Strategic and Economic Dialogue and U.S.-China Relations

Senior Administration Officials On the First Day of the Strategic and Economic Dialogue and U.S.-China Relations

Special Briefing

Office of the Spokesperson

Senior Administration Officials

Via Teleconference

Washington, DC

July 11, 2013

MODERATOR: Hi, everyone. Thank you for joining the call. As you said, this is [Moderator]. I’m going to be talking a little bit about logistics at the top and then passing it over to our participants.

So first, this call is on background. We will have four Administration officials that will each give brief opening remarks and then will be available to answer your questions. So you know who’s speaking Administration Official One is [title and name withheld]. Administration Official Two is [title and name withheld]. Administration Official Three is [title and name withheld]. And Administration Official Four is [title and name withheld].

Just a bit of a logistical update, as you know Secretary Kerry’s participation – he participated today, but he has now gone to Boston to be with his wife, who remains in the hospital, so Deputy Secretary Burns will be participating in this evening’s events as well as all of the events tomorrow representing the State Department. So if you have any questions about Secretary Kerry’s logistics or participation, I’m happy to answer them, but Deputy Secretary Burns will be representing the Department going forward.

So I’m going to turn it over to our speakers now to each give some brief remarks and highlighting the work we’ve done, and then they’re happy to answer questions. So Administration Official One, the floor is yours.

SENIOR ADMINISTRATION OFFICIAL ONE: Thanks very much. Yeah. Thanks very much. And it’s my pleasure to give you sort of a notion or an idea of some of the things that we did on day one. And we got off to a very good start this morning, as you probably have seen. The Vice President delivered remarks at the opening session, along with the four new co-chairs for the S&ED – Secretaries Kerry and Lew from the U.S. side and Wang Yang, the Vice Premier, who is the chair of the econ track for the Chinese, and Yang Jiechi, the State Councilor, who is overseeing the strategic track.

I’ll walk through some of the items on the schedule and just give you kind of a notion of the types of issues they discussed. I think that – first of all, taking a step back, we began even before the S&ED this week with the convening of the Strategic Security Dialogue yesterday and the first meeting of the cyber working group on Monday, which is – which falls under the umbrella of the Strategic Security Dialogue. And one of my colleagues here will speak to those issues, the cyber issues, a little bit later on.

The meetings, I thought – the Chinese brought a very high-level delegation with them. The spirit was candid. It was a cooperative tone to the discussions, I thought. Right after the first sessions, we began with the two joint sessions, the special sessions, one on climate change and the other on energy security. And one of my colleagues will speak to the energy security working – or special session a little bit later on.

But I thought that – the people that I’ve spoke to – and I was in the room during those sessions – I thought it was one of the best sessions for climate change I’ve ever sat in. Not only were they high-level officials on both sides, but I thought that there was candid discussion, interesting discussion, and most importantly, proposals for cooperation moving forward.

I think Secretary Kerry spoke quite passionately about our shared responsibilities, United States’ and China’s shared responsibilities, in tackling the climate change issues. Another one of my colleagues, [name withheld], I think has been available to the media to discuss some of the outcomes of that discussion, so I won’t go into any great detail about that.

But the joint sessions were a unique feature of this S&ED, and the first day’s session especially. And I thought that that – again, the spirit was very much candid and cooperative.

Then after those sessions concluded, the Secretary went into a very sort of small group meeting, maybe seven, eight per side. And he spoke with Yang Jiechi about East Asian issues, in particular our cooperation on North Korea. And during those meetings, I think what’s important to note is that they were very much a continuation of the President’s discussions with – or President Obama’s discussions with President Xi at the Sunnylands meetings in California, very much following on in that spirit on – especially on the issue of North Korea, where the Chinese reaffirmed their commitment to denuclearization of the Korean Peninsula and to implementation of UN Security Council resolutions.

And then the second of the two meetings – of the small sessions, Secretary Kerry and State Councilor Yang heard Deputy Secretary Burns give a readout of his Strategic Security Dialogue in which he discussed cyber issues from the working group and also yesterday’s SSD as well as maritime – meaning territorial – issues, East China Sea issues, South China Sea issues. I think this year it was much longer than last year’s session. We added nuclear issues as well as missile defense issues, and so that was a unique feature as well this year.

