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C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 005530 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS H 
STATE PASS USTR 
USTR FOR PORTMAN, WINTER, MCCARTIN 
USDOC FOR DAS LEVINE, ITA/OCEA MCQUEEN AND CELICO 
TREASURY FOR ISA - DOHNER AND KOEPKE 
NSC FOR WILDER, SHIRZAD 
 
E.O. 12958: DECL: 03/24/2016 
TAGS: PREL ETRD EFIN WTRO PGOV OREP CH
SUBJECT: PART 2 OF 2:  CODEL GRAHAM-SCHUMER MEETING WITH 
VICE PREMIER WU YI, MARCH 23, 2006 
 
Classified By: DCM David S. Sedney, Reasons 1.4 (B) and (D). 
 
But IPR Protection Not Accomplished Overnight 
 
¶30.  (SBU)  One must also recognize that IPR protection will 
not be achieved in China overnight.  IPR protection is 
closely related to a nation,s level of economic development 
and to achievement levels in science and technology.  Given 
China,s population of 1.3 billion persons and low level of 
scientific and technological achievement, a long period of 
arduous work, coordinated among government , business and 
consumers, will be required to achieve IPR protection in 
China.  In the meantime, IPR protection must also be seen as 
a global issue.  Even the United States faces great 
challenges in IPR protection.  The Vice Premier revealed that 
pirated copies of &Brokeback Mountain8 are now available in 
China.  However, the movie version shown on these illegal 
copies are labeled as not-for-public-screening judges, 
copies for the annual Oscar Awards presented by the Academy 
of Motion Picture Arts and Sciences in Hollywood.  Where did 
this IPR violation occur?  Should this IPR violation be 
treated as a Chinese problem, where the pirate copies are for 
sale, or as an American problem (inferring that that is where 
a limited distribution copy went into the wrong hands and 
made possible illegal copying, distribution and sale)? 
 
Conclusion of Soliloquy 
 
¶31.  (SBU)  China values what has been achieved in promoting 
bilateral relations with the United States.  Both sides 
should treasure that achievement and further promote the 
relationship.  Asking that her frankness be excused, the Vice 
Premier yielded the floor to Senators Graham and Schumer. 
 
Senators:  Graham-Schumer Bill Based on Constituents, 
Displeasure 
 
¶32.  (SBU)  Senator Graham noted the warm welcome extended to 
the CODEL and that each meeting had proven beneficial. 
Senior officials had chosen to meet with the group and had 
clearly prepared to discuss the CODEL,s concerns.  That 
hospitality should be repaid with honesty.  Maybe Southerners 
did not always speak with as much directness as they should. 
He affirmed his respect for China and for the Vice Premier, 
and underscored his understanding of the importance of this 
bilateral relationship.  He also said like the Ministers with 
whom the CODEL had met, the Vice Premier lives up to her 
reputation, too. 
 
¶33.  (SBU)  That Senator Schumer, a Democrat trying to wrest 
power away from Senator Graham,s own party, and he should 
cooperate on the Graham-Schumer Bill is historic and unusual. 
 They are working on that legislation together because the 
people and manufacturers of New York, South Carolina, 
Georgia, Tennessee, Minnesota and other parts of the country 
tell Congress that they are losing market share, jobs and 
even their companies to unfair competition from China.  The 
Vice Premier interrupted to ask whether they tell Congress 
how much they earn in China.  Some do well in China, Senator 
Graham continued, but others are losing their businesses, and 
they believe the causes are China,s undervalued currency and 
IPR losses to Chinese firms.  The Senator underscored his 
agreement with those views.  While Congress had received 
estimates of 15 percent o 40 percent undervaluation of the 
renminbi, no one could say for sure, so Senator Schumer and 
he had split that range and used 27.5 percent in their 
proposed legislation.  For three years, they had tried to 
avoid a Congressional vote on the bill while waiting for 
Chinese action on the exchange rate.  A drastic solution need 
not be the answer.  But after three years of Congressional 
delay, a vote had become necessary.  The vote was itself an 
historic matter.  The leadership of Senator Graham,s party 
opposed the measure and fought against it, and the White 
House had called him to ask that the measure not be brought 
to a vote.  After three years of waiting for Chinese action, 
he had felt he had no choice and his loyalty to the people he 
represents outweighs loyalty to the political party.  The 
measure was brought to a non-binding vote that had received 
67 votes.  This convincingly shows that most U.S. Senators 
share the same view about undervaluation of China,s currency. 
 
