VZCZCXRO5599
RR RUEHCN RUEHVC
DE RUEHGH #0557/01 2431117
ZNR UUUUU ZZH
R 311117Z AUG 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6211
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 6662
UNCLAS SECTION 01 OF 04 SHANGHAI 000557
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/CM, INR/B
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN
FRANCISCO FRB FOR CURRAN/LUNG; NEW YORK FRB FOR DAGES/CLARK
STATE PASS CEA FOR BLOCK
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/ALTBACH/READE
USDOC FOR 4420
USDOC FOR ITA/MAC DAS KASOFF, MELCHER AND MCQUEEN
TREASURY FOR EXEC - TSMITH, OASIA/ISA -DOHNER/BAKER/CUSHMAN
TREASURY FOR WRIGHT AND AMB HOLMER
NSC FOR MCCORMICK AND TONG
E.O. 12958: N/A
TAGS: EFIN PREL ECON PINR KPAO CH
SUBJECT: SHANGHAI FINANCIAL LEADERS DISCUSS SED
REF: A. SHANGHAI 159
B. SHANGHAI 534
C. SHANGHAI 481
SHANGHAI 00000557 001.2 OF 004
(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.
1. (SBU) Summary. According to Chinese financial service
company executives, the Strategic EcoQic Dialogue (SED) plays
an important and positive role in advancing U.S.-Chinese
relations and understanding. While foreign investments in the
financial services sector, and the technology, products, and
management expertise that comes with these investments, are
welcome, several interlocutors commented on the perceived
"aggressiveness" of U.S. companies who insisted on management
control. Continued engagement through the Chinese press will be
a crucial means to convey information about the SED to Chinese
financial services sector leaders. End summary.
2. (SBU) Consul General discussed the Strategic Economic
Dialogue (SED) with Bank of Communications (BOCOM) President Li
Jun, Shanghai Dragon Investment Company President Shi Derong,
Haitong Securities Company Chairman Wang Kaiguo, Tian An
Insurance Company Chairman Chen Pojian, China Pacific Insurance
Company Vice General Manager Xu Lianhui, and Guo Tai Jun An
Securities Company Vice General Manager Tuo Qibin on August 27,
2007. (Note: Biographies below. End note.) While steering
away from the more political questions, these Shanghai-based
financial services executives praised the SED as a useful
mechanism enhancing United States-China understanding and
cooperation.
--------------------------------------------- ---
The SED: A Positive Force in U.S.-Sino Relations
--------------------------------------------- ---
3. (SBU) BOCOM's Li said that the SED was a very important
mechanism for strengthening the United States-China bilateral
relationship. Noting China's growing power economically and
politically, he said that it was important to engage with the
United States on economic issues. China had made the
transition from a planned economy to an open economy in a
relatively short time. Citing BOCOM's cooperation with its
partner, HSBC, Li said that foreign banks provide access to the
technology and experience that Chinese banks have lacked. China
must continue engaging the United States on these issues and the
SED provided a forum for the high-level government involvement
necessary.
4. (SBU) Tian An's Chen agreed that the SED was a positive force
in U.S.-Chinese relations. He observed that Secretary Paulson
has been exerting pressure on China to increase the rate of RMB
appreciation. Even prior to the SED, Chen said, there were
Chinese proponents and opponents of RMB appreciation. Policy
makers were forced to weigh all arguments concerning the value
of the RMB against the backdrop of potential economic and
political instability that might arise. Any policy that
negatively affected social harmony was politically very
difficult for the Chinese Government to take.
5. (SBU) Guotai Junan's Tuo said that U.S.-China cooperation was
very important given the trend towards economic globalization.
The SED plays an important role helping the leaders of the two
countries manage the relationship and deal with problems. The
U.S.-Chinese relationship greatly influences the health of the
world's economy. Whatever can bring the two countries closer
together is good for the whole world.
------------------------------------------
Foreign FinServ Investments Are Welcome...
