VZCZCXRO5599
RR RUEHCN RUEHVC
DE RUEHGH #0557/01 2431117
ZNR UUUUU ZZH
R 311117Z AUG 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6211
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 6662

UNCLAS SECTION 01 OF 04 SHANGHAI 000557 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, INR/B 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN 
FRANCISCO FRB FOR CURRAN/LUNG; NEW YORK FRB FOR DAGES/CLARK 
STATE PASS CEA FOR BLOCK 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/ALTBACH/READE 
USDOC FOR 4420 
USDOC FOR ITA/MAC DAS KASOFF, MELCHER AND MCQUEEN 
TREASURY FOR EXEC - TSMITH, OASIA/ISA -DOHNER/BAKER/CUSHMAN 
TREASURY FOR WRIGHT AND AMB HOLMER 
NSC FOR MCCORMICK AND TONG 
 
E.O. 12958: N/A 
TAGS: EFIN PREL ECON PINR KPAO CH
SUBJECT: SHANGHAI FINANCIAL LEADERS DISCUSS SED 
 
REF: A. SHANGHAI 159 
 
     ¶B. SHANGHAI 534 
     ¶C. SHANGHAI 481 
 
SHANGHAI 00000557  001.2 OF 004 
 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
¶1. (SBU) Summary.  According to Chinese financial service 
company executives, the Strategic EcoQic Dialogue (SED) plays 
an important and positive role in advancing U.S.-Chinese 
relations and understanding.  While foreign investments in the 
financial services sector, and the technology, products, and 
management expertise that comes with these investments, are 
welcome, several interlocutors commented on the perceived 
"aggressiveness" of U.S. companies who insisted on management 
control.  Continued engagement through the Chinese press will be 
a crucial means to convey information about the SED to Chinese 
financial services sector leaders.  End summary. 
 
¶2. (SBU) Consul General discussed the Strategic Economic 
Dialogue (SED) with Bank of Communications (BOCOM) President Li 
Jun, Shanghai Dragon Investment Company President Shi Derong, 
Haitong Securities Company Chairman Wang Kaiguo, Tian An 
Insurance Company Chairman Chen Pojian, China Pacific Insurance 
Company Vice General Manager Xu Lianhui, and Guo Tai Jun An 
Securities Company Vice General Manager Tuo Qibin on August 27, 
¶2007.  (Note: Biographies below.  End note.)   While steering 
away from the more political questions, these Shanghai-based 
financial services executives praised the SED as a useful 
mechanism enhancing United States-China understanding and 
cooperation. 
 
--------------------------------------------- --- 
The SED: A Positive Force in U.S.-Sino Relations 
--------------------------------------------- --- 
 
¶3. (SBU) BOCOM's Li said that the SED was a very important 
mechanism for strengthening the United States-China bilateral 
relationship.  Noting China's growing power economically and 
politically, he said that it was important to engage with the 
United States on economic issues.   China had made the 
transition from a planned economy to an open economy in a 
relatively short time.  Citing BOCOM's cooperation with its 
partner, HSBC, Li said that foreign banks provide access to the 
technology and experience that Chinese banks have lacked.  China 
must continue engaging the United States on these issues and the 
SED provided a forum for the high-level government involvement 
necessary. 
 
¶4. (SBU) Tian An's Chen agreed that the SED was a positive force 
in U.S.-Chinese relations.  He observed that Secretary Paulson 
has been exerting pressure on China to increase the rate of RMB 
appreciation.  Even prior to the SED, Chen said, there were 
Chinese proponents and opponents of RMB appreciation.  Policy 
makers were forced to weigh all arguments concerning the value 
of the RMB against the backdrop of potential economic and 
political instability that might arise.  Any policy that 
negatively affected social harmony was politically very 
difficult for the Chinese Government to take. 
 
¶5. (SBU) Guotai Junan's Tuo said that U.S.-China cooperation was 
very important given the trend towards economic globalization. 
The SED plays an important role helping the leaders of the two 
countries manage the relationship and deal with problems.  The 
U.S.-Chinese relationship greatly influences the health of the 
world's economy.  Whatever can bring the two countries closer 
together is good for the whole world. 
 
------------------------------------------ 
Foreign FinServ Investments Are Welcome... 
------------------------------------------ 
 
¶6. (SBU) The Chinese participants in this meeting postulated 
that "making money" was the primary goal behind USG advocacy for 
opening up China's financial services sector to foreign 
competition and investment.  Since Chinese financial services 
companies had access to investment funds from domestic sources, 
the largest benefit to China of foreign investment in financial 
 
SHANGHAI 00000557  002.2 OF 004 
 
 
services was the technology, management expertise, and know-how 
that came along with the money. 
 
