VZCZCXRO1386
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #6070/01 2600643
ZNR UUUUU ZZH
P 170643Z SEP 07 ZDK
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1890
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 BEIJING 006070 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP/CM PSECOR AND EEB/OMA 
TREASURY FOR OASIA DALY/DOHNER/HAARSAGER/CUSHMAN 
USDOC FOR 4420/ITA/MAC/CEA/MCQUEEN 
USTR FOR STRATFORD/WINTER/ALTBACH/MCCARTIN/KEMP 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EINV ETRD EFIN CH
SUBJECT: CHINA/CFIUS: TREASURY DAS DALY, CHINESE OFFICIALS DISCUSS 
MERGERS AND ACQUISITIONS ISSUES 
 
BEIJING 00006070  001.2 OF 002 
 
 
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SUMMARY 
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¶1. (SBU) Treasury Department Deputy Assistant Secretary (DAS) Nova 
Daly held discussions with Chinese Government officials and business 
leaders relating to bilateral investment issues on September 10, 
¶2007.  During the meetings DAS Daly provided an introduction to the 
new Committee for Financial Investment in the United States (CFIUS) 
law while also emphasizing the need for bilateral cooperation to 
guard against the rise of trade and investment protectionism.  In 
response to DAS Daly's remarks, National Development and Reform 
Commission (NDRC) officials noted their desire for more direct 
Chinese investment in the United States.  The officials also 
outlined China's emerging foreign direct investment (FDI) 
procedures.  Ministry of Commerce (MOFCOM) officials stated that 
Chinese enterprises are poised to begin investment in the United 
States, but need more information to enable them to do so.  Chinese 
national oil company and Chinese Investment Corporation (CIC) 
officials echoed others' calls for more CFIUS details.  CIC 
officials also provided details surrounding the formation of their 
organization.  End Summary. 
 
--------------------------------------------- ---- 
NDRC HYPES INVESTMENT ABROAD, EXPLAINS FDI REVIEW 
--------------------------------------------- ---- 
 
¶2. (SBU) NDRC Department of Foreign Capital Utilization Deputy 
General Li Guohui told DAS Daly that Beijing is encouraging Chinese 
enterprises to invest in the United States.  The enterprises are 
interested in using the investment to gain greater access to United 
States technology and managerial expertise.  Li stated that Chinese 
enterprises find it difficult to acquire technology in the United 
States because of restrictive export laws.  Beijing hopes that the 
new CFIUS law will enable Chinese enterprises to become more active 
in the United States market.  Recent investments by China overseas, 
including that in the United Kingdom's Barclay's Bank, have been met 
by some negative reactions, said Li.   Beijing believes critics 
should not only recognize the benefits of foreign investment in 
China, but Chinese investment abroad as well. 
 
¶3. (SBU) Deputy General Li stated that China is open to investment 
from every country.  FDI is regulated by China's foreign investment 
catalogue which is updated every two years.  Li stated that each 
sector of China's economy is characterized in the FDI catalogue as 
either: encouraged, restricted, or closed.  China's economy has 
increasingly opened to foreign investment during the past twenty 
five years.  Beijing opened areas such as soft drink production to 
FDI during the early stages of economic reform.  (Comment: It is 
interesting that Li chose this example, since carbonated soft drinks 
are rather anomalously included in the restricted category in the 
current version of the investment catalogue. End Comment.) More 
recently, after its accession to the World Trade Organization (WTO), 
China opened up the service sector to FDI.  Li said that other 
sectors, including the financial sector, will open more gradually. 
These sectors will open as the legal framework necessary to protect 
foreign investors is created, according to Li. 
 
¶4. (SBU) Deputy General Li stated that in addition to the guidance 
provided in the FDI catalogue, Beijing has established separate 
committees for review of proposed FDI in the manufacturing and 
financial sectors.  The committees are so far operating on an ad hoc 
basis, but China's State Council plans to issue instructions soon 
formalizing the committees' structure.  Li suggested that the State 
Council will create a supervisory body under which the committees 
will reside.  The State Council in the future may also establish 
review committees for other sectors if needed.  Li said that the 
manufacturing committee is comprised of MOFCOM, NDRC, and the 
Ministry of Finance (MOF) with NDRC serving as the committee chair. 
The financial committee is made up of the NDRC, People's Bank of 
China (PBOC), MOF, and the China Security Regulatory Commission 
(CSRC) with PBOC serving as the chair.  The State-owned Assets 
Supervision and Administration Commission (SASAC) also plays an 
important role in the committees.  Li noted that cases are referred 
to the committees by MOFCOM after it does an initial review of the 
proposed transaction, but indicated that the State Council has the 
power to directly refer a case to a committee as well. 
 