------------------------------------------
6. (SBU) The Chinese participants in this meeting postulated
that "making money" was the primary goal behind USG advocacy for
opening up China's financial services sector to foreign
competition and investment. Since Chinese financial services
companies had access to investment funds from domestic sources,
the largest benefit to China of foreign investment in financial
SHANGHAI 00000557 002.2 OF 004
services was the technology, management expertise, and know-how
that came along with the money.
7. (SBU) BOCOM's Li "welcomed" foreign investments in China
citing the numerous advantages that the foreign financial
services companies bring with them. In addition to foreign
capital, Chinese companies have benefited from the expertise and
management experience, new financial products ideas, and
increased risk management capabilities that have accompanied
these foreign investments. Tian An's Chen agreed, but cautioned
that the Chinese would move at a slower pace than hoped for by
the Americans. Citing a Lloyds of London study warning about
insurance companies that expand too quickly, Chen said that
steady and supported growth was best. According to Chen, the
report identified many insurance companies that grew rapidly for
four years and then collapsed in their fifth year of operations.
Haitong's Wang noted that some Chinese insurance companies are
encountering new difficulties after several years of fast
growth.
-------------------------------------
...But Americans Are Too "Aggressive"
-------------------------------------
8. (SBU) BOCOM's Li said that U.S. companies and USG emphasis on
owning a controlling stake of the joint venture was very
"aggressive" and stood in stark contrast to the more
accommodating approach taken by European and other non-American
companies. Haitong's Wang agreed, saying that European and
Canadian companies were not as concerned with guaranteeing
management control. Guotai Junan's Tuo said that following
China's WTO accession, U.S. companies were "very strong and
aggressive" in demanding access to China. American companies
were often short-sighted in aggressively pushing for advantage
where a long-term and more collaborative approach would better
suit their Chinese partners.
9. (SBU) BOCOM's Li said that China has spent more effort
studying the United States than the United States has spent
studying China. As a result, the Chinese know and understand
the United States better. More Chinese have also visited the
United States than the other way around. This has ramifications
in the U.S.-Chinese business relationship. Li said that
American businessmen, as a result of this lack of understanding,
depend too much on Singaporean, Taiwanese, and Hong Kong staff
and middlemen. While of Chinese ethnicity, reliance on these
"channels" to do business has negative consequences, said Li.
------------------------------------
America: Appreciating the Cheap RMB?
------------------------------------
10. (SBU) Guotai Junan's Tuo said that the Chinese Government
understands that there are both benefits and dangers associated
with a free-floating currency. Noting the problem that "hot
money" was causing China's macro-economic policymakers, Tuo said
that China needed to keep the RMB cheap so that it would have
the freedom to keep labor prices cheap. Cheap labor prices
insure inexpensive exports to the rest of the world. "And don't
American consumers benefit from this cheap labor?" asked Tuo.
--------------------------------------
SED Information Gleaned from the Press
--------------------------------------
11. (SBU) Meeting participants said that they learned about the
SED mostly through what they read in the Chinese press. One
participant suggested that the SED be expanded to include
sessions with representatives from the private sector as a way
to better exchange information about developments between the
two sides. (Comment: Many Chinese financial services leaders
have limited English facility and, as the meeting participants
said, depend on Chinese media for information. Continued
engagement of Chinese business press publications through
interviews and providing talking points translated in Chinese is
an effective method to reach this audience. End comment.)
--------------------------------------------- -------
SHANGHAI 00000557 003.2 OF 004
Shanghai Stocks: Bullish With a Chance of Volatility
--------------------------------------------- -------
12. (SBU) Meeting participants discussed the recent highs set by
the Shanghai Stock Exchange (Ref B) and noted the extremely high
price to earnings (P/E) ratios of the stocks listed. They
roundly congratulated Haitong's Wang for his company's recently
successful backdoor listing (Ref C). Wang speculated that the
high P/E ratios were caused by too much money chasing too few
stocks. Noting that Haitong conducts its own proprietary
investing and is thereby exposed to gains and losses in the
market, Wang said that he expected there would be increased
volatility, but that the market would make some additional gains
before the end of 2007.
