VZCZCXRO5980
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1571/01 1620520
ZNR UUUUU ZZH
O 110520Z JUN 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4463
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 BEIJING 001571 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EAP, EAP/CM AND E 
TREASURY FOR OASIA/DOHNER/WINSHIP 
TREASURY ALSO FOR IMFP/SOBEL/CUSHMAN 
NSC FOR LOI 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL CH
SUBJECT: Secretary Geithner's June 1 Meeting with Vice 
Premier Wang Qishan in Beijing 
 
Summary 
------- 
¶1. (SBU) In a June 1 meeting in Beijing, Vice Premier 
Wang Qishan told Treasury Secretary Geithner that 
discussion in the Economic Track of the late July 
Strategic and Economic Dialogue (S&ED) should be 
strategic, include bilateral and global issues, and 
neither duplicate nor replace discussions in other fora. 
On North Korea, Wang said the U.S. and China pursue the 
same general policy direction toward North Korea.  He 
appreciated the U.S. position on the RMB but added that 
the economic environment remains unstable.  Wang said U.S. 
and Chinese responses to the global financial crisis are 
more similar than those of other countries.  He believes 
the S&ED also provides a venue to discuss implementation 
of G-20 commitments and to coordinate positions for the 
next G-20 meeting in September, for which China sees 
three major issues: restore global economic growth, 
encourage international financial institution reform, and 
establish a framework for future economic growth. 
 
¶2. (SBU) Summary, continued.  Secretary Geithner told 
Vice Premier Wang that the economic track of the first 
S&ED should be comprehensive and strategic in nature, 
while also generating concrete results on financial, 
economic, and broader international issues.  He urged 
China to work closely and cooperatively with the U.S. in 
responding to recent DPRK actions, and also hoped the two 
countries could work cooperatively to limit Iran's 
capacity to advance its nuclear program.  He noted 
appreciation for China's actions to boost economic growth. 
Geithner briefed Wang on the U.S. economic and financial 
situation, explaining the USG is very committed to reduce 
its fiscal deficit over time.  He noted U.S. support for 
IFI reform and a greater role for China.  Geithner said 
the USG at this time is not contemplating a new set of 
initiatives and reforms for the next G-20 summit, as the 
world needs a period of calm and stability on the 
financial front to allow time for recovery.  He also 
emphasized the need for China to continue to rebalance 
the economy (including through greater renminbi (RMB) 
flexibility), advance financial sector reform, and permit 
prices to play a greater role in allocation of 
resources.  End Summary. 
 
Private Meeting: S&ED, North Korea, Economy 
------------------------------------------- 
¶3. (SBU) In a 20-minute one-on-one meeting with VP Wang 
on June 1, Secretary Geithner said he wants the S&ED to 
be results-oriented, with cabinet-level attendees 
including senior financial regulators and development of 
meaningful outcomes prior to the first session.  Wang 
responded that discussion in the Economic Track should be 
strategic and neither duplicate nor replace discussions 
in other fora.  He stressed the importance of the 
Presidents' special representatives for the S&ED's 
Economic Track having a strong channel of communication. 
 
¶4. (SBU) On North Korea, Geithner noted that Treasury 
Under Secretary Levey would accompany State Deputy 
Secretary Steinberg to Beijing later that week and urged 
China to work closely and cooperatively with the United 
States in responding to recent DPRK action, including 
through developing effective financial sanctions.   Wang 
said the United States and China pursued generally the 
same policy direction toward North Korea, with 
differences mainly over the intensity of particular 
actions.  Wang suggested that other channels take the 
lead on this issue.  Geithner also hoped the United 
States and China could work cooperatively to limit Iran's 
capacity to advance its nuclear program. 
 
¶5. (SBU) Geithner noted his appreciation for actions 
China has taken to date to boost growth.  He said he 
would support China's exchange policy in public 
statements, as publicly emphasizing U.S.-China 
cooperation is critical to shoring up investor confidence. 
However, in private China should understand clearly that 
the RMB needs to resume its appreciation versus the U.S. 
dollar.  Wang said he appreciated the U.S. position on 
the RMB, but stressed that China's exchange rate policy 
has an important impact on economic stability and that 
the economic environment remains unstable, with analysts 
continuing to disagree over the near term outlook.   He 
 
BEIJING 00001571  002 OF 003 
 
 
said his article in the Economist magazine prior to the 
London G-20 Summit has stated clearly China's policy on 
its exchange rate and reserve management policies. 
 
¶6. (SBU) On economic reform, Wang said the Chinese 
government wants to move faster, but has a responsibility 
to its 1.3 billion people.  In the financial sector, he 
argued that China has been able to implement reforms in 
just a few years that took the United States much longer 
to implement.  Geithner noted the U.S. Congress is close 
to passing approval of a U.S. contribution to the New 
Arrangements to Borrow and urged China to make an NAB 
contribution. 
 