------------------------------------------ 
MOFCOM BETTERING BILATERAL INVESTMENT TIES 
------------------------------------------ 
 
¶5. (SBU) MOFCOM Department of Foreign Economic Cooperation Director 
General (DG) Wu Xilin stated that Chinese enterprises are now 
positioned to begin investing abroad.  They will do so in adherence 
 
BEIJING 00006070  002.2 OF 002 
 
 
to the laws and regulations of the countries in which they are doing 
business.  Wu noted that this is why Beijing hopes some ambiguities 
in the new CFIUS law, such as the definition of critical 
infrastructure, can be clarified.  MOFCOM would like to provide as 
much information as it can to China's enterprises as they go abroad. 
 MOFCOM also is strengthening its ties to the United States 
Department of Commerce and other agencies to better facilitate 
bilateral trade and investment.  Wu stated that MOFCOM Assistant 
Minister Chen Jian will lead a trade and investment delegation to 
the United States in late September.  The delegation plans to meet 
with Commerce Department officials during a stop in Washington. 
(Note: DG Wu stated that the delegation will depart China for Canada 
on September 16.  They will arrive in the United States after three 
days of meetings in Canada. End Note.) 
 
--------------------------------------- 
CNOOC SEEKS MORE CIFIUS PROCESS DETAILS 
--------------------------------------- 
 
¶6. (SBU) China National Overseas Oil Company (CNOOC) Vice President 
Zhu Mingcai told DAS Daly that is important for Chinese enterprises 
to clearly understand the CIFIUS process before investing in the 
United States.  Beijing felt that there was political prejudice 
against CNOOC during the company's aborted attempt to purchase 
Unocal in 2005.  Other CNOOC officials told DAS Daly that the CIFIUS 
process appears to discriminate against state-owned companies like 
CNOOC because it requires disclosure of transaction details before a 
deal is finalized.  The Treasury Department should publicize details 
surrounding CIFIUS to enable Chinese enterprises to gain a better 
understanding of the process, according to Zhu and other CNOOC 
officials.  (Note: CNOOC officials asked several questions during 
the meeting relating to CIFIUS' jurisdiction over a particular 
transaction type.  Specifically, the officials sought determine 
whether a state-owned company would be subjected to CIFIUS review if 
attempting to purchase an United States-based holding company whose 
assets were entirely located abroad.  End Note.) 
 
----------------------------- 
SAFE CEO LAYS OUT CIC DETAILS 
----------------------------- 
 
¶7. (SBU) Xie Ping, CEO of Central SAFE Investments (Huijin) told DAS 
Daly that CIC may provide financing for Chinese companies via 
purchases of stock or bonds in foreign, but not domestic, markets (H 
shares).  An announcement on personnel for CIC will be made by the 
end of September.  Currently, there is a seven-member preparatory 
working group that includes Lou Jiwei, Gao Xiqing, Zhang Hongli 
(MOF), Xie Ping, Su Ning (PBOC) and Jessie Wang.  Xie called reports 
claiming that the management team had been selected premature, and 
noted that personnel changes may still take place.  Huijin will be 
the primary source of staffing for CIC, but additional outside fund 
managers and experts will be brought aboard.  CIC has requested the 
State Council allow CIC staff to earn market-determined salaries 
augmented by performance incentives rather than civil services 
salaries, according to Xie. 
 
¶8. (SBU) Xie suggested that the Treasury Department engage in more 
Chinese media outreach to explain the CFIUS program and new 
investment law.  Many private Chinese companies have the funds and 
desire to invest in the United States, but are afraid that United 
States security concerns will prevent them from doing so.  Xie 
mentioned that the Industrial and Commercial Bank of China (ICBC), 
of which Huijin holds a controlling interest, was 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 their perception that political vitriol 
would surround any Chinese purchase of a stake in an United States 
financial institution, according to Xie. 
 
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CLEARANCE 
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¶9. (U) DAS Daly did not have an opportunity to clear this cable. 
 
Randt