VZCZCXRO2255
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DE RUEHGH #0233/01 1460039
ZNR UUUUU ZZH
R 260039Z MAY 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7972
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEAEPA/EPA WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8618

UNCLAS SECTION 01 OF 05 SHANGHAI 000233 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, ALTBACH 
DOC FOR ITA/MAC - DAS KASOFF, MELCHER, SZYMANSKI, COUCH, LEHRMAN 
TREASURY FOR OASIA - DOHNER/HAARSAGER 
 
E.O. 12958: N/A 
TAGS: SENV ENRG PREL PHUM KIPR OVIP PELOSI NANCY CH
SUBJECT: CODEL PELOSI ENGAGES U.S. BUSINESS COMMUNITY IN SHANGHAI 
 
REF: A) Shanghai 229, B) Shanghai 231 
 
SHANGHAI 00000233  001.2 OF 005 
 
 
(U) This message is sensitive but unclassified.  Not for 
distribution outside USG channels. 
 
 
 
¶1.  (SBU) Summary:  In a May 25 breakfast meeting hosted by the 
American Chamber of Commerce in Shanghai (AmCham) and U.S.-China 
Business Council (USCBC), over 70 U.S. business representatives 
discussed energy/environment-related business opportunities in 
China, U.S. competitiveness, intellectual property rights (IPR), 
market access, currency valuation and general business 
environment issues with CODEL Pelosi.  In an address to the 
group, Speaker Nancy Pelosi emphasized the significance of the 
Waxman-Markey bill passed by the House Energy and Commerce 
Committee on May 21, saying it created an opportune time to 
discuss climate change with the Chinese.  She also said that her 
focus on human rights had not changed, and that she sees 
protecting the environment as part of the larger human rights 
issue.  Rep. Edward Markey (D-MA) and Rep. James Sensenbrenner 
(R-WI) also made remarks regarding that legislation and the 
importance of protecting intellectual property rights (IPR) as a 
key to creating environment-protecting and energy-saving 
technologies.  AmCham Board of Governors Chairman and President 
of Cargill Investments China Norwell Coquillard spoke to the 
group and emphasized that American companies in Shanghai are 
well positioned to compete in efficient energy and green 
technologies.  End Summary. 
 
 
 
Speaker:  `We Come in the Spirit of Cooperation' 
 
--------------------------------------------- --- 
 
 
 
¶2.  (SBU) During an introductory speech, Speaker Pelosi noted 
the purpose of her CODEL's visit to China is to `move forward 
and find common ground' and that the CODEL came in the `spirit 
of cooperation.'  She noted that it is not just about setting 
goals on important issues, but it is also about implementing 
those goals.  The CODEL's visit to China `could not have come at 
a more opportune time' since the House Energy and Commerce 
Committee just passed the Waxman-Markey climate and energy bill. 
 The United States is in a better position to respond when other 
countries ask `when is the United States going to take the 
lead?'  The Speaker emphasized that addressing climate change is 
a flagship issue for the United States, and it entails 
addressing the fundamental security issue of dependence on 
foreign oil and the reduction of overall pollution levels.  It 
is also an economic issue because it will reduce the cost of 
energy and place the United States in the forefront of 
developing environmental technologies.  The vision of fighting 
climate change has been successful because it includes a broad 
coalition of businesses, labor groups, environmental groups, 
scientists and evangelicals. 
 
 
 
¶3.  (SBU) Speaker Pelosi also outlined the four main concerns 
she brings to China:  the bilateral trade imbalance, the issue 
of currency valuation, IPR infringement, and food and product 
safety.  She noted these are all major issues for the United 
States, and she hopes to move the dialogue forward with the 
Chinese.  The Speaker said the `hand of friendship has been 
extended by the Chinese' during her visit, and she hopes to gain 
access to all thinking possible.  She also addressed her 
previous efforts at promoting human rights and emphasized that 
protecting the environment is also a human right.  `I really see 
these two issues coming together,' said the Speaker. 
Governments must be more transparent and respect the rule of law 
because it is about `environmental justice' and energy that 
people can afford.  She also emphasized that it is important 
that `we can exchange IP' in a way that is fair for all.   We 
must work together on all these issues in a `cooperative spirit' 
in order to be successful. 
 
