VZCZCXRO9000
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1115/01 1151035
ZNR UUUUU ZZH
O 251035Z APR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3658
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 06 BEIJING 001115 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
USTR FOR STRATFORD; WINTER; MCCARTIN; ALVAREZ; GRIER; 
KEMP AND LEE 
COMMERCE FOR KASOFF; MELCHER; SAUNDERS; CASSEL; 
LORENTZEN AND SHOWERS (5130); HEIZNEN (6510) AND 
SZYMANSKI (4310) 
TREASURY FOR MOGHTADER 
 
STATE FOR D PAM PARK; E HUGO YON; EAP/CM SHAWN FLATT; 
EEB/BTA ERIK MAGDANZ; EEB/MTA WILLIAM CRAFT 
 
E.O. 12958:  N/A 
TAGS: ETRD ECON KIPR EIND WTRO CH
SUBJECT: AUSTR STRATFORD AND DOC DAS KASOFF REVIEW 
U.S.-CHINA TRADE AND INTELLECTUAL PROPERTY AGENDA 
 
Ref A) Guangzhou 00218 
 
(U) This cable is Sensitive But Unclassified. 
Please protect accordingly.  Not for internet 
distribution. 
 
¶1. (SBU) Summary: During a March 31-April 1 visit to 
Beijing that marked the first USTR/Commerce senior 
visit under the new Administration, Assistant U.S. 
Trade Representative (AUSTR) for China Affairs 
Timothy Stratford and Department of Commerce Deputy 
Assistant Secretary for Asia Ira Kasoff outlined 
latest developments and priorities in the U.S. trade 
agenda for a range of senior officials, all of whom 
expressed eagerness to engage the new administration 
in a positive way.  AUSTR Stratford pressed the 
National Reform and Development Commission (NDRC) 
and the Ministry of Commerce (MOFCOM) on China's 
failure to adjust its steel output during the past 
year, even as other producing countries were cutting 
back sharply on production.  Chinese officials 
stressed central government efforts to restructure 
and stimulate China's domestic economy to counteract 
the effects of the global economic downturn and 
maintain economic growth.  The officials also 
repeatedly raised their opposition to U.S. actions 
on Chinese poultry imports.  Ref A covered 
Stratford's April 1-3 meetings in Guangzhou and 
Shenzhen.  End Summary. 
 
NDRC DG Chen: Focus on Stimulus, Industry Plans 
 
¶2. (SBU) NDRC DG Chen Bin told AUSTR Stratford and 
DAS Kasoff April 1 that China's RMB four trillion 
stimulus package is aimed at stimulating domestic 
demand, revitalizing key industries, and 
"safeguarding the livelihood of the people".  Chen 
said 90 percent of the stimulus package funds were 
focused on China's domestic markets.  Regarding 
foreign investment in China, he said "only a small 
percentage of foreign investment projects are 
subject to central government approval", as roughly 
90 percent of investment projects are not subject to 
national approval.  With respect to China's industry 
support/revitalization plans for ten key industries, 
the NDRC's primary focus is on restructuring.  The 
global financial crisis and reduced demand for 
exports has forced China's industries to reduce 
production, creating a difficult situation.  However, 
even without the global financial crisis, China 
would still need to restructure its industries, Chen 
added. 
 
Chinese Steel Exports Drop, But Not Domestic Demand 
 
¶3. (SBU) Citing the steel industry revitalization 
plan as an example, Chen said the plans would 
"stabilize production."  Since July 1, 2007, China 
has had a policy to discourage steel exports and 
steel exports have decreased as a result of measures 
such as increased taxes, he stated.  Chen attributed 
the global destabilization of steel production to 
"other countries'" failure to stimulate domestic 
demand, noting that China would stimulate domestic 
demand in order to compensate for reduced external 
demand.  The steel industry plan would also promote 
environmental protection by moving more than 30 
polluting steel factories out of big cities. 
 
AUSTR Stratford: Increased Bilateral Dialogue 
Needed... 
 
¶4. (SBU) In the meeting with Chen and other 
officials, AUSTR Stratford highlighted the need for 
increased dialogue between the United States and 
China.  He said the U.S. would be pleased to share 
its experiences on restructuring of industry. 
 
BEIJING 00001115  002 OF 006 
 
 
Noting Premier Wen Jiabao's criticism of countries 
with high consumption and low savings, Stratford 
said the United States, like China, needs to find a 
balance between consumption and savings.  The 
current crisis highlights the fact that no country 
can afford to rely on an unsustainable strategy of 
maintaining high savings and high production while 
basing their economic growth on exports to the 
United States.  Both China and the United States 
need to make structural adjustments, and dialogue 
will help ensure that our actions do not harm each 
other.  While recognizing that China has the 
authority to make its own economic decisions, the 
United States will offer suggestions for cooperation 
and share ideas with China. 
 