And so we still have a couple of events tonight and a full day tomorrow. I’ll be happy to discuss the advance schedule with you as well as some of the other things that happened during the day. So let me turn it over to [Senior Administration Officials.]

SENIOR ADMINISTRATION OFFICIAL TWO: So I’ll be brief and happy to take any questions. But – so, I mean, I think, as my colleague mentioned, we started out with a very strong opening and went straight into the two small sessions, which was a unique opportunity for the joint – for the strategic and the economic tracks to get together and discuss (inaudible) important issues relating to climate change and to energy security.

After that, we split off into the economic track, where Secretary Lew and Vice Premier Wang convened essentially high-level representatives from both governments, bringing together really all of the economic policymakers from the two sides together. We started off with an opening session, where Secretary Lew and Vice Premier Wang were able to provide remarks to frame the tone of the conversations and then moved into the first of three sessions that we will be having.

The first one today was on trade and investment issues and promoting cooperation. And there, we were able to have, I think, an open and frank conversation about not only the real challenges that we face and how we can try to make concrete progress on those issues going forward, but then also to look for areas of cooperation and talking about – given, as the two largest economies in the world, the responsibilities that each of us have, but also to each other as well as to the global economy.

And obviously, we will then move on to the dinner tonight, but then tomorrow, we will continue to have our discussions. We will have a session on promoting sustainable and balanced growth as well as a session on financial stability and reform. And in each of those sessions, we will be able to have an opportunity to really get a sense of – with China’s new leaders in place and as they prepare for the third plenum, where they’ll really be rolling out their economic reform agenda, trying to get a sense of where they plan on going, and as they continue to do so, obviously it not only matters greatly for China, but it matters for us as well, in terms of how – will we be able to continue to provide a level playing field for our companies and for our workers, and to ensure that we continue to be able to work together on global challenges like climate change and energy security.

So I think with that, I’ll just stop for now.

SENIOR ADMINISTRATION OFFICIAL THREE: Great. Thanks for the chance to share a few thoughts on the joint session on energy. As was said, this was the first time that there was a joint session of the strategic and economic tracks on energy issues, reflecting that it’s an issue that increasingly cuts across the ambit of national security and economics and environment at the same time.

The four key themes I would stress coming out of the discussion: The first is the emphasis on private entrepreneurship as a driver of technology and innovation and production, a reflection on both the U.S. and the Chinese side of the impact that this has had on the United States on increasing the supplies of oil and gas over the past few years, and oil particularly the last two years, gas the last five years; the increased competitiveness that this has helped for the American economy as a result of having access to particularly gas resources to support American production; and in the United States, the impact that the availability of natural gas has had on helping us to achieve our lowest CO2 emission levels in the last 16 years.

There’s a reflection on both the Chinese and American side that despite these increases in American production and reduced U.S. import dependence, there was still a strong and necessary rationale for the United States to stay engaged in global peace and security and stability in the Middle East, that the energy markets that we work in and that affect us are global markets, and that changes in those markets anywhere, that instability anywhere, has a profound impact globally, including the impacts that it has domestically in both China and the United States.

There’s a very strong Chinese interest to be able to benefit and learn from American technology and American investment. There’s a recognition on both sides that we both gain from investments in each other’s energy markets and a commitment to work to resolve obstacles that might exist to investment.

The second theme was natural gas, and that began with a reflection on the U.S. shale gas revolution and China’s interest that they expressed first to be a continuing investor in that revolution. They already are invested at about a level of $5.5 billion as a potential importer of U.S. gas and the – on the U.S. side, we reviewed what the process is for the approval of applications for LNG export licenses and clarified that we don’t make decisions on which countries actually get the exports, that the applications are approved by – for specific companies, and those companies negotiate the contracts.

