Senior Administration Officials on the U.S.-China Strategic and Economic Dialogue

Special Briefing
Senior Department Officials
Teleconference Briefing
Washington, DC
May 9, 2011

OPERATOR: Welcome, and thank you for standing by. Our participants are in a listen-only mode. During the question-and-answer portion of today’s call, please press *1 to ask a question. Today’s call is being recorded. If you have any objections, please disconnect. Thank you. You may begin.

MR. CHANG: Hi, everyone. This is Ben Chang from the State Department. Thank you for joining this call, where we will have two Senior Administration Officials speaking about the first day of the U.S.-China Strategic and Economic Dialogue. As you know, this is the third one that has been held. And we have with us [Senior Administration Official Two]. And we have with us [Senior Administration Official One].

I will note that both gentlemen will be speaking on background as Senior Administration Officials. I know this was an issue that was raised before, but they will indeed be on background. And they will make some opening remarks, and then we will turn quickly to

Q&A, and we simply ask that folks identify themselves and their outlet when they do ask their questions.

So without further ado, I’d like to turn it over to [Senior Administration Official One], speaking as Senior Administration Official Number One.

SENIOR ADMINISTRATION OFFICIAL ONE: Okay, great. I thought I would make just a couple of general introductory comments, and then, of course, we’d be happy to answer your questions.

I thought that we got off to a good start today. As Ben mentioned, this is the third round of the S&ED, and it also happens to be the third one that I’ve been involved in, and it’s – I can say that I think we were quite pleased with today. I would characterize the discussions as being very productive, positive, constructive, but also quite candid and honest. And I think, as you’re familiar with the structure of the S&ED, we saw a whole range of different kinds of meetings that covered the whole – and that really represented the breadth, I think, of the relationship, covered the whole range of issues.

Of course, you saw the opening this morning where the Secretary, the Vice President and others made remarks. We then came over to the State Department and we’ve had a series of meetings throughout the day, some of which have been small in scale; others have been large plenary sessions. And I left the last plenary session a little bit before it broke up, but my understanding was before too long they were going to break up and then head over to the White House for the meetings with the President.

I was quite impressed, really, with the range of issues that were discussed, everything from military-to-military relations to how to build strategic trust in the relationship to broad foreign policy issues such as Afghanistan or other broader global issues such as cooperation on clean energy and the environment. So I thought it was quite representative, not only of the S&ED, but quite representative of, I think, the broad and deep relationship that exists between the U.S. and China.

Those would be my introductory comments to lead with.

MR. CHANG: All right. And Senior Administration Official Number Two, would you like to have an opening?

SENIOR ADMINISTRATION OFFICIAL TWO: Sure. Good afternoon. We had two sessions on the economic side. We kicked it off with a session on trade and investment policies, and the focus there was on how we can create a more level playing field so we can increase exports and create more opportunities for U.S. exporters, create jobs here at home in the United States, and also create a more level playing field for U.S. companies that are trying to do business in China.

Our second session was on financial regulation and supervision, and this focused on how we’re both working together to strengthen our financial systems, how we’re improving cooperation between our regulators, and how China is developing and reforming its financial sector to be more efficient so it can more effectively finance the most dynamic, innovative firms in China, particularly small and medium-sized businesses, but also liberalize its interest rates to put more money in consumers’ pockets.

As [Senior Administration Official One] said, this is our third S&ED, and what was very clear this time is these are guys now who’ve – know each other pretty well – not just guys. (Laughter.) Folks like Ben Bernanke and Gary Locke and Ron Kirk and their Chinese counterparts are people now that have met a number of times. So I’d say we dispensed pretty quickly with the diplomatic speak and got down to very frank and constructive conversations about what we’re each doing to (inaudible) in our financial sector, but how we can work together to address issues of concern from both sides.

MR. CHANG: All right. Thank you very much. I think with that, we’re ready to turn to participants’ questions, the reporters’ questions. So may we go to the first?