...Accompanied by Greater Transparency 
 
¶5. (SBU) Regarding China's industry revitalization 
plans, AUSTR Stratford advocated for attaining a 
higher degree of transparency to build trust and 
improve bilateral cooperation.  He reiterated the 
need for China to make public the details of its ten 
industry support plans, which would help the United 
States resist domestic pressure for protectionist 
measures.  In response, DG Chen stated that details 
of the steel and auto industry plans had already 
been announced and posted to NDRC's website and 
promised other plans would also be released publicly. 
Given the large number of ministries involved and 
the more than 120 measures included in the plans, 
NDRC would publicize them in a "gradual, step-by- 
step" manner, he said. 
 
DAS Kasoff Raises GE/Harbin, Pharma Pricing, Baxter 
 
¶6. (SBU) DAS Kasoff raised several commercial issues. 
First, on the GE/Harbin Power Equipment 
Corporation's proposal for the Shanghai Lingang 
Power Plant, Kasoff urged the NDRC to give the 
proposal every appropriate consideration.  DG Chen 
responded that both GE and Harbin Power Equipment 
Corporation were "very capable" firms whose joint 
project had "a good chance" of being approved. 
Second, Kasoff suggested that the topic of domestic 
pharmaceutical pricing should be viewed in the 
context of overall health care financing and 
decisions should be made in an open and transparent 
manner.  Chen did not have any information on 
pharmaceutical pricing but promised to convey the 
matter to the appropriate NDRC department.  Finally, 
Kasoff also urged China to give Baxter China 
adequate time to phase out the use of polyvinyl 
chloride (PVC) in intravenous infusion bags or face 
possible job losses.  Chen promised to "seriously 
study" the request regarding Baxter China. 
 
¶7. (SBU) Kasoff closed with an invitation to the 
NDRC to send a representative to participate in the 
April 29th Institute of Scrap Recycling Industries 
(ISRI) convention in Las Vegas; Chen indicated that 
a Deputy Director General from NDRC would likely 
attend. 
 
MIIT Luncheon: MIIT DG Chen Yin Floats Expanded IIWG 
 
¶8.  (SBU) DAS Kasoff hosted on April 1 a luncheon 
for Ministry of Industry and Information Technology 
(MIIT) International Cooperation Department DG Chen 
Yin and colleagues.  Kasoff began by asking Chen to 
explain MIIT's desire (expressed earlier to Emboff) 
to expand the Information Industries Working Group 
(IIWG) and explain MIIT's issues of interest.  Chen 
said that MIIT wanted to use the Joint Commission on 
Commerce and Trade (JCCT) as a platform to expand 
cooperation beyond telecommunications to other 
sectors such as autos, raw materials, and consumer 
 
BEIJING 00001115  003 OF 006 
 
 
goods.  The expanded WG could discuss how to save 
energy and reduce emissions, for example.  Kasoff 
explained that the range of issues involved very 
different people on the U.S. side.  Chen explained 
that the WG could be subdivided into subgroups or 
dialogues to discuss specific issues/sectors.  Level 
of the subgroups would not be important - they could 
still be lead by Director Generals, Deputy Director 
Generals, or Division Directors.  He pointed out the 
IIWG had been at the DG level for many years and the 
overarching WG and subgroups or dialogues could be 
at the same level.  Kasoff said that this was an 
interesting concept that the US could consider as 
the US wanted to explore how to strengthen the WGs 
to make them more effective. 
 
DAS Kasoff: Baxter, Remanufacturing, MIIT 
Reorganization and Telecom 
 
¶9.  (SBU) DAS Kasoff raised four other specific 
issues, including the Industrial Restructuring 
Catalogue and the implementation of new requirements 
that would impose a ban on PVC IV bags produced by 
Baxter in China.  Kasoff asked whether MIIT or NDRC 
was responsible for issuing the catalogue, and 
requested that MIIT ensure that Baxter be permitted 
at least three years to comply so that Baxter's 
Shanghai employees would not lose their jobs.  He 
also indicated that Baxter would like to meet with 
Vice Minister Ou to discuss the matter, and asked DG 
Chen to help facilitate.  Chen acknowledged Kasoff's 
request and said that MIIT was now responsible for 
issuing the catalogue and leading the effort to 
solicit input from other entities.  Kasoff inquired 
about China's policy on remanufacturing and pilot 
program on heavy equipment.  Chen explained that 
NDRC is still in charge of remanufacturing, and that 
it had already completed a pilot program on auto 
parts.  Chen said that China wanted the original 
manufacturers to do remanufacturing to guarantee 
quality.  Kasoff also asked how MIIT's information 
security office related to other Chinese ministries 
with responsibility for information security.  Chen 
indicated that while this used to be the purview of 
the State Council Information Office, it had been 
folded into MIIT, which raised it to the Ministry 
level, and its functions expanded.  Lastly, Kasoff 
asked whether China was considering further 
reductions in its telecom capitalization 
requirements.  Chen did not directly respond, 
instead recounting the history of discussions in the 
JCCT on this issue, noting that everyone was now 
waiting for the NPC to approve the draft Telecom Law. 
 
