Cablegate: Scenesetter for the Visit of Senator Chuck Hagel

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UNCLAS SECTION 01 OF 06 BEIJING 003877

SIPDIS

DEPARTMENT FOR EAP/CM, H PLEASE PASS TO SENATOR HAGEL

E.O. 12958: N/A
TAGS: OVIP PREL PGOV CH
SUBJECT: SCENESETTER FOR THE VISIT OF SENATOR CHUCK HAGEL
TO BEIJING

SUMMARY
-------

1. (U) Senator Hagel, your visit comes at a momentous time in
China's history and in our bilateral relationship. January
1, 2009, will mark the 30th anniversary of official United
States-China relations. During those thirty years, the U.S.
Government presence in China has grown dramatically. The 500
Americans and 600 Chinese in the Embassy community welcome
you to China and look forward to helping you to have a
successful visit. In terms of size and composition, the U.S.
Embassy in Beijing is the third largest in the world. This
month, we will move into our new Embassy compound.

2. (SBU) Your visit to Beijing will allow you to witness the
transition underway as China assumes a leading role on the
global stage. Beijing's Olympic Games gave the world a clear
look at the new buildings and infrastructure that typify
China's cosmopolitan cities and which demonstrate that the
transformation of urban China from grey Maoist orthodoxy to
dynamic economic powerhouse is nearly complete. However, the
same confidence and ideological flexibility that allowed
China to shake off its Marxist economic shackles is lacking
in the political sphere. The pace of political reform lags
and the security organs move swiftly against any group deemed
a threat to central authority, in the name of maintaining
"stability." This drives our ongoing friction with China in
the human rights arena, where we vigorously demand that China
respect the rights of its citizens as well as the will and
conscience of the international community, which the Chinese
Government just as vigorously protests as "unreasonable
interference" in its internal affairs.

3. (SBU) China's transformation is also evident in the
international arena. We see increasing evidence of China's
growing confidence in world affairs, including its leadership
role in the Six-Party Talks, and its assertive (and often
frustrating to us) stance in the UN. Leaders in Beijing are
watching the global financial situation closely and recognize
the need to consult regularly with other countries. Your
interlocutors will be keen to hear your views about how to
resolve the present predicament. End Summary.

Economic Policies Foster Stability
----------------------------------

4. (U) For China's top leadership, economic issues are
important mainly as a tool for continued political stability
and continuity, as well as for shoring up the Communist
Party's legitimacy, which is predicated largely on its
ability to deliver stunning economic growth over the past
three decades. In the first half of 2008, the leadership
focused on double-digit inflation which threatened to erode
the high-saving populace's nest eggs. Beijing adopted credit
and tax policies that slowly cooled economic growth from 11.9
percent in 2007 to 10.4 percent in the first half of 2008.
As fears of inflation abated, Beijing has now turned its
attention to unstable international financial markets and
prospects for lower industrial production growth, with its
implications for slowing job creation and popular
dissatisfaction.

Financial Markets
-----------------

5. (SBU) Chinese commercial entities have limited direct
exposure to global financial instability. The same cannot be
said for the Chinese Government, which has about USD 1.2
trillion in foreign exchange assets invested in the United
States (including about USD 500 billion in GSE debt, USD 500
billion in Treasury bonds, and another USD 200 billion in
other dollar assets). China has acted in a generally
responsible way when addressing global economic concerns and
the Chinese economy has proved to be quite resilient.
Chinese Government interlocutors have been very interested in
the role of Congress in stabilizing markets as well as how
Congress and the Administration work together to resolve
pressing economic issues. The Chinese are also extremely
interested in prospects for growth and import demand in the
United States.

Exports
-------

6. (U) Currently, China's exports remain strong, growing at
over 12 percent annually in RMB terms (over 20 percent in
dollar terms). With demand in China's big-three markets
expected to contract, however, Chinese exporters face

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declining profits. Beijing has apparently responded to their
concerns in part by slowing dollar-RMB appreciation, although
the RMB continues to appreciate overall against a basket of
trade-weighted currencies.