 
 
¶4.  (SBU) Rep. Markey and Rep. Sensenbrenner also made remarks. 
Rep. Markey described the Waxman-Markey bill as a landmark bill 
 
SHANGHAI 00000233  002.2 OF 005 
 
 
that would cut greenhouse-gas emissions about 17 percent below 
2005 levels by 2020, and about 80 percent by 2050, while 
promoting renewable energy and energy efficiency.  He noted the 
key to the bill's passage was the participation of a broad 
coalition of groups, including business, labor, and environment. 
 The passage of the legislation gave the CODEL a basis to come 
to China and discuss greenhouse gas emissions.  He said that if 
the United States expects China and India to act, then `we have 
to act as well.'  Since greenhouse gases are cumulative, it is 
imperative that the United States form partnerships with others, 
and that `we think globally.'  The legislation is also important 
in that it will create incentives in the energy sector that will 
spur a technological revolution, creating 3-5 million new jobs. 
 
 
 
 
¶5.  (SBU) Rep. Sensenbrenner noted that while he disagrees on 
the fundamentals of `cap and trade' provisions in the bill, he 
strongly supports the effort to reduce emissions though 
technology.  An important component of ensuring that the 
technology is created in the adequate protection of IPR - 
`without enforcement, we won't get the technology.'   As such, 
it is critical that the United States achieve a `commonality of 
interest' with China on the issue of IPR protection. 
 
 
 
U.S. Companies in Shanghai - Well Positioned For a Green 
Revolution 
 
--------------------------------------------- --------- 
 
 
 
¶6.  (SBU) Speaking on behalf of AmCham Shanghai, Norwell 
Coquillard welcomed CODEL Pelosi and noted the importance of the 
CODEL's visit to the commercial, industrial and business capital 
of China.  He noted that Shanghai is the city farthest along in 
China's shift to a modern service-based economy, and a key 
growth area in the services market is the `green tech' sector. 
Shanghai serves as a hub for R&D and innovation in this 
important field.  Coquillard emphasized that American companies 
in Shanghai and the Yangtze River Delta are well positioned to 
compete in efficient energy and green technologies. 
 
 
 
¶7.  (SBU) AmCham Shanghai is playing a key role in ensuring U.S. 
companies have an opportunity to compete in this field. 
Coquillard said that AmCham is participating in the U.S. Clean 
Energy Forum and is a founding member of the `Clean Tech 
Initiative'.  It has also been joined by companies such as Price 
Waterhouse Coopers, Owens Corning, GE, Dell, Phillips, Dow 
Corning and several other corporations in an effort to develop a 
roadmap to promote `clean tech' solutions for a `sustainable 
China.' 
 
 
 
¶8.  (SBU) As the largest and fastest growing American Chamber in 
Asia Pacific, AmCham Shanghai is also committed to promoting a 
healthy business environment in China.  Coquillard noted that 
China is now America's second largest trading partner and third 
largest export market.  As such, almost every state in the 
United States has seen trade with China triple since 2000. 
Given the continuing global economic downturn, `U.S. 
competitiveness in China's growing market is more important than 
ever.'  Increasing U.S. exports and improving market access for 
American companies will create jobs in the United States. 
Coquillard stressed the importance of not only focusing on the 
level of market access in China for U.S. goods and services but 
also frankly discussing the possible impact of `protectionist 
policies coming from both sides of the Pacific.' 
 
 
 
Diversity Of Companies Discuss Business Issues in China 
 
--------------------------------------------- ---------- 
 
 
 
SHANGHAI 00000233  003.2 OF 005 
 
 
 
 
 
¶9.  (SBU) After the members' presentations, conversations 
continued at separate tables.  At the Speaker's table, several 
business representatives discussed potential protectionism and 
the impact of China's stimulus package on their businesses.  In 
response to the Speaker's direct question, all indicated that 
their China businesses were profitable.  This did not mean they 
did not face problems, however.  Jim Sherriff, CEO of Cisco 
China, said that his firm was facing stiff competition from 
`local champions,' who enjoyed preferential treatment from local 
regional governments.  Although this predated the financial 
crisis, it had intensified with the implementation of China's 
stimulus package.  Other businessmen at the table, however, 
described a different situation.  Eric Musser of Corning 
explained that because his firm did not sell directly to the 
final consumer, but rather was an intermediate supplier, they 
had actively benefited from the stimulus package.  Whether they 
faced increased local protectionism or not, all agreed that 
China's desire to move up the value-added ladder was a key 
motivation for its continued interest in foreign investment. 
This applied in almost all sectors, from traditional high tech 
industries to financial services, retailing, or alternate 
energy. 
 
