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UNCLAS SECTION 01 OF 03 BEIJING 000462 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM MASS ETRD KIPR CVIS EFIN SENV ENRG
CH, TW, KN, IR 
SUBJECT: JAN 13 US-CHINA INTERPARLIAMENTARY DIALOGUE: TAIWAN, NORTH 
KOREA, IRAN, TRADE, EXCHANGE RATE, IPR 
 
This message is Sensitive but Unclassified.  Please handle 
accordingly; not for Internet publication. 
 
¶1. (SBU) Summary:  Taiwan arms sales and trade issues dominated the 
5th session of the U.S. China Inter-Parliamentary Group (IPG), which 
took place in Beijing January 13.  Senator Patty Murray (D-WA) led 
the U.S. Senate delegation to the IPG, which also included Senators 
Christopher "Kit" Bond (R-MO) and Roland Burris (D-IL).  During the 
morning session, Chinese delegates, including National People's 
Congress (NPC) Vice Chairman Lu Yongxiang and NPC Foreign Affairs 
Committee Chairman Li Zhaoxing, denounced U.S. arms sales to Taiwan, 
stressing the sale negatively impacted China's "core interests."  On 
Iran and North Korea, the NPC members advised the United States to 
be patient and focus on diplomacy rather than sanctions.  During the 
afternoon plenary, Senators Murray, Bond, and Burris stressed the 
need to reduce the U.S.-China trade imbalance, reform China's 
exchange rate regime, and better protect intellectual property.  The 
Senators highlighted concern with new PRC "indigenous innovation" 
government procurement rules that favor Chinese companies over 
foreign firms.  Chinese delegates argued that U.S.-China trade would 
be more balanced if the U.S. lifted restrictions on high-tech 
exports.  Changing the RMB exchange rate, the Chinese side argued, 
would only cause the U.S. trade deficit to shift to other low-cost 
countries.  They denied that the indigenous innovation rules 
discriminated against foreign firms.  Following the plenary 
sessions, the U.S. delegation met with NPC Chairman and Communist 
Party Politburo Standing Committee Member Wu Bangguo.  Wu offered a 
positive assessment of U.S.-China relations and voiced support for 
increasing inter-parliamentary exchanges.  Differences over Taiwan 
and other issues, Wu said, should not be allowed to detract from the 
overall relationship.  End Summary. 
 
5th Session of Senate-NPC Dialogue 
---------------------------------- 
 
¶2. (U) Senator Patty Murray (D-WA) co-chaired the 5th session of the 
U.S.-China Inter-Parliamentary Group (IPG) meeting held January 13 
in Beijing.  Senators Christopher "Kit" Bond (R-MO) and Roland 
Burris (D-IL) also participated.  National People's Congress Vice 
Chairman and Communist Party Central Committee Member Lu Yongxiang 
acted as co-chair for the Chinese side.  The dialogue consisted of 
morning and afternoon plenaries followed by a meeting with NPC 
Chairman and Communist Party Politburo Standing Committee Member Wu 
Bangguo. 
 
Morning Plenary: Taiwan Arms Sales 
---------------------------------- 
 
¶3. (SBU) In his opening remarks, Lu Yongxiang gave a positive 
assessment of U.S.-China bilateral ties, noting the "smooth 
transition" to the Obama Administration and President Obama's 
successful visit to China in November.  Senator Murray emphasized 
the state of Washington's close historic and trade ties to China. 
Virtually every business in the state had an interest in China, 
Senator Murray noted.  Nevertheless, she added, the economic 
relationship had several hurdles to overcome, including reducing 
intellectual property theft, improving market access for U.S. 
companies, and boosting green energy cooperation. 
 
¶4. (SBU) Much of the morning session was dominated by denunciations 
of U.S. arms sales to Taiwan by the Chinese delegates.  NPC Foreign 
Affairs Committee Chairman (and former Foreign Minister) Li Zhaoxing 
criticized the U.S. approval, reported in the media the previous 
week, of the sale of arms, including Patriot PAC-3 missiles, to 
Taiwan.  China was "disappointed and indignant" about the planned 
sale.  The sale violated the third U.S.-China Joint Communique, Li 
asserted, and jeopardized cross-Strait stability.  The United States 
could not use the excuse of the Taiwan Relations Act, which was a 
domestic law, to sell arms to Taiwan and interfere in China's 
affairs.  The United States should change its "Cold War mentality" 
and respect China's "core interests," particularly regarding Taiwan 
and Tibet, Li said. 
 