OPERATOR: Okay. To ask a question, please press *1. Please record your name and your affiliation. One moment. Heather Scott from Market News International, your line is open.

QUESTION: Hi. Thanks for taking the call. In the run-up to this meeting, Treasury Secretary Geithner has made it clear that the currency issue remains a key issue. The Chinese officials today, however – and the other thing that U.S. officials have always said is that within China, officials recognize the need to move more rapidly to appreciate the currency because it’s good for their economy as well as good for the world. However, the Chinese officials speaking today gave no indication at all that they – that that’s the case. The Commerce Secretary said that the concerns about the currency are completely unfounded, and the head of the PBOC simply didn’t address the issue and sort of declined to even address it.

So I’m wondering, what’s your reaction to that? Are they telling you something different in private? And in fact, when will you discuss this issue specifically? Because both the Chinese officials said that it was discussed today.

SENIOR ADMINISTRATION OFFICIAL TWO: Okay. Well, first I’d say it was discussed. Secretary Geithner did stress at the beginning, at the opening session, that it’s important that China more towards a more flexible exchange rate. Every time he sees senior Chinese Government officials, he’s going to raise the (inaudible). But today was focused on trade and investment and the financial sector, regulatory and supervisory issues. Tomorrow, the focus is on how the U.S. and China can restructure and, what we call rebalance, their economy so we can strengthen and – our recoveries. And certainly, monetary, fiscal, and exchange rate policies are going to be a central focus of the discussion tomorrow.

The only thing I’d say, and Secretary Geithner said this before, is let’s just dial back to where we were a year ago before the previous S&ED and the exchange rate was frozen. And here we are a year later, and it’s moving. It’s not moving fast enough and no one’s satisfied, but it’s appreciated a little more than 5 percent against the dollar. But that’s also been taking place at a time when Chinese inflation is much higher than it is in the U.S. So on an inflation-adjusted basis, the Chinese currency has risen around 10 percent against the U.S. dollar on an annual basis.

MR. CHANG: Okay. Our second question, please.

OPERATOR: The next question comes from Richard McGregor from Financial Times. Your line is open.

QUESTION: Hi. Another question for the second – [Senior Administration Official], could you elaborate on the discussion on interest rates and how the U.S. enunciates its importance in rebalancing the economy? I mean, what did you say about interest rates today?

SENIOR ADMINISTRATION OFFICIAL TWO: Okay. Thanks, Richard. I thought I was the first --

QUESTION: Oh, sorry. I thought they were both – sorry.

SENIOR ADMINISTRATION OFFICIAL TWO: No problem. What we talked about is how China is going to move towards a more market-based financial sector, so that more bank lending, more financial intermediation, is going to the most dynamic parts and the most dynamic firms in China’s economy. And again, a lot of this are going to be – stay in small and medium-size enterprises. And we also talked about how liberalizing interest rates, particularly raising the ceiling on other rates and increase the growth of household income, put more money into the pockets of Chinese consumers, and help China achieve its goal of a more consumption-led economy.

MR. CHANG: All right, thank you. Do we have other --

OPERATOR: The next question comes from Betty Lin from World Journal. Your line is open.

QUESTION: Hi, thank you. Yeah, I’d like to know about human rights discussions and mil-to-mil exchanges, please. Thank you.

SENIOR ADMINISTRATOIN OFFICIAL ONE: Human rights and mil-mil. Well, let me take the first one. I think as the Secretary – as Secretary Clinton and Vice President Biden outlined in their speeches this morning, human rights is a fundamental element of American foreign policy. It’s part of who we are, and we have serious concerns about the crackdown that we’ve seen going on in China in recent weeks and months. And in addition to stating those views publicly, the Secretary had an opportunity to state those views in private with State Councilor Dai as well, and to engage in an exchange. And I think it was – I would describe their discussions on human rights as very candid and honest, and there should be no room for ambiguity between our two sides on our views on that subject.