¶7. (SBU) BOCOM's Li "welcomed" foreign investments in China 
citing the numerous advantages that the foreign financial 
services companies bring with them.  In addition to foreign 
capital, Chinese companies have benefited from the expertise and 
management experience, new financial products ideas, and 
increased risk management capabilities that have accompanied 
these foreign investments.  Tian An's Chen agreed, but cautioned 
that the Chinese would move at a slower pace than hoped for by 
the Americans.  Citing a Lloyds of London study warning about 
insurance companies that expand too quickly, Chen said that 
steady and supported growth was best.  According to Chen, the 
report identified many insurance companies that grew rapidly for 
four years and then collapsed in their fifth year of operations. 
 Haitong's Wang noted that some Chinese insurance companies are 
encountering new difficulties after several years of fast 
growth. 
 
------------------------------------- 
...But Americans Are Too "Aggressive" 
------------------------------------- 
 
¶8. (SBU) BOCOM's Li said that U.S. companies and USG emphasis on 
owning a controlling stake of the joint venture was very 
"aggressive" and stood in stark contrast to the more 
accommodating approach taken by European and other non-American 
companies.  Haitong's Wang agreed, saying that European and 
Canadian companies were not as concerned with guaranteeing 
management control.  Guotai Junan's Tuo said that following 
China's WTO accession, U.S. companies were "very strong and 
aggressive" in demanding access to China.  American companies 
were often short-sighted in aggressively pushing for advantage 
where a long-term and more collaborative approach would better 
suit their Chinese partners. 
 
¶9. (SBU) BOCOM's Li said that China has spent more effort 
studying the United States than the United States has spent 
studying China.  As a result, the Chinese know and understand 
the United States better.  More Chinese have also visited the 
United States than the other way around.  This has ramifications 
in the U.S.-Chinese business relationship.  Li said that 
American businessmen, as a result of this lack of understanding, 
depend too much on Singaporean, Taiwanese, and Hong Kong staff 
and middlemen.  While of Chinese ethnicity, reliance on these 
"channels" to do business has negative consequences, said Li. 
 
------------------------------------ 
America: Appreciating the Cheap RMB? 
------------------------------------ 
 
¶10. (SBU) Guotai Junan's Tuo said that the Chinese Government 
understands that there are both benefits and dangers associated 
with a free-floating currency.  Noting the problem that "hot 
money" was causing China's macro-economic policymakers, Tuo said 
that China needed to keep the RMB cheap so that it would have 
the freedom to keep labor prices cheap.  Cheap labor prices 
insure inexpensive exports to the rest of the world.  "And don't 
American consumers benefit from this cheap labor?" asked Tuo. 
 
-------------------------------------- 
SED Information Gleaned from the Press 
-------------------------------------- 
 
¶11. (SBU) Meeting participants said that they learned about the 
SED mostly through what they read in the Chinese press.  One 
participant suggested that the SED be expanded to include 
sessions with representatives from the private sector as a way 
to better exchange information about developments between the 
two sides.  (Comment: Many Chinese financial services leaders 
have limited English facility and, as the meeting participants 
said, depend on Chinese media for information.  Continued 
engagement of Chinese business press publications through 
interviews and providing talking points translated in Chinese is 
an effective method to reach this audience.  End comment.) 
 
--------------------------------------------- ------- 
 
SHANGHAI 00000557  003.2 OF 004 
 
 
Shanghai Stocks: Bullish With a Chance of Volatility 
--------------------------------------------- ------- 
 
¶12. (SBU) Meeting participants discussed the recent highs set by 
the Shanghai Stock Exchange (Ref B) and noted the extremely high 
price to earnings (P/E) ratios of the stocks listed.  They 
roundly congratulated Haitong's Wang for his company's recently 
successful backdoor listing (Ref C).  Wang speculated that the 
high P/E ratios were caused by too much money chasing too few 
stocks.  Noting that Haitong conducts its own proprietary 
investing and is thereby exposed to gains and losses in the 
market, Wang said that he expected there would be increased 
volatility, but that the market would make some additional gains 
before the end of 2007. 
 
