Senior State Department and Treasury Officials on the U.S.-China Strategic and Economic Dialogue

Special Briefing
Senior State Department and Treasury Officials
Beijing, China
July 8, 2014

MODERATOR: Thanks to everyone for coming out this evening. We have with us two senior officials to talk a bit more in background – on background about the S&ED. So without wasting too much time, maybe to give you by name and then hereafter Senior State Department Official, Senior Treasury Official, [Senior State Department Official] and [Senior Treasury Official]. And I’ll leave it to you.

QUESTION: I just wondered, is this embargoed till the end or --

QUESTION: Till the end of the briefing?


QUESTION: (Off-mike.)

MODERATOR: Yeah. Till the end of the briefing, yes. No other embargo.

QUESTION: So hold all your news alerts. (Laughter.)


Well, thanks very much. And I know that some of you got an earlier preview if you were on Secretary Kerry’s plane coming over, but for the benefit of those who weren’t on the flight I’ll just take a couple of steps back and talk about the context for the S&ED from the strategic track perspective, and then turn it over to my colleague in the Treasury Department, who’s going to give perspective from the economic track.

So the S&ED, this is the sixth session of it, and it is one of our premier dialogues we have with the Chinese every year. And the co-chairs on the strategic side are Secretary John Kerry and the Chinese State Councilor Yang Jiechi, which is the foremost official in their foreign policy apparatus, the Chinese foreign policy apparatus.

On the strategic side, of course, this dialogue comes at a time when there has been quite a lot of discussion about the tensions in the relationship. What we want to do in this session is to show the sort of comprehensive nature of our relations with the Chinese, meaning that in the next couple of days you will see so many of the issues and you’ll see the total sort of breadth of issues that we cover in U.S.-China relations. And that would include everything from North Korean issues, maritime issues, meaning South China Sea, East China Sea issues, cyber issues, and of course, the global issues such as climate change and wildlife trafficking.

What this will show is that the relationship really is built on solid fundamentals. We have done, I think – not to pat ourselves too much on the back in this Administration, but we’ve done a lot of spade work preparing for these meetings and over the last few years have really built a good, solid foundation so, in fact, we can have discussions about these tension-filled types of issues and yet have this mature discussion about the why or the broader scope of issues that we cooperate on.

So we will, of course, discuss those issues of differences, but we will be noting the cooperation and the cooperative dimensions of the U.S.-China relationship. And this week in particular, I think in the lead-up to this – and my colleague from Treasury will talk about the tone of [the] discussions with the Chinese – but the tone of our discussions on the strategic side have been quite positive. Already today, we have kicked off this week of meetings with the Strategic Security Dialogue, which Deputy Secretary Burns co-chaired with the Chinese Executive Vice Foreign Minister Zhang Yesui. And I thought that even though we did discuss some of those issues that I mentioned earlier where there have been some tensions, we still discussed it in a very professional way. We had disagreements, certainly, but we were able to discuss them where both sides were listening to the other side. And I thought that that was what – that’s how I would characterize the discussions, as quite professional, quite positive overall, but not avoiding any of the tough issues that we’ve been working on.

So before I walk through a little bit of the schedule, let me turn it over to my colleague from the Treasury Department to discuss a little bit of background and context of what they’re working on.

SENIOR TREASURY OFFICIAL: Thanks. And then also thanks to all of you, and apologies for running late. As you know, we’re – be holding the sixth round of the Strategic and Economic Dialogue this week, and it will be the first in Beijing under President Xi. And from our perspective, as the world’s two largest economies, with strong trade and investment ties, the economic relationship has and will continue to play an important role, serving as an important anchor for the overarching bilateral relationship.

For this year’s S&ED, we’re continuing to work to establish a more level playing field for American goods, services, workers, and companies, and to make the economic relationship a fair, more balanced, and beneficial one. Our engagement in the S&ED has yielded tangible results to date, and we’re working to build on past progress as well as to make new progress on our issues of priority and concern.

As [Senior State Department Official] noted, we have continued to be able to engage in very constructive, positive discussions with our economic counterparts and have really continued to take a business-as-usual approach, and so with the shared objective of continuing to deepen and strengthen the economic relationship and really to try to deliver concrete progress at the end of the day.

And so as we look at the ambitious reform agenda that China announced in November, which we welcome, China’s committed to implement aggressive structural reform to open its markets and to allow the market to play a decisive role in allocating resources. We believe that there is significant overlap between what we are seeking from China, including at this S&ED, and what China’s leaders aim to achieve.

