VZCZCXRO8833
PP RUEHCN RUEHVC
DE RUEHGH #0397/01 2610904
ZNR UUUUU ZZH
P 180904Z SEP 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC PRIORITY 8285
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/US DEPARTMENT OF COMMERCE HQ WASHINGTON DC
RUEHBS/USEU BRUSSELS PRIORITY 0028
RUEHXX/GENEVA IO MISSIONS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8936

UNCLAS SECTION 01 OF 02 SHANGHAI 000397 
 
SENSITIVE 
SIPDIS 
 
NSC FOR JLOI, DBELL 
STATE PASS USTR FOR DMARANTIS, TREIF, TSTRATEFORD, AMAIN, JGRIER 
DOC FOR IKASOFF, NMELCHER 
TREASURY FOR OASIA/DOHNER/WINSHIP 
GENEVA PASS USTR 
 
E.O. 12958: N/A 
TAGS: ECON EIND ETRD ETTC CH PREL
SUBJECT: EAST CHINA TIRE MAKER "DISAPPOINTED" WITH U.S. SAFEGUARDS 
DECISION; IMPACT UNCERTAIN 
 
REF: BEIJING 2671 AND PREVIOUS 
 
SHANGHAI 00000397  001.2 OF 002 
 
 
(U) This cable is sensitive but unclassified. Not for 
distribution outside USG channels. 
 
¶1. (SBU) Summary: An East China-based tire manufacturer 
expressed disappointment in the "421" safeguards case for 
Chinese passenger car and light truck tires during a September 
17 meeting. He complained that in spite of the imposition of new 
tariffs on Chinese tires, U.S. tire manufacturers would never 
produce low cost tires again, thereby making the ostensible goal 
of the safeguards action -- preserving and creating American 
jobs -- unattainable. He reasoned that the decision was 
politically motivated and ultimately would only injure Chinese 
industry and U.S. consumers. End Summary 
 
--------------------------------------------- ---- 
U.S. Orders Fall, Other Overseas Markets Pondered 
--------------------------------------------- ---- 
 
¶2. (SBU) Shanghai Econoffs called on Giti Tire's Corporate 
Relations and Administration Director Shen Weijia September 17 
to gauge the Chinese tire industry's reaction to the USG 
decision to impose safeguard tariffs on imports of Chinese tires 
under Section 421 of the Trade Act. Shen noted that at this 
early juncture the ultimate effect of the tariffs on Giti's 
operations was as yet unclear, but the most immediate impact has 
been a significant drop in tire orders in advance of the 
September 26 date on which tariffs would begin to be imposed. 
The U.S. market's reaction to the new price level would be the 
key determinant in assessing the action's cost, he added. Last 
year, according to Shen, Giti exported approximately seven 
million tires to the United States, worth over USD 200 million. 
In the U.S. market, Giti largely supplies after-market tires for 
passenger cars and light trucks, Shen said. Shen expected that 
Giti, following the U.S. safeguards action, would seek to expand 
into other markets across Southeast Asia, Australia and possibly 
Europe. Giti currently exports to over 100 different countries. 
 
¶3. (SBU) Shen did not believe the safeguards action would result 
in an increase in mergers and acquisitions among smaller Chinese 
tire manufacturers, particularly in the short run. Most of the 
tire manufacturers that export to the U.S. are generally larger 
enterprises, he stated, because smaller-scale companies have 
difficulty meeting U.S. quality standards. 
 
--------------------------------------- 
Industry, Not Government, To Bear Costs 
--------------------------------------- 
 
¶4. (SBU) Shen noted that Chinese tire producers would most 
likely need to reduce substantially overall tire production 
capacity. In response to media reports claiming that the USG 
safeguards action would affect 100,000 Chinese jobs, Shen said 
that he did not expect massive layoffs. Rather, he thought a 
more measured approach such as reducing work hours was the more 
probable outcome. In this way, he explained, the costs of the 
tariffs would be borne by industry rather than the government. 
Were the industries to simply institute massive job cuts, the 
government, in the form of the social safety net, would bear the 
brunt of the costs, Shen observed. 
 
¶5. (SBU) When asked about media reports outlining China Rubber 
Industry Association proposals to  increase the export tax 
rebate from 9 percent to 15 percent and to reduce the natural 
rubber import duty rate to 7 percent from 15 percent as 
mitigating factors, Shen felt that they would not be sufficient 
to offset the impact of the U.S. safeguards action. He noted 
that Giti will negotiate with its U.S. wholesalers to share part 
of the losses. Furthermore, the Chinese government will provide 
support for domestic tire manufacturers to build factories 
overseas, he said. 
 
--------------------------------------------- ---- 
Giti: Safeguards Decision Political, Not Economic 
--------------------------------------------- ---- 
 
¶6. (SBU) Although Econoffs pointed out that the safeguards 
action is merely enforcement of trade laws, Shen argued that the 
action was made in response to political and not economic 
concerns. Calling Giti Tire the victim of an unfair trade 
action, Shen stated that the remedy would not preserve or create 
 
SHANGHAI 00000397  002.2 OF 002 
 
 
any American jobs because the types of tires involved are simply 
no longer profitable to manufacture in the United States. 
Therefore, he reasoned, the USG was punishing innocent Chinese 
tire manufacturers guilty of no wrong-doing. 
 
----------------------- 
Background on Giti Tire 
----------------------- 
 
¶7. (U) Giti Tire began its China operations in 1993 as a 
China-Singapore joint venture based in the Anhui provincial 
capital Hefei. Today, it operates a total of seven manufacturing 
plants in China scattered across five regions: Fujian, Anhui, 
Heilongjiang, Ningxia, and Chongqing. The seven plants employ 
approximately 23,600 staff. 
 
------- 
Comment 
------- 
 
¶8. (SBU) Shen was surprisingly cordial during the meeting with 
Econoffs despite his obvious unhappiness at the USG safeguards 
decision. His statements, however, clearly reflect the "China as 
victim" narrative that is dominating public and private Chinese 
commentary regarding the U.S. action. 
CAMP