On the subject of mil-mil, I think, as you’ve seen elsewhere and also as was highlighted by Secretary Clinton today, we were quite pleased to see that one of the innovations at this year’s Strategic and Economic Dialogue is that for the first time, we have senior-level military participants from both sides in the dialogue, and that has been noted in several of the sessions. There was a plenary session this afternoon where the specific subject of mil-mil relations was discussed between our military representatives at both sides.

But then I would also note that there have been several opportunities, I think, throughout our discussions where the broader issue of mutual strategic trust has been discussed, and it’s been recognized that a good, strong, and continuous mil-mil relationship is also part of building that mutual strategic trust.

MR. CHANG: Thank you. We have our next question.

OPERATOR: And the next question comes from Howard Schneider from The Washington Post. Your line is open.

QUESTION: Oh, hi. I just wondered, [Senior Administration Official Two], on this – some of the financial reform and interest rate issues – I know these things don’t always yield big, sort of concrete achievements, but did they give you any sense of pacing or how far they’re ready to go on this, how far and how fast?

SENIOR ADMINISTRATON OFFICIAL TWO: We talk a lot about what their intentions are, and it’s very clear in their five-year plan that they intend to liberalize interest rates over time. They’re moving to create an offshore RMB market. They – and we talked about how important it is also for them to provide a more level playing field for U.S. financial services firms. And we talked about how important it is that they move as fast as they can.

MR. CHANG: Okay. Our fifth question, please.

OPERATOR: The next question comes from Jessica Stone from CC TV. Your line is open.

QUESTION: I have a question for each of you. On the financial side, first of all, I’m wondering if the developments that came out of the IMF conferences (inaudible) being considered for the SDR basket, if that was at all discussed as sort of a carrot, and how does that play in terms of kind of underscoring the point that there’s definitely a benefit to China to reevaluating the yuan.

And on the security side, I’m wondering if Afghanistan and Pakistan came up and in what context in particular, aid and the (inaudible) relationship between China and Pakistan in light of what happened with the Usama bin Ladin killing last week.

SENIOR ADMINISTRATON OFFICIAL TWO: On the SDR, Secretary Geithner has been very clear that the IMF lays out very clear conditions for the criteria for what currencies can be in the SDR. It’s certainly natural as China’s economy grows and as China’s trade and investment with the rest of the world grows that more and more people are going to want to use RMB. But it’s also very clear from the discussions we’ve had that a truly convertible RMB, which is an important criteria for their joining the SDR, is not something that’s going to happen tomorrow.

SENIOR ADMINISTRATION OFFICIAL ONE: And the second question was on Afghanistan and Pakistan; is that right? It was in Plenary Session II – one moment, I just wanted to grab my – yes, it was in the second plenary session this afternoon when there was an exchange between the two sides on Afghanistan and Pakistan. And our Special Representative for Afghanistan and Pakistan Ambassador Grossman was able to exchange views with his counterpart.

And I guess I would say as our two sides have done, I think, for the past couple of years – there was a statement of our views on the situation in both countries – and an expression of a desire to see if we could cooperate to further our common interests in instability in the region and in countering threats from terrorism and other issues. And there was a general discussion as well of whether there are things we could do on the development front in the region as well.

MR. CHANG: Can we go to the next question, please?

OPERATOR: The next question comes from Nike Ching – your line is open – from Voice of America.

QUESTION: Yes, hi. Thank you so much for this opportunity. I have a follow-up to mil-to-mil exchange. I would like to know if such mil-to-mil will become a regular mechanism under the umbrella of S&ED, and if so, would that sort of take of the concern of the (inaudible) that – in the future, whenever there is an arms sale to Taiwan announced? It might jeopardize the ongoing mil-to-mil dialogue with China. Thank you.

