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Cablegate: Scholars Offer Mixed Economic and Political Views at World

VZCZCXRO1190
RR RUEHCN RUEHGH
DE RUEHGH #0387/01 2560306
ZNR UUUUU ZZH
R 120306Z SEP 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7145
INFO RUEHBJ/AMEMBASSY BEIJING 2103
RUEHIN/AIT TAIPEI 1197
RUEHHK/AMCONSUL HONG KONG 1542
RUEHSH/AMCONSUL SHENYANG 1384
RUEHGZ/AMCONSUL GUANGZHOU 1361
RUEHCN/AMCONSUL CHENGDU 1390
RUCPDOC/USDOC WASHDC 0222
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASH DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7729

UNCLAS SECTION 01 OF 04 SHANGHAI 000387

SENSITIVE
SIPDIS

DEPT FOR EAP/CM
NSC FOR LOI
USDOC FOR ITA DAS KASOFF, MAC/OCEA
TREASURY FOR OASIA - HAARAGER, CUSHMAN, WINSHIP

E.O. 12958: N/A
TAGS: ECON PGOV PREL ENRG KIRF CH
SUBJECT: SCHOLARS OFFER MIXED ECONOMIC AND POLITICAL VIEWS AT WORLD
FORUM ON CHINA STUDIES IN SHANGHAI

(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.

Summary
-------

1. (SBU) The Shanghai Academy of Social Sciences (SASS) hosted
its third World Forum on China Studies September 7-9, to
coincide with the fiftieth anniversary of the establishment of
SASS. This third iteration of the World Forum on China Studies
featured 15 panel discussions and three roundtables on economic,
political, and social issues. Many discussions focused on
China's history rather than future prospects, but when
discussing the future, many panelists offered mixed views on
likely outcomes; in fact, in the case of the economic growth,
panelists were generally pessimistic for the short term. Much
attention was paid to foreign participants and on foreign
academic cooperation with China, and many of the participants
were non-Chinese. SASS introduced several new panel topics at
this year's forum, but some growing pains from the expansion
were evident. End Summary.

Forum Opening: Looking to the Past
----------------------------------

2. (SBU) Pol/Econ Chief attended the opening ceremony on
September 7, which featured high-level Party, government and
scholarly participation. Politburo member and Shanghai Party
Secretary Yu Zhengsheng and Mayor Han Zheng were among the
presenters of awards to retired SASS scholars, though neither
were among the half-dozen speakers to address the opening
assembly of about 1000 persons. Presentations at the opening
ceremony largely focused on the history of SASS (which is
celebrating its 50th anniversary), though a Party official
reminded scholars and Party alike of the importance of
"liberating thought" (jiefang sixiang). A video presentation
before the many speeches fleetingly referred to the 1966-1978
Cultural Revolution period; SASS closed its doors from
1968-1978. A SASS graduate, now professor at a Shanghai
university, choked up and nearly brought many persons to tears
when he called on all to remember that some SASS scholars had
given their lives for their country during that dark period in
China's history. The Forum hosted 15 panels and three
roundtable discussions on September 8-9 on topics ranging from
economic development to social issues to rule of law to
international security, portions of most of which Pol/Econ
officers and staff attended.

Economists Divided on China's Growth Prospects
--------------------------------------------- -

3. (SBU) Economists at the conference largely reflected concerns
that China's current economic growth path is not sustainable.
Dean of Fudan University's School of Economics Yuan Zhigang
called for 2008 to be a "new historical starting point" in
China's economic policies, to better handle the rather gloomy
list of challenges China faces: the U.S. financial crisis, the
energy crisis, the food crisis, the environmental crisis,
renminbi appreciation, government revenue volatility, credit
constraints, and rises in energy and labor costs. In response
to panelists whose dull presentations focused on past growth
successes in Shanghai and Harbin, Huang Fuxing, deputy director
of the financial markets research office of the Shanghai Academy
of Social Sciences, offered a striking critique of the
investment-led growth, and instead called for moving forward
with developing the service sector and capital markets. The
Peterson Institute for International Economics' Nicholas Lardy
during remarks opening the conference called the Chinese
renminbi unsustainably undervalued, and later privately remarked
that Chinese exporters are set for continuing heavy layoffs.

4. (SBU) On the other hand, one panel weighted towards
economists influential in turning Chinese economic policy
towards greater social spending in the early 2000s was more
sanguine about China's growth, focusing more on the longer term.

