VZCZCXRO3587
RR RUEHCN RUEHGH RUEHVC
DE RUEHSH #0222/01 3270745
ZNR UUUUU ZZH
R 230745Z NOV 07
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC 8261
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0773

UNCLAS SECTION 01 OF 02 SHENYANG 000222 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  DECL:  N/A 
TAGS: ECON SENV EIND CH
SUBJECT: CHINA: AMBASSADOR HOLMER MEETS WITH SHENYANG AMERICAN 
BUSINESS LEADERS 
 
 
¶1. (SBU) SUMMARY:  In a lunch meeting with Ambassador Alan Holmer, 
American business leaders in Shenyang expressed worry about the 
appreciation of the Renminbi and the weakness of the dollar, while 
admitting that the lower dollar did offer some competitive 
advantages, especially against European competitors.  The executives 
praised the quality of the local labor supply but said that rising 
labor costs, coupled with the stronger RMB presented problems.  Most 
expressed optimism about the economic outlook for Northeast China. 
END SUMMARY. 
 
¶2. (U) Ambassador Alan F. Holmer, the U.S. Treasury Department's 
Special Envoy for China and the Strategic Economic Dialogue (SED), 
in Shenyang on November 13 met with managers of several of the 
larger American enterprises in the city.  In attendance were Mr. 
Dennis Adams, General Manager of Tyco Safety Products Shenyang; Mr. 
Bi Lequn, Chef Executive Officer of GE China Liaoning; Mr. Ivan 
Kwok, Boeing Program Site Leader in Asia; and Mr. Charles Li, Plant 
Manager Pepsi Cola Bottling Company Shenyang.  Mr. Dan Wright and 
Mr. Chris Winship of the Department of Treasury, the Consul General 
and Econoff also attended. 
 
Weak Dollar Poses a Challenge 
----------------------------- 
¶3. (SBU) Ambassador Holmer began the conversation by asking what 
challenges American businesses in the region faced.  Three of the 
four representatives cited weakness in the dollar and appreciation 
of the Renminbi as having a major impact on their operations.  Mr. 
Adams pointed out that Tyco primarily sources its inputs locally but 
also sources many items from Germany.  Thus, the appreciation of the 
RMB increases costs, as does the dollar's weakness compared to the 
Euro.  This effect is heightened by the fact that most of Tyco's 
production is sold in the United States.  Mr. Adams said that, while 
the Euro rate is an issue, his company is most worried about the 
appreciation of the RMB.  When Ambassador Holmer asked what impact 
an additional appreciation of the RMB by 5 to 14 percent would have, 
Mr. Adams expressed his personal view that the company would likely 
seek a new location outside of China-possibly in Vietnam. 
Ambassador Holmer commented that members of Congress expected that a 
twenty percent appreciation in the RMB would send jobs back to the 
United States-not to Vietnam. 
 
¶4.  (SBU) Similarly, GE's Bi Lequn cited RMB appreciation as a 
problem.  Because GE sourced USD 100 million worth of inputs 
locally, he said the appreciation of the RMB has had a substantial 
impact.  He also noted, however, that the impact of the dollar's 
depreciation on the price component of U.S.-sourced inputs had a 
somewhat compensating effect.  And Mr. Bi said that GE was 
experiencing some benefit from the strong Euro, which has driven up 
the price of the Siemens products that compete directly with GE in 
the China market.  Even in the face of a continued appreciation of 
the RMB, Mr. Bi concluded, GE would remain and continue to expand 
because China is simply "the market" for these goods. 
 
¶5.  (SBU) Another problem facing GE's financial arm is the lack of 
regulations governing non-bank financial entities in China's system. 
 In an effort to overcome this obstacle, he reported that GE had 
invited Chinese regulators to America and arranged meetings for them 
with U.S. regulators.  Mr. Bi said that GE was working with 
Shenyang's Huachen Brilliance Automotive to establish a 
joint-venture automotive financial service that would provide loans 
to dealers, fleet buyers and retail customers. 
 
¶6.  (SBU) Mr. Ivan Kwok of Boeing said that Boeing's situation is 
much different from that of GE and TYCO due to the fact that Boeing 
sources more than ninety percent of its inputs from the United 
States.  The aircraft manufacturing concerns with which Boeing has 
contracts perform value-added processing and the finished product is 
then shipped back to the United States.  Thus, the value of the RMB 
relative to the dollar has little impact on Boeing's operations 
here. 
 
Future of the Northeast 
----------------------- 
 
¶7.  (SBU)  In response to Ambassador Holmer's query concerning what 
incentives draw U.S. businesses to China's Northeast, the most 
common response was that labor costs were low, the labor supply was 
good, and the tax treatment was favorable (no tax the first two 
years and reduced rates for the next two according to Mr. Adams). 
Mr. Kwok pointed out that labor quality is high and labor costs are 
much lower than, for example, Shenzhen.  He cited Foxconn's planned 
construction of a factory that will employ 40,000 people as evidence 
that major businesses are beginning to move to China's Northeast. 
 
¶8.  (SBU) Mr. Kwok told Ambassador Holmer that Boeing did not fear 
Chinese competition in the aircraft market.  He said that, while 
China was seeking to develop its domestic aircraft manufacturing 
industry and had developed its first domestic commercial jet, the 
 
SHENYANG 00000222  002 OF 002 
 
 
ARJ21, China still had a way to go in developing the industry.  Mr. 
Kwok pointed out that China has been an aircraft manufacturing 
country for a long time and would want to develop a full range of 
domestic aircraft production, befitting its newfoundstature as a 
major power. 
 
¶9.  (SBU) All of the business representatives said that intellectual 
proprety rights (IPR) violations involving their products were very 
rare.  Mr. Adams went on to say that in the event counterfeit items 
were encountered, the government enforcement actions were helpful, 
timely and pretty effective.  None of the representatives offered 
any comment on the potential leadership impact of former Liaoning 
Party Secretary Li Keqiang's move to the central government, 
claiming they had had no dealings with him. 
 
 
 
WICKMAN