VZCZCXRO0910
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1675/01 1700807
ZNR UUUUU ZZH
O 190807Z JUN 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4671
INFO RUEHBUL/AMEMBASSY KABUL IMMEDIATE 0619
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 BEIJING 001675 
 
SENSITIVE 
SIPDIS 
 
STATE PASS FOR USTR 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PREL ECIN CH
SUBJECT: REPS KIRK-LARSEN MEET VICE PREMIER WANG QISHAN 
 
REF: (A) Beijing 1473; (B) Beijing 1500; (C) Beijing 1518; (D) 
Beijing 1523 
 
BEIJING 00001675  001.2 OF 002 
 
 
(U) This cable is Sensitive but Unclassified (SBU) and for official 
use only.  Not for transmission outside USG channels. 
 
¶1. (SBU) SUMMARY.  Congressmen Mark Kirk and Rick Larsen met with 
Vice Premier Wang Qishan on May 31 during their visit to Beijing as 
co-chairs of the U.S.-China Working Group of the U.S. Congress. 
Wang observed that, given the size of the U.S. economy, a U.S. 
recovery would spell recovery for China and the rest of the world as 
well.  Chinese leaders concerns about China's huge holdings of U.S. 
debt were natural, but this also meant an early U.S. recovery was 
clearly in the Chinese interest, he added.  Wang praised the swift 
action of the Obama Administration and Congress to address the 
economic crisis, but expressed some doubt about the ability of the 
USG to maintain longer-term fiscal responsibility.  END SUMMARY 
 
¶2. (SBU) During their meeting with Vice Premier Wang Qishan on May 
31, Congressmen Mark Kirk (R-IL) and Rick Larsen (D-WA) asked the 
Vice Premier's views on the global economic crisis and the Renminbi 
exchange rate.  Larsen noted recent U.S. economic indicators were 
sending mixed signals.  Kirk stressed that the primary causes of the 
U.S. financial crisis did not emanate from the U.S. private sector, 
but from the U.S. "state-owned enterprises" of Fannie Mae and 
Freddie Mac, which the Congress had forced to make imprudent 
investments, including through the Community Reinvestment Act.  Kirk 
said he expected U.S. government borrowing in the near-term to 
exceed current official estimates.  According to Kirk, this along 
with the purchase of long-term U.S. Treasury Bonds by the Federal 
Reserve threatened the integrity of U.S. government debt.  With 
China as the U.S. government's "main creditor" Kirk urged Wang to 
raise any concerns with Treasury Secretary Geithner (Comment: 
According to recent public data, China holds about 7 percent of 
outstanding U.S. government securities and in 2008 Chinese purchases 
of U.S. Treasury securities only accounted for approximately 17 
percent of the change in stock of such securities.  End Comment). 
 
¶3. (SBU) Congressman Kirk said he expected the United States to 
enter into an extended period of high inflation and low growth. 
While a similar period during the 1970s had little impact on China, 
given China's much greater integration with the United States now, 
China needs to be prepared for this.  Larsen noted that there were 
differences of opinion on the outlook for U.S. growth, inflation and 
public finances.  Congressman Kirk also used the meeting to propose 
that China allow transit through Western China of food and fuel to 
Afghanistan.  Finally, Representatives Larsen and Kirk invited Vice 
Premier Wang to visit Capitol Hill on the margins of the U.S.-China 
Strategic and Economic Dialogue scheduled to take place July 27-28 
in Washington. 
 
¶4. (SBU) Wang stressed that the U.S.-China relationship was now one 
of mutual interdependence requiring close collaboration, as 
reflected in the two countries' joint efforts at the London G20 
meeting and the vision for bilateral ties agreed to by Presidents 
Obama and Hu of building a positive, cooperative, and comprehensive 
relationship for the 21st Century.  He said experts he had consulted 
had different views on whether the economic crisis had hit bottom. 
But one point everyone agreed on was that once the U.S. economy 
began to recover, the world economy (including China's) would follow 
suit.  He said this was based on the fact that the United States was 
still the world's leading economy, both quantitatively and 
qualitatively, as it had been since World War Two.  The big 
difference is that over the last 30 years, countries like China, 
India, Brazil and Indonesia have joined the international economic 
system dominated by America. 
 
¶5. (SBU) Vice Premier Wang did not respond specifically to the 
question about the Renminbi exchange rate.  Instead, Wang said China 
has known for a decade that it needed to foster its own domestic 
demand, but this had been hard to do when China was enjoying the 
advantages of strong external demand.  He said this economic crisis 
would help force China to become more efficient and less dependent 
on export markets for its growth. 
 
¶6. (SBU) Wang commended the steps taken to date by the Obama 
Administration and the Congress to address the financial crisis. 
While noting President Obama's pledge to reduce the budget deficit, 
Wang thought this would be difficult to achieve.  When Kirk asked if 
China planned to continue buying U.S. Treasury bills, he replied 
that minor adjustments one way or the other in Chinese purchases did 
not matter, given China's already huge holdings of U.S. debt.  Wang 
stressed that China's priorities in managing its reserves would 
remain, safety, liquidity and good value.  Given the importance of 
safety and liquidity, China does not expect a high return on its 
reserve holdings.  It was only natural for Chinese leaders to feel 
concern about these assets, and while Premier Wen said in March that 
 
BEIJING 00001675  002.2 OF 002 
 
 
he is a "little worried" as the responsible official, Wang is even 
more concerned.  That said, Wang pointed out that debate over 
reforming the international financial system should be viewed as 
part of a long-term process, not something that would be implemented 
in the near future or a viable way to fix current problems. 
 
¶7. (SBU) Wang said that for now, given America's economic 
pre-eminence and China's huge exposure to the fortunes of the U.S. 
economy, the United States is still "calling the shots" in the 
relationship, and power shifts to the borrower when it is as 
powerful as the United States. The convergence of interests made it 
impossible for China to do anything other than hope for an early and 
full U.S. economic recovery.  He was confident about the prospects 
for recovery, whether it took two or four or five years, pointing 
out that humankind had overcome far greater perils during the 20th 
Century's two world wars.  He also said that human progress, fueled 
by constant technological innovation, was unstoppable.  He said that 
innovation would be the key to solving global environmental problems 
without asking people to give up their cars and air conditioners. 
Finally, Wang said the three meetings of the G20 over such a short 
time span were both unprecedented and a clear sign that the world's 
leaders were seriously committed to working together, and this also 
gave him confidence about the future.  He noted that while there had 
been a consensus in the G-20 between China and the United States on 
how to respond to the global financial crisis and spur growth, there 
remand significant disagreement with and within Europe. 
 
¶8. (U) Representatives Kirk and Larsen did not have the opportunity 
to clear this message before departing. 
 
PICCUTA