VZCZCXRO9825
RR RUEHCN RUEHGH
DE RUEHGH #0488/01 3520613
ZNR UUUUU ZZH
R 180613Z DEC 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8432
INFO RUEHBJ/AMEMBASSY BEIJING 3205
RUEHCN/AMCONSUL CHENGDU 2311
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0768
RUEHHK/AMCONSUL HONG KONG 2480
RUEHLO/AMEMBASSY LONDON 0051
RUEHML/AMEMBASSY MANILA 0136
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHFR/AMEMBASSY PARIS 0030
RUEHUL/AMEMBASSY SEOUL 0624
RUEHSH/AMCONSUL SHENYANG 2302
RUEHIN/AIT TAIPEI 2101
RUEHKO/AMEMBASSY TOKYO 0835
RUEHGH/AMCONSUL SHANGHAI 9096

UNCLAS SECTION 01 OF 02 SHANGHAI 000488 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
NSC FOR MEDEIROS, LOI 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ/MAIN 
USDOC FOR ITA DAS KASOFF, MELCHER, SZYMANSKI, MAC/OCEA 
TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP 
TREASURY FOR IMFP -- SOBEL/CUSHMAN 
STATE PASS CEA FOR BLOCK 
STATE PASS CFTC FOR OIA/GORLICK 
MANILA FOR ADB USED 
PARIS FOR US/OECD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV CH
SUBJECT: GREATER U.S. EX-IM BANK ROLE URGED BY SHANGHAI BANKERS 
 
¶1.  (SBU) Summary:  Foreign bank executives in Shanghai 
recommended that the Export-Import Bank of the United States 
(Ex-Im) increase its operations in China by working with 
second-tier banks to finance imports by Chinese small- and 
medium-size enterprises (SMEs).  They urged Ex-Im to establish 
an office in China as the best way to track policy trends that 
will affect U.S.-China trade.  Several of the bankers mentioned 
that alternative energy is a sector that would be most 
appropriate for Ex-Im financed imports from the United States. 
End Summary. 
 
¶2.  (SBU) Ex-Im Bank Senior Vice President and Chief of Staff 
Kevin Varney met October 12 with representatives of six locally 
incorporated subsidiaries of multinational banks -- BNP Paribas, 
Citi, Deutsche Bank, HSBC, J.P. Morgan, and PNC.  The banks are 
"guaranteed lenders" that have been delegated authority to 
provide Ex-Im Bank-guaranteed working capital loans to U.S. 
exporters without prior Ex-Im approval. 
 
====================================== 
Financing for Chinese SMEs Falls Short 
====================================== 
 
 
¶3.  (SBU) The bank executives agreed that Chinese SMEs are in 
the greatest need of Ex-Im financing.  One banker pointed out 
that financing needs in China are currently greatest in two 
areas:  large infrastructure projects and private enterprises. 
However, private enterprises -- which are mainly SMEs -- are not 
being served by the major Chinese banks. 
 
¶4.  (SBU) The best partners for international cooperation on SME 
lending would be second-tier banks, agreed the bankers. 
Second-tier banks would be better able to share market data and 
trends relating to SMEs, since the five major Chinese 
state-owned commercial banks largely ignore the SME market 
segment.  One executive mentioned two second-tier banks in this 
context:  China Merchants (a joint-stock bank), and China 
Minsheng (a pseudo-private bank).  In this way, said one of the 
bankers, Ex-Im could play the role of a broker between U.S. SMEs 
and Chinese importers and their local banks. 
 
¶5.  (SBU)  Note:  Other large second-tier banks include the 
joint-stock banks China CITIC, Shanghai Pudong Development Bank, 
and Industrial Bank.  Altogether, second-tier banks account for 
around 14 percent of banking system assets.  The "Big Five" 
banks -- Industrial and Commercial Bank of China, China 
Construction Bank, Bank of China, Agricultural Bank of China, 
and Bank of Communications -- account for around 52 percent of 
banking system assets.  End note. 
 
=========================== 
Local Ex-Im Presence Needed 
=========================== 
 
¶6.  (SBU) The bank executives repeatedly urged the Ex-Im Bank to 
establish a presence in China, saying that Ex-Im needs to be 
closer to the trade transactions happening here in order to be 
of greatest service.  One pointed out that neither China nor the 
United States have export credit agency offices in each other's 
countries, which is counterintuitive because they are major 
trading partners.  Canada's export credit agency has an office 
in China, mentioned one of the bankers. 
 
¶7.  (SBU) An Ex-Im Bank presence in China is especially 
necessary because of the sometimes-abrupt shifts in Chinese 
financial policy, noted a banker whose Chinese headquarters has 
 
SHANGHAI 00000488  002 OF 002 
 
 
been locally incorporated in Beijing.  A clear example is the 
about-face of the Chinese government from a restrictive monetary 
policy in 2008 to a loose monetary policy in 2009.  The 
inconsistency of policy can offer profit-making opportunities 
for financiers, the executive said, but "You have to know when 
to enter the market." 
 
=================================== 
Alternative Energy Could Be a Focus 
=================================== 
 
¶8.  (SBU) Several of the contacts agreed that Chinese 
alternative energy manufacturers would be a good place to boost 
Ex-Im financing of Chinese imports of U.S. technology.  One said 
many alternative energy companies are small, private enterprises 
that banks do not serve.  Others said that the Chinese 
population is beginning to become more environmentally aware, 
and non-governmental organizations (NGOs) are beginning to 
change China's policies -- "Do not underestimate the impact that 
NGOs have on the Chinese government," said one banker.  Another 
banker offered that sales of alternative energy vehicles is "a 
great untold story" in China, pointing out the predominance of 
electric battery motorscooters on Shanghai roads. 
 
============================================= === 
Sinosure Reducing Cooperation with Foreign Banks 
============================================= === 
 
¶9.  (SBU) One political risk for foreign-affiliated financial 
institutions in the China market is that the government 
sometimes seeks to restrict their role.  As an example, one 
banker said that Sinosure, China's export credit insurance 
agency, has trimmed back the role that foreign banks are 
permitted to play in financing China's exports.  Under the newly 
introduced 421 Program, Sinosure is allowing foreign banks to 
provide a maximum of 30 percent of the financing for any one 
deal.  Previously, there was no limit on the amount of 
financing.  (Note:  According to Chinese press, the 421 Program 
refers to a new US$42.1 billion export credit guarantee fund 
that several Chinese ministries and Sinosure collaborated on 
establishing as of May 2009.  The program is targeted at 
exporting whole electrical machinery production lines to 
developing countries, and is billed by some as the single most 
effective export boosting program introduced by China this year. 
 End note.) 
 
============================================= = 
Chinese Still Sore Over Unocal and 3COMM Deals 
============================================= = 
 
¶10.  (SBU) Ex-Im's operations in China may be affected by a 
lingering backlash among Chinese policymakers towards the United 
States following the failure of China National Overseas Oil 
Corporation (CNOOC) to purchase Unocal Oil Company in 2005 and 
of the telecommunications firm Huawei to purchase a stake in 
3Com in 2007.  One banker noted that, while not all Chinese 
attempts to invest in the United States are rebuffed, the Huawei 
and CNOOC deals had a disproportionate impact because they got 
the attention of China's relatively small business community. 
Chinese businesspeople need to see a strong counterexample that 
shows the United States is open to investment before embracing 
new cooperation with Ex-Im Bank and other U.S. government 
agencies, said the contact. 
 
¶11.  (SBU)  Ex-Im Bank has cleared on this cable. 
CAMP