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Cablegate: Scenesetter for Codel Murray

VZCZCXRO1671
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3414/01 3551036
ZNR UUUUU ZZH
P 211036Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 7316
INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 06 BEIJING 003414

SENSITIVE
SIPDIS

H PLEASE PASS TO SENATOR MURRAY

E.O. 12958: N/A
TAGS: OREP PREL PGOV PHUM ECON CH TW IR NK
SUBJECT: SCENESETTER FOR CODEL MURRAY

(U) Sensitive but Unclassified. Please handle
accordingly, not for Internet publication.

1. (SBU) Senator Murray, your delegation will arrive
in Beijing and Shanghai two months after President
Obama's November 15-18 visit to China. Overall, the
Chinese leadership is pleased with the direction of
U.S.-China relations and your hosts will likely
frame this session of U.S.-China Interparliamentary
dialogue as building on the momentum created by the
President's visit. Your arrival kicks off what will
be a busy year in U.S.-China relations, a year that
will include a round of the U.S.-China human rights
dialogue in February, the next round of the
Strategic and Economic Dialogue in July, and a
reciprocal visit by President Hu Jintao to the
United States. While China has weathered the global
financial crisis better than most other major
economies, the leadership is facing serious domestic
challenges due to the growing gap between rich and
poor, severe environmental degradation, and unrest
in the minority regions of Tibet and Xinjiang. The
Communist Party remains extremely sensitive on
issues related to political reform, rule of law,
civil society and human rights. 2009 has not been a
good year for human rights in China: harsh security
policies remained in Tibetan regions, civil society
groups faced intense scrutiny and harassment, the
government stripped a number of prominent human
rights lawyers of their licenses, house churches
were closed, police locked up dissidents during
sensitive anniversaries (including the twentieth
anniversary of the 1989 Tiananmen demonstrations and
the sixtieth anniversary of the founding of the PRC)
and Communist Party propaganda officials tightened
controls over the domestic media, including the
Internet.

Bilateral Relations
-------------------

2. (SBU) In Beijing last month, Presidents Obama and
Hu Jintao agreed to expand cooperation in a wide
range of areas, from aviation, to public health, to
clean energy. The breadth of issues on which we
engage China diplomatically has increased
dramatically over the past thirty years since the
United States and the People's Republic of China
established diplomatic relations. We seek a mature
relationship with China -- a relationship where our
leaders can talk frankly about issues where we
disagree such as human rights, while also
constructively engaging on vital issues of mutual
concern like energy security, the environment, the
global economic situation and regional security.

3. (SBU) As President Obama and President Hu agreed
at their first meeting in London in April 2009, we
are working to build a "positive, cooperative and
comprehensive bilateral relationship." During his
visit to Beijing, President Obama stated that "the
United States welcomes China's efforts in playing a
greater role on the world stage -- a role in which a
growing economy is joined by growing
responsibilities." The Chinese have taken note of
the importance President Obama and Secretary Clinton
have placed on the bilateral relationship and have
also adopted a constructive approach to our enhanced
Strategic and Economic Dialogue, the first session
of which took place July 27 in Washington. Visits
to China by Secretary of Commerce Gary Locke and
Secretary of Energy Steven Chu, who came to China
together in July and accompanied the President to
China in November, have also received positive
coverage by the Chinese media. We continue to push
for increased PRC cooperation on North Korea, Iran,
Pakistan, Afghanistan and Sudan. Your visit
presents an important opportunity for your hosts to
hear your views on these issues and your suggestions
on how inter-parliamentary exchanges can contribute
to the bilateral relationship.

North Korea
-----------

4. (SBU) The PRC plays a vital role as host of the
Six-Party Talks, and we have developed a close
working relationship with our Chinese counterparts.
The Talks are aimed at the peaceful resolution of
the security concerns surrounding the DPRK's nuclear

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weapons program. Since the 2003 inception of the
Six-Party Talks, Chinese and American experts have
demonstrated an ability to cooperate and work
together to address a shared threat.

5. (SBU) On April 5, 2009, North Korea conducted a
missile launch that tested a Taepodong-2 ICBM, a
move that caused the Security Council to unanimously
issue a Presidential Statement condemning the
launch. North Korea responded by declaring it was
no longer bound by the terms of the Six-Party Talks,
expelling IAEA nuclear inspectors and, on May 25
exploded a nuclear device underground. The UN
reacted by adopting unanimously UN Security Council
Resolution (UNSCR) 1874 which imposed additional
sanctions on North Korea. Since that time, the
United States Government has adopted a two-pronged
approach towards the DPRK. Special Representative
Stephen Bosworth leads our efforts to bring North
Korea back into the Six-Party Talks and acknowledge
its international responsibilities. Ambassador
Philip Goldberg leads our international approach to
enforce the UNSCR 1874 sanctions. Ambassador
Goldberg has visited Beijing twice to share
information and exchange views on sanctions while
Ambassador Bosworth has been in regular contact with
the Chinese Chair of the Six-Party Talks.
Ambassador Bosworth was in Beijing December 11-12 to
brief the Chinese on his December 8-10 trip to
Pyongyang and to explore next steps.