¶34.  (C)  The good news is that China,s July 2005 2.1 
 
BEIJING 00005530  002 OF 004 
 
 
percent devaluation had created hope on Capitol Hill.  But to 
those who believed the renminbi is undervalued by 40 percent 
or even 15 percent, the July reform had brought little 
relief.  Senator Schumer and he continue to be encouraged by 
others on Capitol Hill to move their bill forward.  The 
half-year or so since the July reform has been confusing. 
Was the July reform politically motivated so as to be seen as 
not manipulating the currency or was it really motivated by 
economic reform considerations?  The CODEL,s current visit 
has convinced Senator Graham that revaluation of the renminbi 
is in China,s own interest.  The CODEL would like to leave 
China believing that China is moving toward further exchange 
rate reform.  Due to many problems, exchange rate reform and 
appreciation could be a long-term process. 
 
Advice:  China Should Make Its Case to the American People 
 
¶35.  (SBU)  Senator Graham respectfully asked that senior 
Chinese officials help persuade the American people that 
China is on a path to further reform.  He noted that his 
family, all of whom had worked in the textile industry in 
South Carolina, had all lost their jobs.  Such was the price 
of globalization.  Had he wanted to blame China for his 
family,s and the U.S. textile industry,s woes, he need not 
have come to China on this trip.  But he also sought harmony 
with China.  The rule of law allows different and differing 
people to live together.  Judges in the United States are 
neither Republicans nor Democrats when sitting on their 
benches; that provides confidence to all.  The sooner that 
China adopts a floating currency and implements effective IPR 
protection, the sooner that the American people will have 
more confidence about China.  Addressing these issues can and 
must be a win-win situation for our two countries. 
 
April,s Importance 
 
¶36.  (SBU)  Two important events will occur in April.  First, 
Presidents Hu and Bush will meet again.  Senator Graham said 
it is important for President Hu to be well received, with 
respect, in the United States.  China has accomplished many 
great things since 1978, and the Senator hopes the 
Presidential meeting and visit will go well.  Second, after 
the meeting of the Presidents, Treasury Secretary Snow will 
issue a report on whether China is manipulating its currency. 
 In the most recent report of six months ago, the Treasury 
Department had gone to the edge of declaring China a currency 
manipulator.  The Senator said he hopes that Secretary Snow, 
and those at this meeting in Beijing, can say at that time 
that China is on the reform path.  The Senator certainly 
won,t say that if he does not believe it.  If the Treasury 
Department finds that China is a currency manipulator, 
Congressional action on the Graham-Schumer Bill will be very 
difficult to stop. 
 
¶37.  (SBU)  Senator Schumer began by describing his visit to 
China and the Zhongnanhai setting for the meeting with the 
Vice Premier as positive experiences.  He juxtaposed China,s 
historical greatness and accomplishments as seen at sites 
such as the Great Wall and Forbidden City with the great 
muscular future of China evidenced by the great numbers of 
construction cranes and construction projects everywhere in 
Beijing.  Chinese people are like the American people, he had 
come to realize.  The Chinese people are a large and diverse 
group with amazing talents and pride in meritocracy, 
regardless of where one comes from or who one,s family was. 
New Yorkers and Chinese have a natural affinity, shown by 
more than one million ethnic Chinese in the New York City 
area.  China,s history, its energetic present and future, 
and the people who though different have many similarities to 
Americans gave the Senator much confidence about China. 
 
¶38.  (C)  The Vice Premier had well made her point about the 
complementarity of the two countries, Senator Schumer 
continued.  But his own candidness was likewise required. 
Before coming, he had thought that China was most interested 
in accumulating wealth in a mercantilist way.  In the 
CODEL,s discussions with the People,s Bank of China 
Governor Zhou and others, he had come to see that China has 
been in a first phase of bringing in capital, producing 
exports and building a certain level of wealth.  The Eleventh 
Five-Year Plan (2006-2010) embodies a new phase, in which 
more domestic consumption will be promoted to help the 700 
 
BEIJING 00005530  003 OF 004 
 
 
million Chinese living in rural areas.  That eight or nine 
points of twenty-five points highlighted in the new Five-Year 
Plan focused on increasing domestic consumption is 
remarkable.  China,s next phase of economic activity will be 
complementary to U.S. economic activity.  China,s financial 
problems are the inverse of U.S. financial problems.  We need 
to save more and consume less.  Americans cannot continue 
consuming 7 percent more than they produce. 
 
¶39.  (C)  Like Senator Graham, Senator Schumer wishes to be 
convinced that the Chinese currency will be moving to a 
managed float.  He believes that to be in China,s own 
interest.  Chinese and U.S. interests regarding the exchange 
rate now coincide.  The Senator recognizes that a complete 
float would not solve the U.S. trade deficit with China. 
Indeed, the Graham-Schumer Bill had been introduced to propel 
action on the currency issue.  The trade imbalance is likely 
to continue.  He acknowledged that some of his views about 
China had begun to evolve since arriving in Beijing three 
days earlier  He re-emphasized that Congressional action on 
the currency action had been delayed for three years.  Even 
if implemented tomorrow, the Graham-Schumer Bill allowed for 
implementation two years after Congressional approval.  That 
window before implementation would still provide opportunity 
to get leaders to talk about this issue. 
 
