CODEL PELOSI ENGAGES U.S. BUSINESS COMMUNITY IN SHANGHAI

UNCLAS SECTION 01 OF 05 SHANGHAI 000233

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TAGS: SENV ENRG PREL PHUM KIPR OVIP PELOSI NANCY CH
SUBJECT: CODEL PELOSI ENGAGES U.S. BUSINESS COMMUNITY IN SHANGHAI

REF: A) Shanghai 229, B) Shanghai 231

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1. (SBU) Summary: In a May 25 breakfast meeting hosted by the
American Chamber of Commerce in Shanghai (AmCham) and U.S.-China
Business Council (USCBC),over 70 U.S. business representatives
discussed energy/environment-related business opportunities in
China, U.S. competitiveness, intellectual property rights (IPR),
market access, currency valuation and general business
environment issues with CODEL Pelosi. In an address to the
group, Speaker Nancy Pelosi emphasized the significance of the
Waxman-Markey bill passed by the House Energy and Commerce
Committee on May 21, saying it created an opportune time to
discuss climate change with the Chinese. She also said that her
focus on human rights had not changed, and that she sees
protecting the environment as part of the larger human rights
issue. Rep. Edward Markey (D-MA) and Rep. James Sensenbrenner
(R-WI) also made remarks regarding that legislation and the
importance of protecting intellectual property rights (IPR) as a
key to creating environment-protecting and energy-saving
technologies. AmCham Board of Governors Chairman and President
of Cargill Investments China Norwell Coquillard spoke to the
group and emphasized that American companies in Shanghai are
well positioned to compete in efficient energy and green
technologies. End Summary.



Speaker: `We Come in the Spirit of Cooperation'

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2. (SBU) During an introductory speech, Speaker Pelosi noted
the purpose of her CODEL's visit to China is to `move forward
and find common ground' and that the CODEL came in the `spirit
of cooperation.' She noted that it is not just about setting
goals on important issues, but it is also about implementing
those goals. The CODEL's visit to China `could not have come at
a more opportune time' since the House Energy and Commerce
Committee just passed the Waxman-Markey climate and energy bill.
The United States is in a better position to respond when other
countries ask `when is the United States going to take the
lead?' The Speaker emphasized that addressing climate change is
a flagship issue for the United States, and it entails
addressing the fundamental security issue of dependence on
foreign oil and the reduction of overall pollution levels. It
is also an economic issue because it will reduce the cost of
energy and place the United States in the forefront of
developing environmental technologies. The vision of fighting
climate change has been successful because it includes a broad
coalition of businesses, labor groups, environmental groups,
scientists and evangelicals.




3. (SBU) Speaker Pelosi also outlined the four main concerns
she brings to China: the bilateral trade imbalance, the issue
of currency valuation, IPR infringement, and food and product
safety. She noted these are all major issues for the United
States, and she hopes to move the dialogue forward with the
Chinese. The Speaker said the `hand of friendship has been
extended by the Chinese' during her visit, and she hopes to gain
access to all thinking possible. She also addressed her
previous efforts at promoting human rights and emphasized that
protecting the environment is also a human right. `I really see
these two issues coming together,' said the Speaker.
Governments must be more transparent and respect the rule of law
because it is about `environmental justice' and energy that
people can afford. She also emphasized that it is important
that `we can exchange IP' in a way that is fair for all. We
must work together on all these issues in a `cooperative spirit'
in order to be successful.




4. (SBU) Rep. Markey and Rep. Sensenbrenner also made remarks.
Rep. Markey described the Waxman-Markey bill as a landmark bill

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that would cut greenhouse-gas emissions about 17 percent below
2005 levels by 2020, and about 80 percent by 2050, while
promoting renewable energy and energy efficiency. He noted the
key to the bill's passage was the participation of a broad
coalition of groups, including business, labor, and environment.
The passage of the legislation gave the CODEL a basis to come
to China and discuss greenhouse gas emissions. He said that if
the United States expects China and India to act, then `we have
to act as well.' Since greenhouse gases are cumulative, it is
imperative that the United States form partnerships with others,
and that `we think globally.' The legislation is also important
in that it will create incentives in the energy sector that will
spur a technological revolution, creating 3-5 million new jobs.





5. (SBU) Rep. Sensenbrenner noted that while he disagrees on
the fundamentals of `cap and trade' provisions in the bill, he
strongly supports the effort to reduce emissions though
technology. An important component of ensuring that the
technology is created in the adequate protection of IPR -
`without enforcement, we won't get the technology.' As such,
it is critical that the United States achieve a `commonality of
interest' with China on the issue of IPR protection.



