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C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 001158 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD, READE, WINTER, MCCARTIN, 
ALTBACH 
GENEVA PASS USTR 
TREASURY FOR OASIS/ISA DOHNER, CUSHMAN 
NSC FOR SHRIER, TONG 
STATE FOR OFM TED STRICKLER 
 
E.O. 12958: DECL: 02/16/2017 
TAGS: ECON ETRD EFIN KPAO KIPR ECPS PREK ABLD CH
SUBJECT: CHARGE REQUESTS CLARIFICATIONS ABOUT THE XINHUA 
REGULATIONS 
 
REF: A. ALTBACH - MADISON FEB. 13 E-MAIL 
     ¶B. BEIJING 622 
     ¶C. 06 BEIJING 24029 
 
Classified By: Charge d'Affairs a.i. David S. Sedney. 
Reasons 1.4 (b/d) 
 
Summary 
------- 
 
¶1. (C) The Charge raised United States Government concerns 
about Xinhua News Agency's recent actions that linked renewal 
of foreign financial information distributors' annual 
licenses to the September 2006 media regulations with Xinhua 
News Agency's Vice President Lu Wei on February 14.  Vice 
President Lu insisted that the regulations were not an 
obstacle to the free flow of information but rather assisted 
foreign financial news providers to do business in China.  VP 
Lu said that while the new regulations mandate  that foreign 
financial information providers act through a 
Xinhua-designated distributor, the China Economic Information 
Service (CEIS), signing an agreement with CEIS requires no 
payment and that CEIS offers three choices: 
 
-- A full service agency; 
-- The right to select services with CEIS, or 
-- Merely a requirement to notify CEIS of actions, but 
   still have direct dealings with customers. 
 
VP Lu defended the regulations, stating that they were 
implemented two months ago and have created a better market 
for foreign information distributors that now enjoy higher 
profits.  The Charge noted that under WTO obligations, no new 
regulations should be introduced to the market constricting 
the flow of information and that under China's WTO 
commitments the regulations should be published in the 
Ministry of Commerce Gazette and that the regulations raised 
a number of other concerns including giving a competitor 
(Xinhua) information via a regulator, and national treatment. 
 End Summary. 
 
Charge Seeks Clarification about Xinhua's Media Regulations 
--------------------------------------------- -- 
 
¶2. (SBU) Drawing from points in Ref A, the Charge told Xinhua 
VP Lu Wei that the United States Government is concerned by 
reports from United States and foreign financial information 
providers that Xinhua has been pressuring them for several 
months to designate the China Economic Information Service 
(CEIS), a de facto part of Xinhua, as their distributor 
before Xinhua will renew their annual business licenses.  If 
true, such an action by Xinhua would seem to not only violate 
China's specific WTO commitment not to impose new 
restrictions on financial information providrs but also 
contradict Premier Wen's promise to the international 
community on September 13 that the Xinhua regulations would 
not affect foreign information providers.  Xinhua's actions 
would impose a barrier, in the form of a Xinhua-affiliated 
intermediary, between the financial information providers and 
their customers.  The manner in which Xinhua is implementing 
the regulations raises questions about China's commitment to 
publish trade-related regulations in the Ministry of Commerce 
Gazette.  The Charge asked for clarifications. 
 
Xinhua News Agency Vice President: New Regulations Aim to 
Help Foreign Information Providers 
----------------------------------------- 
 
¶3. (C) VP Lu insisted that Xinhua's goal via the regulations 
is to serve both foreign and domestic information providers, 
not to be an obstacle to the free flow of information.  The 
regulations will not affect the business of foreign financial 
information distributors but protect them, media 
organizations, and the Chinese Government.  As long as the 
foreign providers abide by Chinese law and regulations, 
Xinhua will encourage their business.  He claimed that the 
new regulations are less restrictive than the regulations 
issued in the mid 1990s, which did not allow subscribers to 
 
BEIJING 00001158  002 OF 004 
 
 
deal directly with foreign information distributors. 
 
Xinhua: Register with CEIS - It's the Law and It's Free 
--------------------------------------------- ----- 
 
¶4. (C) VP Lu said that foreign financial information 
providers are legally mandated to sign with a 
Xinhua-designated distributor, but that signing an agreement 
with CEIS will incur no costs.  Over the past few months, 
enforcement of these regulations has led to the discovery of 
some unregistered foreign information distributors who have 
evaded taxes.  He insisted that CEIS is forbidden by law to 
exploit the relationship for its own gain.  Furthermore, CEIS 
is enjoined to protect the trade secrets and intellectual 
property of foreign financial information providers. 
 
Three Choices! 
-------------- 
 
¶5. (C) Foreign financial information providers can choose 
from three types of Agency agreements with CEIS: 
 
1) A full service Agency agreement where the information 
distributor authorizes CEIS to seek subscribers, negotiate 
with them and have CEIS handle the entire business 
relationship; 
 
2) CEIS and the information distributor seek subscribers 
together and CEIS provides some Agency services; or 
 
3) The information distributor itself seeks subscribers, only 
informs CEIS and otherwise has a direct relationship with its 
subscribers. 
 