AUSTR Stratford: U.S. Awaiting Details on Industry 
Support Plans 
 
¶10.  (SBU) AUSTR Stratford inquired about China's 
recently released industry support plans, stressing 
U.S. companies' keen interest in obtaining specific 
details of the plans.  Chen said that NDRC and MIIT 
had worked jointly on the plans, and that the 
detailed plans were currently being published.  He 
explained that the financial crisis was having a big 
impact on Chinese companies, but that MIIT was 
beginning to get positive results from 
implementation of the plans.  Declining production 
trends had been reversed and idled capacity had been 
reinvigorated, with auto output up in 
February.  China had encouraged auto purchases 
domestically by reducing the tax on auto purchases 
by half, to five percent.  Low emission cars were 
now being produced.  Chen promised that details of 
all plans would be out soon and the U.S. would see 
that the plans were, in fact, not just a response to 
the current economic crisis but a long-term 
restructuring plan based on mergers and acquisitions, 
 
BEIJING 00001115  004 OF 006 
 
 
and scientific research. 
 
AUSTR Stratford: U.S. Concerns On Government 
Procurement 
 
¶11.  (SBU) Stratford raised U.S. concerns about 
certain practices favoring domestic/local products, 
and explained the benefits of China's accession to 
the WTO Agreement on Government Procurement (GPA), 
including access to other members' government 
procurement markets.  Chen countered that he had 
visited a Toyota factory in China and this Japanese 
factory's products were being procured by the 
Chinese government, so clearly China was open to 
"foreign" products.  Beijing USTR Attache Chris 
Adams explained that for the purposes of government 
procurement in the U.S., where a product is produced, 
not factory ownership, determined whether a product 
was considered a U.S. product.  Products produced in 
the U.S. by a wholly-owned foreign entity were 
considered US products for the purposes of 
government procurement. 
 
DG Chen: China Has "Fewer Industrial Policies" than 
U.S. 
 
¶12. (SBU) Stratford closed the luncheon by asking 
how many industrial policies China now has, to which 
Chen's colleagues quickly responded that the U.S. 
has more.  According to recently completed research 
his department had done, China has only one tenth of 
the industrial policies that the U.S. and EU 
have.  Kasoff pointed out that both sides must be 
using a different definition of "industrial 
policies," but more discussion on the topic was 
merited. 
 
MOFCOM DDG Wen: U.S., Chinese Economies Intertwined 
 
¶13.  (SBU) AUSTR Stratford and DAS Kasoff discussed 
trade issues with MOFCOM DDG Wen Zhongliang on March 
¶31.  DDG Wen opened the meeting by noting that, 
generally, China's exports are in steep decline and 
that the U.S. and Chinese economies are intertwined, 
so both are suffering under the current global 
economic crisis.  China is under great pressure from 
its industries and companies because of the lack of 
demand from international consumers for Chinese 
products.  Wen encouraged the United States to 
implement another stimulus package to provide 
momentum for the U.S. economy that might result in 
increased demand for Chinese products. 
 
DDG Wen: China's Steel Exports to U.S. Down 37.5 
Percent Year on Year 
 
¶14. (SBU) Presenting several statistics on the state 
of China's steel industry, DDG Wen said that exports 
have dropped dramatically, especially in the first 
two months of this year.  In 2008, overall exports 
dropped 5.5% to 59.2 million tons and 2008 imports 
also dropped 8.7% to 15.4 million tons.  In the 
first two months of 2009, total steel exports fell 
52% while steel exports to the U.S. fell 37.5%.  Wen 
linked the downturn in the steel industry to more 
than 3 million lost jobs for China.  While the 
global financial crisis is a financial crisis in 
America, in China it is having a negative effect on 
China's "real economy", inferring that the U.S. had 
particular responsibility for the current crisis. 
One element of China's response is a steel industry 
revitalization plan that will be in place until 2011, 
which promises greater efficiency and 
rationalization of current capacity. 
 