And then China’s interest as well as being a recipient of American investment in unconventional oil and gas, and especially gas, and the critical need to address some of the constraints. There was a frank discussion about the impact of pricing and how that influences incentives for investments, the regulatory environment, and finally, a commitment to deepen our engagement and sharing best practices on environmental and regulatory issues, but to do it in a way that helps accelerate commercial results.

Third area I would emphasize is the intersection of energy and climate change. Secretary Kerry said from the very beginning of the discussions, he said energy policy is the solution to climate change.

Throughout the discussion, there was a recognition that incentives, clear market incentives, are necessary in order to be able to drive the use of cleaner and zero-carbon fuels and renewable energy. There was a strong call by Secretary Kerry to make sure that our experts are working together to define an agenda, to sharpen those incentives in positive directions.

There was a very explicit discussion of fossil fuel subsidies, a recognition of the commitment that both countries had made under the G-20 to eliminate fossil fuel subsidies, a recognition that we both face constraints but we need to keep working in this direction, and a strong reinforcement of the importance of energy efficiency as a critical part of the mix both on the energy side and the climate change side to reduce consumption.

And finally, the fourth theme I would underscore is the importance of transparency in exchanging data and information on energy markets, a recognition that the growing demand is really out of the non-OECD countries while demand in the OECD countries has been contracting; the importance of sharing supply and demand data for oil and gas, of trends in global markets; and sharing information on national reserves. There was also a recognition of the importance of China’s engagement with the International Energy Agency on issues related to global governance of energy systems, particularly as the IEA reaches out to partners that have not been members of the IEA in the past and currently aren’t in a position to be members.

So those were the key themes, and it really was a big focus on trying to bring together aspects of our cooperation in which national security and economics really come together but at the same time have a very profound impact on our climate interests as well.

SENIOR ADMINISTRATION OFFICIAL FOUR: Also, thanks for the opportunity to talk to you today. As the first briefer said, cyber and cyber issues were discussed both at the inaugural session of the working group, the first working group under the Strategic Security Dialogue, discussed during the Strategic Security Dialogue and again discussed today.

You may recall we have discussed cyber in the SSD, and last year, and it was determined that we really needed more of a sustained dialogue with China. And Secretary Kerry announced the establishment of the working group when he was in China just a couple of months ago, and it was discussed at the summit between the President and President Xi just recently.

The purpose of the working group was really to do two things: one, to have frank and candid discussions about items of concern; but two, also to build a more cooperative and practically cooperative relationship between the U.S. and China, both on policy issues but also on operational issues around cyber. And I think that both of those things were – happened on Monday and really throughout the week. It was an important feature of – it was chaired on the U.S. side by the coordinator for cyber issues at the State Department, and on the Chinese side by a councilor in their MFA. But the important thing is it had a full group of interagency participants, including both civilian and military participants and civilian security agency and economic participants. So from the U.S. side, the Department of State, Defense, Homeland Security, Justice, the Federal Bureau of Investigation, Treasury, Commerce, and the National Security Staff, and similarly matched on the Chinese side with a wide variety of agencies, including the military. So that was a very important feature, given the crosscutting nature of these issues.

So during the first meeting, I think it’s – a good characterization is, it was a very productive, constructive, and positive meeting. We had very good discussions with our Chinese counterparts on a range of cyber issues, including ways to build mutual trust and confidence in cyber space. We noted the recent consensus that was reached in the – what’s called the Group of Government Experts at the UN about the applicability of international law to cyber space, which was very important and a landmark consensus there.

We talked about issues of strategic concern. And both sides, I think very importantly, made practical proposals to increase our cooperation that we’re going to take forward. And there was an agreement to have another meeting of the working group, the second meeting, later on this year.

I also should note we did, of course, raise in a frank and direct way and had candid conversations about our concerns, cyber-enabled theft of – economic theft of intellectual property, trade secrets, and business proprietary information. Obviously, that’s been raised by the President, it’s been raised by the Secretary, it was raised by the Vice President this morning. And the working group is – we need to address that issue in a number of ways, but through the working group as well. But overall, I think a very positive and constructive discussion, and we look forward to the next meeting and working intercessionally on this issue.