Iran
----

6. (SBU) We have emphasized with our PRC
counterparts that Iran's failure to follow through
on the understandings reached in Geneva on October 1
with the "P5 1" group (which consists of the UN
Security Council permanent members plus Germany) --
including its retreat from the IAEA plan to address
the low-enriched uranium (LEU)/nuclear fuel issue
and its unwillingness to meet with the P5 1
countries for talks focused on the nuclear issue --
demonstrates a worrying resolve by the Iranians not
to engage diplomatically under current
circumstances. Our PRC interlocutors have counseled
patience in pursuing diplomatic engagement, but we
have emphasized, consistent with our dual track
approach, the need to impress upon the Iranians that
there are consequences for their non-cooperative
behavior. The resolution passed by the IAEA Board
of Governors was an important signal of
international unity and commitment to upholding the
non-proliferation regime.

Taiwan
------

7. (SBU) Your interlocutors may raise Taiwan and
strong criticism, based on recent media reports, of
U.S. arms sales to Taiwan. We suggest you respond
by welcoming recent improvements in cross-Strait
ties achieved by PRC President Hu and Taiwan
President Ma Ying-jeou. You may also choose to
respond by emphasizing our obligations under the
Taiwan Relations Act to consider Taiwan's legitimate
defense needs and that we believe our sales of
defense articles to Taiwan have been conducive to
cross-Strait peace and stability. You can encourage
Beijing to maintain positive cross-Strait momentum
by accommodating Taiwan's meaningful participation
in international organizations, reducing military
deployments, particularly missiles aimed at Taiwan,
and continuing to make progress on cross-Strait
economic and cultural ties.

Human Rights
------------

8. (SBU) As the President said during his visit to
China, we believe that human rights are fundamental
and universal values, as the Chinese themselves
acknowledged when they signed the Universal
Declaration of Human Rights. The PRC government
defines human rights broadly to include factors
affecting economic and social well-being, and
regularly points out that China's "reform and
opening" policies over the past 30 years have
coincided with improvements in the quality of life
enjoyed by hundreds of millions of Chinese. The

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Chinese also claim that our focus on individual
rights and liberties reflects Western, not
universal, values. Although personal freedoms for
Chinese citizens have expanded over the past three
decades, the overall human rights situation in China
remains poor. Secretary Clinton, in a speech at
Georgetown University December 10, said "in China,
we call for protection of rights of minorities in
Tibet and Xinjiang; for the rights to express
oneself and worship freely; and for civil society
and religious organizations to advocate their
positions within a framework of the rule of law."
In our bilateral engagement with China we continue
to emphasize that the expansion of individual
freedoms and the establishment of a free and
independent judiciary and greater internet and press
freedoms would strengthen, not threaten, China.

Ethnic Unrest in Xinjiang and Tibet
----------------------------------

9. (SBU) This year saw violent ethnic rioting in
China's far western Xinjiang Autonomous Region.
Clashes between Uighurs (a Turkic Muslim minority
group) and Han Chinese July 5-7 left 197 dead in
Urumqi, the regional capital. The riots
precipitated a massive security response by the
Chinese government including deployments of large
numbers of security forces to Xinjiang and the
blocking of the Internet in the entire region;
measures which remain in place today. China's
Uighur minority has long complained of human rights
and religious freedom abuses by the Communist Party
which maintains tight controls on the practice of
Islam in Uighur communities. Officially, China has
characterized the July riots a "terrorist attack"
that was coordinated from abroad. You may wish to
urge China to investigate the root causes of these
ethnic tensions, including PRC policies that
contribute to the Uighurs' sense of alienation from
Chinese society.

10. (SBU) Tibetan areas of China remain mostly calm
but tense following widespread unrest in March 2008.
China opposes any meetings between U.S. officials or
members of Congress and the Dalai Lama. Your hosts
will likely ask you and members of your delegation
to refrain from meeting the Dalai Lama when he next
visits the United States. You may wish to reply by
urging the PRC to meet with representatives of the
Dalai Lama and resume talks which were suspended in
November, 2008. The Dalai Lama rejects violence and
has said repeatedly he is seeking autonomy within
the Chinese constitution, not independence, for
Tibet. You could also urge China to open Tibet to
foreign journalists, members of Congress and U.S.
officials, who, with the exception of rare, closely
supervised, visits, are excluded from the region.