U.S. Companies in Shanghai - Well Positioned For a Green
Revolution

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6. (SBU) Speaking on behalf of AmCham Shanghai, Norwell
Coquillard welcomed CODEL Pelosi and noted the importance of the
CODEL's visit to the commercial, industrial and business capital
of China. He noted that Shanghai is the city farthest along in
China's shift to a modern service-based economy, and a key
growth area in the services market is the `green tech' sector.
Shanghai serves as a hub for R&D and innovation in this
important field. Coquillard emphasized that American companies
in Shanghai and the Yangtze River Delta are well positioned to
compete in efficient energy and green technologies.




7. (SBU) AmCham Shanghai is playing a key role in ensuring U.S.
companies have an opportunity to compete in this field.
Coquillard said that AmCham is participating in the U.S. Clean
Energy Forum and is a founding member of the `Clean Tech
Initiative'. It has also been joined by companies such as Price
Waterhouse Coopers, Owens Corning, GE, Dell, Phillips, Dow
Corning and several other corporations in an effort to develop a
roadmap to promote `clean tech' solutions for a `sustainable
China.'




8. (SBU) As the largest and fastest growing American Chamber in
Asia Pacific, AmCham Shanghai is also committed to promoting a
healthy business environment in China. Coquillard noted that
China is now America's second largest trading partner and third
largest export market. As such, almost every state in the
United States has seen trade with China triple since 2000.
Given the continuing global economic downturn, `U.S.
competitiveness in China's growing market is more important than
ever.' Increasing U.S. exports and improving market access for
American companies will create jobs in the United States.
Coquillard stressed the importance of not only focusing on the
level of market access in China for U.S. goods and services but
also frankly discussing the possible impact of `protectionist
policies coming from both sides of the Pacific.'



Diversity Of Companies Discuss Business Issues in China

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9. (SBU) After the members' presentations, conversations
continued at separate tables. At the Speaker's table, several
business representatives discussed potential protectionism and
the impact of China's stimulus package on their businesses. In
response to the Speaker's direct question, all indicated that
their China businesses were profitable. This did not mean they
did not face problems, however. Jim Sherriff, CEO of Cisco
China, said that his firm was facing stiff competition from
`local champions,' who enjoyed preferential treatment from local
regional governments. Although this predated the financial
crisis, it had intensified with the implementation of China's
stimulus package. Other businessmen at the table, however,
described a different situation. Eric Musser of Corning
explained that because his firm did not sell directly to the
final consumer, but rather was an intermediate supplier, they
had actively benefited from the stimulus package. Whether they
faced increased local protectionism or not, all agreed that
China's desire to move up the value-added ladder was a key
motivation for its continued interest in foreign investment.
This applied in almost all sectors, from traditional high tech
industries to financial services, retailing, or alternate
energy.




10. (SBU) In a separate discussion with Rep. Edward Markey,
Covanta Energy Asia Pacific President Allard Nooy highlighted
business beneficial aspects of China's renewable energy
regulations and Covanta's investments in three operating
municipal garbage-to-energy power plants and two more such power
plants under construction in China. Rep. Markey described loan
guarantees for the U.S. nuclear energy industry in the pending
Waxman-Markey bill in his exchange with Westinghouse's Mike
Shaqqo; Westinghouse technology will be used in a new Chinese
nuclear power plant in Zhejiang Province for which concrete
began to be poured in April. Bayer Technology's Matt Targett
and Squire, Sanders Dempsey's Charles McElwee briefly described
the considerable range of venture capital projects in the United
States in biomass-to-liquid fuels projects and other innovative
alternative energy projects, and suggested that U.S. firms and
U.S. venture capitalists may have market opportunities by
partnering with Chinese researchers and companies in these
areas.




11. (SBU) Dow Corning Silicone Trading's Greater China
President Tom Cook discussed the solar panel industry with Rep.
Markey, noting how subsidies in Europe have led to export of
most of China's solar panel production; new Chinese incentives
to deploy solar panels at home are likely to change that
imminently. GE Energy 50 Hz IGCC Platform Global Manager Jason
Crew discussed wind power deployment and competition in China
and plans by the Chinese Academy of Sciences to develop an IGCC
pilot project in Lianyungang, Jiangsu Province. Rep. Markey
underscored that the pending Waxman-Markey bill has already
attracted a broad range of endorsements from industry, labor and
environmental NGO leaders, and how he hoped that this energy
bill would lead many U.S. companies to find it in their
self-interests to appoint Chief Energy Officers, just as 1996
telecommunications legislation in the United States had led many
companies to establish Chief Information Officer positions.
That earlier legislation had led to creation of new industries
and several million new American jobs; the pending energy bill,
by establishing expectations and requirements, could spur
creation of markets and economies of scale that would allow U.S.
industries to be world leaders in renewable energy.




