VZCZCXRO1379
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #6006/01 2562239
ZNR UUUUU ZZH
P 132239Z SEP 07 ZDK
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1786
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1953
RUEHFR/AMEMBASSY PARIS 4162
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 006006 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EB/OMA 
TREASURY FOR OASIA--DOHNER 
USDOC FOR 4420 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV ETRD EINV CH
SUBJECT: CONCERNS ABOUT U.S. INVESTMENT CLIMATE FROM SOVEREIGN 
WEALTH FUND OFFICIALS 
 
 
BEIJING 00006006  001.2 OF 002 
 
 
SUMMARY 
------- 
 
¶1. (SBU) In meetings held September 10 and 11, top officials 
involved in the formation and investment decisions of the Chinese 
Investment Corporation (CIC, the new sovereign wealth fund) warned 
of a growing perception in China that the U.S. is decreasingly open 
to trade and investment.  One of the two officials opined that this 
trend is shaping the views of an emerging generation of Chinese 
business and government leaders.  The other recommended more USG 
outreach with the Chinese media to explain how potential investments 
are evaluated in the U.S.  These meetings also yielded insights into 
progress in setting up and staffing the CIC.  END SUMMARY 
 
MEETINGS 
-------- 
 
¶2. (U) On September 10, Treasury Deputy Assistant Secretary Nova 
Daily, accompanied by Finatt, met the Chief Executive Officer of the 
State Administration of Foreign Exchange (SAFE) Central Investments, 
known as Huijin.  On September 11, Financial Services Roundtable 
Chairman Don Evans, accompanied by Finatt, met with Gao Xiqing, Vice 
Chairman of the National Social Security Fund and recently named 
Chief Investment Officer (CIO) of the China Investment Corporation 
(CIC). 
 
CONCERNS ABOUT U.S. ATTITUDES TOWARDS INVESTMENT 
--------------------------------------------- --- 
 
¶3. (SBU) CIC's Gao said rising doubts about American openness to 
Chinese investment make it more difficult to defend U.S. policies 
and promote Chinese investment in the U.S.  Chinese officials see 
the U.S. as decreasingly open to Chinese investment, and some feel 
they should focus respond by focusing outward investments on other 
countries.  Gao said that increased political opposition to Chinese 
investment in the U.S. undermines reformers who are trying to 
promote engagement.  This perception is also adversely shaping views 
of the U.S. by China's younger generation of business and government 
leaders.  The U.S. is missing an opportunity to win the hearts and 
minds of this generation that is otherwise less ideological than its 
predecessors, said Gao. 
 
¶4. (SBU) Gao noted that sovereign wealth funds (SWFs) have existed 
for 25 years, yet negative attention them in the U.S. seems to have 
emerged only with China signaling its intention to create the CIC. 
He said that the Federal Reserve's unwillingness to approve licenses 
for Chinese banks is increasingly untenable given China's financial 
reforms of the last several years.  Chinese officials find it 
difficult to see this as justified by prudential needs, and there is 
a growing view that the only viable explanation is protectionism. 
 
PUSH FOR OUTREACH 
----------------- 
 
¶5. (SBU) In response to DAS Daly outlining the CFIUS program and 
recent investment legislation, Huijin's Xie suggested that Treasury 
engage in more outreach in the Chinese media to explain the process. 
 He commented that many private Chinese companies have the funds and 
desire to invest in the U.S. but are afraid that security concerns 
will prevent them from doing so.  Xie was confident that companies 
that overcome these concerns and actually pursue investment 
opportunities in the U.S. can avoid political minefields through the 
hiring of  top tier American law firms. 
 
¶6. (SBU) Xie said that the Industrial and Commercial Bank of China 
(ICBC), of which Huijin holds a controlling interest, had been 
approached by an American bank seeking funding, via a sale of 
equity, to counter liquidity problems it faced in the sub-prime 
mortgage market.  ICBC turned down the offer due to concerns about 
the politics surrounding any Chinese purchase of stakes in American 
financial institutions. 
 
CIC OPERATIONS AND STAFFING 
--------------------------- 
 
¶7. (U) Xie offered several details about CIC operations and 
staffing: 
 
-- CIC may provide financing for Chinese companies via purchases of 
stocks or bonds in foreign, but not domestic, markets (with 
 
BEIJING 00006006  002.2 OF 002 
 
 
"foreign" defined as including Hong Kong issud H shares). 
 
-- An announcement on personnel or CIC will be made by the end of 
this month.  Currently, there is a seven-member preparatory working 
group that includes the following (all CIC titles that follow are 
added by post based on media reports and not yet officially 
announced): CIC President Lou Jiwei, CIC Chief Investment Officer 
Gao Xiqing, CIC Deputy General Manager Zhang Hongli, Deputy General 
Manager Xie Ping, PBOC Deputy Governor (any future CIC title 
unclear) Su Ning, and Huijin's Vice Chairman (any future CIC title 
unclear) Jessie Wang.  Xie called reports that a CIC management team 
had already been selected "premature," asserting that changes in the 
line-up may still take place. 
 
-- Huijin will be the primary source of staffing for CIC, but there 
will be outside fund managers and other experts as well.  CIC is 
currently in discussions with the State Council to allow a 
market-determined salary for staff, with incentives for performance, 
rather than using civil service salaries. 
 
COMMENT 
------- 
 
¶8. (SBU) Gao Xiqing's comments about views of investment in the U.S. 
are particularly noteworthy.  He attended Duke University and is 
clearly among the more pro-West and pro-reform economic officials in 
China.  Xie Ping's high degree of confidence in the use of lawyers 
to help Chinese companies avoid political minefields when investing 
in the U.S. implies an excessively narrow focus on legal aspects, 
and insufficient attention to managing public perceptions and 
politics. 
 
RANDT