what he said was a U.S. proposal for a five percent shift in
International Monetary Fund (IMF) quota to developing
countries. Chen said that, in addition, the communique
should address reform of the World Bank and other
Multilateral Development Banks (MDBs). He disagreed with the
principle that MDB contributions and voting share be tied;
developing countries should have at least half of the voting
share regardless of how much they contributed. He also
disagreed with the idea that the MDBs should address climate
change; climate change can be a consideration in approving
projects, but the goal should be poverty alleviation and
development. Regarding governance reform, he asked that the
communiqu reiterate that management selection be "open,
transparent, and merit based."


9. (C) Anti-Protectionism: Chen said the communique should
repeat the previous commitment to curb protectionism. It
should also reiterate an endorsement of the Doha Round of
trade negotiations. China specifically opposes
climate-related protectionism, such as carbon tariffs.

...One Don't Want...
--------------


BEIJING 00002525 002 OF 002



10. (C) Climate Change Financing: Chen stated that climate
change financing should not be discussed at the G-20. Other
mechanisms exist to address this topic, he claimed. Chen
said the overview paper that the United States had provided
on this topic was "unbalanced."

...And a "Don't Know"
--------------


11. (C) Peer review: Chen said that this was a new
initiative, and China did not have enough information to form
a position. He asked for additional details on the proposal,
as well as other countries' views.

In Favor of Continuing the G-20
--------------


11. (C) Chen said China is in favor of continuing the G-20
process. He noted that the agenda addressed in the G-20
communiques so far would take many years to realize. He
offered rebalancing and IFI reform as examples of such
long-term objectives. Furthermore, Chen stated that China
feels the G-20 is a good size; he claimed alternative
groupings like the G-8 5 appear divided along North-South
lines.


12. (C) Chen said the South Koreans had approached China to
gain MFA's support regarding the prospect of the ROK hosting
the next G-20 summit. Chen said the MFA had "sent" the South
Koreans to the United States to gain American support for the
proposal.

Comment: MFA Economics
--------------


13. (C) MFA IO Department has seized on the G-20 process as
an opportunity to become more assertive in international
econonic negotiations, usually the realm of entities such as
China's Ministry of Finance. They appear to want to insert
into the debate political objectives such as MFA's need to
appear to support and speak for developing countries. In
some cases, this has led to some unusual economic conclusions
on their part, such as their insistence that the "Development
Imbalance" be addressed in the context of global rebalancing,
as well as their proposal to delink MDB contributions and
voting share. End comment.
HUNTSMAN