Cablegate: Shanghai Wto Center Director Speaks On the Financial Crisis

VZCZCXRO5008
RR RUEHCN RUEHVC
DE RUEHGH #0441/01 2880907
ZNR UUUUU ZZH
R 140907Z OCT 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7239
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGV/USMISSION GENEVA 0037
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7830

UNCLAS SECTION 01 OF 02 SHANGHAI 000441

SENSITIVE
SIPDIS

TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP
DEPT FOR EAP/CM, INR/B
USDOC PASS BUREAU OF ECONOMIC ANALYSIS
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA
STATE PASS USTR FOR STRATFORD, WINTER, KATZ
GENEVA PASS USTR

E.O. 12958: N/A
TAGS: ECON PGOV EFIN ETRD EINV WTRO CH
SUBJECT: SHANGHAI WTO CENTER DIRECTOR SPEAKS ON THE FINANCIAL CRISIS
AND RESULTS OF WASHINGTON VISIT

REF: SHANGHAI 436

SHANGHAI 00000441 001.2 OF 002

(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.

Summary
-------

1. (SBU) In an October 9 meeting with the Consul General,
Shanghai WTO Affairs Consultation Center Director Wang Xinkui
emphasized that the global financial crisis will have a deep
effect on the Chinese economy, particularly the trading sector.
It will also have significant implications for the global trade
regime. According to Wang, the financial crisis will create a
call for a new international mechanism to handle global
financial issues. Regarding the WTO Center's September visit to
Washington, Wang was enthusiastic about his meetings with
various federal agencies, expressing deep appreciation to the
State China Desk and the Consulate for assistance in arranging
the meetings. Wang also emphasized the WTO Center's unique role
in shaping China's trade policy, particularly in its support
role for the Ministry of Commerce (MOFCOM). End Summary.

Perspectives on the Global Financial Turmoil
--------------------------------------------

2. (SBU) According to Wang, the onset of the global financial
crisis marked the beginning of a global economic downturn that
will persist for some time. The impact will be felt throughout
China's economy. Wang foresaw that the crisis will have
far-reaching implications for global trade as major economies
continue to contract. As a result of the crisis, China is
taking a series of measures to stimulate the economy, such as
lowering the banking reserve ratio and eliminating the bank
deposit interest tax. Economic stimulus measures would also be
a major topic of discussion at the third plenary session of the
Chinese Communist Party's Seventeenth Party Congress (met
October 9-12). As a reaction to the crisis, Wang said many
people in China will question the country's path of openness and
reform, particularly in the financial sector. However, he is
optimistic the Central Government will persist in its path of
economic liberalization and will send policy signals to this
effect.

3. (SBU) Chinese export industries will be the first to suffer
from the global economic slowdown, Wang asserted. Many - Wang
said a "vast majority" - of China's exports are labor-intensive,
thus the global economic slowdown will have a major impact on
China's employment rate. Just as a Hangzhou Vice Mayor noted in
a separate October 9 meeting with the CG (reftel), Wang said
Chinese officials are paying close attention to the impact on
exporters due to concerns about unemployment. During the early
stage of the financial crisis in the United States, Chinese
leaders pinned their hopes on the E.U. economy remaining robust
and picking up some of the slack from the declining U.S.
economy. Given that the E.U. economy is also experiencing
trouble, the Central Government now is even more intent on
stimulating domestic demand. Wang recognized, however, domestic
stimulus measures will take time and expected China's growth
rate to continue slowing. On the positive side, Wang believes a
global economic downturn will reduce inflationary pressures on
labor and material costs in China.

A New Global Economic System
----------------------------

4. (SBU) Wang said the global economic system established after
World War II is irreparably broken. The three pillars of global
stability - the U.N., IMF, and WTO - are no longer able to
support the weight of the international economy. Of the three,
the WTO is the only institution playing a truly constructive
role, and therefore should be given the responsibility needed to
handle international financial issues. Wang emphasized that it
is necessary to create international rules for "trade in
finance" through an international mechanism. This is the only
way to ensure a continued liberalization of international
finance. Wang said the current financial crisis would not have
reached such a global scale had there been a coordinated global
response. As a result, there will be more calls for
multilateral coordination of financial issues.

SHANGHAI 00000441 002.2 OF 002

Recent WTO Center Visit to Washington
-------------------------------------

5. (SBU) The Shanghai WTO Center was recently tasked by MOFCOM
to research and develop a quantitative methodology to evaluate
free trade agreements. As part of that research, a delegation
from the Shanghai WTO Center, including Wang Xinkui, traveled to
Washington in September 2008 to meet with a range of Washington
agencies, including the Government Accountability Office,
Treasury, Agriculture, the International Trade Commission, and
Commerce. Wang was particularly pleased with his visit to
Department of Commerce Bureau of Economic Analysis (BEA), noting
that the work of BEA and the Shanghai WTO Center have a lot in
common. He said that China lacks the "skills and a
comprehensive model" for evaluating trade agreements and hoped
to draw on U.S. knowledge and experience.

6. (SBU) Wang said the WTO Center plans on revamping its
organizational model and welcomed U.S. assistance in this
endeavor. A key part of this effort includes technical training
on the design, implementation and utilization of a trade
evaluation model. According to Wang, some of the agencies he
met in Washington are willing to provide assistance in this
regard. The CG welcomed the opportunity to continue working
with the WTO Center to build on common ground the WTO
established with Washington agencies.

WTO Center's Unique Role
------------------------

7. (SBU) Established in 2002, the Shanghai WTO Center operates
as an NGO, but is fully funded by the Shanghai Municipal
Government. Wang described the center's responsibilities as
three-fold: provide trade advice and research to MOFCOM,
provide legal advice on trade regulations and laws to the
Shanghai Municipal Government, and serve as a platform for trade
discussions with foreign institutions. He noted that
approximately 80 percent of his time is devoted to the first
responsibility, which including writing a yearly market access
report and providing analysis on trade agreements. Wang also
emphasized the WTO Center's role as a conduit to the Shanghai
and Central Governments, relaying suggestions and opinions of
foreign institutions on China's trade policy. The Center's staff
includes experts from universities and research institutes in
China and abroad.
CAMP

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