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C O N F I D E N T I A L SECTION 01 OF 05 BEIJING 001582 

SIPDIS 
STATE FOR EAP/CM - THOMAS, FLATT, THORNTON, SHEAR 
STATE FOR S/P - CHOLLET, GREEN 
STATE FOR E - YON 
STATE FOR D - PARK 
STATE PASS USTR FOR STRATFORD 
NSC FOR LOI 
TREASURY FOR EUGENE HUANG, CHRIS WINSHIP, JASON PAU 
PARIS PASS OECD 

EO 12958 DECL: 06/12/2019 
TAGS PREL, ECON, EFIN, EAID, EINV, ETRD, PHUM, AU-1, CH 

SUBJECT: UK-CHINA ECON DIALOGUE:  NO LONGER A “BLOODY 
DISASTER”

Classified By: Acting Economic Minister Counselor Robert W. Forden. Rea sons 1.4 (b/d).

SUMMARY
------- 

¶1. (C) While the 2008 first round of the UK-China Economic and Financial Dialogue (EFD) was a “bloody disaster,” the second meeting, held in London May 11, 2009, produced “decent results,” according to UK Embassy Econoff Tamsin Rees, who coordinated the UK Embassy’s contributions to the event. Rees said that while EFD1 was marred by a protocol-driven, scripted exchange, EFD2 featured more dialogue, and benefited from substantive working-level exchanges in advance of the ministerial meeting on touchy topics like market access. Rees said key deliverables from EFD2 include a fast track patent program for green technologies, a bank assurance pilot project permitting Standard Life to establish an insurance business in China, and commitment to another round of the successful China-Africa Dialogue. (The full outcomes list is in paragraph nine.) Still, protocol snafus dogged EFD2, such as when various British Ministers came and left throughout the day. Rees added that the UK also earlier assembled its Ambassadors to the United States, France, Moscow, the United Nations, and the European Union for a Strategic Dialogue meeting with State Councilor Dai Bingguo, which featured a good off-the-record discussion on Iran, Afghanistan, Pakistan, and some trade topics. End Summary.

What Worked Well at the Second EFD -- Lessons for SnED
--------------------------------------------- --------- 

¶2. (SBU) Rees attributed the greater success of EFD2 to more open discussion, better preparation, a good atmosphere, and senior buy-in on the UK side. She said more free discussion had made a “massive difference.” The format limited the length of interventions to three minutes each. She said the UK had initially pushed for a two minute limit. There were 45-minute “free discussion blocks” on three key topics, which resulted in a 30-40 minute talk on trade and investment, a topic that China had initially resisted even including on the agenda, she said. In the end, Rees described Chinese delegation head Vice Premier Wang Qishan as “very vocal” and willing to talk off the cuff. She added that China was very interested in comments by the Chairman of the UK Financial Services Authority on financial regulation.

¶3. (SBU) Rees added that an earlier series of working-level meetings contributed to the dialogue at the ministerial. Despite China’s initial unwillingness to negotiate -- or even discuss -- some matters, the British were able to overcome this resistance by really pressing the Chinese. For example, the UK kept pushing for a “joint statement” to the press rather than the pre-prepared one preferred by the Chinese. Ultimately, British persistence meant the parties agreed on a statement which was much closer to the one the UK had envisioned. China also initially refused to discuss market access, but in the plenary lead-up the UK told China that they felt China was not taking the issue seriously. As a result, MOFCOM assembled 12 Chinese agencies for a half-day meeting with the UK Ambassador to discuss market access. At first, China agreed on six market access-related deliverables, but backed out the next day, likely over concern about making the concessions public, Rees assessed.

¶4. (SBU) Rees added that the setting of the meeting also facilitated an open conversation. The parties met in London’s elegant Lancaster House, which is adjacent to Buckingham Palace. The UK offered China its own secretariat room. Chinese participants were free to enter and leave the facility as they pleased. Vice Premier Wang even had a room with a terrace and garden, allowing him to smoke between sessions.
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¶5. (C) In contrast, Rees said EFD1 was a “disaster” and a “protocol-driven waste of time.” She lamented that a certain Chancellor, who came to Beijing from the World Bank-IMF Spring meetings in Washington “was not engaged, was not sure why he was doing the event or what the goal was, and did not understand why the meeting had been upgraded from the existing financial dialogue.” She added that he arrived in Beijing and “decided he hated the press statement” and wanted it re-written overnight.

