VZCZCXRO2396
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1028/01 1070941
ZNR UUUUU ZZH
P 170941Z APR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 3504
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BEIJING 001028 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, READE, 
VENKATARAMAN, KEMP, MILLER, MALMROSE, MCHALE 
DOC FOR MELCHER, SAUNDERS; LORENTZEN AND SHOWERS (5130); HEIZNEN 
(6510) 
 
E.O. 12958:  N/A 
TAGS: ECON EWWT EIND ETRD CH
 
SUBJECT:  U.S. Firms Voice Concerns about China's Stimulus Packages 
 
REF: (A) Beijing 151; (B) Beijing 326; (C) Beijing 425; (D) Beijing 
443; (E) Beijing 515; (F) Beijing 583; (G) Beijing 585; (H) Beijing 
661; (I) Beijing 665 
 
This cable is Sensitive But Unclassified (SBU) and for official use 
only.  Not for transmission outside USG channels. 
 
¶1. (SBU) Summary:  A lack of transparency and "buy local" biases 
could thwart U.S. companies seeking to benefit from China's 
considerable stimulus package funding, according to representatives 
of major U.S. firms.  Firms report that the plan has been used to 
support Chinese firms and create import-substituting products. 
While a few U.S. high-tech companies credit the stimulus package for 
recent growth in sales, other companies have seen few successes or 
opportunities thus far.  Chinese officials continue to downplay 
concerns about "buy China" while adopting measures that largely 
benefit China's "backbone" enterprises.  End summary. 
 
Import Substitution, Buy Local 
------------------------------ 
 
¶2. (SBU) At an April 14 Embassy roundtable for American Chamber of 
Commerce (AmCham) members, representatives of U.S. firms in China 
expressed concerns about the possibility of being excluded from 
China's stimulus package funding.  A Microsoft representative said 
China's investment in the IT sector was aimed at creating 
substitutes for imported foreign products.  He said China's 
government procurement system promoted import substitution without 
violating trade agreements because China was not a signatory to the 
WTO Government Procurement Agreement (GPA).  Even if the stimulus 
package does not specifically exclude foreign companies, there is a 
widespread perception among local officials that they should buy 
locally-produced software, the Microsoft representative said. 
 
¶3. (SBU) In a separate meeting with EconOff, a representative of 
Caterpillar said her company was concerned about the possibility of 
local officials' using stimulus package funding to support local 
companies.  She cited the example of an agreement recently signed by 
six state-owned enterprises (SOEs) in Guangxi Province pledging to 
give priority to local machinery manufacturer Liugong Machinery 
Company for the SOEs' construction projects.  The agreement was 
reportedly signed at a meeting organized by officials from the 
Guangxi Zhuang Autonomous Region Government.  The Caterpillar 
representative said this kind of local protectionism could spur 
protectionist measures in other provinces.  She said the machinery 
industry revitalization plan support for mergers and acquisitions 
would not formally exclude foreign companies but expressed doubts 
about local governments' willingness to allow foreign companies to 
acquire strong local companies.  She said Caterpillar's initial 
excitement about the stimulus package has given way to frustration 
at the lack of details. 
 
Lack of Transparency in the Bidding Process 
------------------------------------------- 
 
¶4. (SBU) Some U.S. companies raised concerns about the lack of 
transparency in the bidding process, pointing out that Chinese 
bidders are provided information about procurement opportunities 
much sooner than overseas bidders.  A representative of Caterpillar 
said they typically have a window of only four days to put a bid 
together for rail projects, making it virtually impossible for them 
to organize a successful bid.  Caterpillar reports that at least 
half of domestic contracts are going to Chinese companies that are 
less qualified but have greater access to information and more time 
to prepare bids.  Companies in the 3G telecom sector have also 
complained about the unreasonably short time-frame for foreign 
entities to submit bids for projects for which domestic competitors 
appeared to have advance notice.  According to Article 24 of China's 
bidding and tendering law, companies should have at least 20 days 
from the time the bid invitation documents are sent out until the 
deadline for submission of bids. 
 
