VZCZCXRO6842
PP RUEHCN RUEHVC
DE RUEHGH #0365/01 2320824
ZNR UUUUU ZZH
P R 200824Z AUG 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC PRIORITY 8221
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 1953
RUCPDOC/USDOC WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8872

UNCLAS SECTION 01 OF 04 SHANGHAI 000365 
 
CODEL 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EEB 
 
E.O. 12958: N/A 
TAGS: ECON EIND ETRD ETTC OVIP CH
SUBJECT: SENATOR NELSON HEARS UPBEAT ASSESSMENT OF CHINA ECONOMIC 
OPPORTUNITIES FROM U.S. BUSINESS, SHANGHAI PEOPLE'S CONGRESS 
 
SHANGHAI 00000365  001.2 OF 004 
 
 
(U) This message is sensitive but unclassified and for official 
use only. Not for distribution outside of USG channels. 
 
 
 
¶1. (SBU) Summary: In an August 10 roundtable discussion with 
Senator Bill Nelson, representatives of 20 American Chamber of 
Commerce in Shanghai (AmCham) member companies responded to 
Senator Bill Nelson's (D-FL) queries regarding opportunities for 
U.S. businesses, technology transfer, corruption, and product 
quality.  AmCham members indicated American companies doing 
business in China can overcome the ongoing risks and defeat 
bureaucratic obstacles by developing knowledge of the market, 
staying ahead of the innovation curve, and maintaining oversight 
of local partnerships.  AmCham members also concurred with 
Senator Nelson's opinion that AmCham needed to do more to 
overcome negative perceptions in the U.S. of China's current 
business environment and lack of American confidence in China's 
oversight of consumer product safety.  During an August 11 
meeting with an official of Shanghai Municipal People's 
Congress, Senator Nelson heard a reassuring message on 
Shanghai's prospects for economic recovery.  End Summary. 
 
 
 
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OPPORTUNITY, FOR THOSE WILLING TO TAKE IT 
 
----------------------------------------- 
 
 
 
¶2. (SBU) During an August 10 roundtable discussion with visiting 
Florida Senator Bill Nelson, Shanghai AmCham members described a 
challenging business environment, but one still laden with 
opportunity.  One representative of a U.S. law firm explained 
that despite massive amounts of Chinese state funds supporting 
the roll-out of green technology, foreign companies face market 
penetration obstacles.  He described how foreign involvement in 
green-technology projects can be restricted through hard limits, 
such as manufacturing quotas requiring the majority of parts be 
made in China, and also through soft limits, such as guided 
selection of bidders for large projects.  Nevertheless, the law 
firm representative stated that foreign firms still make the 
highest quality products in the green-technology sector, and 
Chinese developers remain attracted to quality, especially for 
high-visibility projects.  The managing director of a logistics 
company cited the success of Westinghouse in the nuclear energy 
sector as an example of the potential benefits of investing in 
China.  Westinghouse's multi-billion-dollar contract to build 
nuclear power plants in China has created thousands of jobs in 
the U.S., he claimed. 
 
 
 
¶3. (SBU) A trading company representative described emerging 
opportunities for U.S. small and medium enterprises (SMEs) as 
the next frontier of U.S.-China business relations.  He 
explained that while larger companies have already established a 
presence in China, the potential for small cap companies to 
supply second and third tier Chinese companies with quality 
products remained.  To encourage the entrance of SMEs into the 
Chinese market, he also cited the importance of generating 
support for legislation such as the Kirk-Larsen Bill, which is 
designed to help American businesses access the Chinese market 
and maintain competitiveness through export promotion, 
diplomatic expansion, energy cooperation, and language training. 
 AmCham members concurred that this type of legislation will 
allow U.S. businesses to overcome the initial barriers to entry 
in the Chinese market and establish a presence in the world's 
largest growth market. 
 