SENIOR ADMINISTRATION OFFICIAL ONE: Thanks. I’ll speak up on one issue. This is Administration Official Number One again. One thing that I failed to mention a little bit earlier and one thing that is very important for you to know is that the human rights issue was absolutely raised during one of the afternoon sessions. Secretary Kerry was very forceful in saying that basically – and I’m sort of paraphrasing here, but I’m not too far off, I think – he said that human rights are part of our DNA. And he was very clear. He raised some specific cases, and it was a lively discussion.

MODERATOR: Great. So this is the Moderator again. Thank you to all of our Administration officials for giving that readout. Now we’re going to open it up to questions. Moderator on the other end, do we have our first question?

OPERATOR: Yes. And just a reminder to everyone, if anyone would like to ask a question, please press *1 on your touchtone phone. The first question is going to come from David Sanger with The New York Times. Please go ahead.

QUESTION: Thanks very much for doing this. A question on something that you just mentioned in passing, and then a question on cyber. You mentioned that there was nuclear and missile defense discussions. I don’t recall those happening before, if somebody can just explain what those were.

And on briefer number four’s point on cyber, I’m interested in whether the Chinese side repeated the line that you’ve seen so often in the Chinese press in recent times that the U.S. is making a false distinction between economic theft and other forms of espionage or sabotage. The point was made as recently as this morning in The China Daily and it’s a point Chinese leaders have made in the past, and it seems to be at odds with the argument that the President and the Secretary have made.

SENIOR ADMINISTRATION OFFICIAL ONE: Yeah, David, I’ll take the first question. On the nuclear issue, as you know, the President spoke publicly very recently about the Nuclear Posture Review. And so I think that was – we took the opportunity with – as my colleague said, we had civilian, military representatives in the room at the same time, so this was a very good opportunity, I think, to add a little bit more texture to what the President was talking about.

In terms of missile defense, I think it’s the same sort of issue where we are trying to explain to the Chinese about some things that, frankly, have concerned them about our announcement a little earlier. I think Secretary Hagel announced the increase of our ground-based missiles in Alaska. And so this was an opportunity to provide some context, to note that this announcement was much more about the North Korean threat, and that it would be irresponsible not to take actions to protect the United States.

And so I think that we took the opportunity to discuss two issues that have been discussed in security circles in China. That was an excellent discussion, really. I think the Chinese said that they appreciated discussion. They had their own views, and it was very candid, and they were blunt with us, and we were with them as well, but I think that the overall mood was appreciative on their part that we took the time to try to put this into context and to explain the motivations.

SENIOR ADMINISTRATION OFFICIAL FOUR: And on the second part of that question, David, we were – all I’ll say is we were exceptionally clear, as the President has been, that there is a vast distinction between intelligence-gathering activities that all countries do and the theft of intellectual property for the benefit of businesses in the country, which we don’t do and we don’t think any country should do. And that was made – that point was made clearly, really throughout the week so far. So I think that there was no – there was no ambiguity about that.

MODERATOR: Great. Thank you. Do we have a second question?

OPERATOR: We do. The next question is coming from the line of Bingru Wang with Hong Kong Phoenix TV. Please go ahead.

QUESTION: Hi. Thank you for doing this. Right ahead of the S&ED, the Chinese Ambassador to the U.S., Cui Tiankai, actually, he emphasized the topic of Edward Snowden, and he actually asked for a clear-cut explanation from the U.S. side. So my question is: Did you give the Chinese side an answer which makes them satisfied? Thanks.

SENIOR ADMINISTRATION OFFICIAL ONE: Well, I think that it’s probably better if you ask the Chinese if they were satisfied with the discussion about these issues. I mean, we were very frank with them that you cannot mix apples and oranges in this case. What we are concerned about is cyber-enabled, government-sponsored theft of intellectual property. And the Chinese do understand what we are talking about, and it’s not the same as what they’re talking about. So I would refer you to the Chinese side to see if they’re satisfied with our answers, but I think that we were quite clear with them.

