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### Viewing cable 07BEIJING7579, SED III: OPENING SESSION, DECEMBER 12, 2007

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07BEIJING7579 | 2007-12-21 01:00 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Beijing

`

    VZCZCXRO7224
    RR RUEHCN RUEHGH RUEHVC
    DE RUEHBJ #7579/01 3550100
    ZNR UUUUU ZZH
    R 210100Z DEC 07
    FM AMEMBASSY BEIJING
    TO RUEHC/SECSTATE WASHDC 4149
    INFO RUEATRS/DEPT OF TREASURY WASHDC
    RUCPDOC/USDOC WASHDC
    RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
    RUEHRC/DEPT OF AGRICULTURE WASHDC
    RUEAEPA/HQ EPA WASHDC
    RHMFIUU/DEPT OF ENERGY WASHINGTON DC
    RHEHNSC/NSC WASHDC
    RUEHOO/CHINA POSTS COLLECTIVE

` `

    UNCLAS SECTION 01 OF 03 BEIJING 007579

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR EAP/CM SECOR/YAMAMOTO
    STATE PASS USTR FOR STRATFORD/WINTER/MAIN
    STATE PASS EX-IM BANK FOR LAMBRIGHT/MYROW

    E.O. 12958: N/A
    TAGS: ECON ETRD EFIN EINV CH
    SUBJECT: SED III: OPENING SESSION, DECEMBER 12, 2007

    (U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED.
    PLEASE HANDLE ACCORDINGLY.  NOT FOR DISTRIBUTION
    OUTSIDE USG CHANNELS.

    ¶1. (SBU) At the December 12 opening session of the
    third round of the U.S.-China Strategic Economic
    Dialogue (SED), Vice Premier Wu Yi said the SED has
    improved not only bilateral business ties, but also
    overall Sino-U.S. relations and has attracted
    widespread international attention.  Wu said the theme
    of SED III focused on how to capitalize on the
    benefits of globalization and how to address the
    challenges globalization presents.  Wu said the two
    sides would use the SED forum to discuss policy steps
    to meet the challenges of globalization, including the
    integrity of trade, product safety, balanced economic
    development, energy issues, and environmental
    protection.

    ¶2. (SBU) Vice Premier Wu raised two priority issues.
    First, she said both sides should fully appreciate the
    importance of their bilateral relationship, and should
    recognize that business ties are its most important
    aspect, with the capacity to boost cooperation in
    other areas.  Since the visit of President Nixon in
    1972, she said, bilateral trade between the countries
    has developed to nearly $300 billion, and that the
    United States and China now represent each other?s
    second largest trade partners and fastest growing
    markets.  Second, she noted that, in the course of
    rapid bilateral growth, difficulties have occurred.
    She said that such challenges can only be resolved
    through consultation and dialogue, and that our
    countries? historical relationship has repeatedly
    shown cooperation to be more effective than finger-
    pointing and confrontation.

    ¶3. (SBU) Wu Yi raised two suggestions for the SED
    meeting.  First, she said both sides, as stakeholders
    and constructive partners, should make concerted
    efforts to cooperate to gradually ease the bilateral
    trade imbalance and resolve trade disputes, thus
    laying a stronger foundation for future growth.
    Second, she said both sides should work to strengthen
    mutual trust and enhance understanding through
    deepened dialogue and consultation to address each
    other?s concerns.

    Wu Yi: U.S. Protectionism Will Harm Relations
    ---------------------------------------------

    ¶4. (SBU) Vice Premier Wu said both countries must not
    allow interest groups to harm the development of
    business interests, and should oppose the
    politicization of important issues.  Wu expressed her
    personal concern with the ?more than 50 China-related
    protectionist bills in Congress,? which she said can
    only be counterproductive.  If adopted, she said, they
    would severely undermine United States business ties
    with China, and would have grave consequences.  She
    said she welcomed a July 30 letter from Secretary
    Paulson, Secretary Gutierrez, and Ambassador Schwab to
    the Senate Finance Committee opposing such bills.
    Similarly, Wu also said she welcomed a September 26
    joint letter from 106 multinational corporations and
    business associations emphasizing that trade sanctions
    are the wrong approach to resolving problems, and are
    harmful to United States business interests.  Wu
    expressed her hope that the administration will heed
    the voice of industry and will recognize the
    importance and overall beneficial nature of the
    bilateral trade relationship.

    ¶5. (SBU) Wu stressed the need to adopt more creative
    policy measures to address problems that may occur,
    raising product quality and food safety as an example.
    The issue has become a global one, she said, and
    therefore both countries must assume their due share
    of the responsibility to ensure the quality of the
    lives of their citizens.

