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UNCLAS SECTION 01 OF 03 BEIJING 001703 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: BEXP ECON EINV ETRD KIPR CH
SUBJECT: Congressmen Kirk and Larsen's Roundtables with Chinese, 
U.S. Business Leaders 
 
REF: (A) Beijing 1473; (B) Beijing 1500; (C) Beijing 1518; (D) 
Beijing 1523; (E) Beijing 1675; (F) Beijing 1695 
 
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 
participated in a Chinese Business Roundtable on May 30 and a joint 
American Chamber of Commerce (Amcham) and U.S.-China Business 
Council (USCBC) Roundtable on June 1, during their visit to Beijing 
as co-chairs of the U.S.-China Working Group of the U.S. Congress. 
At the Chinese Business Roundtable, Chinese executives explained 
their responses to the Global Financial Crisis (GFC) and raised 
concerns that American misperceptions of Chinese companies not only 
overestimate government support to these firms, but also block 
foreign acquisitions.  A Chinese academic from the State Council's 
Development Research Center (DRC) expressed concern about U.S. 
government deficits and the long-term effects on the U.S. economy. 
At the joint AmCham/USCBC Roundtable, U.S. business leaders 
expressed their desire to work closely with the U.S. government to 
engage China on environmental and energy issues, building on past 
cooperation.  They raised concerns about an increasingly 
protectionist business environment, citing recent cases involving 
energy and environmental opportunities.  U.S. business leaders also 
expressed concern about compulsory licensing and intellectual 
property rights (IPR) protection, which are making it more difficult 
to do business in China.  END SUMMARY. 
 
ROUNDTABLE WITH CHINESE FIRMS 
----------------------------- 
 
¶2. (SBU) On May 30, at a Chinese business roundtable organized by 
Dr. Scott Kennedy, a Fulbright Research Scholar from Indiana 
University, Congressmen Rick Larsen and Mark Kirk exchanged views 
with executives from Huawei (China's leading telecommunications 
group) and Sinotrans (a key state-owned enterprise (SOE) involved in 
freight, logistics and shipping); as well as a State Council 
Development Research Center (DRC) academic. 
 
HUAWEI:  A 100 PERCENT "PRIVATE" COMPANY? 
----------------------------------------- 
 
¶3. (SBU) Tang Xinbing, Vice President of Chinese telecom vendor 
Huawei, introduced the company's plans to open a representative 
office in Washington.  In part, the move is a response to Huawei and 
Bain Capital's failed attempt to purchase the U.S. firm 3Com in 
¶2008.  Tang said Huawei executives believed the Committee on Foreign 
Investment in the U.S. (CFIUS) would reject the deal, thus it was 
withdrawn.  Huawei hopes that an increased government affairs 
presence in Washington can help them to overcome the "mistaken 
impression" that the company is owned and operated by the Chinese 
military.  In actuality, Tang says, the company is "100 percent 
privately owned by its employees."  (NOTE:  Few details about 
Huawei's ownership structure are provided on the company's website, 
and questions regarding Huawei's ownership were raised at the time 
of the firm's 3Com bid.  END NOTE.) 
 
¶4. (SBU) Congressman Kirk asked if China's domestic 3G wireless 
standard, TD-SCDMA, was a just a way to give an edge to domestic 
Chinese equipment vendors, such as Huawei.  Huawei's Tang noted that 
the company does not have enough influence with the Chinese 
government to receive such preferential treatment.  On the contrary, 
Huawei is dominant in W-CDMA, and reasonably good at CDMA2000.  The 
requirement to support a third, domestic standard, in which Huawei 
did not have a base of expertise, was also a burden to his company. 
ZTE, another Chinese firm, dominates TD-SCDMA.   Tang believes that 
different markets simply adopted different standards to meet 
different needs, and Huawei must adapt to these market needs. 
 
SINOTRANS: DOWNTURN HURT; HELPED BY STIMULUS 
-------------------------------------------- 
 
¶5. (SBU) Sinotrans Vice President Huang Bilie humorously contrasted 
his large transport and logistics firm with Huawei, saying Sinotrans 
was a "100 percent state-owned enterprise (SOE)."  Huang explained 
that his company has been hit hard by the GFC and had quickly taken 
measures to significantly reduce the company's debt, to improve 
their collection of accounts receivable, and to cut executive 
salaries by 10 percent.  Huang noted the firm's express delivery 
business had remained strong, but danced around the fact that 
Sinotrans appears to be benefiting from China's new Postal Law, 
which effectively excludes foreign firms from the domestic document 
business.  Instead, Huang emphasized that his firm had a partnership 
with DHL, and also worked closely with U.S. firms UPS and Federal 
Express. 
 
¶6. (SBU) Huang admitted that Sinotrans has benefitted from Chinese 
government stimulus measures, but only marginally since these 
focused heavily on infrastructure, not on service providers.  To 
 
BEIJING 00001703  002 OF 003 
 
 
demonstrate his point, he noted that of 150 key government stimulus 
projects in transport and logistics, Sinotrans had a stake in only 
two.  Huang defended Chinese SOEs as being increasingly efficient 
and modern, having adopted professional management practices and 
having eliminated waste.  He encouraged the Congressmen and the U.S. 
not to fear the Chinese state ownership structure, but to consider 
new areas of mutually beneficial cooperation. 
 