Charm Offensive, or Just Plain Offensive?
----------------------------------------- 

¶6. (C) Nonetheless, EFD2 had a couple hiccups. Most notably, UK Ministers who were scheduled to participate decided at the last minute that they could not commit for the whole day, and instead came and left at various sessions, while the Chinese delegation stayed for the whole event. Rees admitted that it may have been a mistake to wait until the night before the event to inform the Chinese delegation of this change in format.

¶7. (C) She added that the Dalai Lama had transited the UK days before the event, that the UK had refused a visa to a Chinese violinist who was scheduled to perform at the Bank of China 80th anniversary dinner, which Vice Premier Wang attended, and that Wang claimed he is allergic to alcohol while the UK had planned a whiskey dinner. She added that the latter issue confused the UK side because the former head of the Hong Kong Monetary Authority had said he used to go drinking together with Wang.

Dialogue Deliverables: Tiptoeing Forward...
-------------------------------------------- 

¶8. (SBU) The UK and China left EFD2 with a list of policy outcomes -- some substantive, some vague and nominal. Rees complained about the “unwillingness on the part of the Chinese MFA to negotiate on anything.” The parties split the plenary into four sessions within which they developed policy outcomes: Supporting Economic Growth and Welfare; Financial Stability and Capital Market Development; Supporting Green Growth through Bilateral Energy and Environment Cooperation; and Trade and Investment. Rees highlighted the following (the complete list is attached in para nine):

- Climate: China insisted on couching everything climate-related in vague language, like “the two sides will share expertise.” China called the topic “very sensitive” and deleted all references to “carbon markets,” saying this was “inconvenient to discuss.” Rees speculated that China may want to refrain from making concessions to the UK as it prepares for multilateral climate talks in Copenhagen.

- IPR: In addition to fast track patent licenses for green technology, Rees said there were additional IPR-related outcomes which were not included in the public announcement.

- Africa: China agreed to propose a date for another round of the UK-China Africa Dialogue. In the last meeting, which Rees called a success, the UK delivered an assessment on the wider impact of Chinese investment in Africa.

- Bank assurance pilot: China agreed to allow the UK’s Standard Life to establish an insurance subsidiary and the UK agreed to permit Hainan Bank to do the same. Rees added that Wang Qishan’s support on this was invaluable because coordination between the China Insurance Regulatory Commission and China Bank Regulatory Commission on this issue, which cut across their portfolios, had been a “nightmare.”

- Financial sector: The parties agreed to allow UK firms to list in Shanghai and Chinese firms to list in London, which
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Rees noted China had already previously agreed to do at the EFD1, but had failed to implement.

Separate UK-China Foreign Policy Dialogue
----------------------------------------- 

¶8. (SBU) Rees added that the UK also conducts a Strategic Dialogue with Chinese State Councilor Dai Bingguo. The UK lead is Simon McDonald, Prime Minister Brown’s lead foreign policy advisor. At the most recent meeting in Beijing, McDonald assembled UK ambassadors to the United States, France, Moscow, the United Nations, and the European Union for an off-the-record, open walk-through with Chinese officials on key third country issues, like Iran, Afghanistan, and Pakistan, as well as some trade concerns.

Text of EFD2 Outcomes Document
------------------------------ 

¶9. (SBU) UK-China Economic and Financial Dialogue II Policy Outcomes
Session I: Supporting economic growth and welfare

¶1. We agreed the importance of safeguarding development in low income countries during the economic slowdown. We reaffirmed our commitment to meeting the Millennium Development Goals. China appreciates UK,s commitment to achieve the 0.7 percent ODA/GNI target at an earlier date. China and UK will make every effort to contribute to achievement of the UN Millennium Development Goals through their respective channels. We also confirmed our support for a substantial increase in lending of at least $l00bn by the Multilateral Development Banks (MDBs), including to low-income countries, and will work to ensure that all MDBs have the appropriate capital.

¶2. We agreed that a crucial element of the global response is the role played by the international financial institutions. Following agreements reached at the London Summit, we reaffirmed our commitment to providing additional resources to the IMF. We also reiterated our commitment to reform the IMF. We agreed that the IMF,s governance structure must reflect changing weights in the world economy. We urge IMF and the World Bank to expedite governance structure reform, work out explicit timetable and roadmap, so as to complete the next review of quotas of IMF by January 2011 and agree on voice and representation reform of the World Bank by the 2010 Spring Meetings.

