VZCZCXRO1639
OO RUEHCN RUEHGH
DE RUEHBJ #1160/01 2790337
ZNR UUUUU ZZH
O 060337Z OCT 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8971
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHCN/AMCONSUL CHENGDU 7281
RUEHGZ/AMCONSUL GUANGZHOU 1569
RUEHHK/AMCONSUL HONG KONG 8230
RUEHGH/AMCONSUL SHANGHAI 5983
RUEHSH/AMCONSUL SHENYANG 6949
RUEHIN/AIT TAIPEI 5964
RUEHGV/USMISSION GENEVA 1353

UNCLAS SECTION 01 OF 02 BEIJING 021160 
 
SIPDIS 
 
TREASURY FOR IA-DOHNER HAARSAGER, CUSHMAN, YANG 
MOGHTADER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL CH
SUBJECT: SED: PAULSON-BO XILAI MEETING 
 
Summary 
------- 
 
¶1. (SBU) Treasury Secretary Henry Paulson met with Minister 
of Commerce Bo Xilai on September 21 to outline U.S. goals 
and expectations for the Strategic Economic Dialogue (SED). 
Secretary Paulson emphasized the need for currency 
 
SIPDIS 
flexibility and asked for Chinese support in reinvigorating 
the stalled Doha Round.  Minister Bo welcomed the 
initiation of the SED, and emphasized the importance 
President Hu Jintao places on it.  Bo said he looks forward 
to developing a strong working relationship between the SED 
and the Joint Commission on Commerce and Trade (JCCT). 
Minister Bo also stated that he believes the Schumer-Graham 
Bill, if enacted, would have a negative impact on U.S.- 
China relations.  End Summary. 
 
Passage of Schumer-Graham Would Damage Relations 
--------------------------------------------- --- 
 
¶2. (SBU) Minister Bo discussed possible repercussions of 
the Schumer-Graham Bill becoming law.  He posited that the 
bill, if enacted, would damage U.S.-China economic 
relations.  He added that the bill likely would force 
China's economic community to respond and would lead to 
increased protectionism.  Bo noted that the U.S.-China 
trading relationship is not as bad as some policymakers in 
the United States believe.  Bo said:  (1) U.S. exports 
increased by 20 percent to China, (2) most of China's 
exports were produced by foreign invested enterprises, and 
(3) the Asia-Pacific region's overall share of the U.S. 
trade deficit had declined by 14 percentage points from 57 
percent in 1999 to 43 percent in 2005. 
 
Exchange Rate Flexibility Would Help Contain Protectionism 
--------------------------------------------- ------------- 
 
¶3. (SBU) Secretary Paulson stated that by introducing the 
Schumer-Graham Bill, the two Senators seek to respond to 
their constituents' concerns.  Paulson assured Minister Bo 
that both he and President Bush deem protectionist 
sentiments to be unhealthy for an economy and that he would 
do everything he could to dissuade the Senate from passing 
the bill, and in any case, even if it passed the Senate it 
was unlikely to become law.  In response to Bo's point 
about the bill's potential damage to the U.S.-China 
economic relationship, however, Paulson highlighted the 
continuing negative impact of China's reticence on exchange 
rate flexibility and other bilateral issues, especially at 
a time when many Americans fear for their jobs. 
 
¶4. (SBU) Secretary Paulson stressed that a freely tradable 
currency allows for efficient use of capital, ensuring that 
investors receive good returns and savings are recycled 
effectively.  A more efficient financial system would 
support continued economic development in China and thereby 
promote social stability.  Minister Bo stated that 
establishing a flexible rate would be good for China in the 
long-term, but he contended that China's cheap cost of 
labor would always give them a competitive edge even when 
China begins to export higher technology products and as 
such would have a limited impact on trade imbalances. 
 
¶5. (SBU) The Minister concluded with a request that the 
United States reduce its agricultural subsidies to its 
farmers.  Secretary Paulson said that the United States 
supports fair trade agreements but that Congress is not 
likely to pass new agreements without increased access to 
other markets.  Paulson praised China for allowing U.S. 
agricultural products access to its market and sought 
China's help in opening closed markets such as India, 
Brazil and the European Union. 
 
¶6. (U) Participants: 
 
United States 
 
Henry Paulson: Treasury Secretary 
Clark T. Randt: United States Ambassador to China 
Al Hubbard: Director of the National Economic Council and 
Assistant to the President for Economic Policy 
 
BEIJING 00021160  002 OF 002 
 
 
Tim Adams: Treasury Under-Secretary for International 
Affairs 
Dan Sullivan: Assistant Secretary of State for Economic and 
Business Affairs 
Tony Fratto: Treasury Assistant Secretary for Public 
Affairs 
Deborah Lehr: Counselor to the Secretary of the Treasury 
Bob Dohner: Treasury Deputy Assistant Secretary for Asia 
Taiya Smith: Deputy Treasury Chief of Staff 
Mathew P. Haarsager: Treasury Director-Office of East Asia 
Benjamin Cushman: International Economist Treasury 
International Affairs Office for East Asian Nations 
David Loevinger: Minister-Counselor for Financial Affairs 
Hugo Yon: Assistant Financial Attach 
Oz Tat: Economic Officer, Notetaker 
Jim Brown, interpreter 
 
China 
Minister of Commerce Bo Xilai 
Vice-Minister of Commerce Ma Xiuhong 
DG Shang Ming, Department of Treaties and Law 
DG He Ning, Department of American and Oceanian Affairs 
DG Wang Shouwen, Bureau of Fair Trade 
Secretary General Xiang Xin, Market Order Rectification 
 
SIPDIS 
Office 
DDG Sun Peng, Foreign Investment Administration 
DDG Zhou Ping, Department of Protocol 
Liu Haiyan, Department of American and Oceanian Affairs 
 
RANDT