U.S. Economy and the Global Crisis 
---------------------------------- 
¶7. (SBU) In their expanded meeting, which included 
Minister of Finance Xie Xuren, People's Bank of China 
Governor Zhou Xiaochuan, Vice Foreign Minister He Yafei 
and other senior officials, Geithner briefed Wang on the 
U.S. economic and financial situation.  The USG is very 
committed to laying out a path to bring the fiscal 
deficit down over time, and the Federal Reserve, FDIC and 
Treasury all will unwind their extraordinary 
interventions as confidence in the system increases.  The 
healthcare reform plan proposed by President Obama aims 
to decrease the rate of growth in health care costs; the 
plan will be implemented in a deficit-neutral manner, and 
over the longer term savings generated by the plan will 
help reduce fiscal deficits. 
 
¶8. (SBU) Wang said U.S. and Chinese responses to the 
global financial crisis are more similar than those of 
other countries in terms of fiscal, monetary, and 
industrial policy, as well as actions to address social 
security and unemployment.  Responses by European 
governments were less uniform.  The Chinese financial 
sector is at a different state of development and has not 
been directly impacted by the crisis.  China, however, 
remains highly dependent on U.S. and global demand, so it 
is not immune. 
 
Strategic and Economic Dialogue 
------------------------------- 
¶9. (SBU) Geithner observed that the USG wants to build a 
relationship with China, similar to those with the G-5 
and G-7 countries since the late 1970s, that would ensure 
bilateral communication on economic developments to 
forestall any "surprises."  To that end, the S&ED 
economic track should be comprehensive and strategic in 
nature, while also generating concrete results on 
financial, economic, and broader international issues. 
 
¶10. (SBU) Wang replied that, given USG institutional 
arrangements, the economic track will not include climate 
and energy issues.  Outcomes should deepen mutual 
understanding and cooperation on major economic and 
financial issues and ensure that both economies maintain 
growth. 
 
¶11. (SBU) For the Economic Track, Geithner and Wang 
agreed there should both be a joint outcomes document and 
a public joint fact sheet released at end of the S&ED 
meetings.  Wang said the outcomes of the first economic 
dialogue should focus on deepening mutual trust and 
reflect cooperation in fighting the global financial 
crisis. 
 
G-20 Summit and Coordination 
---------------------------- 
¶12. (SBU) Wang said the S&ED also provides a venue to 
discuss implementation of results from the two previous 
G-20 meetings and to coordinate positions for the next G- 
20 meeting in September.  Emphasizing the importance of 
3Rbf0M4a7I}W*jVQ%ndon Summit, and to increase the IFI quotas 
of developing countries; and third, establish a framework 
for future economic growth. 
 
 
BEIJING 00001571  003 OF 003 
 
 
¶13. (SBU) Geithner said the U.S. supports IFI reform and 
a greater role for China.  He agreed on the need to 
address the specific needs of the poorest developing 
nations, and provided an update on the status of 
legislation working its way through the House and Senate 
to provide additional funding to the IMF, including 
through the New Arrangements to Borrow. 
 
¶14. (SBU) Wang said China committed in principle at 
London to funding the New Arrangements to Borrow (NAB) at 
the IMF.  China has chosen to buy IMF bonds, and in the 
future will release information on their purchases 
through the State Administration of Foreign Exchange 
(SAFE).  In response, Geithner emphasized the need for a 
multilateral approach such as the NAB to ensure 
sufficient permanent resources for the IMF, and said he 
hopes China can consider this modality. 
 
¶15. (SBU) Wang said China places great importance on the 
third G-20 summit scheduled for September.  Geithner 
replied the USG at this time is not contemplating a new 
set of initiatives and reforms, as we want to keep 
expectations and efforts focused on near-term reforms. 
 
¶16. (SBU) Geithner observed that all parties now agree 
that the world needs a period of calm and stability on 
the financial front to allow time for recovery, that the 
USG will contribute to this, and that we welcome Chinese 
statements and actions that contribute to this process. 
He emphasized the need for continuing China efforts to 
rebalance the economy (including through greater renminbi 
(RMB) flexibility over time), advance financial sector 
reform, and allow prices to play a greater role in 
allocation of  resources.  Finally, Geithner said the USG 
recognizes that this increased RMB flexibility will 
require more time.  In response, Wang agreed on the 
importance of stability.  He reassured Secretary Geithner 
that Chinese officials will not take unhelpful actions; 
if a need for such action arises, the Chinese Government 
first will communicate with the USG. 
 
¶17. (SBU) Comment:  Wang repeated the line of other 
senior Chinese economic officials that China can not be 
assured of its recovery until the U.S. economy recovers. 
On China's exchange rate policy, Wang reiterated what we 
have heard from some other interlocutors: the Chinese 
view stability of the RMB vis--vis the U.S. dollar as an 
important nominal anchor at a time of exceptional global 
financial and economic volatility.  This implies that 
when China is more confident that financial conditions 
and demand in its major trading partners have stabilized 
and begun to recover, it is likely to allow for greater 
bilateral exchange rate flexibility.  This approach also 
attempts to put the burden back on China's trading 
partners to stabilize their economies before pressing 
China for greater exchange rate flexibility.  Both sides 
appeared to agree that, while financial sentiment remains 
fragile, it is best to limit public expressions of 
concerns about financial assets or policies. 
PICCUTA