Special Briefing
Island Shangri-La, Hong Kong
July 25, 2011


SENIOR STATE DEPARTMENT OFFICIAL ONE: Sort of three dimensions to the day. The first is, obviously, meeting with the senior officials here in Hong Kong, (inaudible.) Second is her speech (inaudible) chamber of commerce and other businesses here. And the third, obviously, is meeting with Dai Bingguo.

I just want to take one minute on the middle piece, the speech. For those of you guys who are going to keep traveling with the Secretary for the next year and a half, this speech, I think, reflects her growing emphasis on the role of economics and economic power in foreign policy. It’s the second in a series of three speeches, the first one being at USGLC, which really focused on the way in which we can use the tools of the American foreign policy to grow American jobs and power, American recovery and growth. This one will focus on the principles that she believes should underlie the international economic system and why we believe those principles are good for everyone’s growth, how they have led to a century prosperity for the United States and can power a century of prosperity in Asia, turning what’s been a generation of really remarkable growth into something that endures into the course of the next century.

And then the third speech will focus more on America’s strategic (inaudible) as they relate to both the question of using our foreign power – policy to shore up the sources of economic power at home and then applying economic power and influence abroad to advance (inaudible) which she calls (inaudible) economic statecraft. So that’s the context of the speech. I thought maybe [Senior State Department Official Two] could take a minute to actually walk through the elements of it and then [Senior State Department Official Three] could spend some time on the regional dimension, (inaudible.)

SENIOR STATE DEPARTMENT OFFICIAL TWO: Well, basically the speech – and one of the reasons the speech is being given here in Asia is that we realize that this is clearly the most competitive region of the world for the United States and it begs saying the Secretary understands that one of the things we have to (inaudible) is to strengthen our economy at home in order to rise to the competition from abroad particularly from this regions – from this region. But they’re not just competitors. Although they are fierce competitors, the other thing that is important in her speech and you’ll see is that she understands we need to use our diplomacy and our foreign policy to work with them to save the future of the global economy, since they’re going to be major participants in that economy. And as they become more powerful, two things will happen.

One, they’re taking advantage of the opportunities in the global economy. But we also believe that as they become more powerful financially and commercially they have a greater role, and should have a greater role, in abiding by the rules of the global system. And [Senior State Department Official One] was saying that the rules of the global system over the last several decades have served the system very well. They have served us well, and they’ve served a lot of countries well. We believe those same rules and norms, the principles that she’s laid out in the speech, will also serve the global economy well in the future and those relate to fairness, openness, and transparency and (inaudible) what the competitive norms are and what the terms of contributions have to be in order for everyone to have a stake in the system. It can’t be a system in which countries take advantage of the global economy but don’t contribute to the global economy.

We’ve developed a number of areas and institutional cooperation where we want to work with the countries of East Asia, and many of them are outlined in the speech. One is APEC. There’s going to be, as you know, a meeting in November, and which the President will host in Honolulu. In addition to that, there are a variety of other groups which we’re working with and we’re – we have (inaudible) agreement with – hopefully as soon as possible. We’re working on TPP, which is sort of a new way of looking at global trade, get this more emphasis not just on the quarters but on environmental issues, on label rights issues, on (inaudible), a whole range of new issues that have be addressed in the global system. So these are the kind of things that are going to be emphasized in the speech.

The second is to deal with some of the 21st century challenges to free and fair competitiveness, one of which is protection of intellectual property in general, not just in TPP or in APEC but generally. Intellectual property is very important to the American citizens, and she wants to emphasize that. Second is sort of a level playing field with respect to global competition. More and more of the distortion to competition are not simply barriers or borders but regulatory differences or ways in which state enterprises take advantage of the system because they have (inaudible) from their governments that private sector enterprises don’t have. That presents (inaudible) to American companies and other private sector companies, and even private sector companies in the countries of the region. So that kind of thing will be emphasized in (inaudible).