SHANGHAI 00000387 002 OF 004


For example, Hu Angang, director of the joint Tsinghua/Chinese
Academy of Social Sciences Center for China Studies, made a
"celebratory" -- in the view of one Western academic attending
the conference -- presentation on China's success in investing
in future growth. According to Hu's paradigm, the rate of
environmental damage, which he acknowledged has been a major
detractor from GDP growth, has slowed, while strong investments
in human capital, as well as foreign direct investment, will
undergird future growth.

Auto Sector Experts Cite Concerns
---------------------------------

5. (SBU) Sector experts participating in a panel on the Chinese
auto industry echoed concerns voiced by economists on near-term
growth. Zhang Guangsheng, Vice Chairman of Shanghai Auto, said
China is now the world's second largest passenger auto market
behind the United States and boasts 12 - 15 percent of global
automobile production, but 2008 is likely to be a challenging
year for the sector because:

--the high domestic producer price index (PPI) reflects the
surging price of raw materials, namely steel, copper and
plastic;

--higher labor costs as a result of the China's Labor Contract
Law (LCL), which entered into force on January 1, 2008; and

--weaker domestic demand as evidenced by the drop in vehicle
sales in August for the first time in two years; while

--high oil prices and slower growth in the equity markets could
result in lower vehicle demand in the future.

Overall, Chinese auto manufacturers are unable to pass through
their higher production cost to their end customers. Zhang said
the industry would consolidate in the future to create a few
giant auto makers. He is not very positive on the industry
prospects due to what he regarded as an overall negative
economic outlook.

6. (SBU) Lue Keqin, General Manager of Kostal, discussed the
Chinese auto parts industry, reiterating many of Zhang's
concerns, including the difficulty of passing through higher raw
materials prices to end customers. Auto parts companies will
need to both improve technology and lower production costs in
order to survive, Lue said. In the past, each auto maker had
its own components suppliers, but Lue believes this will change
in the future given auto components will become more
standardized and auto makers will focus more on quality and
technology. Lue also believes more than 50 percent of Chinese
auto parts suppliers will shut down due to the challenging
market environment.

China's Role in the World
-------------------------

7. (SBU) Panelists on global political and security issues also
offered an uncertain picture on the near-term outlook. On East
Asian regional cooperation, most participants agreed on the need
for integration on some level, but differed regarding how this
might be achieved, what arrangements of which states offer the
best way forward, and what role the United States should play.
During the question and answer period, several attendees aired
the view that Washington has "ignored" the region and that
integration has been a response to U.S. inaction. Others,
including Cai Penghong of SASS, argued that regional efforts
have been lackluster thus far precisely because the United
States has been insufficiently involved. Egyptian academic
Mohammed Selim's questioned the reasoning behind the continuing
U.S. military presence in East Asia and the case for its
involvement in a regional integration project. In response,
moderator and former U.S. Ambassador Nicholas Platt pointed out
that the United States remains in East Asia by invitation, and
noted that whatever differences East Asian countries may have
with the United States, in the end they trust Washington more

SHANGHAI 00000387 003 OF 004


than they do each other.

8. (SBU) Presenters on China's new global role covered a
hodgepodge of issues. Huang Renwei of SASS set China's growing
global engagement against the rise of mid-level powers, as well
as the growth of transnational threats and opportunities. Huang
regards China as "a leader in identifying new threats" and, as
the developing world's largest member, best suited to represent
developing countries. Chen Zhimin of Fudan University discussed
Confucian ideals in a global context, stressing that adherents
are not "peace fundamentalists" but recognize that military
force will have some role in maintaining stability. Tel Aviv
University's Aron Shai, meanwhile, caught audience attention by
making the case for a Sino-Israeli strategic relationship, and
Massoud Daher of Lebanese University disputed Selim's
exhortations that China transform its mainly economic engagement
with the Middle East to a more multifaceted approach, stating
that China's only interest in the region is opening more export
markets.

9. (SBU) During a discussion of Chinese diplomacy, Gafar Karar
Ahmed, a former Sudanese diplomat and current political
consultant to the Qatar Ministry of Foreign Affairs,
characterized Beijing's approach as subtler than is often
portrayed. Claiming he had "seen the minutes" of meetings
between Sudanese officials and the former Chinese envoy to
Sudan, Zhai Jun, Karar Ahmed described the Chinese side as tough
behind closed doors. During a meeting preceding the first UNSC
resolution on the Darfur issue, Zhai told his counterpart that
"Sudan is acting negatively" with regards to Darfur and must do
something. When Khartoum did not respond, China supported that
resolution. In the lead-up to the second UNSC resolution, Karar
Ahmed said Zhai warned Sudan that China would not use its veto
if Khartoum "did not act." When Sudan again did not respond,
China abstained from the vote. Chinese diplomacy is low profile
but effective, Karar Ahmed concluded.

