VZCZCXRO6704
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3102/01 3170351
ZNR UUUUU ZZH
O 130351Z NOV 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6821
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 03 BEIJING 003102 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EFIN EINV PREL CH
SUBJECT: Under Secretary Hormats Meets with NDRC 
Vice Chairman Zhu Zhixin 
 
(U) This cable is Sensitive but Unclassified (SBU) 
and for official use only.  Not for transmission 
outside USG channels. 
 
¶1. (SBU) SUMMARY.  In a November 9 lunch meeting in 
Beijing, Under Secretary Robert Hormats and NDRC 
Executive Vice Chairman Zhu Zhixin agreed that the 
State Department-National Development and Reform 
Commission (NDRC) Dialogue should focus on long-term 
global strategic issues.  The two discussed the 
scope of the dialogue, potential agenda topics, and 
the possibility of incorporating it into the 
existing Strategic and Economic Dialogue (SnED) 
framework.  Zhu highlighted China's progression 
towards a more balanced economy but noted that 
China's immediate focus was on infrastructure 
development.  U/S Hormats and Zhu agreed that some 
trade friction between major trading partners was 
inevitable but both countries must focus on long- 
term trade relations and the broader goal of 
reducing trade restrictions and trade barriers.  U/S 
Hormats stressed that the U.S. remains a very open 
economy and emphasized the need to make progress on 
climate change and energy cooperation during 
President Obama's visit.  He also stressed the 
importance of holding the bilateral Investment Forum 
well in advance of the next meeting of the SnED. 
END SUMMARY. 
 
Opening remarks 
--------------- 
 
¶2. (SBU) Zhu Zhixin opened by highlighting the 
positive results of the previous six rounds of the 
State-NDRC Dialogue and his positive collaboration 
with former Under Secretaries Sheeran and Larson. 
U/S Hormats confirmed that the U.S. wants to build 
on this success and looks forward to increased 
cooperation.  The Under Secretary congratulated 
China on the great economic progress that has been 
made since he first visited China in the 1970's with 
Henry Kissinger. 
 
State-NDRC Dialogue 
-------------------- 
 
¶3. (SBU) U/S Hormats suggested incorporating the 
State-NDRC Dialogue into the existing SnED framework. 
The State-NDRC dialogue meeting could advance and 
coordinate topics discussed in the existing "global 
issues" basket.  As State is not the sole relevant 
actor to such topics, the U.S. would like to bring 
in other agencies such as Treasury, USTR, and 
Commerce.  U/S Hormats raised global development and 
poverty alleviation, overseas investment, energy 
security, international economic institutions 
(excluding the multilateral development banks, on 
which Treasury had lead), regional economic 
architecture and commodities markets as potential 
topics for discussion, and emphasized that the goal 
should be to focus on a long-term strategic approach 
rather than merely working to resolve the problem of 
the moment. 
 
¶4. (SBU) Zhu agreed that the State-NDRC Dialogue 
should focus on long-term global strategic economic 
issues, such as those proposed by U/S Hormats, and 
proposed that each dialogue should have just one 
focus at a time in order to make the discussion more 
productive and ensure inclusion of the right 
agencies.  U/S Hormats agreed that the dialogue 
should be limited to one or two topics at a time. 
Zhu also supported holding the upcoming dialogues 
outside of the capital cities, for example, in 
western China, to better understand the reality of 
China's rural development.  Finally, Zhu agreed that 
it was important to include other relevant agencies 
on both sides in the discussion. 
 
 
Economic overview and stimulus plans 
------------------------------------ 
 
¶5. (SBU) Regarding USG efforts to resolve the 
financial crisis, U/S Hormats underscored that the 
U.S. economic situation has improved but there are 
 
BEIJING 00003102  002 OF 003 
 
 
still problems, including high unemployment and 
stress on credit markets.  Consumption has decreased 
and the savings rate is rising.  U/S Hormats said 
that the USG had designed the stimulus to work over 
2-3 years to combat not only the recession but to 
address the structural causes such as the weak 
housing market, weak consumption and lack of 
confidence in the credit markets.  In formulating 
the plan, Bernanke and Geithner paid close attention 
to historical examples of the Great Depression and 
Japan's lost decade, when stimulus packages were 
withdrawn too quickly. 
 
¶6. (SBU) According to Zhu, consumption is important 
for China's growth and China's October financial 
data shows retail sales continuing to rise.  In 
particular, the auto industry is thriving with 
record sales (9.6 million units) and record 
production (10 million units).  According to data 
from the previous three quarters, overall GDP growth 
is up by 7.7 percent (4 percent consumption, 7.3 
percent investment and  negative 3.6 percent trade). 
November marks the one year anniversary of the 
release of China's 4 trillion Renminbi stimulus 
package.  In developing the stimulus, China 
determined that the decline of external demand was a 
long term problem so they had focused on fostering 
internal demand. 
 
Rebalancing China's economy 
---------------------------- 
 
¶7. (SBU) In response to U/S Hormats inquiry about 
plans for rebalancing China's economy and growing 
its service sector, Zhu pointed out that China has 
already committed in the tenth five-year plan to 
reorganizing and upgrading the industrial structure. 
Under this plan, the secondary (or industrial) 
sector has developed fast and this will lead to the 
development of the service sector.  However, China 
first needs to develop infrastructure to promote 
urbanization, Zhu said, citing the example of high 
passenger flow over the holidays.  Increased 
investment in infrastructure and improved living 
standards will naturally lead to the development of 
the service sector.  Tourism within China is growing 
quickly and is a good example of the developing 
service sector and increased domestic consumption. 
 
¶8. (SBU) Zhu emphasized that the 17th Party Congress 
had agreed to transform China's economy to rely 
equally on consumption, investment and exports. 
Therefore the domestic market will play an 
increasingly greater role.  U/S Hormats agreed that 
more emphasis on consumption, infrastructure and 
investment will keep China growing despite lower 
international demand for export goods and will help 
rebalance the global economy.  He stressed the 
importance of sustained efforts to ensure steady and 
substantial rebalancing. 
 
Trade Protectionism 
------------------- 
 
¶9. (SBU) Zhu insisted that maintaining an open 
market is an important factor in maintaining a 
balanced economy.  Although some trade friction is 
inevitable, it is important to have a global 
attitude and focus on the long-term bilateral trade 
relationship 
 
¶10. (SBU) U/S Hormats agreed that protectionism has 
a negative effect and acknowledged that trade 
disputes do occasionally arise between major trading 
partners, but highlighted that the United States 
remains a very open economy and has a policy of 
trying to relieve trade issues through consultation 
and negotiation.  Working together to correct 
bilateral imbalances under the Pittsburgh G-20 
framework will further alleviate U.S. internal 
pressures to erect new barriers.  Progress on global 
trade issues led by Ambassador Kirk is critical to 
redress such pressures as well and it would be wise 
for PRC officials to work closely with him. 
 
Environmental issues and the Investment Forum 
--------------------------------------------- 
 
BEIJING 00003102  003 OF 003 
 
 
 
¶11. (SBU) U/S Hormats concluded the meeting by 
bringing up two points in anticipation of the 
Presidential visit.  He emphasized the Obama 
Administration's determination to make progress on 
environmental and climate issues, to promote clean 
energy and to make progress on an agreement for 
Copenhagen.  He also expressed his hope that both 
parties could agree to hold the next Investment 
Forum before the SnED in order to make the dialogue 
more productive. 
 
¶12. (U) Under Secretary Hormats cleared this message. 
 
Huntsman