And third is this question of making sure that the system will move into better balance. As you know, there are large imbalances across the Pacific. One of the things that she will talk about was the ways in which countries and regions (inaudible) place more emphasis on creating domestic demand in their countries, which will help to reduce imbalances in a global system, which will lead to greater stability in the global system.

And the last point – there are a lot of other points, but I’ll just do it on this one. Lot of other points, but the one key one is that the United States is committed to be what she calls a resident economic power in this region. And I think that’s very important, because there was a time in which people were wondering if the United States could continue to play a proactive economic role in the future. And her answer is an emphatic yes. And it’s – the answer is yes in part because we’re going to be playing a greater role in APEC and many of the other organizations that [Senior State Department Official Three] has been working on, in part because, of course – which we hope will pass as soon as possible – in part because we’re going to be constantly negotiating this TPP, which there have been four or five negotiating rounds. There will be several more, which will further engage us in the region.

And more generally because we want to work with these countries and other groups like the Group of Twenty, and (inaudible), World Bank, and other institutions in order to ensure that as the rules of the 21st century are shaped we work with the East Asians to make sure they’re shaped in ways that underscores and supports the broad principles that have worked very well in the past. And what we have in the region is not just competition among countries, but people who are questioning whether the American economic model works. And I’m going to carry out here (inaudible) and one of the points she’s going to make and one of the points she made quite emphatically is that we believe our economic model has been enormously successful in creating opportunities for large numbers of people in our own country, supporting upward mobility, supporting entrepreneurialism, supporting people who want to starts businesses, the free flow of information and ideas.

And we think that model is a very successful one not just for us, but for other countries that also want upward mobility, that also want to create small and medium-sized enterprises, that also want to support entrepreneurs, kids who want to achieve greater opportunities. So she’s going to focus on the fact that this model is not only (inaudible) for us but has a lot of attributes that a lot of other countries can benefit from as well. Those are just a few highlights of the speech.

There’s a lot – there’s a lot of – this is both an architecture speech, but it also has very strong principles that are – that underscore the importance of the kind of (inaudible) talking about, but there are also some very specific things in it that you’ll find that are trying to sort of push the debate into that (inaudible) that, as you know, government procurement is a very big thing out here and in other countries, encouraging other countries to go into that role, (inaudible) government procurement (inaudible), which gives countries access to one another’s government procurement market (inaudible) industry very important because of the infrastructure (inaudible). So there are a lot of very specific elements of the speech that back up entire principles that we talked about.

SENIOR STATE DEPARTMENT OFFICIAL THREE: Thanks. Okay, guys. I’ll talk for just a little bit about the meetings here in Hong Kong and a little context here in Hong Kong. And then as you know, the Secretary this afternoon, after her speech today, which is one of the largest speeches that we’ve seen in Hong Kong for many years, completely oversubscribed an enormous amount of interest in hearing what she has to say about – as [Senior State Department Official Two] indicated and [Senior State Department Official One] pointed out sort of the economic push that the United States has going forward. This afternoon we’ll go up to Shenzhen, and Secretary Clinton will meet with State Councilor Dai Bingguo, and I’ll talk about that in a little bit.

So just a couple of things Hong Kong – many of you are veterans of this part of the world, but obviously it’s one of the world’s greatest cities and it’s gone through an incredible process of transformation just over the last 15 or so years since reversion. And I’m just going throw a little bit of that – obviously the framework that was established for the handover is what is described as one country, two systems, which is the same framework which the Chinese, at least, apply with respect to Taiwan.

The reason that that’s interesting is that clearly there are elements of domestic debate in Hong Kong that have extended far beyond what was originally anticipated by the architects of the so-called Legislative Council, the LegCo. And so you have now swirling debates on issues that were, frankly, unthinkable when the British handed over. And so – and for all of those people who say well, gee the Chinese haven’t allowed as much of this kind of debate, in fact, much more has happened over the last 15 years than during the previous over 100 years of British rule.