¶3. UK will consult and exchange views with China on the Department for International Development,s policies on development.

¶4. As part of the UK,s G20 Chair year, China and the South Africans will co-host the Financing for Development workshop under the G20 Finance Ministers and Central Bank Governors Meeting.

¶5. UK and China agree to jointly draft a new M0U between the UK Department for Work and Pensions and the Chinese Ministry of Human Resources and Social Security;
Session II: Financial Stability and Capital Market Development

¶6. UK and China re-iterate their commitment to continue to take actions to reform the regulation of the financial sector as agreed in the London Summit communiqu, in line with the principles of strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets and reinforcing international cooperation.

¶7. UK and China agree to build on current regulatory exchange
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and cooperation between their respective financial regulatory authorities (FSA, CBRC, CSRC and CIRC), including discussions between relevant parties on steps following China,s accession to the Financial Stability Board and the Basel Committee on Banking Supervision.

¶8. FSA and CIRC have exchanged letters on mutual cooperation;

¶9. Both sides will continue to support qualified Chinese companies to list on the London Stock Exchange through various listing routes, and work together swiftly to progress this.

¶10. China and UK agree to expand financial sector technical collaboration and exchange programme agreed by Vice-Premier Wang and Chancellor at the First EFD, specifically to focus on:

-- Financial stability issues, including international financial sector standards; 
-- Capital market development covering equities and bond markets, product innovation and risk management; 
-- SME financing; 
-- Investor education; 
-- Insurance and private pensions; 
-- Asset management; 
-- Collaboration opportunities between the relevant parties of China and the UK-based International Centre for Financial Regulation.

¶11. China agrees to allow qualified foreign companies, including UK companies to list on its stock exchange through issuing shares or depository receipts in accordance with relevant prudential regulations;
Session III: Supporting Green Growth through Bilateral Energy and Environment Cooperation

¶12. China and the UK commit to deepen cooperation on sustainable cities, as agreed under the Sustainable Cities Initiative MOU, through the pilots in Wuhan and Chongqing;

¶13. China and UK agree to conduct exchanges and cooperation on nuclear energy and offshore wind power development and construction, on implementing a quota system on renewable energy, and on improving industrial policies and management mechanism of renewable energy.

¶14. UK and China agree to share experiences on the role of economic ministries and other agencies in promoting green growth.

15.UK and China agree to discuss the possibility of fast-tracking green patents as a way to promote faster development of green technology.
Session IV: Trade and Investment

¶16. We agree to follow up our commitment to support trade finance at the London Summit, and strongly support the IFC to establish the Global Trade Liquidity Pool, The UK has agreed to commit contributions up to 300m towards phase 1 of the initiative. China has purchased US$1.5 billion placement bonds to support the trade finance programme of the IFC.

¶17. We agree to work together to expand our bilateral trade in particular in aerospace, environmental protection, biological technology, pharmaceuticals electronics and advanced engineering.

¶18. UK reaffirms its support for China,s market economy status at as early a date as possible and will continue to play a constructive role to encourage EU recognition;
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¶19. We are in full agreement on the advantages of maintaining free trade and the multi-lateral trading system. We must remain committed to the principles set out at the London Summit to reject all forms of protectionism, underpin prosperity and refrain from erecting new barriers to investment or trade. Both sides commit to continuing close cooperation, locking in of the consensus and outcomes achieved so far in the Doha round negotiations, to achieve a comprehensive and balanced conclusion of the negotiation at an early date. This would send a good signal of how the international community can work together to boost global prosperity and meet our development goals.

¶20. Both sides recognize the constructive role that sovereign wealth funds can play in stabilizing the world economy, and boosting global demand. The UK and China remain committed to open markets for investments, including those from Sovereign Wealth Funds.

21.China and the UK agree to take advantage of the Joint Economic and Trade Commission to explore effective ways to achieve the bilateral trade target and to enrich EFD Outcomes.

¶22. China and UK will actively implement the MOU on strengthening trade and investment cooperation in Chinese regional cities between the Ministry of Commerce of China and the Department of Business Enterprise and Regulatory Reform and the China-Britain Business Council of the UK, including in the mid-west of and the north east of China, so as to enhance the trade and investment cooperation between the two countries.

¶23. UK and China agree to discuss emerging ideas for how to create international model framework agreements for collaborative R&D projects promoting further co-operation on innovation and technology projects and addressing technology transfer obstacles.
PICCUTA