--------------------------------------------- ---------- 
Tianjin Still Not A Threat To Shanghai's Financial Role 
--------------------------------------------- ---------- 
 
¶13. (SBU) When discussion turned to the August 20 State 
Administration of Foreign Exchange (SAFE) announcement that 
individual investors would be allowed to invest directly in 
overseas securities through the Bank of China Tianjin Branch, 
the meeting participants noted that this policy had been under 
discussion for a long time and that they had hoped the pilot 
program would originate in Shanghai.  Attributing Tianjin's 
success to Tianjin Mayor and former People's Bank of Governor 
Dai Xianglong's political connections and Tianjin's hope to 
regain its pre-1949 role as a financial center, BOCOM's Li said 
that Shanghai's role as China's financial center was not in 
question.  The other participants agreed and noted that the 
program would soon be expanded to Bank of China branches in 
major cities throughout China. 
 
------------------------ 
Biographies of Attendees 
------------------------ 
 
¶14. (SBU) Shi Derong, President, Shanghai Dragon Investment Co., 
Ltd.  Dr. Shi has served as the President of Shanghai Dragon 
since the company's founding in 2003.  Shanghai Dragon is a 
state-owned asset management company with registered equity of 
US$380 million.  Previously, Dr. Shi was the Director of the 
Shanghai Civil Affairs Bureau.  Dr. Shi is the Chairman of the 
Shanghai Special Olympics Committee.  According to recent media 
reports, Shi will be appointed as the President of Shanghai Guo 
Sheng Group, controlling Shanghai government's investment in the 
industrial sector. 
 
¶15. (SBU) Wang Kaiguo, Chairman, Haitong Securities Company.  In 
addition to his role as Chairman at Haitong, Dr. Wang is Vice 
Chairman of the China Securities Association, Director of the 
Shanghai Stock Exchange and a researcher at the China Academy of 
Social Sciences.  He has a PhD in Economics.  Before joining 
Haitong, Dr. Wang held numerous positions at the State-owned 
Assets Supervision and Administration Commission (SASAC). 
 
¶16. (SBU) Li Jun, President of Bank of Communications.  Li is 
the Executive director, Vice Chairman of the Board and President 
of the Bank. Bank of Communication (BOCOM) is one of the top 
five commercial banks in China and is the largest bank 
headquartered in Shanghai.   BOCOM has a nationwide network with 
95 branches in 140 cities in China and has set up branches in 
New York, Tokyo, Hong Kong, Singapore and Seoul as well as 
representative offices in London and.  BOCOM was the first 
Chinese national commercial bank listed in Hong Kong; it listed 
on the Shanghai Stock Exchange in 2007.  Li has served 
successively as Executive Vice president, Comptroller General of 
the Bank and General Manager of the Bank's Wuhan Branch. He 
holds an MA in Economics. 
 
¶17. (SBU) Chen Pojian, Chairman, Tian An Insurance Company.  Dr. 
Chen is also Executive Manager of the China Insurance Industry 
Association.  Tian An, established in 1994, is the third largest 
provider of property and casualty insurance products in China. 
Tian An is also a major insurer of infrastructure projects 
including the Shanghai subway and the bridges over the Huangpu 
River.  Dr. Chen's has a PhD is from Middle and South Finance 
 
SHANGHAI 00000557  004.2 OF 004 
 
 
and Economics University and he was a visiting scholar at 
Princeton University. 
 
¶18. (SBU) Xu Lianhui, Vice General Manager, China Pacific 
Insurance Company.  China Pacific is one of the largest 
insurance groups in China and has been ranked by the S&P in the 
world's top 11.  China Pacific has a well-established service 
network with 5469 business branches across the country.  China 
Pacific's is a joint venture partner with ING in the 
Pacific-Antai Life Insurance Co., Ltd. 
 
¶19. (SBU) Tuo Qibin, Vice General Manager, Guo Tai Jun An 
Securities Company.  Dr. Tuo has been the Vice General Manager 
of GuoTai  JunAn (GTJA) since 1999.  GTJA is the third largest 
securities company in China and China's second largest 
underwriter.  GTJA has a joint venture fund with Allianz.   From 
1993 to 1999, Dr. Tuo worked for GTJA as the Bond Department 
Manager, Agency Department Manager, Research Institution Head, 
GTJA Asset Management Company Research Head and GTJA (Hong Kong) 
Company Research Department Manager.  Dr. Tuo's PhD was earned 
at the East China Normal University International Finance 
Department in 1993.  In 2003, Tuo attended a two-month training 
program at Harvard University.  Tuo was born in 1965. 
JARRETT