¶5. (SBU) Senator Bond responded that the United States did not 
support Taiwan independence and the Taiwan Relations Act did not 
recognize Taiwan as a separate country.  Senator Bond noted that 
mainland China continued to target 1,200 missiles at Taiwan, and he 
urged the mainland to demilitarize the Taiwan issue.  If Taiwan and 
mainland China could come to a "permanent agreement," then Congress 
would revisit the arms sales issue, Senator Bond said.  Li retorted 
that missile deployments were China's own affair and if the United 
States deployed missiles in Texas or Alaska, "China would not care." 
 The arms sales only increased the "arrogance" of pro-independence 
forces on Taiwan and were unacceptable to China, Li argued. 
 
North Korea and Iran 
-------------------- 
 
 
BEIJING 00000462  002 OF 003 
 
 
¶6. (SBU) Senator Bond stressed the importance of both the North 
Korea and Iran nuclear issues, noting that the United States wanted 
to restart the Six-Party Talks with North Korea.  Senator Bond urged 
China to work with Russia and the United States to resolve the Iran 
nuclear issue although, Bond added, he knew China was less 
supportive of sanctions against Tehran.  Chinese delegates urged 
patience on both Iran and North Korea.  NPC Deputy Secretary General 
Cao Weizhou said China also wanted to achieve denuclearization of 
the Korean Peninsula.  However, Cao said, China believed that the 
long-standing lack of trust between the United States and the DPRK 
was part of the problem, and the United States should emphasize 
diplomacy rather than sanctions.  NPC Deputy Wu Xiaoling, a former 
deputy governor of the People's Bank of China, said that like the 
DPRK, China was once saddled with a failed planned economy.  The 
DPRK, she predicted, would change, although reform of the North 
Korean system would be gradual and the United States should exercise 
patience. 
 
People-to-People Exchanges, Visa Issues 
--------------------------------------- 
 
¶7. (SBU) NPC deputy Cheng Jinpei commented on the need to boost 
people-to-people contact and increase the role of young people in 
bilateral relations.  Cheng voiced support for the Obama 
Administration's goal for 100,000 American students to study in 
China over the next four years.  Cheng noted that Chinese students 
were having a much easier time obtaining visas to the United States 
than previously was the case, though he also said that Chinese 
technical experts seeking to attend scientific conferences continued 
to experience visa denials and delays.  Cheng said the United States 
should adopt a more "objective, rational and reasonable" visa policy 
toward Chinese scientists.  Senator Burris agreed with Cheng on the 
need to increase student exchanges.  Citing his own experience as an 
exchange student in Hamburg, Germany, Senator Burris said such 
programs were crucial for improving understanding between the United 
States and China. 
 
Afternoon Plenum: Trade Gap, Exchange Rate, IPR 
--------------------------------------------- -- 
 
¶8. (SBU) Senator Murray, who chaired the afternoon IPG session, told 
the NPC delegates the United States was committed to economic 
rebalancing for more sustainable growth, and that China also would 
benefit from policy adjustments to rebalance its economy.  She said 
one bilateral issue in need of continuing collaboration was the 
trade relationship, as one in three jobs in Washington State were in 
some way tied to trade.  The benefits of trade for both countries 
were obvious, but the bilateral imbalance was a growing concern, 
with many Americans blaming China for U.S. job losses.  In the past 
year, new measures by both countries had further strained the 
relationship.  Among U.S. areas of concern in China were the value 
of the RMB and the exchange rate system, IPR protection, market 
access for U.S. farm products, and financial service sector access 
for American firms.  Senator Murray sought new approaches on energy 
security and the environment, where U.S. and Chinese interests were 
closely aligned.  On climate change, she said both countries were 
committed to emissions reduction, but we needed new policies and 
strong, decisive steps together. 
 
RMB Exchange Rate 
----------------- 
 
¶9. (SBU) Responding to the Senator's concerns about China's exchange 
rate, Wu Xiaoling said that although the RMB's exchange rate 
appeared undervalued, it was necessary to consider relative costs, 
including China's low labor and resource prices, which distorted the 
exchange rates.  The exchange rate was a consequence rather than a 
cause of economic structure, and addressing the U.S.-China trade 
imbalance required more than exchange rate changes, which alone 
would only shift the U.S. trade deficit to other low-cost countries. 
 China needed to increase the flexibility of its exchange rate 
system to better reflect market levels; as it did so, the United 
States should open more of its high-technology exports to China. 
Senator Bond agreed that China's exchange rate system should be more 
flexible. 
 
