VZCZCXRO1379
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #6006/01 2562239
ZNR UUUUU ZZH
P 132239Z SEP 07 ZDK
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1786
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1953
RUEHFR/AMEMBASSY PARIS 4162
RUEHRC/USDA FAS WASHDC
UNCLAS SECTION 01 OF 02 BEIJING 006006
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/CM AND EB/OMA
TREASURY FOR OASIA--DOHNER
USDOC FOR 4420
E.O. 12958: N/A
TAGS: ECON EFIN PGOV ETRD EINV CH
SUBJECT: CONCERNS ABOUT U.S. INVESTMENT CLIMATE FROM SOVEREIGN
WEALTH FUND OFFICIALS
BEIJING 00006006 001.2 OF 002
SUMMARY
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1. (SBU) In meetings held September 10 and 11, top officials
involved in the formation and investment decisions of the Chinese
Investment Corporation (CIC, the new sovereign wealth fund) warned
of a growing perception in China that the U.S. is decreasingly open
to trade and investment. One of the two officials opined that this
trend is shaping the views of an emerging generation of Chinese
business and government leaders. The other recommended more USG
outreach with the Chinese media to explain how potential investments
are evaluated in the U.S. These meetings also yielded insights into
progress in setting up and staffing the CIC. END SUMMARY
MEETINGS
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2. (U) On September 10, Treasury Deputy Assistant Secretary Nova
Daily, accompanied by Finatt, met the Chief Executive Officer of the
State Administration of Foreign Exchange (SAFE) Central Investments,
known as Huijin. On September 11, Financial Services Roundtable
Chairman Don Evans, accompanied by Finatt, met with Gao Xiqing, Vice
Chairman of the National Social Security Fund and recently named
Chief Investment Officer (CIO) of the China Investment Corporation
(CIC).
CONCERNS ABOUT U.S. ATTITUDES TOWARDS INVESTMENT
--------------------------------------------- ---
3. (SBU) CIC's Gao said rising doubts about American openness to
Chinese investment make it more difficult to defend U.S. policies
and promote Chinese investment in the U.S. Chinese officials see
the U.S. as decreasingly open to Chinese investment, and some feel
they should focus respond by focusing outward investments on other
countries. Gao said that increased political opposition to Chinese
investment in the U.S. undermines reformers who are trying to
promote engagement. This perception is also adversely shaping views
of the U.S. by China's younger generation of business and government
leaders. The U.S. is missing an opportunity to win the hearts and
minds of this generation that is otherwise less ideological than its
predecessors, said Gao.
4. (SBU) Gao noted that sovereign wealth funds (SWFs) have existed
for 25 years, yet negative attention them in the U.S. seems to have
emerged only with China signaling its intention to create the CIC.
He said that the Federal Reserve's unwillingness to approve licenses
for Chinese banks is increasingly untenable given China's financial
reforms of the last several years. Chinese officials find it
difficult to see this as justified by prudential needs, and there is
a growing view that the only viable explanation is protectionism.
PUSH FOR OUTREACH
-----------------
5. (SBU) In response to DAS Daly outlining the CFIUS program and
recent investment legislation, Huijin's Xie suggested that Treasury
engage in more outreach in the Chinese media to explain the process.
He commented that many private Chinese companies have the funds and
desire to invest in the U.S. but are afraid that security concerns
will prevent them from doing so. Xie was confident that companies
that overcome these concerns and actually pursue investment
opportunities in the U.S. can avoid political minefields through the
hiring of top tier American law firms.
6. (SBU) Xie said that the Industrial and Commercial Bank of China
(ICBC), of which Huijin holds a controlling interest, had been
approached by an American bank seeking funding, via a sale of
equity, to counter liquidity problems it faced in the sub-prime
mortgage market. ICBC turned down the offer due to concerns about
the politics surrounding any Chinese purchase of stakes in American
financial institutions.
CIC OPERATIONS AND STAFFING
---------------------------
7. (U) Xie offered several details about CIC operations and
staffing:
-- CIC may provide financing for Chinese companies via purchases of
stocks or bonds in foreign, but not domestic, markets (with
BEIJING 00006006 002.2 OF 002
"foreign" defined as including Hong Kong issud H shares).
-- An announcement on personnel or CIC will be made by the end of
this month. Currently, there is a seven-member preparatory working
group that includes the following (all CIC titles that follow are
added by post based on media reports and not yet officially
announced): CIC President Lou Jiwei, CIC Chief Investment Officer
Gao Xiqing, CIC Deputy General Manager Zhang Hongli, Deputy General
Manager Xie Ping, PBOC Deputy Governor (any future CIC title
unclear) Su Ning, and Huijin's Vice Chairman (any future CIC title
unclear) Jessie Wang. Xie called reports that a CIC management team
had already been selected "premature," asserting that changes in the
line-up may still take place.
-- Huijin will be the primary source of staffing for CIC, but there
will be outside fund managers and other experts as well. CIC is
currently in discussions with the State Council to allow a
market-determined salary for staff, with incentives for performance,
rather than using civil service salaries.
COMMENT
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8. (SBU) Gao Xiqing's comments about views of investment in the U.S.
are particularly noteworthy. He attended Duke University and is
clearly among the more pro-West and pro-reform economic officials in
China. Xie Ping's high degree of confidence in the use of lawyers
to help Chinese companies avoid political minefields when investing
in the U.S. implies an excessively narrow focus on legal aspects,
and insufficient attention to managing public perceptions and
politics.
RANDT