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

Background Briefing on the Upcoming Strategic and Economic Dialogue and U.S.-China Relations

Special Briefing

Senior Administration Officials

Via Teleconference

Washington, DC

July 8, 2013

MODERATOR: Hey, everybody and good afternoon, and thanks for joining us. A couple of administrative things here at the top. First of all, introduce our speakers: We have four senior Administration officials with us here for this background call today. We have [Senior Administration Official One], who will be Administration Official Number One; from the Department of Treasury, we have [Senior Administration Official Two], who will be our Administration Official Two; also from Treasury, [Senior Administration Official Three], [title withheld], who will be Administration Official Three; and then we have [Senior Administration Official Four], who is our [title withheld], who will be Administration Official Number Four.

Just to let everybody know, we’re embargoing the entirety of this call until the end of this call so you can use the material here again on background with those ground rules at the end of the call. And then just also to clarify for those of you who saw our State – our daily press briefing today, again the Secretary’s participation and everything about his schedule for the rest of the week is still being determined day by day given the family health situation. So we won’t have any updates on this call about the status of his participation, but we will keep you abreast on all those issues going forward throughout the week.

So without further ado, I’m going to turn it over to just to our first two officials to give a couple of brief opening remarks, and then we’ll take some questions from all of you. So without further ado, let’s go to Administration Official Number One.

SENIOR ADMINISTRATION OFFICIAL ONE: Thank you very much, Patrick. What I thought what I might do is to provide a little bit of context for the meetings and then a couple of highlights of the schedule and then turn it over to my Treasury colleague.

As many of you know, this is going to be the fifth round of the U.S.-China Strategic and Economic Dialogue, and the main meetings will be taking place on the 10th and 11th, so Wednesday and Thursday of this week. What’s interesting about this and what is energizing about this S&ED is that it will be the first one for all four co-chairs. So Secretaries Kerry and Lew will be co-chairing for the U.S. side for the first time, and also on the Chinese side it’ll be Vice Premier Wang Yang and State Councilor Yang Jiechi.

And so another interesting feature I think is that it follows just about a month after the Sunnylands meetings in California. And so these dialogues, these discussions that we’re going to have with the Chinese this week are very much following on those important discussions in – on June 7th and 8th. And the S&ED remains the sort of key mechanism for putting into practice our two presidents’ vision, and so it is important just coming about four weeks after their discussions in California.

We’re going to continue to deepen discussion on the strategic side on issues like the North Korean – or the Korean Peninsula. We’re also going to discuss Syria, Iran, regional security issues, human rights. You can see the kind of depth and breadth of the discussions we were talking about, and I think my Treasury colleague will be discussing some of the follow-up issues on the econ side or the econ track of the dialogues.

Our approach to China is – for this S&ED is a key part of the President’s strategy for rebalancing to the Asia Pacific region. So you can see that we are getting marching orders to continue to strengthen our cooperation with the Chinese side. And I think that on the strategic track you will see in our outcomes document, something that we’ll be issuing following the closure of the meetings on Thursday, you will see a fairly broad range of areas where we are agreeing to cooperate.

And so I think that we’re going to get ready for quite a bit of dialogue. Secretary Kerry’s, Patrick mentioned, schedule is still up in the air, but to the extent that we can – that we’re looking forward, we have two full days of dialogue and that includes also tomorrow night, on the eve of the S&ED, an informal dinner that we have planned.

We also can confirm today that the Vice President will be kicking off on Wednesday morning the discussions. He’s going to deliver opening remarks for the S&ED. And also a couple of highlights: We’re going to have two special sessions on the first day, one focused on energy security issues, the other one on climate change. And that is a new sort of feature or new tweak to the schedule, and we think that because of the crosscutting nature of those issues, we would have both Secretaries Kerry and Lew chairing that meeting, and they will, because of their strong interests in climate change and energy security issues, they would be able to provide quite a bit of depth to that discussion. So I think those are sort of the highlights. I’ll turn it over to Administration Official Number Two now.

