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RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RHMFISS/COMUSJAPAN YOKOTA AB JA
RHHMUNA/HQ USPACOM HONOLULU HI

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002333 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS USTR FOR AUSTRS STRATFORD AND CUTLER 
USTR ALSO FOR BEEMAN, NEUFFER 
PARIS FOR USOECD 
GENEVA PASS USTR 
TREASURY FOR INTERNATIONAL AFFAIRS - DOHNER, TRAN, GREWE 
 
E.O. 12958: DECL: 04/28/2016 
TAGS: ECON ETRD EFIN ENRG APECO PREL CH JA
SUBJECT: EAP/DAS KEITH'S MEETING WITH METI OFFICIALS ON PRC 
PRESIDENT HU JINTAO'S U.S. VISIT 
 
TOKYO 00002333  001.2 OF 004 
 
 
Classified By: Joe Donovan, Charge d'Affaires, a.i. 
 Reason: 1.4 (b,d). 
 
¶1.  (C)  Summary:  Questions from officials of Japan's 
Ministry of Economy, Trade, and Industry (METI) focused on 
China's promises regarding exchange rate reform and 
intellectual property protection during an April 26 
briefing on Chinese President Hu Jintao's recent U.S. visit 
by EAP Deputy Assistant Secretary James Keith.  The METI 
officials also urged serious U.S. consideration of a 
Chinese proposal for a high-level regional meeting of 
leading energy consuming countries -- an arrangement they 
felt would be more effective than the current APEC 
framework of discussions on strategic energy issues.  End 
summary. 
 
¶2.  (SBU)  Participants: 
 
METI 
 
Eiichi Hasegawa, Deputy Director General, Trade Policy 
Bureau 
Shigeaki Tanaka, Director, Northeast Asia Division, 
Trade Policy Bureau 
Keisuke Saito, Director, Industrial Revitalization 
Division, Industrial Policy Bureau 
Tetsuya Watanabe, Special Assistant to the Director 
General 
Ken Watanabe, Director for International Energy 
Strategy, Agency for Natural Resources and Energy 
Tomohiro Kaneko, Deputy Director, Americas Division, 
Trade Policy Bureau 
 
U.S. 
 
Deputy Assistant Secretary James Keith 
Economic Counselor Daniel Fantozzi 
First Secretary Steven Hill 
First Secretary Christopher Wurzel 
Economic Assistant Ritsu Yamashiro 
 
¶3.  (C)  DAS Keith opened with an overview of the 
visit to the United States by Chinese President Hu 
Jintao.  He stressed that the visit had taken place in 
a highly politicized environment in both the United 
States and China and that economic and trade issues 
had figured prominently among U.S. concerns.  The 
Chinese, Keith acknowledged, had chafed at U.S. 
pressure on a number of economic issues but had shown 
noticeably greater sophistication and understanding 
than in the past in how they sought to engage the U.S. 
side in management of domestic political dynamics 
regarding the relationship with China.  Keith also 
emphasized that China's Eleventh Five-year Plan had 
laid out a series of important and measurable economic 
commitments and that, most importantly, the Chinese 
people would be able gauge the leadership's success in 
economic reform and development.  He noted that 
People's Bank of China Governor Zhou Xiaochuan had 
made great progress in convincing Senators Schumer and 
Graham that China was serious about long-term reform 
of its exchange rate regime during their visit to 
China earlier in the year.  The reiteration of this 
commitment by President Hu and other statements by Hu 
confirming China's determination to address issues 
such as intellectual property rights protection to 
some extent had mitigated criticism in the United 
States of China on economic issues and led to a 
refocusing by some on non-economic differences such as 
regional security and human rights. 
 
---------------------- 
Why Not A State Visit? 
---------------------- 
 
TOKYO 00002333  002.2 OF 004 
 
 
 
¶4.  (C)  Trade Policy Deputy Director General 
Hasegawa's first question following DAS Keith's 
briefing centered on the reasons behind the decision 
not to accord the Chinese President a full state 
visit.  DAS Keith noted that this question had figured 
prominently during the preparations in 2005 when Hu's 
visit had originally been scheduled for the fall of 
that year.  Keith recalled President Bush's preference 
for a more substantive, informal exchange with the 
Chinese leader in which more time could be devoted to 
discussion and to establishing a personal rapport. 
The Chinese had insisted on a ceremonial state visit. 
Subsequently, the Chinese had come to accept that 
pressing their desire for a state visit further would 
not be beneficial, just as the U.S. Administration had 
acknowledged Hu's political need for a formal 
reception. 
 
-------------------- 
Exchange Rate Reform 
-------------------- 
 
¶5.  (C)  Hasegawa then asked what elements of China's 
plan for financial reform had been most convincing to 
members of Congress to the extent that they backed 
away from their proposed legislation that would impose 
tariffs on Chinese goods in retaliation for alleged 
currency manipulation.  Keith stressed that People's 
Bank of China Governor Zhou had persuaded Senators 
Schumer and Graham that China, through the five-point 
plan presented by Zhou, was committed to structural 
reforms that would move China toward a market-driven 
exchange rate mechanism.  Although there is an 
acknowledgement in Congress and the Administration 
that changes to the exchange rate regime were not the 
only test of China's efforts to address its huge trade 
imbalances, the exchange rate issue had taken on 
symbolic significance with respect to Chinese 
commitment to address those imbalances, Keith added. 
 