She’ll meet with the chief executive today, and our interest here is to take necessary steps through visits, our own engagement – we have a very robust set of engagements with the various aspects of the Hong Kong constabulary, its security services, its port security apparatus, its health services. So we work very closely with them on a whole host of things: disease protection, port safety and security, tracking and the like. And we have a very strong relationship that has continued since reversion.

Just in the last 15 or so months, we’ve had five cabinet secretaries visit. That’s a substantial reaffirmation in the public of our commitment to see the one country, two systems continue. The Secretary will meet with the chief executive today and also members of the LegCo, and we anticipate in the LegCo discussions there’ll be a substantial debate in front of her about the path and process forward, questions associated with Beijing’s role in Hong Kong, its role in a whole host of both political matters but also increasingly financial matters as well.

In addition, what we’ve seen in Hong Kong in the last several years is really a renaissance in many respects. Immediately after reversion and in the wake of the Asian economic crisis, Hong Kong suffered enormously, and there was a crisis of confidence in terms of what would be the appropriate model for growth. This relationship between Hong Kong and China is actually extraordinarily complex.

On one level, China views Hong Kong as part of the Chinese destiny in terms of a Chinese territory over the long term, but at the same time there is increasing an enormous competition between other cities, Shenzhen and Guangzhou, in terms of the very things that Hong Kong has excelled at: legal issues, joint ventures, questions associated with stock listings. Each of those domestic Chinese cities are now competing toe-to-toe with Hong Kong. What we’ve seen probably over the last several years is Hong Kong emerge as the major venue of exchange between the Renminbi and international currencies. And so China – Hong Kong has played a major role in that sort of larger interface between the Chinese currency and Western currencies.

Hong Kong is experiencing a fairly substantial period of economic growth, but at the same time there is a very robust and vibrant debate on all issues. It’s not unlikely to have demonstrations in Hong Kong on a whole host of issues that involve hundreds of thousands of people. It’s really quite substantial, and so those who would say that this – that Hong Kong people are apolitical and only interested in the bottom line – I think that is a caricature from the past. And in fact, you find people intensely interested in local issues associated with housing, healthcare, pensions, and the like.

I mean, I’ll just conclude with one last thing on this. (inaudible) in the 1980s, 1990s (inaudible). What was clear then is that Hong Kong, in many respects, was a British state with Chinese or Asian characteristics. That’s no longer the case any longer for those who look here. This really is a Chinese city with some Western characteristics. So it’s a very substantial change in sort of the nature or the debate.

It’s also the case that there is a major change, for instance, in how media operates here. Twenty years ago, this was the scene of all the major Western sort of journalists that covered Asia. Now, increasingly people based on Hong Kong – out of Beijing or Shanghai – it’s a must smaller Western press, but at the same time it’s a much larger Asian and Hong Kong press, so that’s sort of the nature of the debate here.

After the meetings and after her speech, she’s going to go up into China to see her counterpart in the strategic and economic dialogue, Dai Bingguo. She obviously had good sessions with Foreign Minister Yang. Councilor Dai is probably the principle foreign policy advisor to President Hu. He is also the key advisor on issues that are of manifest importance for us going forward: North Korea, the South China Sea, and issues associated with Chinese involvement in various multilateral forums, like the East Asia Summit and the like.

So the Secretary’s going to want to talk to them about a whole host of issues, what just transpired at the ASEAN Regional Forum. I think we’ll discuss the way forward on the South China Sea. She will carry with her the messages and the advice she’s received from key Southeast Asian leaders, including from Indonesia yesterday, will also talk about the most recent developments on the Korean Peninsula.

As you will all have seen, yesterday, Secretary Clinton announced that we will have meetings later this week in New York with a visiting North Korean official, and she will want to convey directly to State Councilor Dai our strong interest in making sure that China is conveying to North Korea our determination to see real progress if we’re to move forward and not simply business as usual. And we will expect China to play a strong role behind the scenes in that regard.