Response to the Financial Crisis
--------------------------------

11. (SBU) China's financial system was relatively
insulated from the global financial unrest, and
Beijing's rapid response to the economic crisis has,
in general, been responsible and helpful. They have
continued to buy U.S. Treasury bills and agency
(including Fannie Mae and Freddie Mac) debt, and
have worked with the United States in international
fora, such as the G-20 Leaders' meetings, as well as
bilaterally through the Strategic and Economic
Dialogue to promote global financial stability. We
have urged China to provide additional resources to
the IMF and made clear our support for reforming
that institution.

12. (SBU) China's export industries were hard-hit by
the global economic downturn. Exports in the first
ten months of this year were down around 21 percent
compared to the same period last year, although
November data indicate the first positive change in
a year. The Chinese government has compensated for
the export decline through massive fiscal and
monetary stimulus programs, largely focused on
infrastructure investment. Rising domestic
household consumption also has bolstered growth this
year. The result is that GDP growth should meet or
exceed the government's eight percent target for
2009, and may accelerate slightly to 8.5-9.0 percent
in 2010. In recent policy announcements, the

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government indicated it will continue the fiscal
stimulus measures in 2010, while carefully
moderating new credit issuance. Beijing also
intends to shift slightly the stimulus focus and
improve the "quality of growth" by directing more
resources to domestic consumption and sectors such
as housing, health care, and education.

13. (SBU) Throughout this process the United States
and other governments have encouraged Beijing's
strong actions to stimulate its economy, and we
welcome its initiatives to promote rebalancing and
long term sustainability. We also repeatedly have
cautioned Chinese counterparts that, with U.S.
savings rates apparently returning to more typical
historical levels, the PRC should not expect
American consumers to continue to absorb China's
excess production, meaning that China will need to
identify other growth engines for its economy; such
changes would be in China's own interests and
improve the standard of living for its people. We
and others also point out that, as we have seen in
the United States, high growth of bank lending and
lack of transparency in China can be a cause for
concern. In addition, a more flexible exchange rate
is one part of a policy mix that can promote more
harmonious, balanced growth.

China's Concerns
----------------

14. (SBU) You will likely hear Chinese concerns that
large and continuing U.S. fiscal deficits could
generate inflation in the United States that would
erode the value of their dollar denominated assets
("please protect China's U.S. investments"). Some
of their proposals to supplant the dollar with an
alternative international reserve currency, as well
as initial efforts to promote greater
internationalization of the Chinese currency (RMB),
appear derived from these insecurities. You may
wish to remind your interlocutors that the majority
of Treasuries are held by Americans (China holds
only about seven percent of outstanding USG debt and
fourteen percent of publically held debt), and make
a strong statement indicating our intention to fight
inflation so that it does not erode our own
citizens' assets -- such a statement would help
promote understanding of the situation. Chinese
interlocutors would also be interested in hearing
the Congressional position on future budget deficits
and the future restructuring of Fannie Mae and
Freddie Mac.

Our Concerns
------------

15. (SBU) The majority of U.S. businesses operating
here remain profitable, especially those that are
selling into the Chinese domestic market. However,
despite China's frequent calls to ban
"protectionism" and Chinese claims that they have no
"Buy Chinese" policy in their stimulus package, U.S.
businesses say that the Chinese government puts
severe restrictions on U.S. companies' ability to
compete successfully for stimulus-related contracts.
These biases have exacerbated pre-crisis favoritism
for domestic firms through use of unique national
standards, requirements to force firms into joint
ventures with Chinese partners, slower licensing for
foreign firms, and the drafting of selective
contract specifications to favor domestic firms. It
is valuable to emphasize the reality of the "Buy
American" requirements in the U.S. stimulus,
including their limited scope. Secretary of
Commerce Locke made this point emphatically during
his visit here in mid-July.

16. (SBU) China's propensity to employ state power
in business disputes involving state-owned
enterprises is another area of concern for us. The
signature recent example of this was the arrest
under state secrets laws of Australian and Chinese
national staff of the Australian mining concern Rio
Tinto, which was involved in complicated
discussions, almost all of which to our knowledge
was derived from the public record, with Chinese
enterprises relating to ongoing iron ore sales and a
possible merger/acquisition. There have been other
similar cases, including some involving American

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citizens. We have made the case to the Chinese that
overbroad interpretations of the state secrets law
to threaten and punish foreign business partners is
inconsistent with international norms and damages
China's reputation and attractiveness as an
investment destination.