¶6.  (C)  Hasegawa expressed a "personal view" that 
China would need to liberalize its exchange rate 
regime eventually simply because of the interest rate 
costs involved in maintaining such large foreign 
currency reserves.  That said, Hasegawa noted, even a 
limited appreciation in the value of the Chinese 
currency would entail a tremendous shift in China's 
global purchasing power.  With the equivalent of about 
USD 4.0 trillion in Chinese currency held in China's 
domestic banking system, a ten percent appreciation of 
the currency would raise China's purchasing power by 
USD 400 billion -- a sum, Hasegawa said, equivalent to 
the total assets of the Toyota Motor Corporation. 
Hasegawa indicated that, because of this 
consideration, he advised Japanese businesses to 
analyze carefully the many implications, both good and 
bad, of a possible revaluation of the Chinese 
currency.  Hasegawa also asked whether the Treasury 
Department would determine China had been manipulating 
its currency in the semi-annual report, which had been 
due for release on April 15.  Keith said he was unsure 
of what the Treasury Department's determination would 
be. 
 
--- 
IPR 
--- 
 
¶7.  (C)  Turning to the question of intellectual 
property rights (IPR), Hasegawa noted that China has 
made progress in strengthening IPR protection but that 
violations had grown commensurately.  The problem, 
Hasegawa stressed, was not China's legislation itself 
 
TOKYO 00002333  003.2 OF 004 
 
 
-- which he compared favorably with Japan's own -- but 
with enforcement.  He said he was not optimistic that 
the assurances given by the Chinese President on IPR 
would be enforced and asked that Japan and the United 
States continue to cooperate closely in monitoring 
China's progress in this area.  Keith said the United 
States shared Japanese concerns about the enforcement 
of IPR protection in China and noted that the United 
States was still collecting data in the expectation of 
eventually filing a case against China on IPR at the 
World Trade Organization.  Similarly, the United 
States had filed its case against China on possible 
illegal imposition of a domestic content quota on auto 
parts as a way to demonstrate U.S. determination to 
use the tools at its disposal to ensure fair access to 
the Chinese market.  Asked by Watanabe (who handles 
WTO dispute settlement in the METI Trade Policy 
Bureau) whether the United States had brought the auto 
parts case for political reasons, DAS Keith stressed 
that the decision to bring the case had been based on 
the substance of China's behavior; the timing of 
submission to the WTO, however, had been politically 
advantageous. 
 
¶8.  (C)  As for the Chinese side, Keith added, the 
fact that the very able Vice Premier Wu Yi had 
responsibility for IPR was a good sign that China was 
taking its promise to energize its IPR enforcement 
apparatus seriously.  Hasegawa asked wryly what DAS 
Keith thought of the quality of China's judiciary. 
Keith noted that the United States had many exchanges 
in the area of rule of law with the Chinese, 
particularly on legal education, but acknowledged 
readily that China still lacked key elements in its 
legal system, most notably an independent judiciary. 
Nevertheless, Keith indicated, the Chinese have 
realized that the lack of effective legal protection 
for intellectual property was both hurting their chief 
advocate in the United States -- American business -- 
and forming an obstacle to the realization of China's 
economic development goals. 
 
--------------- 
Energy Dialogue 
--------------- 
 
¶9.  (C)  Noting that China had become a bigger energy 
importer than Japan, Hasegawa recounted that METI Vice 
Minister Kusaka's initiative to launch a regional 
dialogue on common economic interests, including 
energy, over 18 months ago had received a fairly cold 
response from the United States.  Subsequently, a U.S. 
State Department official toward the end of 2005 had 
suggested a similar five-country dialogue on energy to 
include Japan, the United States, China, South Korea, 
and Russia.  The Chinese had then in March this year 
put forward a proposal for a one-time meeting 
including the United States and major Asian energy 
consumers (China, Japan, India, South Korea). 
Hasegawa found it positive that China included the 
U.S. and suggested that the United States and Japan 
should respond favorably to the Chinese proposal but 
that they should recommend that the meeting not be an 
isolated event but should be held on a regular basis. 
He recommended a ministerial-level meeting to launch 
this process and indicated his view that this type of 
coordination among these major global energy consumers 
would send a good message to the marketplace. 
Hasegawa said his impression of the initial U.S. 
response to this initiative had been cool.  DAS Keith 
replied that the United States was inclined to respond 
favorably to the Chinese proposal but stressed that 
much remained to be determined as to how to realize 
this type of multilateral exchange. 
 
TOKYO 00002333  004.2 OF 004 
 
 
 
¶10.  (C)  Hasegawa acknowledged that there had been 
some progress on energy policy coordination through 
the Energy Ministers' meeting of the Asian Pacific 
Economic Cooperation forum (APEC).  According to 
Hasegawa, APEC had the disadvantage of including too 
many participants.  In particular, Taiwan was an APEC 
member, and it was necessary to uphold the principle 
of its equal participation in APEC events.  In 
addition, although APEC had produced some very 
comprehensive statements on energy policy, it had no 
effective mechanism to ensure implementation of those 
agreed positions.  If practical results were to be 
achieved, Hasegawa stressed, it could only be done in 
a small group of key countries in East Asia along with 
India.  Energy was too strategic a topic to be 
effectively discussed in any forum that had more than 
ten members, Hasegawa said.  Keith responded by noting 
that energy issues were a part of Deputy Secretary 
Zoellick's bilateral strategic dialogue with the 
Chinese and that Zoellick would be consulting with 
China's National Development and Reform Commission, 
the originator of the Chinese proposal for a regional 
meeting, during his next trip to China. 
 
¶11.  (U)  DAS Keith cleared this message. 
DONOVAN