 
 
¶10.  (SBU)  In a separate discussion with Rep. Edward Markey, 
Covanta Energy Asia Pacific President Allard Nooy highlighted 
business beneficial aspects of China's renewable energy 
regulations and Covanta's investments in three operating 
municipal garbage-to-energy power plants and two more such power 
plants under construction in China.  Rep. Markey described loan 
guarantees for the U.S. nuclear energy industry in the pending 
Waxman-Markey bill in his exchange with Westinghouse's Mike 
Shaqqo; Westinghouse technology will be used in a new Chinese 
nuclear power plant in Zhejiang Province for which concrete 
began to be poured in April.  Bayer Technology's Matt Targett 
and Squire, Sanders Dempsey's Charles McElwee briefly described 
the considerable range of venture capital projects in the United 
States in biomass-to-liquid fuels projects and other innovative 
alternative energy projects, and suggested that U.S. firms and 
U.S. venture capitalists may have market opportunities by 
partnering with Chinese researchers and companies in these 
areas. 
 
 
 
¶11.  (SBU) Dow Corning Silicone Trading's Greater China 
President Tom Cook discussed the solar panel industry with Rep. 
Markey, noting how subsidies in Europe have led to export of 
most of China's solar panel production; new Chinese incentives 
to deploy solar panels at home are likely to change that 
imminently.  GE Energy 50 Hz IGCC Platform Global Manager Jason 
Crew discussed wind power deployment and competition in China 
and plans by the Chinese Academy of Sciences to develop an IGCC 
pilot project in Lianyungang, Jiangsu Province.  Rep. Markey 
underscored that the pending Waxman-Markey bill has already 
attracted a broad range of endorsements from industry, labor and 
environmental NGO leaders, and how he hoped that this energy 
bill would lead many U.S. companies to find it in their 
self-interests to appoint Chief Energy Officers, just as 1996 
telecommunications legislation in the United States had led many 
companies to establish Chief Information Officer positions. 
That earlier legislation had led to creation of new industries 
and several million new American jobs; the pending energy bill, 
by establishing expectations and requirements, could spur 
creation of markets and economies of scale that would allow U.S. 
industries to be world leaders in renewable energy. 
 
 
 
¶12.  (SBU) In a separate conversation with Rep. Earl Blumenauer 
(D-OR), Ted Hornbein of Richco expressed concern that Congress 
still sees China's exchange rate as a major issue.  He pointed 
out that the renminbi has appreciated in value from 8.3 to 6.83 
to the U.S. dollar in a relatively short span.  At the same 
time, China does not get enough credit for the changes it has 
made to its VAT policy, which effectively has raised the prices 
of China's exports.  Jeff Song from Ingersoll-Rand agreed with 
Hornbein, adding that even if China were to radically appreciate 
 
SHANGHAI 00000233  004.2 OF 005 
 
 
its currency by 20 percent, it still would not create the 
conditions for low-cost, labor-intensive jobs to return to the 
United States.  The exchange rate, therefore, is a non-issue, 
Song said. 
 
 
 
¶13.  (SBU) If Congress wants to make a positive difference in 
its discussions with China on climate change, Song continued, 
addressing China's Government Procurement regulations will be 
critical to improving energy efficiency.  The problem in China, 
Song explained, is that government contracts are awarded to the 
lowest cost producer regardless of a project's energy usage. 
Many U.S. companies therefore lose out on bids in a process that 
is not competitive if energy efficiency is taken into account. 
"The Chinese Government complains that we only want to win the 
contracts so that we can sell them expensive equipment," the 
Ingersoll-Rand representative continued. "But we could make a 
significant impact on energy efficiency if we had better market 
access in this area." Tom McCawley, representing Owens Corning, 
added that his company is attempting to win over local 
governments in China by demonstrating that improved energy 
efficiency will lower costs in the long-term.  Rep. Blumenauer 
replied that he hopes to see more progress in this area, and 
that CODEL Pelosi's approach with China on climate change is 
meant to be a "collaborative" effort. 
 