SENIOR ADMINISTRATION OFFICIAL TWO: Thank you, Administration Official Number One. (Laughter.) So I think, as [Senior Administration Official One] mentioned, we’ve – the Administration has been engaged early with the new Chinese leadership, and we saw this very early on first with Secretary Lew’s visit to Beijing and then followed by Secretary Kerry’s as well as other senior officials and then obviously culminating most recently in the President’s meeting in Sunnylands. And we see that – the S&ED as an important opportunity to really bring together the senior level officials from across the two governments to be able to discuss and engage and, importantly, to make progress on issues of concern to both countries.

And so as we enter into this 5th S&ED, not only as my State Department colleague mentioned, we will have the four new co-leads, but we also have many new faces around the table from both the U.S. and Chinese sides as well. And we come to this dialogue, in particular, with a new set of opportunities and challenges. Our economies, the two largest in the world, are consistently challenged to meet new needs, to adapt and to strengthen here in the United States. We’re familiar with this over the past four years. And in China, their transition to the next stage of its economic development and the challenges that are inherent in that transition are ongoing.

This year not only are there new faces at the table, as I mentioned, but the economic backdrop in each of our countries is different from those in past meetings. In the U.S., we’re focused on further strengthening our economy and are encouraged by the signs of steady improvement. In China, China’s leaders recognize the ambitious reform agenda that will be needed to shift their economy from a balanced and stable growth model that will rely more on consumption and less on investment and exports and more on innovation and services and less on resources and heavy industry. And how China’s leadership responds to these challenges will be critically important for China but also for the United States, as well as the global economy.

This year at the S&ED for the economic track, we will have 14 government agency heads participating. In addition to Secretary Lew, we are expecting Chairman Bernanke from the Federal Reserve, Commerce Secretary Pritzker, USTR Ambassador Froman, and SEC Chairman White, as well as many others. There will also be about 16 Chinese agencies on the economic side represented including, among others, Finance Minister Lou, Central Bank Governor Zhou, and Commerce Minister Gao. And to deepen our cooperation on these issues and also to demonstrate concrete progress on our priorities and to deliver real benefits to our citizens, we’ve put together an ambitious agenda for the two days of meetings, and let me just kind of briefly run through those.

First, we’ll discuss ways that we can continue to ensure an open, balanced, and mutually beneficial trade investment relationship that helps to provide a level playing field for our companies and that supports jobs and growth. This will include stronger protection and enforcement of IPR, including trade secret theft.

Second, we’ll assess the outlook for the economic growth in both China and the U.S., and we’ll review the progress that we’ve made in implementing those reforms to sustain growth moving forward both in our countries and in the global economy. And from our perspective, this includes a more market-determined exchange rate as well as interest rates, increased dividend payments for state-owned enterprises, as well as other steps to boost household disposable income that will be necessary to rebalance China’s economy.

And then third, we’ll focus on ways to strengthen and develop our financial systems and to build a more resilient global financial system. In China, this means deepening financial reforms that will support dynamic private sector firms and integrating China into the global economy.

In terms of our meetings, in addition to the new innovation of these small joint sessions on climate and energy, we’ll also have three sessions bringing together the full slate of economic officials from both sides to address key issues in the trade and investment space as well as relating to promoting sustainable and balanced growth as well as financial stability and reform. In addition, Secretary Lew and Secretary Kerry will host a CEO roundtable that will allow us to bring together representatives from both the Chinese side as well as the U.S. to have a frank and open discussion about both the opportunities and the challenges that they face in investing and working in those countries. And so I think maybe with that, I’ll turn it back over.

MODERATOR: Okay. We’re ready for questions, operator.

OPERATOR: Okay, ladies and gentlemen, if you do wish to ask a question, please press * then 1 at this time. Our first question comes from the line of Howard Schneider with The Washington Post. Please go ahead.

QUESTION: Oh, hi, and thank you all. Largely on the economic side, I’m just wondering two things: One is, is there any early read on the direction this government is likely to take? I mean you mentioned their commitment to financial sector reform. I’m wondering how much importance you attach to the action or lack of action over the last couple of weeks from the People’s Bank in terms of a liquidity provision and whether that signals a real commitment to getting more towards a market-determined financial system there.