Boeing and Microsoft
--------------------

17. (SBU) Boeing traditionally has dominated the
aircraft market in China, helping the U.S. achieve
an annual USD 6-8 billion trade surplus in this
sector. In spite of the economic downturn, Boeing
estimates that China will require an additional
3,700 airplanes worth $390 billion to satisfy demand
over the next 20 years. Boeing sells an average of
60-80 aircraft a year in China and shares the market
for narrow body aircraft roughly 50/50 with Airbus.
In late 2008, the Civil Aviation Administration of
China encouraged Chinese airlines to delay or cancel
aircraft deliveries in 2009 to cope with the
economic downturn, but Boeing has not publicly
announced any cancelled orders. Chinese officials
have been particularly vocal about their
dissatisfaction with Boeing 787 delivery delays,
which they claim have hampered their expansion
plans, although Chinese orders account for just
seven percent of the 850 outstanding 787 orders.
The Airbus strategy includes an assembly facility in
Tianjin for the A320, with commitments for
increasing local content. Boeing sources partly
from Chinese firms, but has pursued cooperation in
innovation, services and air traffic safety rather
than localize production. Boeing anticipates China
will become its largest aircraft market within
twenty years, and views China's plans to manufacture
commercial aircraft, such as the 150 passenger C919,
as its greatest long-term competitive threat.
Nevertheless, Boeing cooperates with local
manufacturers and has not opposed their suppliers'
involvement in these projects.

18. (SBU) Microsoft's number one problem in China is
IPR violations, approximately 80 percent of software
used in China is pirated. Microsoft is working
closely with the Chinese government to create more
understanding of the problem. The company is in
talks with the Hangzhou municipal government in
Zhejiang province to start a pilot project to help
enterprises and government offices to identify the
installations of pirated software. Microsoft has
invested more than USD 1 billion in China and
conducts cutting-edge research and development at
centers throughout the country.

Shanghai: China's Commercial Capital
------------------------------------

19. (SBU) Often called the "New York" of China,
Shanghai is China's commercial capital and home to
the world's busiest port. Shanghai enjoyed
double-digit GDP growth for the 16 consecutive years
prior to 2008 but fell below 10 percent in 2008, and
GDP growth in the first quarter of 2009 dropped
dramatically to 3.1 percent year-on-year. Growth
rebounded in the second half of the year, however,
and is GDP growth is expected to reach 8 percent for
the year. Shanghai's per capita GDP remains more than
USD 11,600, more than three times the national average.
With its strategic location, highly skilled
workforce and solid infrastructure, Shanghai is a
magnet for foreign direct investment (FDI).
Foreign-invested companies account for half of
Shanghai's trade and roughly 20 percent of
employment.

U.S. Economic Presence in Shanghai
----------------------------------

20. (SBU) Shanghai has over 5,500 U.S.-invested
projects, including GM, Intel, GE, Kodak, and UPS.
A majority of investment is in manufacturing, but
investments in service industries are growing
rapidly. U.S.-invested companies in Shanghai
account for approximately one-eighth of the total of
40,000 foreign invested companies in Shanghai. The
American Chamber of Commerce (AmCham) Shanghai, with
more than 1,500 member companies and approximately
3,500 individual members, is Asia's largest American

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business organization. More than 25,000 Americans
are long-term residents in the Shanghai Consular
District (Shanghai and the provinces of Anhui,
Jiangsu and Zhejiang), with up to 50,000 visiting at
any time.

Gearing Up for the Shanghai 2010 World Expo
-------------------------------------------

21. (SBU) As the Beijing Olympics were China's
opportunity to introduce itself to the world, the
longer, bigger Shanghai 2010 World Expo is a chance
for the world to introduce itself to China. The
Shanghai Expo, which will open on May 1, 2010, will
be the largest World Expo in history with 192
countries and regions as participating exhibitors.
The Expo will run through October 31, 2010 and
Shanghai officials predict it will attract more than
70 million visitors, the vast majority from China.
The theme of the Expo, "Better City - Better Life",
signifies Shanghai's commitment to green urban
development and status as a major economic and
cultural center.

22. (SBU) The United States Government was able to
confirm its participation in the Shanghai 2010 World
Expo during summer 2009 after receiving sufficient
support from the private sector. (Note: The State
Department is prohibited by 1994 and 1999 statutes
from spending appropriated funds to support a
national pavilion in the absence of a specific
Congressional authorization. End Note.) The
estimated total budget of the USA Pavilion is USD 61
million, which includes all construction, staffing,
operation, show presentations, and post-Expo
building demolition and materials removal costs.
Construction of the U.S. Pavilion began in July, and
Commerce Secretary Gary Locke attended the
groundbreaking ceremony. Most recently, Secretary
Clinton visited the site in November.
GOLDBERG

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