SENIOR ADMINISTRATION OFFICIAL ONE: Well, let me just address – I guess there are really two issues. It’s mil-mil relations and then discussion of mil-mil relations in the S&ED.

I guess I would say this: One of – as we’ve talked about, I think one of these developments, by having senior civilians and military leaders in this year’s S&ED, we hope it will contribute over the long term to building strategic trust between both of our countries and our governments writ large, but also between our two militaries. And I think the general idea is to realize that many of these most sensitive security issues are crosscutting in nature and important to both the civilian and military parts of our government, and by tackling some of those sensitive issues together, we hope we can break down misunderstandings and misperceptions that could potentially lead to some sort of miscalculation.

I think our hope would be that this could become a regular feature of our discussions. We’ll have – although we’ve been having military and civilian leaders at the table, both last night and today, we’ll have a more formal session tomorrow where they will get in – more directly into some of these issues. So it would be a little bit hard for me to, I guess, prejudge exactly how that will go and how this will go forward.

But I would just add one other point. I think it’s pretty clear, for those of us in the U.S. Government and on the Chinese side as well, this is not a mechanism that’s designed to replace the already very fulsome military-to-military exchanges and existing channels that are well established between the United States and Chinese militaries. What we see is an – this is an additional innovation that we hope will contribute to our relations.

OPERATOR: Thanks. The next question comes from Nadia Tsao from the Liberty Times. Your line is open.

QUESTION: Hi. I have a follow-up with the strategic trust. We know that the U.S. is promoting this concept. Would you like – could you describe how China’s response – they just acknowledge or they are also positive about the U.S. proposal? And any concrete measure has talked or discussed during today’s meetings? Thanks.

SENIOR ADMINISTRATION OFFICIAL ONE: Sure, I’d be happy to address that. I guess what I would say is that I think it’s fair to say that officials on both sides, I think, largely view the general concept of strategic trust in the same way. While it might be possible – of course, given that we are two sovereign nations, we might define it slightly differently – I’ve been quite struck in the preparations for the S&ED and also in the discussions of the last day and a half, how similarly we’ve spoken of the concept.

We’ve all talked about the fact that, in fact, we need to enhance strategic trust between our two countries. We’ve talked about the fact that we recognize that it’s misunderstandings and misperceptions that many times most undermine that strategic trust. So I’ve actually, I think, been somewhat heartened over the last day and a half that, at least regarding the term itself, I think we approach it in similar ways.

MR. CHANG: And we’ll have one last question.

OPERATOR: Okay. Next question comes from Zachary Warmbrodt from Argus Media. Your line is open.

QUESTION: Hi. Thank you. Could you please elaborate on what energy issues were discussed?

SENIOR ADMINISTRATION OFFICIAL ONE: Well, what I can say to you is this, is that I attended part of that session and I can just give you sort of a general feel. We had a – one of the longer sessions of the afternoon was on cooperation on clean energy, energy security, climate change and the environment. And we had a range of senior speakers. I could give you just a general feel. For example, some of our more senior U.S. speakers included Secretary of Energy Steven Chu, our Special Envoy for Climate Change Todd Stern, Secretary of Commerce Gary Locke, and EPA Administrator Lisa Jackson.

And I think in general, in the parts of the discussion that I was in, I think there was a general recognition, for example, we are the world’s largest consumers of energy. We’re the world’s largest emitters. We have a real responsibility here to cooperate in combating climate change and making contributions to energy security, and I think there was a pretty detailed, honest, and positive exchange of views on that subject. We had the full range of senior experts, as I’ve outlined, at the table. And I thought the discussions were quite positive, and I would note that many of the speakers in the session noted how positive the cooperation had been between our two countries in this general area over the last two years.

MR. CHANG: All right. Thank you, everyone. I hope that was helpful. And stay tuned for the press statements and availability tomorrow afternoon.

OPERATOR: Thank you. This concludes today’s conference, and you may disconnect.

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PRN: 2011/717