We will also talk about the upcoming East Asia Summit, the visit of Vice President Biden to China in the next several weeks. And our desire is to make sure that we have very close consultations on all the critical issues going forward. She’s very much looking forward to seeing State Councilor Dai, and as part of this session – it will be a small group, but she’s going to have some one-on-one time with him, so have an opportunity for a very deep, discrete discussion on key issues.

Why don’t I stop there, and then [Senior State Department Official One], [Senior State Department Official Two] or any of us can take any questions that you have. Okay.

QUESTION: Can I ask [Senior State Department Official Two], do you have your sort of arms around how much American intellectual property is being ripped off now? Years ago, it used to – get the impression that the percentage was massive. Has the situation improved?

SENIOR STATE DEPARTMENT OFFICIAL TWO: It’s still a real serious situation (inaudible) because, to be quite candid, the laws of many of these countries have improved considerably; the difficulty comes largely in the area of enforcement. And they’re enforced unevenly and in many parts of the region. And we’ve talked to the Chinese very candidly about this. They understand that some provinces of China – it’s, of course, better than in others. But – well, the reason this is so important is that if you look at the kinds of goods the United States exports, more and more of those goods are goods with a high knowledge content, high intellectual property content, and they’re innovative products of a wide range of American companies.

And in order to keep up the level of investment in these innovative companies in the United States and to keep our level of competitiveness internationally, American companies should get the benefits of the money and the talent and time they’ve put into developing these innovative products. And if there’s piracy, it takes – first of all, it reduces their profits, but it also reduces their incentives to put more time and effort into developing new products if they know that they’re not going to gain the – or retain the benefits of those products. But the other point that’s interesting – and this is a somewhat different angle on this is – and therefore, we regard this a very high priority in the region. It’s not just China. It’s many countries in East Asia, but it’s also countries in Europe and elsewhere, so it’s really a broader issue.

The other point is that we find that there are a number of allies in the region because increasingly, they’re finding Chinese companies and other Asian companies that are developing their own innovative products, and they want protection of their intellectual property too. So one of the key points that she’ll be making and we’ve been making in general is that in that – we want to have a modern knowledge-based economy, affecting intellectual property, both for foreign products as well as for domestic products. So we’re not without allies in the region on that issue, so --

QUESTION: Can I ask you – well, (inaudible). Okay. Is she going to explain to her audience why they should be listening to her about this stuff? I mean, it seems to me it’s really kind of (inaudible) coming here, especially at this point, today, especially, and telling the Chinese that our economic model is the bees knees and needs to be followed when we’ve got unemployed – (inaudible) are unemployed, and they own us. Well, why should we listen? I mean, is she going to come and – she’s going to come out, according to the excerpts we’ve seen, and say, “Don’t worry, everything’s going to be okay?” Well, you know what? Why should anyone believe her? She’s been out of the country for a week and a half, no – she hasn’t been in any of these discussions. Things are going nowhere. Why --

SENIOR STATE DEPARTMENT OFFICIAL TWO: Look, I think – we’ve been away for a while, so I don’t want to comment on the state of the negotiations.

QUESTION: So why is she going to be even talking --

SENIOR STATE DEPARTMENT OFFICIAL TWO: Well – but basically, we’re looking at the long term. And I think the point that she is going to make is that over the course of decades – we’re dealing with a problem now, and a difficult problem that is being worked out in Washington as we speak. But over the course of decades, the approach that we’ve taken to opportunity, upward mobility, free flow of information, a whole range of things, have really led to some remarkable achievements in the American economy. And in many cases, countries in this part of the region – [Senior State Department Official Three] can tell you that as well – have – while they have different models in particular, also see that upward mobility is supporting entrepreneurs, supporting small needs, (inaudible) enterprises, as part of their economic future as well. So I don’t – she’s not going to lecture. She’s going to say we have problems too. Then she’s --

SENIOR STATE DEPARTMENT OFFICIAL THREE: Just to – and [Senior State Department Official Two], just – one other thing, just to say part of the speech that she’s going to give, though, she’s going to lay it very clearly that, like at the end of the Cold War, lots of – the Vietnam War, lots of discussion about how the United States was on its ass on – and we lost and would never recover on the way out of Asia. At the end of the Cold War, a similar set of dynamics, that we have seen this story before only to find the United States comes surging back. And in many respects, we – that sort of dynamic drives us forward and really causes us to pick ourselves up and to excel. So I think that’s (inaudible).