VP Lu reiterated that under the third option, the actual 
transmission of information would move directly from the 
foreign information distributor to its customers and not pass 
via CEIS. 
 
Charge: CEIS as Intermediary is an Obstacle 
------------------------------------------- 
 
¶6. (C) The Charge (CDA) noted that in the financial world, 
time is money, and that the new regulations create an 
intermediary which risks delaying economic information, 
preventing foreign information distributors from providing 
timely information and having Chinese customers.  The 
introduction of an intermediary has changed the situation 
foreign information distributors now face, and has created a 
market barrier that did not exist prior to China's WTO 
accession.  Moreover, the intermediary's purpose remains 
unclear as it does not provide any new function to facilitate 
the distribution of financial information. 
 
Xinhua: No WTO Violation, and No Foreign Company is Suffering 
--------------------------------------------- ------ 
 
¶7. (C) VP Lu claimed that Xinhua had studied the WTO angle on 
its own and is confident the regulations comply with China's 
commitments.  None of the foreign industry reps have told 
Xinhua that it has violated WTO rules.  Vice President Lu 
added that the number of Bloomberg's subscribers has 
increased since the regulations were issued and that the 
market has improved after the implementation rules were 
released two months ago.  He argued that the issuance of the 
regulations has created better results, with both Bloomberg 
and Reuters enjoying higher profits.  As for transparency, Lu 
offered to publish Xinhua regulations in any media foreign 
governments and firms required. 
 
Taiwan, Real Estate, National Treatment, and More 
--------------------------------------------- ---- 
 
¶8. (C) During the extraordinarily long meeting, originally 
expected to be one hour, but stretching to two and one-half 
hours, VP Lu and CDA engaged in a spirited exchange that hit 
multiple levels of United States concerns and Chinese 
sensitivities.  In addition to the above, the CDA: 
 
BEIJING 00001158  003 OF 004 
 
 
 
-- Emphasized the good relations between the United States 
and China, including between our Presidents who had agreed we 
should have more open and effective economic relations, a 
goal the new regulations moved away from; 
 
-- Reminded VP Lu that Deng Xiaoping's "reform and opening 
up" was the basis for China's amazing economic growth and 
that the new regulations were counter to Deng's successful 
policies; 
 
-- Pressed hard on the potential for the new regulations to 
delay or deform information reaching financial consumers in 
China, thereby handicapping Chinese consumers vis--vis the 
rest of the world; 
 
-- Pointed out that the exemption of the China Daily's (CD's) 
financial news service from the regulations gave the CD a 
competitive advantage and might violate the WTO requirement 
for national treatment; 
 
-- Sought a reason for the new regulations; 
 
-- Contested VP Lu's assertion that CEIS was independent of 
Xinhua; 
 
-- Hit VP Lu hard on the commercial dangers posed to foreign 
firms by having to offer software, business models and other 
proprietary information to its competitor Xinhua; and 
 
-- Noted the supervisory role the Communist Party played in 
China vice the freedom Xinhua has to operate in the United 
States. 
 
Vice President Lu: 
 
-- Insisted that the regulation "changed nothing;" 
 
-- Rebutted the CDA's comments on Deng Xiaoping by claiming 
Xinhua followed Deng's guidance; 
 
-- Alleged that the China Daily did not have an exemption 
from the regulations; 
 
-- Claimed that foreign news firms, especially Reuters, had 
allowed into China "dangerous" political stories that said 
Taiwan was an independent country; 
 
-- Acknowledged the Party's role in Xinhua; 
 
-- Said that, while China had its own laws it had to enforce, 
Xinhua was prepared to consider the views of the foreign 
firms and the United States; and 
 
-- Raised the alleged refusal of the United States to allow 
Xinhua to buy property in the United States as evidence of 
United States hostility to Xinhua (CDA offered to discuss the 
Xinhua property issue in another forum.) 
 
Xinhua News Agency's Participants 
--------------------------------- 
 
¶9. (U) Xinhua News Agency's Participants: 
 
--Lu Wei, Vice President 
--Zhou Zongmin, Director General, Foreign Affairs Office 
 
--Yuan Xiaoping, Deputy Director, Administrative Department 
--Liang Xiangbin, Deputy Director, News and Information 
Center 
--Sun Xin, Director, Foreign Information Administration 
 Center 
--Wang Jianxin, Interpreter 
 
Comment 
------- 
 
¶10.  (C) After Xinhua had rebuffed attempts by the Embassy 
 
BEIJING 00001158  004 OF 004 
 
 
and visiting USTR officials to seek urgent clarifications 
about the Xinhua regulations at the working level in January 
and early February, the Charge sought the meeting with Lu 
Wei, a Vice Minister-level Xinhua official.  The meeting 
lasted over two and a half hours, with Lu frequently dodging 
the core issues.  Near the end of the meeting, Lu Wei 
confessed, "I thought this meeting would consist merely of 
diplomatic niceties.  I didn't expect such a serious 
discussion!"  Lu, who invited the Charge to meet with him 
again to discuss the issue, obviously realizes the United 
States Government attaches great importance to this issue and 
is not satisfied with the response it has received thus far. 
End comment. 
 
SEDNEY