And secondly, in terms of deliverables and likely progress on this round, given that this is a new administration in China and you’ve got a party congress coming up in the fall, do you really expect a lot to get done this time?

SENIOR ADMINISTRATION OFFICIAL TWO: So, I mean, I think to your first question on commitment to reform, from everything that we’ve been hearing, both in our private conversations as well as what we’ve seen in senior-level statements from Chinese officials and in their own papers and documents, there’s a strong commitment to move forward with reform and the importance and the need to do so.

Now, of course, how they go about doing those reforms will matter greatly for us; how quickly they do that, I think, is still a question as well. But obviously, it’s critically important not only for them, which they recognize, but also for us in terms of being able to sell our products into China and to ensure that our IP is protected.

And then, maybe on the –

SENIOR ADMINISTRATION OFFICIAL THREE: This is – I guess I’m official number three. On the financial system, I mean, there’s been very rapid growth and credit this year, including credit outside the formal banking system, that carries certain risks. Strengthening the financial sector, supervision, and regulation has been a longstanding part of the discussions.

I think the actions taken by the PBOC to delay providing liquidity in the interbank markets in the last few weeks was a signal to market participants that they needed to have greater discipline and greater prudence in their lending decisions, credit extension decisions, and I think that’s part of a move towards a more efficient, more market-based financial system.

MODERATOR: Operator, next question.

OPERATOR: And that comes from the line of Anna Yukhananov with Reuters. Please go ahead.

QUESTION: Hi. Thanks for taking my question. Also on the economic side, I was wondering if you could speak a bit about monetary policy and whether you expect that to be part of the agenda with Chairman Bernanke participating, and kind of some of the concerns about exit from monetary policy in emerging markets. Is there any particular issue you want to make clear to China or that you expect to be raised? Thank you.

SENIOR ADMINISTRATION OFFICIAL THREE: Well, as you know, we don’t comment as Administration officials --

QUESTION: Yes.

SENIOR ADMINISTRATION OFFICIAL THREE: -- on monetary policy.

QUESTION: Sure.

SENIOR ADMINISTRATION OFFICIAL THREE: As my colleague said, Chairman Bernanke will be in the sessions, and I expect that he will address questions that are asked to him.

SENIOR ADMINISTRATION OFFICIAL TWO: But more broadly speaking, we expect that there will be a whole range of issues on the economic agenda that will be discussed, and the importance of the S&ED being able to bring together the various decision makers, both in the Chinese Government as well as on the U.S. side. And so we expect a pretty robust discussion of – as we undertake the series of reforms that our respective countries are doing.

OPERATOR: And our next question comes from the line of Dan Sagalyn with PBS. Please go ahead.

QUESTION: Hi. Yes, thanks for taking my question. What happened today in the cyber talks? Did anything concrete come out of it?

SENIOR ADMINISTRATION OFFICIAL ONE: Yeah. Thanks very much. I’m glad you mentioned that because a couple of hours ago we did conclude the first round of the cyber working group, which is what we call a sub-dialogue of the Strategic Security Dialogue, which is going to be held tomorrow. I think Secretary Kerry, Secretary Lew are both going to be raising cyber issues during the S&ED as well. So in addition to today’s discussions – and I’m going to turn it over to my colleague, who was just in those meetings for just a brief recap.

But I wanted to put it into context that it is the first meeting of the working group, but it’s part of a series of meetings that will focus on the cyber issue during both the Strategic Security – tomorrow’s Strategic Security Dialogue that’s chaired by Bill Burns, Deputy Secretary Burns, and the S&ED. And Secretary Kerry and Secretary Lew will be raising those issues.

But let me turn it over to my colleague who was just in those discussions.

SENIOR ADMINISTRATION OFFICIAL FOUR: Yeah, so this is – I’m going to be fairly high-level today, just because, as Administration Official Number One said, that we are – there’ll be other proceedings with respect to this this week. And so we can be more – can give more details after those are over.

But I think I can say we had constructive discussions with our Chinese counterparts at the Cyber Working Group today on a range of cyber issues, including norms of state behavior in cyberspace. I think we could say both sides made practical proposals to increase our cooperation and build greater understanding and transparency between the two sides. We also raised issues concerning cyber-enabled economic theft.