Specifically, we’ll continue to press China to shift to an economy based on household consumption, which will then open up to – open up further to U.S. goods and services, and an economy that’s less dependent on exports, heavy industry, and investment. Obviously, continued Chinese exchange rate reform will play a critical role in China’s success in achieving these goals and remains a top priority for the Administration.

We’ll also continue to press China to reduce barriers that can reduce – that can distort trade as well as impede investment, often putting our firms at a competitive disadvantage. And this includes providing greater market access opportunities for our goods and services and for our companies. It means allowing further market access opportunities for American intellectual property-intensive products and services, and strengthening the protection and enforcement of intellectual property rights, including addressing the theft of trade secrets; continuing to reform its SOEs by improving their governance and transparency, as well as significantly increasing dividends paid to SOEs to support the welfare of China’s citizens; and bringing China into the international rules and norms governing trade and finance, including for government procurement and official export financings.

We’ll also continue to press China to further reform and develop its financial sector, which will play a critical role in China’s economic transformation to sustain future growth, including opening up further to foreign investment and participation.

And we’ll continue to work with China and to cooperate in areas of major global concern, including supporting growth, job creation, climate change, and energy security; terrorist threats that will affect both of our interests.

The strength of the S&ED has been – and I believe will continue to be – in our ability to make progress on a variety of key cross-cutting issues and to deliver concrete benefits from the bilateral economic relationship to U.S. workers and firms. At the S&ED, we’ll have frank conversations and we’ll work to constructively and directly address our differences, as we have in the past. We have made significant progress since the first S&ED of 2009, resulting in real opportunities for Americans, and we’ll continue to press for more as we work to ensure that U.S. companies and exports are treated fairly and compete on a level playing field.

And let me just say that we started off the discussions today with the Innovation Dialogue that was hosted or chaired by Dr. Holdren for the U.S. side, who is the director of our Office of Science and Technology Policy, and Minister Wan Gang, who is the Minister of Science and Technology, and where we had engaged in positive, I think, and cooperative conversations of how are the – kind of the best ways for countries to innovate in a nondiscriminatory fashion. So we will continue to build on those discussions in our meetings over the course of the next few days.

SENIOR STATE DEPARTMENT OFFICIAL: Great, thanks. I think others might have helped you walk through the schedule, but I just want to point out a couple of interesting features in this year’s S&ED.

Last year, you may recall the – we had a couple of special joint sessions, one on climate change and one on energy security. This year, we’ll have a joint session on climate change, and energy will be built into that discussion as well. So I think that that really underscores a global issue where I think we can make progress on.

I do understand – I’m not sure if this is firmed up yet, but I do understand that our Climate Change Special Coordinator Todd Stern may be meeting with media tomorrow, and that would be following that joint session, which is in the morning. And so I think we might be able to give you some further insight on the progress they’ve made in their discussions on climate change and what to look for in the future.

One other element I also would like to point out is we will be participating – or the Secretary will be participating in an event about our shared interest, U.S. and China’s shared interest, in combating wildlife trafficking. And so what makes this a unique feature, I think, is that it shows that both sides can cooperate on a global issue and not – we are, I believe, the world’s two biggest markets for such product, and we are combining forces to help out Africa as well. And that shows that the two sides, the two countries, can actually work together to help a third region, a third country (inaudible).

Any thoughts? Any questions? Who’s calling them out?

MODERATOR: Okay. You ready? Great. Let’s start over here.

QUESTION: This morning, you talked – you said you had held the Strategic Security Dialogue. Could you perhaps go into slightly greater depth about which issues were raised? Was it maritime issues? Was it North Korea? And any other feedback on how you felt the American concerns were handled by the Chinese or what their response might have been?

SENIOR STATE DEPARTMENT OFFICIAL: Right. In the past, we have – I mean, first to take a step back, what’s important about this session is that it is a forum that involves both senior civilian and military officials, so we have both officials from the Ministry of Foreign Affairs and also the People’s Liberation Army. And so that’s really important, because when we discuss strategic issues, it’s – what was lacking years ago in our talks was that we would have these talks in separate channels but not combined. And so it’s important for the military side to hear the sort of foreign policy or diplomatic point of view, and also the same for the diplomats, the people who handle the policy issues, to hear from the military.

What have been issues since the beginning – and this was the fourth session of the Strategic Security Dialogue – but there had been discussions in the past on cyber, maritime issues. Last year, we added missile defense, nuclear issues. Those were discussed – nuclear policy issues. I think this year we also discussed shared interests in space security issues. I think that was an interesting component to this year’s discussion.

Certainly, a number of other sort of regional issues or regional security issues were discussed. I think that Secretary Kerry will pick up on those discussions and sort of amplify the messages that – or the seeds that both Zhang Yesui and Bill Burns planted. So I mean, that just gives you sort of an idea of the overall issues addressed.

