GREATER U.S. EX-IM BANK ROLE URGED BY SHANGHAI BANKERS

UNCLAS SECTION 01 OF 02 SHANGHAI 000488

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E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV CH
SUBJECT: GREATER U.S. EX-IM BANK ROLE URGED BY SHANGHAI BANKERS


1. (SBU) Summary: Foreign bank executives in Shanghai
recommended that the Export-Import Bank of the United States
(Ex-Im) increase its operations in China by working with
second-tier banks to finance imports by Chinese small- and
medium-size enterprises (SMEs). They urged Ex-Im to establish
an office in China as the best way to track policy trends that
will affect U.S.-China trade. Several of the bankers mentioned
that alternative energy is a sector that would be most
appropriate for Ex-Im financed imports from the United States.
End Summary.


2. (SBU) Ex-Im Bank Senior Vice President and Chief of Staff
Kevin Varney met October 12 with representatives of six locally
incorporated subsidiaries of multinational banks -- BNP Paribas,
Citi, Deutsche Bank, HSBC, J.P. Morgan, and PNC. The banks are
"guaranteed lenders" that have been delegated authority to
provide Ex-Im Bank-guaranteed working capital loans to U.S.
exporters without prior Ex-Im approval.

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Financing for Chinese SMEs Falls Short
======================================



3. (SBU) The bank executives agreed that Chinese SMEs are in
the greatest need of Ex-Im financing. One banker pointed out
that financing needs in China are currently greatest in two
areas: large infrastructure projects and private enterprises.
However, private enterprises -- which are mainly SMEs -- are not
being served by the major Chinese banks.


4. (SBU) The best partners for international cooperation on SME
lending would be second-tier banks, agreed the bankers.
Second-tier banks would be better able to share market data and
trends relating to SMEs, since the five major Chinese
state-owned commercial banks largely ignore the SME market
segment. One executive mentioned two second-tier banks in this
context: China Merchants (a joint-stock bank),and China
Minsheng (a pseudo-private bank). In this way, said one of the
bankers, Ex-Im could play the role of a broker between U.S. SMEs
and Chinese importers and their local banks.


5. (SBU) Note: Other large second-tier banks include the
joint-stock banks China CITIC, Shanghai Pudong Development Bank,
and Industrial Bank. Altogether, second-tier banks account for
around 14 percent of banking system assets. The "Big Five"
banks -- Industrial and Commercial Bank of China, China
Construction Bank, Bank of China, Agricultural Bank of China,
and Bank of Communications -- account for around 52 percent of
banking system assets. End note.

===========================
Local Ex-Im Presence Needed
===========================


6. (SBU) The bank executives repeatedly urged the Ex-Im Bank to
establish a presence in China, saying that Ex-Im needs to be
closer to the trade transactions happening here in order to be
of greatest service. One pointed out that neither China nor the
United States have export credit agency offices in each other's
countries, which is counterintuitive because they are major
trading partners. Canada's export credit agency has an office
in China, mentioned one of the bankers.


7. (SBU) An Ex-Im Bank presence in China is especially
necessary because of the sometimes-abrupt shifts in Chinese
financial policy, noted a banker whose Chinese headquarters has

SHANGHAI 00000488 002 OF 002


been locally incorporated in Beijing. A clear example is the
about-face of the Chinese government from a restrictive monetary
policy in 2008 to a loose monetary policy in 2009. The
inconsistency of policy can offer profit-making opportunities
for financiers, the executive said, but "You have to know when
to enter the market."

===================================
Alternative Energy Could Be a Focus
===================================


8. (SBU) Several of the contacts agreed that Chinese
alternative energy manufacturers would be a good place to boost
Ex-Im financing of Chinese imports of U.S. technology. One said
many alternative energy companies are small, private enterprises
that banks do not serve. Others said that the Chinese
population is beginning to become more environmentally aware,
and non-governmental organizations (NGOs) are beginning to
change China's policies -- "Do not underestimate the impact that
NGOs have on the Chinese government," said one banker. Another
banker offered that sales of alternative energy vehicles is "a
great untold story" in China, pointing out the predominance of
electric battery motorscooters on Shanghai roads.

============================================= ===
Sinosure Reducing Cooperation with Foreign Banks
============================================= ===


9. (SBU) One political risk for foreign-affiliated financial
institutions in the China market is that the government
sometimes seeks to restrict their role. As an example, one
banker said that Sinosure, China's export credit insurance
agency, has trimmed back the role that foreign banks are
permitted to play in financing China's exports. Under the newly
introduced 421 Program, Sinosure is allowing foreign banks to
provide a maximum of 30 percent of the financing for any one
deal. Previously, there was no limit on the amount of
financing. (Note: According to Chinese press, the 421 Program
refers to a new US$42.1 billion export credit guarantee fund
that several Chinese ministries and Sinosure collaborated on
establishing as of May 2009. The program is targeted at
exporting whole electrical machinery production lines to
developing countries, and is billed by some as the single most
effective export boosting program introduced by China this year.
End note.)

============================================= =
Chinese Still Sore Over Unocal and 3COMM Deals
============================================= =


10. (SBU) Ex-Im's operations in China may be affected by a
lingering backlash among Chinese policymakers towards the United
States following the failure of China National Overseas Oil
Corporation (CNOOC) to purchase Unocal Oil Company in 2005 and
of the telecommunications firm Huawei to purchase a stake in
3Com in 2007. One banker noted that, while not all Chinese
attempts to invest in the United States are rebuffed, the Huawei
and CNOOC deals had a disproportionate impact because they got
the attention of China's relatively small business community.
Chinese businesspeople need to see a strong counterexample that
shows the United States is open to investment before embracing
new cooperation with Ex-Im Bank and other U.S. government
agencies, said the contact.


11. (SBU) Ex-Im Bank has cleared on this cable.
CAMP