¶40.  (C)  A final step in possible Congressional action on 
the Graham-Schumer Bill has now arrived, Senator Schumer 
concluded.  April is the important month.  We need Presidents 
Hu and Bush to convince the American people that we are on a 
path, even if a gradual path, to a managed floating exchange 
rate that will change over time.  Bank Governor Zhou,s 
comments to the CODEL at an earlier meeting had been helpful 
and should be published, the Senator recommended.  Another 
next best step would be to show the American people, American 
manufacturers and the 65 Senators who had joined Senator 
Graham and himself in the earlier non-binding vote that there 
is a means to get to that goal.  Real steps are needed to 
convince people.  Having now met the impressive Vice Premier 
in person and cognizant of her influence, and having been 
very impressed by the officials with whom the CODEL had met, 
he is convinced that real actions to demonstrate China,s 
movement on the currency issue would not be very difficult to 
undertake.  He thanked the Vice Premier for her hospitality 
and valuable time. 
 
Wu Yi:  Candidness Appreciated; China Faces Many Challenges 
 
¶41.  (SBU) The Vice Premier thanked the Senators for their 
candidness.  She was happy that the CODEL,s understanding of 
China had changed since boarding their airplane in 
Washington.  But even that changed understanding of China 
remains very limited.  China is a large country with a huge 
population and many challenges to overcome.  More than 20 
million Chinese are still below the poverty line.  Uneven 
development between the rural and urban areas and between the 
east and west poses challenges for the government.  She 
encouraged the Senators to visit a poorer region in western 
China as part of the itinerary of their next visit so that 
they could get a comprehensive understanding of China. 
 
¶42.  (C) The key issue of promoting Chinese domestic 
consumption in the Five-Year Plan highlighted by Senator 
Schumer showed that U.S. exporters will have a great 
opportunity to enter the Chinese market in the coming years. 
Soon China will import one trillion dollars in goods and 
services annually.  Wu Yi said she hopes that U.S. companies 
will seize opportunities presented by China,s growing demand 
for imports.  Regarding the relationship between currency and 
trade, the Vice Premier cited the CODEL,s earlier detailed 
discussion with Bank Governor Zhou. 
 
Graham-Schumer and WTO Dispute Settlement Proceedings 
 
¶43.  (SBU)  If the Graham-Schumer Bill is adopted by the U.S. 
Congress, that would have a negative impact on both China and 
the United States.  The Vice Premier opined that the 
legislation would not survive a challenge in WTO Dispute 
Settlement proceedings. 
 
¶44.  (SBU)  The United States and China both have 
considerable influence.  One is the biggest developed 
 
BEIJING 00005530  004 OF 004 
 
 
country, the other is the biggest developing country.  The 
bilateral business ties that have been established were not 
easily attained.  Both sides should cherish the relationship, 
build on the present and pursue win-win outcomes on the basis 
of mutual benefit and equality.  The Vice Premier asked that 
the CODEL inform their Senate colleagues about what they had 
learned while in China.  The news might be more convincing on 
Capitol Hill if delivered by the Senators rather than Chinese 
officials.  The Vice Premier also encouraged more Senators, 
Representatives and professional staff to visit China; they 
would be welcome.  The meeting concluded with the Vice 
Premier,s wishes for a successful visit to Shanghai, the 
CODEL,s next stop, and a presentation by the Chinese meeting 
participants of additional Chinese publications on IPR 
protection in China. 
 
¶45.  (U)  Participants at this ninety-minute meeting 
conducted in the Ziguangge Pavilion in the Zhongnanhai 
leadership compound are listed below: 
 
United States 
 
United States Senator Lindsey Graham (R-SC) 
United States Senator Charles Schumer (D-NY) 
Ambassador Clark T. Randt, Jr. 
Matt Rimkunas, Legislative Assistant to Senator Graham 
Kevin Bishop, Communications Director for Senator Graham 
Jeff Hamond, Legislative Assistant to Senator Schumer 
Risa Heller, Press Secretary to Senator Schumer 
Economic Officers Christopher Beede, Brent Christensen, and 
Ryan Stoner 
Embassy Interpreter James Brown 
 
China 
 
Madame Wu Yi, Vice Premier of the State Council of the 
People,s Republic of China 
Jiang Enzhu, Chairman, Foreign Affairs Committee, National 
People,s Congress 
Bo Xilai, Minister of Commerce 
Zhou Xiaochuan, Governor, People,s Bank of China 
He Yafei, Assistant Foreign Minister 
Professional staff members, Foreign Affairs Committee, 
National People,s Congress 
Interpreter 
 
¶46.  (U)  CODEL staff have cleared this report. 
RANDT