QUESTION: Are you able to tell us a little bit more about – because for instance, on the plane, one of the senior officials was telling us about American concerns over the maritime disputes.


QUESTION: Were those heard by the Chinese? Did they give you any indication that they were willing to address them?

SENIOR STATE DEPARTMENT OFFICIAL: Yeah. Yeah, I think that – as I mentioned earlier, what struck me about this morning’s discussion was the tone, and that it did appear that both sides were listening to each other, which is a really important feature of any kind of dialogue. And so a lot of times what you get in sort of formal discussions is some kind of a scripted or very choreographed type of meeting that doesn’t get you beyond just this sort of recitation of points. But I think over time, because this is not the first one we’ve done, the rapport has been built and all, I think, are used to one another. There has been much more listening coming from both sides.

Do I get a sense that we’re going to see a breakthrough on, as you just asked, some of the maritime issues? Well, I think that the discussion – having the Chinese listen and to say that they understood our point of view, but also to hear their point of view, is an extremely important thing. And I would imagine that down the road we will – and this was just another point, a data point for us – we will continue to have these discussions, and both sides seem to be very much willing to further the discussions and hear more about each other’s ideas. And I’ll just put it that way without going into any more specifics.


QUESTION: Follow-up. Did the United States ask or urge China to stop oil rig – oil rig development in South China Sea? Did you talk about this issue?

SENIOR STATE DEPARTMENT OFFICIAL: We discussed a number of the recent tensions in maritime issues. So if you’re talking about the Vietnam issue, the Philippines issue, the Japan issues, certainly those were discussed.

QUESTION: Did you communicate some sort of consequence of continued – at least the continued drilling, and also the mill – the air chicken, flying chicken – talking about the tugboat incidents?

SENIOR STATE DEPARTMENT OFFICIAL: Yeah. Well, we have been consistently clear with the Chinese that we do not believe it is in their sort of long-term or strategic interest to continue this kind of behavior. And I think that we were very consistent in discussions today about that. This does not benefit China at all, and we have discussed both in the past and in these sessions that we see that there may be this pattern developing – a pattern of aggressive behavior – and it certainly does not benefit China in the long run.

MODERATOR: Okay. Yeah.

QUESTION: So what did you say today that was – in a way, you effectively just repeated your consistent points. What’s new about this? I mean, you spent millions of dollars organizing this summit and months of manpower.

SENIOR STATE DEPARTMENT OFFICIAL: Well, it’s not that – no, this is – I hope this doesn’t sound patronizing or anything like that, but in diplomacy it’s not that we have a new message or a novel message every single time we meet the Chinese. There is a point to being very consistent with our messages, but also to try to take a look at maybe some new angles. And – for instance, when Assistant Secretary Russel talked about a freeze in terms of building in the South China Sea – I mean, that is a new idea. It wasn’t developed here at this SSD, but it’s an interesting idea that more and more countries, we feel, are supporting. And to – I’m sorry. But to have the --

QUESTION: How did China --

SENIOR STATE DEPARTMENT OFFICIAL: Well, they’re – as I mentioned earlier, they listened carefully. And so, I mean, I don’t want to go further into sort of the specific responses, but I think they heard our views. And beyond --

QUESTION: Sorry, this was raised by Assistant Secretary Russel today at the meeting?

SENIOR STATE DEPARTMENT OFFICIAL: No, no, no. The assistant secretary had raised this previously, but he was not in the meetings.


SENIOR STATE DEPARTMENT OFFICIAL: He was actually accompanying Secretary Kerry on the plane. But certainly, the deputy secretary --

QUESTION: So you mentioned the idea of a freeze on building in the South China Seas?

SENIOR STATE DEPARTMENT OFFICIAL: Yes. Yeah, we’ve been very consistent.


QUESTION: Who was --

QUESTION: What is it you’re conveying on the territorial issue? I mean, on the actual territorial claims, because there’ve been some comments suggesting that those territorial claims are vague and that the Chinese – I mean, what kind of message are you conveying on its actual territorial claims?

SENIOR STATE DEPARTMENT OFFICIAL: Well, we repeated our position that we don’t take sides on the territorial things. What’s important right now is for China to sort of modify its behavior. And the kind of behavior we’re seeing out there we’re raising, and we have raised consistently our concerns about that. So it wasn’t a new message at all, in fact it was very consistent.

QUESTION: But I’m --


QUESTION: I’m sorry. I’m unclear about exactly what the consequence that you’re communicating to the Chinese – the – is – if there’s this continued pattern of aggression.