Some U.S. Companies Express Optimism 
------------------------------------ 
 
¶5. (SBU) A representative of United Technologies, which sells 
high-tech equipment for building projects, said his company's sales 
in China were starting to pick up after a big drop at the end of 
¶2008.  He credited the stimulus package funding for his company's 
improving sales.  U.S. chip makers Texas Instruments, Altera and 
Xilinx have recently reported higher than expected sales, due in 
part to chip orders tied to part of China's economic stimulus plan 
aimed at building 3G networks across the nation.  A representative 
of General Electric (GE) told EconOff that China's stimulus package 
was "a perfect match" for GE, given the company's involvement in 
 
BEIJING 00001028  002 OF 002 
 
 
many sectors that would benefit from stimulus package funding.  He 
said GE's large size, long history in China, and joint ventures with 
many Chinese firms put GE in a good position to benefit, 
particularly for projects requiring key technology that GE controls. 
 
 
Concerns about Buy American 
--------------------------- 
 
¶6. (SBU) Representatives of both GE and Caterpillar expressed 
concerns about the negative impact of "buy American" provisions in 
the U.S. stimulus package.  While acknowledging that the provisions 
were not new measures, both company representatives said the 
perception of U.S. protectionism could encourage local governments 
in China to adopt protectionist measures.  Speaking publicly at the 
China Development Forum, a three-day forum for government officials, 
CEOs, and economists held in Beijing March 21-23, Caterpillar 
Chairman and CEO James Owens said he remained relatively optimistic 
about his company's prospects in China and announced plans to open 
three new manufacturing facilities in China.  However, Owens warned 
against the threat of protectionism, stating that "buy American" 
would lead other countries to adopt similar measures and prolong the 
recession. 
 
China's Stimulus Aimed at Supporting "Backbone" SOEs 
--------------------------------------------- ------ 
 
¶7. (SBU) Chinese officials have repeatedly stated that they opposed 
"Buy China" policies.  On April 15, Ministry of Commerce (MOFCOM) 
Spokesperson Yao Jian defended recent Chinese policies concerning 
export tax rebate and industry revitalization, asserting that all 
the measures are WTO-compliant.  Yao pledged that China, while 
strengthening anti-monopoly reviews of merger and acquisition (M&A) 
deals, would continue to encourage foreign investors to participate 
in domestic industry's restructuring through M&A and support foreign 
companies to invest in China.  At the China Development Forum, 
Chinese Commerce Minister Chen Deming expressed his strong 
opposition to the spreading trade protectionism, just one week after 
he raised concerns with statements trying to draw distinctions 
between "legitimate trade protection" and the "trade protectionism" 
practiced by foreign governments. 
 
¶8. (SBU) While China has publicly stated its opposition to 
protectionism, its stimulus packages and industry revitalization 
plans are clearly aimed at supporting Chinese SOEs.  Speaking at the 
China Development Forum, Minister of Industry and Information 
Technology (MIIT) Li Yizhong outlined the major problems facing 
China's industrial sector, including the lack of "key, core 
technology," backward production, and the lack of large, strong 
companies.  To address these shortcomings, Li said China had adopted 
a number of measures to provide a boost to industries hit hard by 
the global financial crisis:  1) increase domestic consumption 
through programs such as "appliances to the countryside"; 2) provide 
support to 10 key industries (ref A-I describe these 10 industry 
revitalization plans in more detail); 3) encourage technical 
innovation; and 4) promote industry restructuring and upgrading.  Li 
said China needed leading "backbone" enterprises in each industry to 
spur innovation and boost domestic consumption. 
 
Comment 
------- 
 
¶9. (SBU) Although China's stimulus packages and industry 
revitalization plans are not explicitly protectionist, foreign firms 
are not exactly playing on a level playing field.  A number of 
factors - lack of transparency in the bidding process, local 
protectionism, and China's interest in using stimulus funding to 
help its own SOEs and private firms - will likely frustrate many 
U.S. companies that are seeking to benefit from stimulus package 
funding.  U.S. companies that partner with Chinese firms or provide 
products and service that Chinese firms cannot provide are in a 
relatively good position to benefit. 
 
WEINSTEIN