AUSTR Stratford: China's 2009 Steel Output Same as 
2008 
 
BEIJING 00001115  005 OF 006 
 
 
 
¶15.  (SBU) Responding on steel, Stratford noted the 
current economic situation was difficult for both 
Chinese and U.S. steel industries.  He produced a 
chart showing that in 2008 China accounted for one- 
third of world total steel production (January and 
February, 2008), whereas in the same timeframe in 
2009 (January and February, 2009), China's share of 
world steel production had increased to almost fifty 
percent -- meaning that, in a year in which 
worldwide total production decreased in line with a 
drop in world demand, China's steel production had 
remained practically constant.  The practical result 
was that other producers had to even more 
drastically curtail their own production.  Regarding 
Wen's suggestion for another U.S. stimulus, AUSTR 
Stratford reiterated points made earlier to the NDRC 
regarding Premier Wen Jiabao's criticism of "certain 
countries" [Read: the United States] with high 
consumption and low savings.  Stratford concluded by 
noting that the current situation presented an 
opportunity to work together towards necessary long- 
term systemic adjustment in a cooperative spirit. 
 
U.S. Concerns About Policy Measures to Favor 
Exporters 
 
¶16. (SBU) AUSTR Stratford also addressed China's 
recent increase in value-added tax rebates for many 
steel products, along with China's use of 
administrative measures to increase exports and 
continue production at prior levels even as steel 
companies cut production.  The message that other 
steel producing countries are receiving is that 
China will strengthen itself at the expense of other 
economies, he said.  China's policy of placing 
differential export duties on certain product 
categories like wire rod and aluminum gives China's 
downstream producers the benefit of lower cost 
inputs for higher value-added products -- a benefit 
that U.S. wire rod downstream producers do not have. 
Stratford said these policies greatly concern U.S. 
steel producers as well as the U.S. government. 
 
DDG Wen:  China Banking on Stronger Domestic Steel 
Demand 
 
¶17. (SBU) DDG Wen countered that China's steel 
production level has not changed much but repeated 
that China's exports have drastically decreased, 
with the bulk of production going instead to 
domestic projects.  He explained that China's 
continued steel production was intended for domestic 
consumption which would be boosted by China's 
economic stimulus package, which focuses heavily on 
infrastructure.  Given the high cost to shut down 
and then restart steel mills, recent increases in 
value added tax rebates for certain steel products 
are justified, he asserted.   Moreover, WTO rules 
allow China to provide VAT export rebates as long as 
such rebates are not excessive, and China showed 
restraint in the recent changes, as the highest 
level of any rebate is only 13 percent, not the full 
rebate of 17 percent. 
 
¶18. (SBU) AUSTR Stratford responded that U.S. mills 
have the same cost difficulties in terms of mill 
shut downs, and the U.S. is aware of the WTO 
provision allowing VAT export rebates.  However, the 
actions of the Chinese government as well as Chinese 
steel companies thus far do not seem to reflect 
economic reality.  While other countries idle their 
mills and lay off workers while awaiting renewed 
demand, Chinese changes in VAT rebates makes it 
appear that China wishes foreign producers to bear a 
greater share of the burden associated with the 
decline in global demand.  Stratford regretted that 
 
BEIJING 00001115  006 OF 006 
 
 
he did not have time to go into details, but he said 
the U.S. had similar concerns about China's trade 
policies and industrial policies for other metals 
including, particularly, aluminum. 
 
China Upset Over Section 727 of Appropriations Bill... 
 
¶19. (SBU) DDG Wen raised Section 727 in the 2009 U.S. 
Omnibus Appropriations bill, which effectively bans 
imports of poultry from China.  He noted that the 
Chinese complained about this issue in 2008 and 
understood that the Bush administration was working 
to ensure that such a provision was not included in 
subsequent legislation.  The Chinese government was 
disappointed to see the provision included in the 
2009 Omnibus Appropriations Act and hoped the Obama 
Administration would seek to rectify the situation. 
AUSTR Stratford said he is familiar with the issue 
and has already told Obama Administration officials 
of China's concerns.  Pending WTO litigation 
precluded more extensive statements on the issue at 
this time. 
 
...and Interested in USITC Textile Monitoring 
 
¶20. (SBU) As a final point, DDG Wen raised U.S. 
International Trade Commission (ITC) monitoring of 
textile imports from China.  He explained that the 
Chinese and U.S. textile industries are 
complementary and benefit from good trade relations. 
He noted that the Chinese side does not want a 
return of the special safeguard or quota 
arrangements.  AUSTR Stratford ended the meeting by 
responding that while the ITC is certainly 
monitoring the inflow of textiles, to his knowledge 
it is not applying any restrictions to imports of 
textiles, merely monitoring the flow. 
 
¶21. (U) This cable was cleared by U.S. Embassy 
Beijing USTR Senior Representative Christopher Adams 
and U.S. Embassy Beijing DOC/MAC Director Teresa 
Howes for USTR/Commerce.  Also representing USTR/DOC 
on the delegation: Deputy Assistant U.S. Trade 
Representative for Intellectual Property Enforcement 
Kira Alvarez and DOC China Officers Ellen Szymanski 
and Tom Dycus. 
 
PICCUTA