VZCZCXRO3106
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2609/01 2540811
ZNR UUUUU ZZH
R 110811Z SEP 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 6012
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 BEIJING 002609 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: CH ECON EFIN EINV ETRD OREP
SUBJECT: REACTION TO THE GLOBAL ECONOMIC CRISIS; CODEL MORAN VISITS 
BEIJING 
 
REF: (A) Beijing 1571; (B) Beijing 1556; (C) Beijing 1586 
 
This cable is Sensitive But Unclassified (SBU) and for official use 
only.  Not for transmission outside USG channels. 
 
¶1. (SBU) SUMMARY. Representative James Moran (D-VA) and Joint 
Economic Committee Chair Carolyn Maloney (D-NY) visited Beijing 
September 1 to 3 to meet with key financial, sovereign wealth, and 
Chinese government leaders.  Responding to entreaties to open an 
office in New York, China's sovereign wealth fund explained they are 
deciding between New York and Hong Kong.  Bankers and researchers 
confirmed that the U.S. dollar's international reserve position is 
currently unthreatened, and China will continue to buy dollar 
assets.  Interlocutors disagreed on the prospect for near term 
rebalancing in China, with the central banker more sanguine than 
researchers.  An official at China's reserve management agency also 
downplayed the prospects for Renminbi exchange rate adjustments in 
the near future.  Officials expressed some interest in investment in 
the United States, but showed concerns that the American banking 
system still has unrealized liabilities. END SUMMARY. 
 
¶2. (SBU) On September 1-3, the delegation met with representatives 
from the China Banking Regulatory Commission (CBRC), the People's 
Bank of China (PBOC), Minsheng Bank, the State Administration for 
Foreign Exchange (SAFE), the National People's Congress (NPC), China 
Investment Corporation (CIC), China International Capital 
Corporation (CICC), and the China Center of International Economic 
Exchanges (CCIEE). 
 
ENCOURAGING CIC BRANCH IN NYC 
----------------------------- 
¶3. (SBU) In a meeting with Gao Xiqing, President of CIC (China's 
sovereign wealth fund), Representative Maloney explained the 
advantages to CIC of opening its first overseas office in Manhattan. 
 Given CIC's existing investments, including Morgan Stanley and 
Blackstone, and the fact that New York City offers the world's 
deepest and most liquid capital markets, the city is a natural 
choice.  Gao responded that he could not give a specific office 
opening timetable and it may take two or three years to "get the 
right people together."  Gao said he sees New York as a logical next 
step for CIC, but noted that some feel Hong Kong would be a more 
appropriate choice for CIC's first office outside the mainland. 
¶4. (SBU) Lin Shoukang, Managing Director at the CICC (a large 
investment banking and research company tied to CIC), told the 
delegation that CICC plans to open an office in New York City by the 
end of this year. 
DOLLAR STILL KING 
----------------- 
 
¶5. (SBU) CICC's Lin stated that the U.S. dollar's role in 
international markets likely would not change over the next few 
decades. China, in addition, has no choice but to continue to invest 
in USD-denominated assets.  However, Lin speculated there will be a 
gradual diversification in Chinese-held assets as China's outbound 
investment environment continues to open.  Zeng Peiyan, CCIEE 
Chairman and former Vice Premier, asserted that, as long as the 
dollar remained stable, China would continue to purchase 
Treasuries. 
 
REBALANCING: STIMULUS, CONSUMPTION, RMB 
----------------------------- 
¶6. (SBU) Representative Moran emphasized in his meetings that China 
can contribute to U.S.-China relations by increasing imports from 
the United States and establishing businesses there, rather than 
continuing to rely on exports to the United States to drive growth. 
He called rebalancing economic and trade relations a "win-win" 
situation for both countries.  PBOC Governor Zhou Xiaochuan agreed 
that China should greatly increase imports from the United States, 
in conjunction with further opening, deregulation, and rebalancing 
of the Chinese economy.  The Chinese Government is considering 
additional fiscal stimulus spending to further social security and 
health care reform programs to help encourage consumption. 
¶7. (SBU) Other interlocutors struck a less positive note about the 
prospects for rebalancing.  Zhang Lanlan, Managing Director of 
CICC's Research Department, said that China's position as an 
exporter is based on its price advantage and that Chinese 
consumption will not replace U.S. consumption overnight.  CCIEE's 
Chairman Zeng also opined that China's high savings rate was the 
result of cultural and consumption habits, and would take many years 
to change.  He claimed the trade imbalance between the United States 
and China cannot be addressed easily, since the imbalance arose from 
a reasonable global division of labor. 
¶8. (SBU) Deng Xianhong, SAFE Deputy Administrator, observed that we 
have "a long way to go" to correct economic imbalances, including 
reform of the international economic system as well as greater 
regulatory cooperation between countries.  Readjustment of RMB 
exchange rates would be a "long and complex process," and any 
reforms need to be both gradual and comprehensive, including 
domestic prices and the social safety net.  If China focused on 
 
BEIJING 00002609  002 OF 002 
 
 
exchange rate issues immediately, then enterprises already hurt by 
the global crisis would suffer more. 
INVESTMENT IN US: "YOU HAVE TO CLEAN THE COURTYARD" 
----------------------------- 
 
¶9. (SBU) Zeng stated that many Chinese companies come to CCIEE for 
help finding appropriate investments in the United States, but 
claimed there are barriers to Chinese investment.  Offering an 
example, Zeng claimed the United States blocked the sale of Hummer 
to a Chinese company for national security reasons.  Representative 
Maloney countered that the concern actually had been the Chinese 
company's intention to take the factory to China, resulting in a 
loss of American jobs.  To attract more Chinese investment in the 
United States, especially the financial sector, CBRC Chairman Liu 
Mingkang commented regulators will, "have to clean the courtyard 
before having guests." 
 
BANKING REGULATION CONCERNS 
----------------------------- 
¶10. (SBU) CBRC Chairman Liu and Director General Han Mingzhi 
discussed the two countries' economic regulatory challenges. 
Chairman Liu noted that not all the economic recovery signals are 
good in the United States: "Parts of private sector appear 
profitable but you don't know where the profit comes from.  The 
progress of some firms hides the fact that there has been huge 
intervention and support to companies; this is only temporary 
progress; TARP and other remedies are not working."  In addition, 
Liu feels that an exit strategy is missing and that financial 
institutions cannot yet stand alone. 
¶11. The delegation did not clear on this cable. 
HUNTSMAN