 
 
¶14.  (SBU)  In a separate conversation with Rep. Jackie Speier 
(D-CA), Squire, Sanders Dempsey Partner Amy Summers emphasized 
that most U.S. businesses in China do not see the valuation of 
the RMB as a major issue - rather U.S. companies are being more 
strongly affected by a growing number of protectionist policies 
and regulations.  She cited a specific example of U.S. travel 
companies that are effectively shut out of the `out-bound' 
tourist market through `carve out' regulations.  Summers noted 
this is just one example of a well developed sector in China 
that is still claiming it needs special protection against 
foreign competition.  To address the problem, the United States 
needs to examine whether this wave of new laws and regulations 
emanating from both Central and local governments is 
WTO-compliant.  She added that it is very difficult for 
individual companies to stand up to the Chinese Government on 
these issues, and the U.S. Government and U.S. industry 
associations play a vital role in this effort.  Proctor and 
Gamble's Gao Yunsong voiced a similar opinion and said that 
often times it is not a matter of initial market access - but 
what comes later when the Chinese realize you have a competitive 
product. 
 
 
 
¶15.  (SBU) On the issue of IPR, ALC Advisor's Diane Long said 
she has seen a `sea of change' on IP protection since she began 
doing business in China in the 1980s.  But, the enforcement and 
protection of IPR is very diverse between different 
jurisdictions in China.  She cited Shanghai as a very positive 
example of IP protection, saying Shanghai has `IPR in its DNA.' 
The difference between Shanghai and other cities in China is 
that Shanghai has realized that it needs to protect IPR to 
develop an innovative and high-tech economy.  Its success is 
reflected in the fact that it has become a magnet for foreign 
companies to litigate IP cases.  Long emphasized that U.S. 
companies in China have been successful in protecting IPR when 
they find Chinese partner companies that understand the value in 
protecting IPR, and it is also in their best interest to do so. 
Summers added that she sees the situation on IPR in China 
changing as `domestic stakeholders' become more interested in 
protecting their own IPR and push the system to change. 
 
 
 
¶16.  (SBU) On environmental protection issues, Long, who noted 
her long experience working on supply chain issues, voiced her 
concern over `excessive' packaging requirements.   She 
illustrated by saying U.S. companies demand far too much 
wrapping in the garment and shoe industries - it is not the end 
consumers who want all the packaging.  As a result, Chinese 
suppliers are forced into `wasteful and environmentally 
unfriendly' practices in the supply of goods to the U.S. market. 
  Walmart's Brian Liao agreed with the assessment and noted that 
 
SHANGHAI 00000233  005.2 OF 005 
 
 
Walmart is making an effort to reduce environmentally harmful 
packaging by using bio-degradable wrapping and boxes while still 
maintaining product quality.  Wachovia Bank's Ben Kinnas added 
that such efforts to reform the `packaging problem' require 
households to get involved to demand changes to industry 
practices. 
 
 
 
¶17.  (U) U.S. Government Participants 
 
 
 
Speaker Nancy Pelosi and Mr. Paul Pelosi 
 
Rep. Edward Markey and Dr. Susan Blumenthal 
 
Rep. James Sensenbrenner and Mrs. Cheryl Sensenbrenner 
 
Rep. Earl Blumenauer and son Jon Blumenauer 
 
Rep. Jackie Speier 
 
Acting United States Consul General in Shanghai Simon Schuchat 
 
Professional Staff Members to the Speaker and Representatives 
 
Christopher Beede, Consulate Political and Economic Section 
Chief 
 
David Gossack, Foreign Commercial Service Section Chief 
 
Matt Murray, Senior Political Officer 
 
Michael Layne, Senior Economic Officer (notetaker) 
 
 
 
¶18.  (U) CODEL staff have cleared this report. 
SCHUCHAT