CHINESE CONCERNED ABOUT THE U.S. ECONOMY 
---------------------------------------- 
 
¶7. (SBU) State Council Development Research Center (DRC) Institute 
of World Development Director Ding Yifan, expressed deep concern 
about the future of the US economy.  Implicitly criticizing U.S. 
spending, he observed, "Since the RMB is not an international 
reserve currency, there is a limit on the debt we can accrue, and 
China cannot consume on borrowed money."  In particular, he worried 
about how long the United States would maintain an effective zero 
percent nominal interest rate and inquired about the U.S. government 
deficit and its long-term effects on the economy. 
 
¶8. (SBU) Still, Ding emphasized that China's growth could help the 
United States.  He acknowledged that the coastal regions have 
suffered, but emphasized that China's inland regions are doing well. 
 He predicted the Chinese economy would emerge from the crisis 
larger but more balanced, and with a greater domestic focus.  In 
response to a question, Ding admitted that exporters had 
considerable political strength in China, but noted that their clout 
came from exports' contribution to overall GDP growth, and he 
implied that this dynamic was changing. 
 
U.S. FIRMS SEEK MORE U.S. GOVERNMENT COOPERATION 
--------------------------------------------- --- 
 
¶9. (SBU) On June 1, the Kirk-Larsen delegation participated in a 
roundtable with 20 U.S. businesses sponsored by the American Chamber 
of Commerce (AmCham) and the U.S.-China Business Council (USCBC). 
U.S. firms expressed a consensus view that cooperation between 
business groups and the U.S. government are even more relevant and 
important given the current economic and business climate.  U.S. 
firms were grateful for the access they were granted to the 
policy-making process through both the Strategic Economic Dialogue 
(SED) and the Joint Committee on Commerce and Trade (JCCT), and are 
interested in seeking other means of strengthening cooperation. 
Amcham and USCBC hope to stay abreast of Strategic and Economic 
Dialogue (SnED) developments by assigning special liaisons. 
 
ENVIRONMENT AND CLIMATE CHANGE 
------------------------------ 
 
¶10. (SBU) United Technologies Corporation (UTC) China President Jim 
Gradoville discussed the importance of the U.S. environment and 
climate change dialogue with China.  His company has focused on 
green buildings in China, given that buildings account for 40 
percent of global energy demand.  China's goal to reduce energy 
consumption per unit of GDP by 20 percent has shaped its policy of 
increasing energy efficiency.  But Gradoville speculated that while 
current technologies may solve 65-70 percent of carbon emission 
issues, the last leg will require legislation. 
 
¶11. (SBU) General Electric (GE) General Manager Albert Xie noted his 
company's eco-city project in Tianjin focuses on climate change, 
water conservation, and building code safety issues.  GE would like 
to cooperate on more projects, but sometimes finds itself unable to 
participate in some of the more than 800 current infrastructure 
projects.  In the case of wind power, for example, foreign vendors' 
products are manufactured to higher quality standards, and thus 
reliability is better and life-cycle operating costs lower than 
their Chinese competitors.  But the Chinese bidding process only 
takes into account initial costs, giving a big advantage to local 
companies.  In spite of better technology and better performance, 
foreign firms only win between 10 and 20 percent of bids. 
 
COMPULSORY LICENSING OF INTELLECTUAL PROPERTY 
--------------------------------------------- 
 
¶12. (SBU) Malcolm Lee, Senior Director of Legal and Corporate 
Affairs for Microsoft China, believes the issue of compulsory 
licensing of intellectual property (IP) using environmental 
justification is very real.  "U.S. companies fear this," he said. 
In addition, the new Anti-Monopoly Law (AML) contains "abusive IP 
provisions."  Many believe that Chinese courts are being used to 
counteract the strength of foreign patents, he explained.  While IPR 
issues have improved, companies fear going forward and losing 
business if Chinese IPR enforcement remains too weak or at times 
non-existent.   James Zimmerman, Chief Representative of Squire 
Sanders in Beijing, added, "At present, there is no effective remedy 
through Chinese courts." 
 
 
BEIJING 00001703  003 OF 003 
 
 
INDIGENOUS INNOVATION:  US VS THEM MENTALITY 
-------------------------------------------- 
 
¶13. (SBU) Microsoft's Lee observed that the implicit goal of China's 
information technology (IT) industry support plan is to encourage 
domestic spending on domestic products.  The concept of indigenous 
innovation is presented in a very stark "us vs. them" framework, 
undermining efforts at joint collaboration.  In China, innovation is 
simply intended to develop domestic substitutes to foreign 
technology. 
 
¶14. (SBU) American Chamber of Commerce (AmCham) Chairman John 
Watkins of Cummins China echoed this view by observing that China's 
stance on IPR and indigenous innovation feels different today.  He 
has real concerns and fears that this unwelcome commercial 
environment will affect business relationships.  The 
less-than-optimistic mood in China is due in part to recent events 
such as the new Postal Law, the MOFCOM decision against Coca-Cola's 
purchase of Huiyuan, and numerous "buy local" campaigns.  Watkins 
observed, "The result is the worst commercial environment ever in 
China."  Although most U.S. companies in China are profitable, he 
continued, they are finding it increasingly difficult to do business 
here. 
 
PICCUTA