VZCZCXRO6206
RR RUEHCN RUEHGH
DE RUEHGH #0458/01 3020611
ZNR UUUUU ZZH
R 280611Z OCT 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7272
INFO RUEHBJ/AMEMBASSY BEIJING 2224
RUEHCN/AMCONSUL CHENGDU 1494
RUEHHK/AMCONSUL HONG KONG 1651
RUEHSH/AMCONSUL SHENYANG 1486
RUEHIN/AIT TAIPEI 1288
RUEHGZ/AMCONSUL GUANGZHOU 1465
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7865

UNCLAS SECTION 01 OF 02 SHANGHAI 000458 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
TREASURY FOR AMBASSADOR HOLMER, WRIGHT AND TSMITH; 
TREASURY FOR OASIA/INA - DOHNER, HAARSAGER/WINSHIP; 
TREASURY FOR CUSHMAN 
TREAUSRY FOR IMFP SOBEL. MOGHTADER 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; 
SF FRB FOR CURRAN/GLICK/LUNG; NY FRB FOR 
CLARK/CRYSTAL/MOSELY/DAGES/DAWSON 
NSC FOR WILDER AND LOI 
STATE PASS CEA FOR BLOCK 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ 
STATE PASS CFTC FOR OIA/GORLICK 
 
E.O. 12958: N/A 
TAGS: CH ECON EFIN
SUBJECT: SHANGHAI OFFICIALS STRESS COOPERATION WITH U/S MCCORMICK 
 
¶1.  (SBU) Summary.  Treasury U/S McCormick and delegation met 
Shanghai Vice Mayor Tu Guangshao and Bank of Communications 
Chairman Hu Huaibang on October 21 in Shanghai.  Both contacts 
emphasized that China is focused on assuring stable domestic 
economic growth during the fallout of the global financial 
crisis, and that this is not only good for China, but good for 
the United States and good for the world economy.  Accompanying 
Vice Mayor Tu were Dr. Fang Xinghai of the Shanghai Financial 
Services Office and Mr. Tian Chunhua of the Shanghai Finance 
Bureau.  U/S McCormick's delegation included Finatt Loevinger 
and Shanghai CG Camp, among others.  End summary. 
 
McCormick:  U.S. Responding to Financial Crisis 
 
¶2.  (SBU) U/S McCormick outlined for his counterparts four sets 
of initiatives the U.S. Government has taken in recent weeks. 
In response to these initiatives, said McCormick, the financial 
markets have stabilized, although equity markets continue to be 
volatile: 
 
--  The Federal Reserve has injected much liquidity into market 
and has followed up with measures to stimulate the commercial 
paper market. 
 
--  The SEC is addressing market manipulation concerns. 
 
--  The FDIC has implemented additional guarantees for the 
banking system, which should allay depositor concerns and unlock 
the interbank lending market. 
 
--  The U.S. banking sector is being recapitalized. 
 
¶3.  (SBU) It is not clear that Chinese investors and 
institutions understand these constructive actions already 
taken, said U/S McCormick.  The U.S. actions should improve 
credit markets and have prevented financial meltdown.  Measures 
of recent days have also reduced counterparty risk, so Chinese 
banks' interbank lending to foreign banks should be less risky 
than they feared earlier. 
 
¶4.  (SBU) McCormick noted that on the one hand, Chinese 
authorities are well engaged, and have acted responsibly. 
However, actions that are rational and prudent by individual 
Chinese institutions and investors in sum can unsettle markets 
and send a message very different from the one of support and 
cooperation that the Chinese leadership wants to send, said 
McCormick.  Examples of these actions include: money market 
mutual fund withdrawals, pulling back in lending of Treasury 
securities in the US market and lending of RMB to foreign banks 
in the Chinese market due to concerns about counterparty 
exposure, and shifting to shorter maturities for holdings of 
debt issued and guaranteed by Fannie and Freddie. 
 
Vice Mayor Tu:  China Wants Stable Economic Growth 
 
 
¶5.  (SBU) The Chinese Government sees that recovery of stability 
in U.S. financial markets is important for the whole world, 
including for China, said Tu.  China will cooperate with the 
United States and do its own job to assure financial stability 
in China.  Helping the U.S. financial markets is one of the 
means of assuring financial stability in Shanghai.  China is the 
biggest investor in the U.S. financial markets, and the 
relationship between the U.S. financial markets and the Chinese 
economy is large.  China hopes that U.S. measures will take 
effect quickly. 
 
¶6.  (SBU) Tu said China and Shanghai are encouraging Shanghai 
banks to lend to foreign banks -- this is important to 
Shanghai's own financial stability.  China will seek financial 
market stability in the Shanghai stock market as well.  Some 
 
SHANGHAI 00000458  002 OF 002 
 
 
Shanghai banks encountered minor liquidity problems with foreign 
counterparties, so these banks understandably paid more 
attention to risks, said Tu. 
 
¶7.  (SBU) While China recognizes the need to increase Chinese 
domestic consumption, this is a difficult task, said Tu.  Much 
of China's economic growth has been linked to exports, but 
economies in many destination markets for China's exports are 
now slowing. 
 
BoCom Chairman Praises U.S. Actions 
 
¶8.  (SBU) Bank of Commerce (BoCom) Chairman Hu Huaibang's 
remarks at his meeting with U/S McCormick had a similar tone -- 
that stabilizing China's economic growth will help support the 
U.S. economy.  Key points: 
 
--  Hu said he and his colleagues have the impression that "we 
are on the correct track," especially when the United States and 
other governments are coordinating their actions. 
 
--  BoCom is positive on long-term U.S. growth prospects -- that 
is why BoCom wants to open a branch in San Francisco. 
 
-- As an example of how Chinese banks are playing an important 
role in stabilizing the global market, Hu said that China 
Investment Corporation (CIC) not only maintained its stake in 
Morgan Stanley during that financial institution's troubles, but 
had been considering increasing its stake.  Hu transferred from 
CIC, where he was chief supervisor, to BoCom in September, he 
said. 
 
Bio Note 
 
¶9.  (SBU)  Tu served as Vice Chairman of the China Securities 
Regulatory Commission prior to his selection as a Shanghai Vice 
Mayor in December 2007.  His portfolio includes banking and 
personnel, and assisting in financial administration, taxation 
and auditing.  Tu speaks fluent, although accented, English, and 
at times appeared to misunderstand technical financial terms 
used by U/S McCormick.  Tu seemed eager to engage on a personal 
level, at one point joking with McCormick that a picture 
accompanying a McCormick interview published in a Chinese 
newspaper was too serious.  Tu has a booming laugh that he 
deployed several times during the half-hour meeting. 
 
¶10. (U) Beijing Financial Attache David Loevinger has cleared on 
this cable. 
CAMP