Intellectual Property 
--------------------- 
 
¶10. (SBU) Senator Bond observed that China had made efforts and 
progress on IPR protection, but more steps could be taken.  Senator 
Burris commended China's efforts at the national level, but 
questioned its success at local levels.  Failure to protect IPR hurt 
China's relations with other countries, Senator Burris added, as 
well as China's own economic growth.  NPC delegate and Shandong 
University President Xu Xianming responded that China had made 
"remarkable progress" on IPR protection, including the 2009 revision 
of the Proprietary Law, and put in place a legal framework and 
 
BEIJING 00000462  003 OF 003 
 
 
national program.  China employed a dual system of administrative 
and judicial protection, which together handled about 30,000 IPR 
cases per year.  China was attempting to promote IPR protection 
through educational and public awareness programs.  Lu Yongxiang 
added that the Chinese government and people understood the need to 
ensure a fair environment for creators of intellectual property, but 
said that "frankly" that IPR protection remained a problem, 
especially with local governments and small and medium-sized 
enterprises (SMEs) that were the "weak link."  He noted recent 
revisions of patent, trademark and copyright laws.  He said 
arbitration provided a lower-cost means to resolve IPR disputes. 
 
Indigenous Innovation Rules in Public Contracts 
--------------------------------------------- -- 
 
¶11. (SBU) Senators Murray, Bond and Burris all expressed concern 
about new "indigenous innovation" government procurement regulations 
that would give preference to products developed and patented in 
China.  Senator Bond said the new regulations appeared to be a 
"glaring trade barrier" that went far beyond legitimate protection 
for patents and trademarks.  Many companies had moved tens of 
thousands of jobs to China and shared their technology; the new 
regulations would deter them from doing so.  The Chinese delegation 
denied the rules discriminated against foreign companies.  Lu 
Yongxiang said the Chinese government had emphasized independent 
innovation in recent years, but still relied on foreign countries 
for eighty percent of its science and technology.  He said 
indigenous innovation included innovation by foreign companies in 
China.  Cheng Jinpei opined that the translation "indigenous 
innovation" was inaccurate and that "open innovation" might be 
better. 
 
Wu Banguo: "Meaningful Year" in Bilateral Relationship 
--------------------------------------------- --------- 
 
¶12. (SBU) Following the conclusion of the 5th IPG session, Senators 
Murray, Bond and Burris met with NPC Chairman and Communist Party 
Politburo Standing Committee member Wu Bangguo.  Wu reviewed 
accomplishments in U.S.-China relations in 2009, including the 
November visit by President Obama and cooperation on multi-lateral 
and regional issues such as North Korea, Iran and the Copenhagen 
climate change summit.  Wu noted that he and Speaker of the House 
Nancy Pelosi had exchanged visits in 2009.  Looking ahead, Wu 
forecasted that 2010 would be an important year for bilateral ties, 
with President Hu traveling to the United States and the second 
session of the Strategic and Economic Dialogue. 
 
¶13. (SBU) Wu noted that given the "multi-polarity" of the world, 
China and the United States were increasingly inter-twined and 
inter-dependant, a reality that demanded close cooperation to 
address new challenges.  Although the two sides still had 
differences, such as on the issues of Tibet and arms sales to 
Taiwan, each side understood the other's stance.  Wu hoped that both 
the United States and China could proceed from a strategic and 
long-term perspective and refrain from allowing these differences to 
detract from the overall relationship. 
 
Local/Trade Issues 
------------------ 
 
¶14. (SBU) CODEL Murray members told Wu that the U.S. and Chinese IPG 
delegations had held "intense" discussions on a range of issues.  Wu 
said that he hoped the inter-parliamentary discussions would enhance 
mutual trust.  Senator Bond noted the utility of inter-parliamentary 
exchanges in advancing local issues and goals.  Bond mentioned that 
Chinese air freight companies had expressed interest in establishing 
a hub at Lambert-St. Louis International Airport.  Senator Murray 
noted that Boeing would have its new 787 Dreamliner available to 
Chinese airlines soon.  Wu said that during his recent visit to the 
United States he had touched upon cooperation with the U.S. firm 
Honeywell and he had later facilitated the opening of the first 
solar power plant in China. 
 
¶15. (U) This message was cleared by the CODEL.