VZCZCXRO7647
RR RUEHCN RUEHVC
DE RUEHGH #0394/01 2600533
ZNR UUUUU ZZH
R 170533Z SEP 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8281
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 2005
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8932

UNCLAS SECTION 01 OF 02 SHANGHAI 000394 
 
CODEL 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV OREP CH
SUBJECT: SHANGHAI OFFICIALS, U.S. BANKS DISCUSS CURRENT ECONOMIC 
CONDITIONS WITH CODEL MORAN 
 
REF: Beijing 2609 
 
SHANGHAI 00000394  001.2 OF 002 
 
 
(U) This cable is sensitive but unclassified. Not for 
distribution outside USG channels. 
 
¶1. (SBU) Summary: During a September 3-6 visit to Shanghai, 
Representative James Moran (D-VA) and Joint Economic Committee 
Chair Carolyn Maloney (D-NY) met with Shanghai municipal 
government officials and American bank representatives to 
discuss ways the US-China economic relationship could be used to 
accelerate the recovery of the U.S. economy. Shanghai officials 
stressed the importance of the bilateral trade relationship and 
encouraged continued cooperation. Rep. Maloney met separately 
with representatives of Wuxi-headquartered Suntech, one of the 
world's largest producers of solar cells and modules, to urge 
them to consider New York as a possible site for establishing a 
manufacturing facility. End Summary. 
 
--------------------------------------------- ------- 
Vice Mayor: Bilateral Economic Relationship Critical 
--------------------------------------------- ------- 
 
¶2. (SBU) In a meeting September 4, Shanghai Vice Mayor Tang 
Dengjie welcomed Moran and Maloney to Shanghai, provided an 
overview of Shanghai's current economic climate, and lauded 
increasing cooperation and exchanges between the U.S. and China. 
Rep. Maloney noted President Obama's comment that ties between 
the United States and China represent the most important 
bilateral relationship of the twenty-first century. She 
expressed concern, however, over imbalances in the U.S.-China 
trade relationship. With respect to China's efforts to 
restructure its economy, Tang stated that Shanghai is presently 
relocating factories further inland and is in the midst of 
restructuring its job market by placing an emphasis on the 
service, public health, and financial sectors. He added that 
these reforms would expand the number of opportunities for 
bilateral cooperation, especially in the fields of science and 
technology. 
 
¶3. (SBU) Tang stated that wholly-owned foreign enterprises and 
joint ventures comprise 70 percent of export operations in 
Shanghai. The Chinese government actively encourages the import 
of technology from abroad, he added. Local governments have 
adopted policies that promote domestic consumption, such as 
government subsidies for farmers to purchase new appliances and 
tax credits similar to the U.S. Car Allowance Rebate System 
(more commonly referred to as "cash for clunkers"), whereby car 
owners are encouraged to trade in old vehicles for newer, more 
efficient models. Tang highlighted GM's facilities in Shanghai 
as an example of a major western company establishing a presence 
and importing parts and technology from the United States. Rep. 
Moran thanked Tang for sharing his far-sighted views and 
expressed hope that they were shared by China's senior 
leadership. Rep. Maloney suggested that China consider 
relocating tire factories to depressed areas of the U.S. 
suffering from high rates of unemployment, such as Ohio and 
Pennsylvania. She mentioned that this would be a positive way to 
address simultaneously the trade imbalance and provide relief 
for U.S. unemployment in the wake of the global financial 
crisis. (Note: This meeting occurred prior to the USG "421" 
safeguards decision announcement. End Note) 
 
--------------------------------------- 
Boosting Domestic Consumption Difficult 
--------------------------------------- 
 
¶4. (SBU) In a separate meeting September 4, Shanghai Financial 
Services Office Director General Fang Xinghai emphasized that 
deregulation and decentralization were critical to boosting 
domestic consumption. Although China has experienced significant 
overall income growth over the last few decades, the wealth 
distribution is highly skewed, Fang explained, due in no small 
part to China's tightly regulated and controlled financial 
system. Fang added that reforms aimed at creating a more 
market-based system were needed. Until the tens of millions of 
smaller, technology-oriented enterprises obtain greater access 
to capital, substantial growth of domestic consumption in China 
will be extremely difficult to achieve. 
 
---------------------------------------- 
BNY Mellon JV Open for Business...Almost 
---------------------------------------- 
 
¶5. (SBU) Bank of New York Mellon (BNY Mellon) officials told 
CODEL Moran during a September 4 meeting that their China 
offices have two primary functions. First, to support its U.S. 
business operations, and second, to produce new business in 
 
SHANGHAI 00000394  002.2 OF 002 
 
 
China that can be serviced out of the United States. For 
example, they stated that BNY Mellon provides trade finance for 
U.S.-China trade to include letters of credit and bankers 
acceptances. Another major business is preparing Chinese 
companies to list American Depository Receipts (ADRs) on the New 
York Stock Exchange or NASDAQ. 
 
¶6. (SBU) BNY Mellon is in the midst of opening a securities 
joint venture in China, the company representatives added. The 
final step, receiving final permission from the government, 
should occur in the next two to three months. According to the 
officials, the application process is as follows: 1) the bank 
must submit an application and receive initial approval; 2) 
hiring begins and office space rented, followed by a second 
government approval. BNY Mellon is awaiting the second (final) 
government approval. The joint venture company, with China's 
Western Securities, will market Chinese stocks to international 
clientele. 
 
--------------------------------------- 
Citi: China Operations Turning a Profit 
--------------------------------------- 
 
¶7. (SBU) Andrew Au, CEO of Citi China, told the delegation 
September 5 that Citi, for better or worse, is regarded as the 
U.S. "national bank" by China. Therefore, Citi is told by 
Chinese regulators that approval by U.S. authorities of Chinese 
bank branches in the U.S. is a quid pro quo for Citi opening 
branches in China. 
 
¶8. (SBU) Generally, for a foreign-invested firm, operating in 
China is "a pain," but everybody makes "good money," Au claimed. 
For banks, profits come "the old fashioned way," by taking 
deposits and lending out money, making profits on the spread 
between the two rates. Financial sector growth in China is high 
owing to strong economic growth. Inefficiencies remain in the 
market that can still be exploited to generate profit. Citi has 
RMB 6 billion in assets, and last year made a profit of around 
RMB 1.6 billion -- a return on equity for Citi (China) of around 
20 percent, he explained. 
 
¶9. (SBU) Turning to U.S.-China trade, Au downplayed the 
importance of the exchange rate and instead highlighted market 
opening. He said that concessions made by the Chinese in the SED 
did not necessarily benefit U.S. banks operating in China, 
adding that it was as if the U.S. had built a highway, and the 
first trucks down the highway were European. In his opinion, he 
noted that former Treasury Secretary Henry Paulson probably did 
not demand specific concessions for U.S. financial institutions. 
Au separately noted that the United States is respected as the 
global leader on financial policy issues, and Congressman Moran 
agreed, pointing out this respect in part was earned by the 
evenhandedness by which U.S. officials abide in bilateral 
negotiations. 
 
¶10. (U) CODEL Moran cleared this report. 
CAMP