We expect this meeting will be the start of substantive and a sustained discussions between the United States and China on cyber issues. We will continue to discuss this topic, as [Senior Administration Official One] said, Administration Official One said, on the – at the SSD and the S&ED later this week. And myself and my counterpart – Chinese counterpart will be giving a briefing on this at the Strategic Security Dialogue Track tomorrow. And again, we’ll have more to say about this later in the week.

OPERATOR: Our next question comes from the line of Weihua Chen with The China Daily. Please go ahead.

QUESTION: Yeah. I just want to follow up on this cyber thing. Are you guys, I mean, talking on the same page today on cyber after the Snowden case? Obviously, the Chinese are very – have a lot of arguments about hacking into China’s Tsinghua University and cell phone companies. And the other is, how do you comment on this possible bilateral investment treaty that is going to be discussed?

SENIOR ADMINISTRATION OFFICIAL FOUR: Okay. So on the first part of that question, all I’ll say at this point is we had a constructive dialogue and exchange of views. Again, we can talk more about that later in the week, but I don’t want to get ahead of the schedule for the rest of the S&ED. And then I’ll turn it over to my colleague to address the second question.

SENIOR ADMINISTRATION OFFICIAL TWO: So on the bilateral investment treaty, obviously we continued for both – priority on both sides is to work to further enhance our bilateral investment relationship. And in that context, China’s direct investment in the United States has been growing quickly, whereas I think we continue to face challenges in terms of our companies having access to China’s market. And so as we continue to discuss China’s reforms to open up – to further and open up and liberalize its economy, including to services and other sectors, the BIT is an interesting area for us to continue to look at. A high-standard bilateral investment treaty between China and the United States would be of mutual benefit and would also help to encourage the open, stable, and transparent market conditions for investors from both our countries. So I think that obviously we’ve had some very positive negotiations and discussions and those will be ongoing, and we look forward to having a robust conversation during the S&ED.

SENIOR ADMINISTRATION OFFICIAL ONE: Can I just go back to one point, though? One thing I want to make clear on the first part of that question is we’re talking about apples and oranges here, because what we – what I want to make clear so people understand this is the U.S. Government is talking about cyber-enabled theft of intellectual property. And so that doesn’t have anything to do with the first part of that question, which I think the President addressed very well in his public comments about that.

QUESTION: Thank you.

OPERATOR: And our next question comes from the line of Shaun Tandon with AFP. Please go ahead.

QUESTION: Yeah, thanks for doing this call. I wanted to ask you about the issue of human rights. That’s something that obviously has come up quite a bit between the U.S. and China, particularly last year at the S&ED because of the events. I wanted to see how much you expect that to be discussed here. I mean, there’s obviously the separate dialogue in human rights, but to what extent do you expect this to be a focus in the discussions?

SENIOR ADMINISTRATION OFFICIAL ONE: It is going to be a primary focus, as it has been in previous S&EDs. Sometimes there are aspects of human rights that will be featured; we’ll focus on a certain part of the discussion, let’s say on labor issues. So from year to year that might change. But I think looking at – I mean, we’re still trying to finalize and refine the agenda now, but you can be sure that it will be in the Strategic Track one of our priorities to discuss this. And you can read our Human Rights Report to give you an idea of some of the issues that we’ll raise. Ethnic minority issues certainly will be part of that, as well as other aspects of the human rights issue.

But it is something that Secretary Kerry feels deeply about, and so I fully expect that he will raise it, as he has in meetings with the Chinese in past meetings with the Chinese.

QUESTION: Thank you.

OPERATOR: And our next question comes from the line of Sandra Sun with China Business News. Please go ahead.

QUESTION: (Inaudible) to hear on the financial market stability call for (inaudible) about a TPP or a TTIP in this S&ED? Thank you.

SENIOR ADMINISTRATION OFFICIAL THREE: I’m afraid we’re going to need that question repeated.

SENIOR ADMINISTRATION OFFICIAL ONE: Yeah, the first part of it was broken up. We got the part just about TTP and TTIP – or TTIP?