 
 
¶4. (SBU) Two AmCham officers described the diverse opportunities 
available for U.S. companies with regards to the 2010 Shanghai 
World Expo.  They cited a recent survey which indicated that the 
U.S. pavilion is number two on the list Chinese people most want 
to visit, second only to the Chinese pavilion.  With a projected 
Expo attendance of 70 million, this guaranteed audience would 
make the Expo an ideal forum for companies to display products 
and introduce themselves to China's growing market, they said, 
adding that U.S. cities and states would be able to promote 
 
SHANGHAI 00000365  002.2 OF 004 
 
 
themselves as investment and tourism destinations. 
 
 
 
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STAYING AHEAD OF THE INNOVATION CURVE 
 
SOLVES THE TECHNOLOGY TRANSFER PROBLEM 
 
-------------------------------------- 
 
 
 
¶5. (SBU) Senator Nelson expressed concern about cultivating 
future Chinese competitors as a byproduct of current U.S.- China 
private sector technology-sharing partnerships.  AmCham members 
concurred that this was indeed a concern, but that the 
alternative was to hand over business to current global 
competitors from European and Asian countries.  Several business 
representatives cited the aviation sector to describe current 
technological partnership opportunities for U.S. businesses. 
They explained that although China has clearly stated its intent 
to eventually compete with Boeing and Airbus on a global scale, 
their airplanes currently under development contain a 
significant percentage of U.S and foreign multinational content. 
 China's first generation regional aircraft contains almost 40 
percent U.S. content, and a planned second-generation and 
slightly larger regional aircraft is predicted to contain an 
even higher percentage of U.S. content.  This arrangement 
translates directly into substantial U.S. jobs and revenue for 
U.S. companies. 
 
 
 
¶6. (SBU) The representative of a major U.S. manufacturing firm 
cited his company's experience with locomotives as an example of 
how U.S. companies can succeed even in industries where Chinese 
competitors have used tech-transfer projects to develop their 
own national industry.  He explained that since his firm entered 
the locomotive market in China 20 years ago, Chinese companies 
have used tech-transfer partnerships to acquire and develop 
advanced locomotive technology.  Despite the maturation of the 
Chinese locomotive industry, today that company sells more 
locomotives to China than ever before, he added.  The 
manufacturing firm's representative attributed this success to 
his company's continuing innovation and reputation for 
high-quality and anticipated similar market development in other 
sectors such as aviation. 
 
 
 
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CORRUPTION LESS PREVALENT IN DEVELOPED REGIONS 
 
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¶7. (SBU) Senator Nelson inquired as to the effect of corruption 
and bribery on U.S. business interests in China.  AmCham members 
stated that corruption remains an important problem when doing 
business in China.  However, as the Chinese government increases 
its anti-corruption efforts, as U.S. companies educate 
themselves on the issue, and as Chinese companies globalize, 
corruption is becoming less of a hindrance and is starting to 
retreat to certain geographic regions and sectors of the 
economy, members claimed.  For example, the logistics firm 
representative cited results of a recent survey of AmCham 
companies that found corruption was no longer a top concern for 
many companies operating in the developed coastal regions of 
China.  However, for companies operating in the less-developed 
inland regions, corruption remained a significant problem, he 
added.  A consulting company representative also noted that 
bribery and corruption are becoming more industry specific, with 
continued concerns in industries deemed sensitive by the Chinese 
government.  Another participant in the discussion explained 
that U.S. companies' compliance with the U.S. Foreign Corrupt 
Practices Act is typically determined by the leadership of the 
company and how it educates its expatriate and foreign national 
employees with regard to local and U.S. anti-corruption laws. 
 