MODERATOR: Great. Thank you. Do we have another question in the queue, Moderator?

OPERATOR: We do. The next question is coming from the line of Anna Yukhananov with Reuters. Your line is open.

QUESTION: Hi. Thank you for taking my question. I was wondering – one issue that’s come up in the past is some of the accounting issues with the SEC, and I was wondering if that also came up in discussions today and – as China recently agreed to hand over papers for auditing companies but not for some of the other issues that the SEC was concerned about.

And a second question, I guess, is a little more lighthearted. But one of the things of this meeting is that all four of the co-chairs are new, so I was wondering if you could just speak a little bit about the rapport between them, and did they appreciate Wang’s jokes and that kind of thing? Thank you.

SENIOR ADMINISTRATION OFFICIAL TWO: So on the cross-border accounting and oversight issues, I mean, I think that obviously this is an issue of great importance to us as our firms and investors are increasingly operating in each other’s markets. Robust cooperation between the regulators is (inaudible) important to preserving financial stability and protecting our investors and supporting confidence in our financial markets and in our firms. So obviously, today, as I mentioned earlier, we had the trade and investment discussion. I expect that, actually, this issue will be raised tomorrow in the financial sector stability and reform session, and that is, at this point, given especially the latest development that has taken place in China, so I would expect very much that that issue will be discussed.

In terms of the relationship between (inaudible) on the contacts with Secretary Lew and Vice Premier Wang, I think that, obviously, this was their first face-to-face, but they’ve had several conversations already together. And I think it was a – it was a very practical, open, and frank set of conversations that they’ve had and that they started to really develop a working relationship that has really focused on being able to deliver concrete progress on issues of concern to both sides. And so I think that there is a real focus and sincerity. They’re trying to hear each other’s concerns, trying to make progress where they can, but also to (inaudible) also to respect their differences and also (inaudible) how to move the relationship forward.

SENIOR ADMINISTRATION OFFICIAL ONE: Yeah, I would say that the relationship between the State Councilor Yang Jiechi and Secretary Kerry is strong. I think they have a very easy rapport. To be honest with you, the conversations at times seemed to be between a couple of older friends, and it’s because, I think, they have a previous relationship given that Yang Jiechi was the Chinese ambassador to Washington about a decade ago. And so they have had a number of interactions over the years, and I think they do understand each other very well.

I thought that I was really impressed with Wang Yang. I thought his manner was very easy and he showed a good sense of humor, and I thought that he was – he was quite amusing at times during the meetings. And so I was very impressed that he felt confident enough – sometimes humor doesn’t translate into a foreign language, but I thought that he showed a good sense of humor.

MODERATOR: Great. Moderator, I think we probably have time for one more question. Do we have someone else in the queue?

OPERATOR: Yes, we do. The next question is going to come from Paul Eckert with Reuters. Please go ahead.

QUESTION: Hi, I think briefer number two from [title withheld] did mention about the reform programs and going forward to the third plenum of the Communist Party Central Committee in the fall. Did the Chinese officials that you talked to – did they show their hand a little bit about what they plan to do, and did they call it reforms and actually tell you to wait until fall to see the full extent of what they intend to do? In other words, how did they phrase the program?

SENIOR ADMINISTRATION OFFICIAL TWO: Well, I think – sorry. Well, I think that since their party transition in November as well as their leadership transition in March, we’ve already seen some public statements that have been made, speeches by their senior leaders. And so in that context, there’s been quite a bit of detail not only in those remarks but also in various official documents like state council work opinions. And so there’s been some detail already. I think the direction of the forum is quite clear, and so part of the focus of the conversations over these two days is really to be able to be able to get a better sense of how they continue to move forward and the direction, what they plan to do, and then – and to share experiences in the context of where we may be able to work together where – areas that we see problems. But I expect that those conversations will continue.

MODERATOR: Okay. Well, thank you so much for everyone calling in. Again, just as a reminder that this was on background, so no names, no titles of anybody, are to be used in the stories. And as always, we appreciate your participation and your attention to these issues, and everyone have a good evening. Thanks.

ENDS

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