12. (SBU) In a separate conversation with Rep. Earl Blumenauer
(D-OR),Ted Hornbein of Richco expressed concern that Congress
still sees China's exchange rate as a major issue. He pointed
out that the renminbi has appreciated in value from 8.3 to 6.83
to the U.S. dollar in a relatively short span. At the same
time, China does not get enough credit for the changes it has
made to its VAT policy, which effectively has raised the prices
of China's exports. Jeff Song from Ingersoll-Rand agreed with
Hornbein, adding that even if China were to radically appreciate

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its currency by 20 percent, it still would not create the
conditions for low-cost, labor-intensive jobs to return to the
United States. The exchange rate, therefore, is a non-issue,
Song said.




13. (SBU) If Congress wants to make a positive difference in
its discussions with China on climate change, Song continued,
addressing China's Government Procurement regulations will be
critical to improving energy efficiency. The problem in China,
Song explained, is that government contracts are awarded to the
lowest cost producer regardless of a project's energy usage.
Many U.S. companies therefore lose out on bids in a process that
is not competitive if energy efficiency is taken into account.
"The Chinese Government complains that we only want to win the
contracts so that we can sell them expensive equipment," the
Ingersoll-Rand representative continued. "But we could make a
significant impact on energy efficiency if we had better market
access in this area." Tom McCawley, representing Owens Corning,
added that his company is attempting to win over local
governments in China by demonstrating that improved energy
efficiency will lower costs in the long-term. Rep. Blumenauer
replied that he hopes to see more progress in this area, and
that CODEL Pelosi's approach with China on climate change is
meant to be a "collaborative" effort.




14. (SBU) In a separate conversation with Rep. Jackie Speier
(D-CA),Squire, Sanders Dempsey Partner Amy Summers emphasized
that most U.S. businesses in China do not see the valuation of
the RMB as a major issue - rather U.S. companies are being more
strongly affected by a growing number of protectionist policies
and regulations. She cited a specific example of U.S. travel
companies that are effectively shut out of the `out-bound'
tourist market through `carve out' regulations. Summers noted
this is just one example of a well developed sector in China
that is still claiming it needs special protection against
foreign competition. To address the problem, the United States
needs to examine whether this wave of new laws and regulations
emanating from both Central and local governments is
WTO-compliant. She added that it is very difficult for
individual companies to stand up to the Chinese Government on
these issues, and the U.S. Government and U.S. industry
associations play a vital role in this effort. Proctor and
Gamble's Gao Yunsong voiced a similar opinion and said that
often times it is not a matter of initial market access - but
what comes later when the Chinese realize you have a competitive
product.




15. (SBU) On the issue of IPR, ALC Advisor's Diane Long said
she has seen a `sea of change' on IP protection since she began
doing business in China in the 1980s. But, the enforcement and
protection of IPR is very diverse between different
jurisdictions in China. She cited Shanghai as a very positive
example of IP protection, saying Shanghai has `IPR in its DNA.'
The difference between Shanghai and other cities in China is
that Shanghai has realized that it needs to protect IPR to
develop an innovative and high-tech economy. Its success is
reflected in the fact that it has become a magnet for foreign
companies to litigate IP cases. Long emphasized that U.S.
companies in China have been successful in protecting IPR when
they find Chinese partner companies that understand the value in
protecting IPR, and it is also in their best interest to do so.
Summers added that she sees the situation on IPR in China
changing as `domestic stakeholders' become more interested in
protecting their own IPR and push the system to change.




16. (SBU) On environmental protection issues, Long, who noted
her long experience working on supply chain issues, voiced her
concern over `excessive' packaging requirements. She
illustrated by saying U.S. companies demand far too much
wrapping in the garment and shoe industries - it is not the end
consumers who want all the packaging. As a result, Chinese
suppliers are forced into `wasteful and environmentally
unfriendly' practices in the supply of goods to the U.S. market.
Walmart's Brian Liao agreed with the assessment and noted that

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Walmart is making an effort to reduce environmentally harmful
packaging by using bio-degradable wrapping and boxes while still
maintaining product quality. Wachovia Bank's Ben Kinnas added
that such efforts to reform the `packaging problem' require
households to get involved to demand changes to industry
practices.




17. (U) U.S. Government Participants



Speaker Nancy Pelosi and Mr. Paul Pelosi

Rep. Edward Markey and Dr. Susan Blumenthal

Rep. James Sensenbrenner and Mrs. Cheryl Sensenbrenner

Rep. Earl Blumenauer and son Jon Blumenauer

Rep. Jackie Speier

Acting United States Consul General in Shanghai Simon Schuchat

Professional Staff Members to the Speaker and Representatives

Christopher Beede, Consulate Political and Economic Section
Chief

David Gossack, Foreign Commercial Service Section Chief

Matt Murray, Senior Political Officer

Michael Layne, Senior Economic Officer (notetaker)




18. (U) CODEL staff have cleared this report.
SCHUCHAT