    BEIJING 00007579  002 OF 003

    ¶6. (SBU) On bilateral trade imbalances, Wu said China
    has no intention to seek large a trade surplus with
    the United States, but only wishes to maintain a basic
    balance in its international payments.  She called on
    the United States to relax export controls of civilian
    high technology products to help increase United
    States exports to China.  Wu cited President Hu?s
    remarks that China would continue to grow by
    significantly increasing domestic consumption while
    also improving energy efficiency.  Thus, China?s
    demand for energy-efficient, environmentally friendly
    products will increase considerably.

    Paulson: Deeping Interdependence
    --------------------------------

    ¶7. (SBU) In his opening remarks, Treasury Secretary
    Henry Paulson explained that, when Presidents Bush and
    Hu created the SED in 2006, their intent was not to
    replace the many other important bilateral dialogues
    between China and the United States.  Rather, he said,
    they envisioned an overarching, senior-level, long-
    term, and strategic forum that could also address
    immediate, sensitive issues as they arise.

    ¶8. (SBU) Paulson highlighted two points in his
    introduction of SED III: the deepening interdependence
    between the United States and China, and the rise of
    nationalism and protectionism in both countries.
    Addressing the first, he said that both countries?
    interests overlap on most issues.  As bilateral
    economic ties increase, he explained, citizens must
    have confidence in the goods they buy, which raises
    the challenge of food and product safety.  The
    December 11 signing of the MOUs on food and product
    safety was a critical step toward this end.

    ¶9. (SBU) Paulson continued that the United States
    welcomes the rise of a stale and prosperous China,
    but noted recent concerns over the overheating of the
    Chinese economy, asset bubbles, macroeconomic
    policies, and inflation.  Especially in this
    environment, he said, a flexible currency is important
    to solve China?s internal and external challenges.  At
    the same time, Paulson said, aspects of the United
    States economy ? such as its housing market ? are also
    facing challenges, but that the deep and liquid United
    States capital markets are playing a role in
    mitigating the impact of these problems.  China,
    Paulson suggested, should further open its own markets
    to gain access to the capital it needs for continued
    economic growth.  Simultaneously, he said, the United
    States and China should also share responsibility for
    ensuring clean and reliable energy supplies and
    protecting the environment.  A healthy environment and
    strong economy are not mutually exclusive, he said;
    they are mutually necessary.

    ¶10. (SBU) Addressing the rise of nationalism and
    protectionism in both countries, Paulson said that
    whereas trade was once a source of bilateral stability
    between the United States and China, it has recently
    become a source of tension.  He called on both
    countries to resist attempts to reduce transparency
    and raise obstacles to protect domestic industries.
    Paulson noted that the Bush administration has to date
    resisted anti-China bills in Congress, but warned that
    many people remain unsure that the benefits of trade
    are fairly shared between the United States and China,
    and urged that China continue to keep its markets open
    to alleviate such concerns.

    ¶11. (SBU) In conclusion, Paulson said the focus of the
    SED is to keep the bilateral economic relationship on
    an even keel in times of tension and in times of calm.
    He noted that the success of the dialogue will be
    judged by what progress both sides are able to
    achieve.

    BEIJING 00007579  003 OF 003

    ¶12. (U) SED III Delegates:

    United States:
    Henry M. Paulson, Jr., Secretary of Treasury
    Clark T. Randt, Jr., U.S. Ambassador to China
    Carlos M. Gutierrez, Secretary of Commerce
    Michael O. Leavitt, Secretary of Health and Human
    Services
    Susan C. Schwab, United States Trade
    Representative
    Stephen L. Johnson, EPA Administrator
    Clay Sell, Deputy Secretary of Energy
    Reuben Jeffery III, State Department Under
    Secretary for Economic, Energy and Agricultural

    SIPDIS
    Affairs
    James H. Lambright, Chairman Export-Import Bank

    China:
    Wu Yi, State Council Vice Premier
    Xie Xuren, Minister of Finance
    Zhou Wenzhong, Chinese Ambassador to the U.S.
    Yang Jiechi, Minister of Foreign Affairs
    Ma Kai, National Development and Reform
    Commission Chairman
    Shang Yong, Vice Minister of Science Technology
    Hu Xiaoyi, Vice Minister of Labor and Social
    Security
    Sun Zhengcai, Minister of Agriculture
    Chen Deming, Acting Minister of Commerce
    Chen Zhu, Minister of Health
    Zhou Xiaochuan, People?s Bank of China Governor
    Li Changjiang, AQSIQ Minister
    Zhou Shengxian, State Environmental Protection
    Administration Administrator
    Zhu Lieke, State Forestry Administration Vice
    Administrator
    Shao Mingli, State Food and Drug Administration
    Administrator
    Zhang Qiong, State Council Legislative Affairs
    Office Vice Minister
    Liu Mingkang, China Banking Regulatory Commission
    Chairman
    Shang Fulin, China Security Regulatory Commission
    Chairman
    Wu Dingfu, China Insurance Regulatory Commission
    Chairman
    Li Ruogu, China Import-Export Bank President
    Liu He, Central Leading Group on Finance and
    Economic Affairs Vice Minister

    Randt

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