VZCZCXRO9012
RR RUEHAG RUEHAO RUEHAP RUEHAT RUEHBC RUEHBI RUEHBL RUEHBZ RUEHCD
RUEHCHI RUEHCI RUEHCN RUEHDA RUEHDBU RUEHDE RUEHDF RUEHDT RUEHDU
RUEHED RUEHEL RUEHFK RUEHFL RUEHGA RUEHGD RUEHGH RUEHGI RUEHGR RUEHHA
RUEHHM RUEHHO RUEHHT RUEHIHL RUEHIK RUEHJO RUEHJS RUEHKN RUEHKR
RUEHKSO RUEHKUK RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHMA RUEHMC
RUEHMJ RUEHMR RUEHMRE RUEHNAG RUEHNG RUEHNH RUEHNL RUEHNP RUEHNZ
RUEHPA RUEHPB RUEHPD RUEHPOD RUEHPT RUEHPW RUEHQU RUEHRD RUEHRG RUEHRN
RUEHROV RUEHRS RUEHTM RUEHVC RUEHVK RUEHYG
DE RUEHC #6164/01 2692321
ZNR UUUUU ZZH
R 262306Z SEP 07
FM SECSTATE WASHDC
TO ALL DIPLOMATIC AND CONSULAR POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 STATE 136164 
 
SIPDIS 
 
SIPDIS, TREASURY FOR EVAN S. MEDEIROS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PREL
SUBJECT: U.S.-CHINA STRATEGIC ECONOMIC DIALOGUE (SED) 
BACKGROUNDER 
 
 
¶1. BEGIN SUMMARY:  The U.S. Department of Treasury 
Prepared the backgrounder information in paragraph 2 
to assist posts in understanding the U.S.-China 
Strategic Economic Dialogue (SED) and in discussing 
the SED with host governments, and other interested 
parties such as business groups and the media, if asked. 
Treasury has already distributed this document to 
interested parties, including Congress and others.  The 
SED was established in September 2006 as a vehicle for 
high-level economic discussions between the United States 
and China.  Two such cabinet-level SED meetings have 
occurred to date, with the third to be held in Beijing in 
December.  END SUMMARY. 
 
¶2. The purpose of the SED is to manage the U.S.-China 
economic relationship on a long-term, strategic basis. 
This relationship is deep, broad, and complex.  Stable 
and prosperous bilateral economic relations are 
increasingly important to both countries. 
 
¶3. President Bush and President Hu established the SED 
in September 2006, as a high-level mechanism to build on 
shared priorities and to manage mutual concerns. The 
Special Representatives of the two countries for the SED 
are U.S. Secretary of the Treasury Henry M. Paulson, Jr. 
and China's Vice Premier Wu Yi. 
 
¶4. The SED has three broad goals: to enhance the 
U.S.-China economic relationship, establishing new habits 
of cooperation; to catalyze China's next wave of economic 
transition; and to cultivate China as a responsible 
global economic power. 
 
-------- 
Progress 
-------- 
 
¶5. Three metrics demonstrate meaningful progress in the 
twelve months since the establishment of the SED. 
 
(1) Direct Communication: The SED process has produced 
an unprecedented level of direct communication between 
the U.S. and Chinese governments at all levels, on multiple 
issues, and across each nation's bureaucracies. Principals 
and staff in the United States and China are actively 
engaged in dialogues on a broad range of strategic 
economic questions, including:  capital markets reform, 
more open and transparent investment regimes, energy 
conservation, environmental protection, consumer safety, 
and rule of law. One of the core SED principles is the 
importance of direct and robust communication across the 
U.S. and Chinese governments. 
 
(2) Results: In its first year, the SED produced 
concrete results. Tangible agreements made through the 
SED process built confidence on both sides and showed 
progress toward our long-term goals. Examples include: 
 
- A breakthrough civil aviation agreement, for both cargo 
and passenger flights; 
 
- Greater market access for major financial services 
sector banks, securities companies, insurance companies, 
and asset managers; 
 
- Enhanced energy security and environmental protection 
through efforts on climate change, development of clean 
coal technologies, and elimination of trade barriers on 
environmental products; 
 
- Appreciation of the Chinese currency, the RMB, by more 
than 10 percent since July 2005, and widening of the band 
of daily fluctuations of the currency; and 
 
- Strengthened transparency, and protection of 
intellectual property and rule of law. 
 
(3) Catalyzing reform: The SED is more than an event 
that occurs twice per year; progress is achieved 
throughout the year. The SED seeks to broaden the scope 
and accelerate the pace of economic reform in China and 
beyond its WTO commitments. Our goal is to see China 
move more quickly toward a market-driven, open, and 
competitive economy.  Change is occurring more rapidly 
than would have been the case without the SED.  Since the 
last Cabinet-level meeting of the SED in May 2007, for 
example, the Chinese have: 
 
 
STATE 00136164  002 OF 002 
 
 
- Acted to minimize market-distorting measures that favor 
exports." and to address China's trade surplus by cutting 
tax rebates on exports of 2,831 commodities; 
 
- Sped up the timetable for lifting the moratorium on the 
licensing of securities companies, including joint 
ventures; 
 
- Improved food and product safety, including forming a 
State Council-level working group, agreeing to new work 
plans with the Consumer Product Safety Commission, and 
launching negotiations with the United States on new 
MOUs on drugs, medical devices, food and feed; and 
 
- Signed an Industrial Energy Efficiency Cooperation MOU 
with the U.S. Department of Energy to promote energy 
efficiency at energy-intensive factories in China that 
will reduce greenhouse gas emissions. 
 
----------------------------------------- 
Looking Forward: Preparations for SED III 
----------------------------------------- 
 
¶6. Direct discussion with the Chinese will accelerate 
during the Fall, highlighted by December meetings in 
Beijing of the Joint Commission on Commerce and Trade 
(co-chaired on the U.S. side by Secretary Gutierrez and 
Ambassador Schwab) and the third round of the SED 
(chaired on the U.S. side by Secretary Paulson). 
 
¶7. The third Cabinet-level meeting of the SED will focus 
on four areas: financial sector reform (including currency 
and reducing limits on foreign equity participation in 
China's financial sector); consumer protection and 
product safety; climate and energy security; and open 
investment. 
 
¶8. Our discussions with the Chinese this Fall build on 
two important meetings in the U.S.-China economic 
relationship.  In early August, 2007, Secretary Paulson 
met with Chinese officials in Beijing, including President 
Hu and Vice Premier Wu. Following up on issues discussed 
at the May SED, the discussions focused on currency, energy 
and the environment, and consumer safety.  In September 2007, 
on the margins of the APEC summit in Australia, President 
Bush and Chinese President Hu met for over 90 minutes, 
discussing currency, trade, climate change, and product 
safety. These issues are being advanced through the 
SED process. 
RICE