SENIOR STATE DEPARTMENT OFFICIAL: Well, I don’t think that – there isn’t always a list of you do this and that will happen. I mean, that’s not generally how discussions work like this. But to explain our view as why we are concerned so much about the behavior, why we see it as potentially destabilizing or threatening, and certainly not in the long-term interests of China. These are the kinds of things that we would talk about, not necessarily what happens if a certain action takes place.

QUESTION: And could I ask: Is there – are you seeking an understanding – I mean, to come out of these meetings, are you seeking an understanding from China that it would start acting in a certain way or that it would start going to the international court system? Are you seeking something from China from these talks on this – on the maritime dispute, as well as – what about cyber security?

SENIOR STATE DEPARTMENT OFFICIAL: Well, that’s been a goal of ours, to – for China to seek peaceful resolutions. And one of those channels would be to use international law, to use those mechanisms, and we’ve been very clear with the Chinese for quite some time about that. And again, today we were very consistent in our messaging.

QUESTION: I don’t understand why you think you’re – your message is getting through to China if the behavior isn’t changing. What are you getting in return that suggests that in any way they are listening, beyond that they’re sitting in the room? I mean, have they effectively altered their conduct, based on conversations with you or anyone else?

SENIOR STATE DEPARTMENT OFFICIAL: Those are questions that are very hard to answer for us in terms of how – how has it affected their decision making. No one really knows what they were thinking, what are their range of options, that sort of thing. So I wouldn’t want to – just sort of a hypothetical question. Do you know what they would have done otherwise? But we think that over time being very consistent and persistent about this that there will be recognition that it isn’t in the long-term interests of the region, of China’s relationships with its neighbors. It’s not in the region – in the interests of global stability, which is, essentially, what they want as well.

QUESTION: Can I get a question about the yuan? You were talking about how it’s a top priority. Can you say thus far --


QUESTION: I’m sorry?


QUESTION: Yuan, yeah.


QUESTION: (Off-mike.)

SENIOR STATE DEPARTMENT OFFICIAL: I thought [Senior Treasury Official], you should answer the yuan questions. Go ahead. (Laughter.)

SENIOR TREASURY OFFICIAL: I don’t know why. No reason.

SENIOR STATE DEPARTMENT OFFICIAL: So Senior Administration Official Number Two.

QUESTION: So can you say whether the issue has been raised thus far?


QUESTION: In what context? Give me a little description.

SENIOR TREASURY OFFICIAL: The exchange rate continues to be a top priority for the Administration, and it is an – always an issue that the Secretary engages in when he is with his counterparts. Our push continues to be for China to move to a market-affirmed exchange rate, and one that is transparent. And so we will continue to – consistent with their own third plenum reform agenda to do that. Obviously, it will help them and it is critical to us in terms of ensuring a level playing field.

QUESTION: And where was it actually raised? In what sort of meetings?

SENIOR TREASURY OFFICIAL: The Secretary has had a series of engagements already with his Chinese counterparts and will continue to do so over the course of the next two days. And so he will – he has and will continue (inaudible).

QUESTION: Anything on the bilateral investment treaty? Do you expect anything from this? I mean, you mentioned market excess.

SENIOR TREASURY OFFICIAL: Yeah. So obviously, last year made significant steps forward in terms of the outcome that was announced at the S&ED where China and the United States announced that we’d be pursuing the BIT negotiations based on a negative list approach, and that would include all phases of investment, including the market access phase, that pre-establishment. And we’ve had – continue to have intensive negotiations, and there’s a strong commitment on both sides and in particular (inaudible) – on both sides to really try to deliver a high-standard, high-quality agreement. And so our negotiations will continue in that regard to try to seek that progress.

QUESTION: I have a question about the climate discussion tomorrow. Now that climate and energy have been put into sort of one discussion, that’s a lot to talk about. What are the two or three items that are on the top of your agenda to address?

SENIOR STATE DEPARTMENT OFFICIAL: I think that probably be Todd Stern on that.

QUESTION: Wait for Todd.

SENIOR STATE DEPARTMENT OFFICIAL: Yeah, I’m waiting for Todd on this one, so – because he’s – I don’t know exactly when he arrived, but he’s had his own meetings with the Chinese, and I’m not really up to date (inaudible).

QUESTION: Can I ask about cyber security? The Chinese suspended the cyber working group after the indictment of the five PLA guys, so that seems to narrow the scope of discussions. So does the Secretary plan to sort of freelance this himself, or how do you plan to bring it up since there’s no working group?