SENIOR STATE DEPARTMENT OFFICIAL TWO: It’s a free flow market – yeah. We have remarkably – we’ve demonstrated remarkable resilience. [Senior State Department Official Three]’s right. After the Vietnam War, people thought, well, we were back on – down on our heels. There was a feeling that when we’ve had Japanese competition, we were going to be no longer able to compete in the world. After the OPEC oil embargo in ’73, ’74, the same thing, and then – and the fact is that the American model (inaudible) very resilient. It’s by no means perfect, and then people make (inaudible). And this is not to say that other countries don’t have some very good ideas as well. As (inaudible) she states it (inaudible) going to express a lot of confidence in the American model year in and year out. It’s proved to be very successful in the past and will continue to be so in the future.

And moreover, it grows up – the more international point is that the principles under which the global economy, global commerce and finance have been conducted over the – since World War II, openness, free trade, transparency – those kinds of things have been, first of all, very good for the global economy, and second, have been important enablers of the – some of the progress that some of the countries have made in this region. A lot of these countries have benefited enormously from an open international financial system and a favorite system, and that now, as they become more powerful, we want to be sure that they support the kind of system that has proved so beneficial to them.

QUESTION: Can I ask --

SENIOR STATE DEPARTMENT OFFICIAL THREE: Yeah.

QUESTION: -- just in your interactions with the Chinese and the Secretary’s as well, do you get any sense of anxiety on their part about the debt limit (inaudible) up, that they (inaudible) –

SENIOR STATE DEPARTMENT OFFICIAL THREE: Yes. Yes, they --

QUESTION: What are the – what’s the message that they’re giving you? And what’s the Secretary’s message going to be to Dai on the subject?

SENIOR STATE DEPARTMENT OFFICIAL THREE: I’ve been in several meetings where the Chinese have demarched us, actually. I have not been in any meetings where they’ve asked us, “What do you think is happening,” or “How is this going to play out?” But I’ve had several meetings where the Chinese have basically made clear that they’ve made a substantial investment in the United States, and that they expect – not hope, expect – that the United States will abide by its various financial international commitments, full stop.

SENIOR STATE DEPARTMENT OFFICIAL TWO: And there’s a lot of conversation that goes on a regular basis between the Treasury and the finance ministry of China and (inaudible). So there’s a huge amount of communication among senior officials on the economic and the financial front. This is part of an ongoing dialogue, not – a lot of it is not made public, but there’s a lot more and more, and a lot of visits and a lot of conversation. So they have a very good idea of what we’re thinking and what we’re doing. They are – the last thing we want to do is keep them in the dark about what’s going on. And I think they would be the first to tell you that there’s been – I mean part of it, the S&ED economic track has been not just meet and consults, but ongoing consultations among (inaudible).

QUESTION: Will you be talking Dai or – what she’s saying about the – like, pro-democracy aspects upon (inaudible)? What specifically – like, what kind of messages would you be sending?

SENIOR STATE DEPARTMENT OFFICIAL THREE: Well, look, I’m going to let – I think I’m going to – we will meet with you guys after the session today here in Hong Kong. We’ll brief you as we go to the airport. I’m cognizant of the filing issues, but I think our expectation is the Secretary is going to talk about the full range of issues while she’s here.

I think our primary areas of engagement with State Councilor Dai will be on the ones that I’ve underscored to you. We only have a few hours, and frankly, what we’re finding more and more is the agenda is so full that you’ve got to be kind of careful with your time.



PRN: 2011/T51-38

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