SENIOR ADMINISTRATION OFFICIAL TWO: TPP and TTIP.

SENIOR ADMINISTRATION OFFICIAL ONE: TPP and TTIP.

QUESTION: The first one is: What are we expecting to hear on the financial market stability (inaudible) IP in this S&ED?

MODERATOR: Operator, we’re just not able to hear that question. Let’s go to the next question.

OPERATOR: Okay. It comes from the line of Lisa Friedman with ClimateWire. Please go ahead.

QUESTION: Hi, thanks for taking my call. I was wondering if one of you could talk a little more in depth about the climate session. Obama and President Xi made a pretty significant environmental announcement last month on super greenhouse gasses. What’s left on the table? Can we expect anything big on climate change out of these talks, or are we looking at a series of small cooperation announcements? Any other details you can give.

SENIOR ADMINISTRATION OFFICIAL ONE: Yeah, the – what’s – the great feature this year – one of the great features this year is the special sessions on climate change and energy security. So we envision smaller sessions with a very focused agenda. And so Secretary Kerry, Secretary Lew will both be chairing on our side, and we’re looking at practical cooperation between our two sides and we’re looking to encourage more transparency from the Chinese side. And we want to demonstrate to the world that the two largest economies in the world can cooperate in this century to help tackle these environmental challenges.

And so I think that you will see as an outcome, we hope – I mean, we’re still, again, putting the final touches on this. We’re hoping that at the end, we can cite some concrete examples of our cooperation through reduced emissions. And this set of meetings, the one on climate change and energy – well, actually, on climate change this follows the President’s major speech on climate change. And so as in all cases of the issues that we’re raising in the S&ED following up on Sunnylands and, in this case, the President’s speech, we will try to put into place concrete cooperation. So we have the direction that’s coming from the White House, and it’s all our job to be able to put into practice what he has sort of envisioned.

OPERATOR: Our next question comes from the line of Lisa Matthews with the AP. Please go ahead.

QUESTION: Hi, I’m actually with the broadcast division, and my question is strictly logistical. First of all, what time and day do you expect the CEO roundtable to happen?

MODERATOR: Before you go ahead with that question, we’ll do all logistical questions directly here in the Press Office. So feel free to call us here at the State Department main Press Office and we’ll deal with that offline.

QUESTION: Okay.

MODERATOR: All right, thanks. Go ahead, next question.

OPERATOR: It comes from the line of Hester Zou with CCTV America. Please go ahead.

QUESTION: Okay. Thank you for taking my question. And I just wonder will a more general topic, which is the establishment of a new type of China-U.S. relationship, such as the designation and the path to achieve this new relationship, (inaudible) during the meeting? Thanks.

SENIOR ADMINISTRATION OFFICIAL ONE: I think it’ll come up in both the Strategic and Economic Track. We have in a number of senior-level discussions over the last few months heard the Chinese talk about a new type of relationship. The only thing I’d like to say about that is, because I think it’s important to ask the Chinese side what they – how they would define this expression, but I think that what’s important here is that we use the S&ED – if we are going to establish a new type of relationship, what we would like to see is something more concrete in terms of cooperation. If they are going to talk – if the Chinese side is going to talk about moving away from old thinking in our relationship, then we ought to see more cooperation, and that’s what we’re hoping the S&ED will result in. And so that’s what we’ve told our Chinese counterparts, especially on the strategic side, is that we already understand the Chinese side has an interest in realizing a new type of relationship. But the key for us is to find a way to do that and to build confidence between our two sides so we can actually achieve what we hope to.

OPERATOR: And our next question comes from the line of Paul Eckert with Reuters. Please go ahead.

QUESTION: Hi, thank you. I second the request for logistical information, itinerary and agenda and all of that. But I wanted to ask on the econ side, the United States and China have had a – long had a dispute over the accounting and audit firms. And they sort of reached a truce for a little while, but apparently at least the U.S. business community is hoping that some sort of breakthrough might be made at the S&ED on that. I’m hoping you can elaborate from the Treasury side.