The Rule of Law and Social Issues
---------------------------------

10. (SBU) Rule of Law scholars said China would continue to make
incremental improvements in the justice system, encouraging more
amendments of laws and promoting a stronger role for local
legislatures. Li Lin, Director of the China Social Science
Association Law Institute, claimed that among the 229 current
valid laws passed by China's National People's Congress (NPC),
71 of them have been amended at least once. During the previous
five years from 2003 to 2008, the NPC amended more laws than it
drafted. Li said the amendment trend would continue in order to
keep pace with China's rapid economic development. Shen
Guoming, Director of the Legislative Affairs Commission Standing
Committee of the Shanghai Municipal People's Congress (SMPC),
agreed with Li and said that also at the local level, amending
old laws has become more common than drafting new laws.

11. (SBU) Both Li and Shen said local People's Congresses would
play a more important role in China's legislative process. Li
said that strong local legislatures would promote the
development of the national legislature by allowing more
experiments at the grass-roots level before introducing a new
national law. Shen added that local legislatures can more
quickly adjust to economic development and cited the LCL as an
example of a law that might be needed in some parts of the
country but is causing economic harm in East China and
enterprises are complaining about the heavy cost burden
resulting from the LCL.

12. (SBU) A panel on social transformations that have resulted
from economic reform also focused on winners and losers from
reform, with the first two speakers focusing on the large income
gap. Wu Xiaogang, a Social Sciences professor from Hong Kong
University of Science and Technology, said there is a
qualitative difference between "inequality" and "inequity" as
there are different views on "how much is considered poor and
how much is rich?" Wen Jun, Director of the Sociology
Department at East China Normal University, discussed the fate

SHANGHAI 00000387 004 OF 004


of rural-to-urban migrants in Shanghai and ensuring a safe,
secure, cost-effective flow of migrants to the city.
Unfortunately, he said, with his study indicating that more than
90 percent of migrants hope to permanently settle in Shanghai
but with many migrants denied an urban registration, it remains
unclear how migrants will fare in the near future.

Forum Firsts: Debut Panels on Religion and Energy
--------------------------------------------- -----

13. (SBU) In this, the Forum's third iteration, several panel
topics appeared for the first time as Forum organizers attempted
to branch out and cover new issues. One panel on "China's
Transitional Society and Social Services of Religious
Organizations" noted the significant contributions of
faith-based NGOs in China during 2008, particularly during the
Sichuan earthquake and the snow storms that battered central and
southern China in January and February. The Chinese Government
lacks the human resources, funding and experience to manage
religious affairs, several panelists said, and government
officials remain concerned about religion's influence on
society. Fudan University's Edward Xu asked how the current
religious policy would affect the status quo, how the policy
affects China's international image, and whether religion would
affect national security. Yan Kejia and Ge Zhuang, both
religious scholars at SASS, focused on the Shanghai Municipal
Government's efforts to better serve expatriate religious groups
and Muslim migrant workers.

14. (SBU) Another first-time panel, "Energy, Sustainable
Development and Climate Change" attracted approximately 20
academics, government officials, and entrepreneurs. According
to Yu Guosheng of the Shanghai Municipal People's Congress, the
city government's target for energy conservation and emission
reductions would be very difficult to meet. Shanghai fell short
of its energy conservation target in both 2006 and 2007, Yu
said. Zheng Yuxin of the China Academy of Social Sciences said
government officials would need to take a broader approach to
include more consumer sectors rathern than only industries when
considering energy conservation and emission reduction targets.

Comment: Still Some Growing Pains
---------------------------------

15. (SBU) Congenoffs and staff attending panel and roundtable
discussions uniformly thought too many of the discussions on
economic, political and social issues looked predominately
backward rather than forward. When looking ahead to near-term
economic growth or security, however, views were decidedly
mixed, with optimism and pessimism both on display. There often
appeared to be more focus on foreign cooperation and foreigners'
views on China rather than what is happening inside the country
or China's influence on the region and world. In many cases,
invited foreign speakers had little experience in China and
therefore offered little value to the conference. Congenoffs
observed that the Forum faced some growing pains as several of
the panels -- especially the new ones -- experienced
difficulties organizing discussions of similar themes within the
nominal panel topics. Several SASS scholars asked Congenoffs
for feedback on the Forum, which we will provide to them in the
near future.
CAMP

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