VZCZCXRO1095
PP RUEHCN RUEHGH
DE RUEHBJ #0364/01 0420910
ZNR UUUUU ZZH
P 110910Z FEB 10
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8081
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 000364 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EINV ETRD CH
 
SUBJECT:  MOFCOM OFFICIAL ON EXPORT CONTROLS, MARKET ECONOMY STATUS, 
INDIGENOUS INNOVATION, CFIUS 
 
This cable is Sensitive but Unclassified (SBU) and for official use 
only.  Not for transmission outside USG channels. 
 
¶1. (SBU) SUMMARY:  China is seeking "equal treatment" by the United 
States at the Strategic and Economic Dialogue (S&ED) and Joint 
Commission on Commerce and Trade (JCCT), Ministry of Commerce 
(MOFCOM) Department of American and Oceania Affairs Director General 
He Ning told an interagency team of Treasury, State, Commerce and 
USTR officials in a January 25 meeting.  He highlighted Chinese 
concerns about U.S. export controls on high-tech goods to China and 
U.S. refusal to grant market economy status to the PRC, commenting 
that the S&ED and JCCT both offered useful mechanisms for addressing 
these issues.  He argued that China's indigenous innovation policies 
were not intended to shut the door to foreign investment and would 
not run counter to WTO rules.  DG He also criticized a recent CFIUS 
decision involving First Gold, rejected U.S. calls for RMB 
appreciation, and expressed skepticism that American consumers would 
not "return to their old ways."  END SUMMARY. 
 
S&ED and JCCT:  China Seeking "Equal Treatment" 
--------------------------------------------- -- 
 
¶2. (SBU) DG He stressed that China wanted to be treated equally, 
citing the issues of U.S. export controls and China's market economy 
status as two particular issues of concern for China.  He said that 
the JCCT and S&ED were both effective mechanisms for "improving the 
trade and investment environment" and for addressing the issues of 
export controls and market economy status "from different angles." 
The JCCT offered a useful mechanism for more detailed, technical 
discussions of these issues, while the S&ED provided an appropriate 
forum for more long-term, general and strategic discussions.  He 
commented that treating each other equally in dealing with 
differences would result in fewer people in both countries 
advocating for more restrictions on trade and investment. 
 
Export Controls 
--------------- 
 
¶3. (SBU) DG He said that U.S. restrictions on the export of 
high-tech goods to China made the trade imbalance "more serious" and 
raised Chinese concerns about unequal treatment by the United 
States.  Treasury Department Senior Coordinator for China Affairs 
David Loevinger responded that, while the issue of export controls 
was generally discussed by U.S. and Chinese economic agencies, the 
underlying issue was national security and nonproliferation 
concerns.  Noting that the military and other forces had a 
significant influence on the issue but had not usually been part of 
the dialogue with the Chinese economic ministries, Loevinger said 
that the S&ED could be an opportunity to bring these agencies into 
the discussion.  Assistant USTR Tim Stratford commented that the 
United States would need to have internal discussions and consult 
with the Department of Defense before formally proposing that the 
military or other agencies take part in discussions with the Chinese 
about export controls.  DG He responded that China was open to 
discussing "any constructive proposal." 
 
Market Economy Status 
--------------------- 
 
¶4. (SBU) DG He said that China had raised the issue of market 
economy status at the last round of JCCT talks but "did not see much 
movement" on the issue.  He complained that U.S. refusal to grant 
market economy status resulted in discrimination against China 
because it faced less favorable procedures for anti-dumping cases. 
According to He, China was not necessarily opposed to U.S. 
countervailing duties and anti-dumping measures but was concerned 
that the United States was not treating China equally in adopting 
such measures. 
 
Indigenous Innovation and Services Sector 
----------------------------------------- 
 
¶5. (SBU) Loevinger said that the United States was interested in 
using the S&ED Economic Track to discuss trade and investment 
issues, including indigenous innovation and Chinese efforts to 
promote the development of its services sector.  He expressed U.S. 
interest in better understanding China's indigenous innovation 
policies, commenting that the United States shared China's desire to 
promote R&D and used government policies and incentives to promote 
R&D.  While noting that a small number of such policies treated 
foreign companies differently than U.S. companies, Loevinger 
stressed that foreign investors could take advantage of most U.S. 
policies to promote R&D.  He also urged the further development of 
China's labor-intensive, job-creating services sector as an 
important component of rebalancing. 
 
 
BEIJING 00000364  002 OF 002 
 
 
¶6. (SBU) DG He indicated that the Ministry of Science and Technology 
(MOST) did not intend for its indigenous innovation policies to shut 
the door to foreign investment.  He said that MOST understood WTO 
principles and did not want its policies to run counter to WTO 
rules.  Regarding China's services sector, DG He said that MOFCOM 
supported the development of the services sector but played a 
limited role on the issue because other agencies took the lead in 
overseeing China's service industries. 
 
Chinese Investment in the United States 
--------------------------------------- 
 
¶7. (SBU) DG He emphasized the importance of transparency and 
fairness for Chinese investments in the United States, including on 
cases that fall under Committee on Foreign Investment in the United 
States (CFIUS) review.  Raising the recent First Gold case, he 
asserted that the opaque and "random" reasoning for rejecting the 
investment had sent a bad signal to Chinese investors, who feel 
discriminated against.  Loevinger responded that only a very small 
fraction of Chinese investments in the United States come under 
CFIUS review and most are approved.  In the case of the few rejected 
cases, national security concerns typically preclude a detailed 
explanation of the rationale behind the determination. 
 
¶8. (SBU) Loevinger raised the prospect of using the next S&ED to 
highlight mutually beneficial Chinese investments in the U.S. to 
increase awareness of the value of the economic relationship on both 
sides.  He Ning stated that this idea was worth considering, but 
that any U.S. presentation along these lines would have to be 
"credible and convincing," otherwise it would likely appear 
disingenuous to the Chinese. 
 
Consumption in the United States 
-------------------------------- 
 
¶9. (SBU) In response to hearing Loevinger describe the depressed 
consumption situation in the United States for the foreseeable 
future and the unlikelihood of the U.S. being able to drive future 
Chinese economic growth, He Ning expressed skepticism that U.S. 
consumers would not "go back to their old ways."  Loevinger 
concluded the meeting by sharing a graph that demonstrated rising 
U.S. savings and falling net worth. 
 
HUNTSMAN