SENIOR STATE DEPARTMENT OFFICIAL: Yeah, I think even without the working group, or even with the working group, we would be raising --

QUESTION: But that – you don’t have it, so --

SENIOR STATE DEPARTMENT OFFICIAL: Yeah. And so we’ll raise it in – I think in the same ways that we would have even if a working group took place. We have made it a priority, and I know that on the economic track it is also a priority for them to raise these issues. And from the strategic perspective, it certainly isn’t in the long-term interests in China to continue this kind of behavior. And we have told them that even though the working group may be suspended, these problems aren’t going away. We still have to raise them because they are clearly a priority for the Administration.

SENIOR TREASURY OFFICIAL: And I think on the economic track side, a core focus of – or one of the areas that we have continued to focus on, obviously, is strengthening and protecting intellectual property rights, including from trade secret theft, no matter by which means, and – including cyber. And so in that regard, the Secretary will continue to raise this in his discussions with the senior Chinese officials. We think it’s critically important that at core this is an economic, commercial issue that needs to be addressed on both sides of the discussion.


QUESTION: Did you raise this morning – sorry.

QUESTION: Go ahead.

QUESTION: I was just going to – did you raise this morning the resumption – resuming the cyber working group, and what was the reaction?

SENIOR STATE DEPARTMENT OFFICIAL: Yeah, I think some of the others have the view that we’ve expressed the need to return or to – this dialogue or this working group back on track, because that is – or the two sessions that met previously – the two sessions of the cyber working group that met previously, our sense was the discussion was actually very pragmatic and actually moving in a positive direction. So – but we do need to have these discussions and that dialogue is a very good mechanism for it, but both sides were – a year ago, that was one of our – I think our achievements is to announce that the dialogue would be established and it has been – it had been successful when we were working together (inaudible).

QUESTION: Did you raise this knowing that the talks with Deputy Secretary Burns – did you raise – was it raised in those meetings?

SENIOR STATE DEPARTMENT OFFICIAL: We have – we’ve been consistent in saying that even beforehand, and so that is an interest of the U.S. Government to get it back on track.

QUESTION: But was it raised at the meeting this morning?


QUESTION: And will the Chinese respond? Have the Chinese responded?

SENIOR STATE DEPARTMENT OFFICIAL: Well, I think that right now, without going into specifics about the response, they announced a postponement of this a few weeks ago, and I didn’t get a sense that they were immediately changing their view on it, but they did listen. I thought that, again, going back to this whole issue of the tone in the meetings, I think very professional and cooperative in spirit. Now, that is certainly an issue where we had some tensions in recent weeks. I won’t go into background, but you all know that. But I think that in the long run, China will see that it’s – such a discussion is in its best interest.

QUESTION: Do you think further indictments are necessary to get their attention on this issue, or do you think that that might – those might exacerbate tensions?

SENIOR STATE DEPARTMENT OFFICIAL: I don’t really – I can’t speak to – I mean, those are sort of law enforcement issues that – it’s not a policy issue to decide to go forward with indictments. So I really can’t comment on that.

MODERATOR: We’ve got time for two more.

QUESTION: Can you flesh out – well, if you have a (inaudible) question on --

QUESTION: But I just had a trade question.

QUESTION: Can you just flesh out really quickly the space security issues? Is this about ABM, disarmament, or satellites, or what?

SENIOR STATE DEPARTMENT OFFICIAL: I don’t really have – I mean, there was sort of a beginning discussion on it just to understand the philosophies behind how they approach space sort of security issues. But I can’t really speak to that beyond that it was one of the – our first discussion on it really. And when we have – when we open up discussions, generally we’re just trying to understand each other’s approach or perspectives (inaudible).

QUESTION: You guys have been talking about this for, like, 20 years, haven’t you?

SENIOR STATE DEPARTMENT OFFICIAL: Not in dialogues. So it’s been a part of dialogues here and there, but I think to have a more focused kind of agenda item is something that holds great promise (inaudible) future.

MODERATOR: So – yeah.

QUESTION: Yeah, I have a trade question. I mean, Chinese companies are being told by their governments, apparently, not to buy American high-tech goods, that IBM, Cisco, HP compromises the security of the Chinese state. And I was just wondering if that’s something that’s going to be brought up in the talks, or is that a question for the U.S. trade rep?

SENIOR TREASURY OFFICIAL: I mean, obviously part of our conversations continues to be about encouraging open trade practices and ensuring that we are continuing to follow the rules and have a balanced relationship. And so we have very – both broad and very specific conversations in that regard in our trade investment session. And so encouraging kind of a continued, open market from both sides will be part of that conversation.

MODERATOR: Okay. Thanks very much.

QUESTION: Thank you.