SENIOR ADMINISTRATION OFFICIAL TWO: Yes. I mean, obviously this is an issue of importance and one that we’ve been working on. As our firms and investors are increasingly operating in each other’s markets, robust cooperation between our financial regulators is critical to preserving financial stability and protecting investors and ensuring and supporting the confidence of our financial markets and firms. And obviously, as we have seen in our own past history, when investors lose confidence in the quality of information that’s provided, it becomes much more challenging in terms of the ability to operate.

And so this is an issue that has continued to be at the forefront of our engagement, and our regulators have been in discussions as well. And so we expect that this will continue to be a topic of discussion moving forward.

OPERATOR: Our next question comes from the line of Jamie Strawbridge with Inside U.S. Trade. Please go ahead.

QUESTION: Hi, thanks. I just wanted to follow up on the econ side. I mean, can you say more about if you have any areas where you’re hoping or think that there may be concrete breakthroughs or outcomes of this? I mean, we’ve mentioned investment. We’ve mentioned the financial system in China. I’ve also seen the Chinese press something on – about export controls, high-technology exports to China. But on econ, where do you think the real concrete breakthroughs are going to come at this S&ED?

SENIOR ADMINISTRATION OFFICIAL TWO: Obviously, we are – we’re still continuing to engage with our counterparts to try to prepare for the meetings that will be coming up and as the Chinese delegation arrives. But from our perspective, we’ll continue to push forward to ensure that there is a level playing field and that there is an open and – trade and investment relationship. We think we’ll continue to, of course, push on exchange rates and to try to push forward on the market determination of both exchange rates and interest rates. We’ll continue to try to address the concerns that we have in the context of state-owned enterprises, to ensure the level playing field, trying to focus on some of the benefits that they receive and that result in a – putting them at a competitive advantage and our companies at a disadvantage, looking at dividends that also will affect – will be good for China in the context of rebalancing their economy and ensuring that they boost domestic consumption.

We’ll look at trying to make more progress in areas like where we are setting the global trade and investment rules, such as on government procurement and in the area of export credit. So that’s just some of the areas. Obviously, and I should actually – should have – one big area is in the area of intellectual property and ensuring that we continue to ensure that there is a strong regime in place to protect and enforce our intellectual property rights. That includes not only software legalization, but of course trade secret theft, including by cyber-enabled means. And so these will all be issues that we hope to try to make some progress on.

MODERATOR: Operator, we have time for just one more question.

OPERATOR: Okay. And that will come from the line of Scott Stearns with Voice of America. Please go ahead.

QUESTION: Yeah, thanks. On the strategic front, where do you see this new government on South China Sea, especially given some of its recent concerns about activities by the Philippines?

SENIOR ADMINISTRATION OFFICIAL ONE: Right. I think that Secretary Kerry had a chance last week in Brunei at the ASEAN Regional Forum to address these issues head on. And I think that obviously he expressed the U.S. interest in peaceful management of issues, especially in the South China Sea, but also including the East China Sea.

I don’t – I think it’s a little bit too early to say if they’re headed in a certain direction. I don’t think that this new administration in China – they haven’t shown any signs that they are altering their position any way. They have expressed their views on the Philippines and the Philippines’ submission of an arbitration case, and they have also suggested that the Philippines is sort of the instigator in these issues on the high seas or in the South China Sea.

We have had many conversations with the Chinese over the past year about how we think that it is not necessarily productive to engage the Philippines in this manner where we’re concerned very much about either side – actually, it’s not just the Chinese side, but if either side takes steps that might be coercive in any way. I think that the Chinese understand our position and we continue to work on it. And just like in all diplomacy, sometimes it’s going to take a longer-term effort. But we continue to have these both public and private discussions with the Chinese on this issue as well as other countries in the region. I think the bottom line is that we’re hoping that there can be a peaceful management of these issues. And you are very much aware, I am sure, of our position on the ultimate sovereignty according to land features of these various disagreements. And we do take a neutral position and we are in support of freedom of navigation, but we are also going to make clear our views when we think that one side or another is taking a step that is intimidating others. And so I think that all sides understand our position on this.

QUESTION: Thank you very much.

MODERATOR: Thank you all for joining the call.

ENDS

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