 
 
SHANGHAI 00000365  003.2 OF 004 
 
 
 
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PRODUCT QUALITY AND COUNTERFEIT GOODS: "A TWO-WAY STREET" 
 
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¶8. (SBU) Senator Nelson raised the issue of Chinese product 
safety and quality control, and the protection of intellectual 
property rights.  The Senator described the toxic effects of 
tainted Chinese drywall used in the construction of homes in 
Florida and elsewhere in the U.S., as well as his involvement 
with the Chinese toxic-toy scandal, and asked AmCham members how 
these types of product quality issues could be avoided in the 
future.  AmCham members acknowledged the fault of Chinese 
producers in manufacturing faulty or unhealthy products, but 
also described product quality disputes as a "two-way street" 
and pointed a finger at U.S. importers.  The representative of 
an engineering firm emphasized that companies ordering products 
from China need to ensure that their suppliers are meeting the 
specifications set out in the terms of their contracts, which 
would require "on-the-ground" presence by U.S. companies and a 
more rigorous inspection regime.  A representative of a risk 
management and business intelligence firm noted that U.S. firms 
typically perform more due diligence on their partnerships with 
other U.S. firms than they do with their Chinese partners.  He 
maintained that U.S. companies conducting simple reputational 
due diligence and background checks on Chinese partners could 
reduce product quality problems and render the Chinese 
manufacturing market more efficient. 
 
 
 
¶9. (SBU) On the issue of counterfeit products, AmCham members 
were unanimous in acknowledging recent efforts by the Chinese 
central government to reduce the production of counterfeit 
goods.  However, they also agreed that the central government's 
ability to enforce new regulations is limited and often is faced 
with diverging interests at the local government level.  The 
representative of an express delivery firm described his 
successful cooperation with the central government on 
identifying shipments of certain counterfeit goods. However, he 
said, since local officials keep one eye closed to counterfeit 
production in order to protect local industries, ample room for 
improvement remains. 
 
 
 
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CHINA BUSINESS ENVIRONMENT: IMAGE PROBLEM CONTINUES 
 
--------------------------------------------- ------ 
 
 
 
¶10. (SBU) AmCham officials asked Senator Nelson about the 
perception in the U.S. of doing business in China.  The senator 
highlighted varying perceptions on the ease of doing business in 
China. AmCham acknowledged it needed to tackle this problem with 
greater veracity since the majority of members present clearly 
viewed China as an indispensible market with latent potential, 
notwithstanding certain difficulties of doing business. 
 
 
 
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NO TAX REVENUE HERE 
 
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¶11. (SBU) Senator Nelson challenged AmCham members to suggest 
ways the U.S. government could generate more tax revenue as the 
U.S. economy begins to recover and major domestic programs such 
as healthcare will need to be funded.  One AmCham official 
stated that the U.S. Government should not generate tax revenue 
by raising taxes on U.S. citizens living abroad, and that 
allowances under Section 911 of the tax code, which permits U.S. 
expatriates to protect some income from taxation, should be 
 
SHANGHAI 00000365  004.2 OF 004 
 
 
expanded.  Another company representative suggested that the USG 
should focus on providing incentives to attract more foreign 
companies and FDI to the U.S., which would have the combined 
effect of creating more jobs, generating tax revenue, and 
maintaining the U.S.'s position as the number one location in 
the world for FDI. 
 
 
 
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REASSURING MESSAGE ON SHANGHAI'S ECONOMY 
 
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¶12. (SBU) Yuan Yixing, Chair of the Finance and Economy 
Committee of the Shanghai Municipal People's Congress (SMPC), 
told Senator Nelson during an August 11 meeting that Shanghai is 
facing some tough challenges as a result of the global financial 
crisis, but that the people of Shanghai are confident things 
will improve.  For now, Shanghai's situation is worse than 
elsewhere in China, because Shanghai is highly dependent on 
overseas markets.  The recovery will take time -- perhaps as 
long as several years -- because Shanghai must shift towards 
higher-technology and services industries for new growth, said 
Yuan.  In the end, though, one of Shanghai's strengths is its 
openness to the outside world, as shown in the international 
architectural styles prevalent in the city.  Yuan said it 
reminded him of a quote from Confucius, "How pleasant it is to 
have friends come from afar." 
 
 
 
¶13. (U) Senator Nelson's delegation has cleared this message. 
CAMP