--------------------------------------------- ----------
Tianjin Still Not A Threat To Shanghai's Financial Role
--------------------------------------------- ----------
13. (SBU) When discussion turned to the August 20 State
Administration of Foreign Exchange (SAFE) announcement that
individual investors would be allowed to invest directly in
overseas securities through the Bank of China Tianjin Branch,
the meeting participants noted that this policy had been under
discussion for a long time and that they had hoped the pilot
program would originate in Shanghai. Attributing Tianjin's
success to Tianjin Mayor and former People's Bank of Governor
Dai Xianglong's political connections and Tianjin's hope to
regain its pre-1949 role as a financial center, BOCOM's Li said
that Shanghai's role as China's financial center was not in
question. The other participants agreed and noted that the
program would soon be expanded to Bank of China branches in
major cities throughout China.
------------------------
Biographies of Attendees
------------------------
14. (SBU) Shi Derong, President, Shanghai Dragon Investment Co.,
Ltd. Dr. Shi has served as the President of Shanghai Dragon
since the company's founding in 2003. Shanghai Dragon is a
state-owned asset management company with registered equity of
US$380 million. Previously, Dr. Shi was the Director of the
Shanghai Civil Affairs Bureau. Dr. Shi is the Chairman of the
Shanghai Special Olympics Committee. According to recent media
reports, Shi will be appointed as the President of Shanghai Guo
Sheng Group, controlling Shanghai government's investment in the
industrial sector.
15. (SBU) Wang Kaiguo, Chairman, Haitong Securities Company. In
addition to his role as Chairman at Haitong, Dr. Wang is Vice
Chairman of the China Securities Association, Director of the
Shanghai Stock Exchange and a researcher at the China Academy of
Social Sciences. He has a PhD in Economics. Before joining
Haitong, Dr. Wang held numerous positions at the State-owned
Assets Supervision and Administration Commission (SASAC).
16. (SBU) Li Jun, President of Bank of Communications. Li is
the Executive director, Vice Chairman of the Board and President
of the Bank. Bank of Communication (BOCOM) is one of the top
five commercial banks in China and is the largest bank
headquartered in Shanghai. BOCOM has a nationwide network with
95 branches in 140 cities in China and has set up branches in
New York, Tokyo, Hong Kong, Singapore and Seoul as well as
representative offices in London and. BOCOM was the first
Chinese national commercial bank listed in Hong Kong; it listed
on the Shanghai Stock Exchange in 2007. Li has served
successively as Executive Vice president, Comptroller General of
the Bank and General Manager of the Bank's Wuhan Branch. He
holds an MA in Economics.
17. (SBU) Chen Pojian, Chairman, Tian An Insurance Company. Dr.
Chen is also Executive Manager of the China Insurance Industry
Association. Tian An, established in 1994, is the third largest
provider of property and casualty insurance products in China.
Tian An is also a major insurer of infrastructure projects
including the Shanghai subway and the bridges over the Huangpu
River. Dr. Chen's has a PhD is from Middle and South Finance
SHANGHAI 00000557 004.2 OF 004
and Economics University and he was a visiting scholar at
Princeton University.
18. (SBU) Xu Lianhui, Vice General Manager, China Pacific
Insurance Company. China Pacific is one of the largest
insurance groups in China and has been ranked by the S in the
world's top 11. China Pacific has a well-established service
network with 5469 business branches across the country. China
Pacific's is a joint venture partner with ING in the
Pacific-Antai Life Insurance Co., Ltd.
19. (SBU) Tuo Qibin, Vice General Manager, Guo Tai Jun An
Securities Company. Dr. Tuo has been the Vice General Manager
of GuoTai JunAn (GTJA) since 1999. GTJA is the third largest
securities company in China and China's second largest
underwriter. GTJA has a joint venture fund with Allianz. From
1993 to 1999, Dr. Tuo worked for GTJA as the Bond Department
Manager, Agency Department Manager, Research Institution Head,
GTJA Asset Management Company Research Head and GTJA (Hong Kong)
Company Research Department Manager. Dr. Tuo's PhD was earned
at the East China Normal University International Finance
Department in 1993. In 2003, Tuo attended a two-month training
program at Harvard University. Tuo was born in 1965.
JARRETT