Messages for Economic Leaders
-----------------------------

7. (SBU) In our meetings with economic officials we express
our appreciation for China's close coordination with the
United States on financial and economic issues, noting the
fundamental role of the Strategic Economic Dialogue (SED) in
improving economic relations. We encourage the general
direction of China's economic policies, including RMB
appreciation, improving market access and strengthening
transparency and rule of law for investors, but note the need
for China to do more. Staying the course on economic reform
during challenging economic times is crucial to China's long
term economic health and to addressing global protectionist
pressures. We would welcome an active, constructive Chinese
role in expanding global market access, such as working to
bring the Doha Round of WTO negotiations to a successful
conclusion.

Energy Consumption
------------------

8. (SBU) China imports nearly half of the 8 million barrels
of oil it consumes per day. Saudi Arabia, Angola, Iran and
Russia are the largest suppliers, and with domestic oil
production flat, China has sought deals in more remote and
riskier locations such as Sudan and Iraq to cope with growing
demand. China accounted for 38 per cent of the rise in world
oil demand in 2006, according to the International Energy
Agency (IEA). China remains heavily dependent on coal as a
primary energy source (63 per cent). Efforts are being made
to diversify to cleaner carbon based fuels (natural gas) and
other renewable sources (hydroelectric), but the IEA
estimates coal will still dominate the energy profile in 2030
(unchanged at 63 per cent).

World's Largest Greenhouse Gas Emitter
--------------------------------------

9. (SBU) China is the world's largest greenhouse gas emitter,
and the continued reliance on coal will challenge attempts to
improve the country's environment. Industrial policy has
attempted to direct investment away from high energy
consuming industries, hoping to cut energy consumption per
unit of GDP by 20 per cent from 2006 to 2010. China still
consumes nearly four times as much energy per dollar of GDP
than the U.S.

Energy Subsidies
----------------

10. (SBU) China has increasingly come under international
criticism for domestic energy subsidies which keep prices
below international norms. In July 2008, China responded by
raising petroleum based fuel prices by 15-25 per cent and
electricity prices by 5 per cent. Electricity prices may be
raised again in November 2008. The U.S. has engaged with
China on a number of fronts related to energy, including the
Strategic Economic Dialogue's (SED) Ten Year Framework on
Energy and the Environment. The Joint Working Group will
identify several partnerships at the Dec. 2008 SED.
Cooperation also is taking place in the civilian nuclear
sector through the Department of Energy.

Playing a Constructive Role Internationally
-------------------------------------------

11. (SBU) As China's economic influence has grown, so has its
international political importance. Although China no longer
instinctively aligns itself with other developing countries,
it maintains its long-standing close relationships with
pariahs like North Korea, Burma and Iran. Over the past few
years, however, China has demonstrated a desire to become a
more responsible member of the international community. Our
challenge is to motivate China to play a positive role in
coping with thorny global issues like non-proliferation, UN
reform and climate change with the same degree of seriousness
it has demonstrated recently in supporting the Six-Party
Talks for the denuclearization of the Korean Peninsula. The
Chinese dispute their label as a rising global political
power and claim they do not threaten the international status
quo. Chinese leaders such as Premier Wen Jiabao emphasize
China's inward focus, given the enormity of the country's

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domestic challenges, in particular the need to improve the
lot of the 800-900 million rural Chinese who have yet to
realize the benefits of "reform and opening" that have
accrued to the increasingly prosperous members of China's
urban middle class.

North Korea and the Six-Party Talks
-----------------------------------

12. (SBU) For all of China's protestations that it is still a
poor, developing country, its greater global footprint is
undeniable. China has at times frustrated us with its
unwillingness to act, but in some cases, China has played a
constructive role. China's role in the Six-Party Talks is
perhaps the most visible example of China's willingness to
cooperate regionally. China strengthened the multilateral
denuclearization effort, serves as the Chair of the Six-Party
Talks, and has exercised leadership in the effort to secure
an effective mechanism to verify the North Korean nuclear
declaration.

Iran
----

13. (SBU) Chinese leaders say they share our strategic goal
of thwarting Iran's nuclear ambitions and have stated
publicly that a nuclear armed Iran is not in China's
interest. China has worked with the United States in the "P5
plus 1" process to reach consensus on four UN Security
Council resolutions on Iran. However, China regards energy
cooperation with Iran as a "core interest" crucial to the
development of its economy. China therefore has resisted
sanctions that might threaten Chinese involvement in Iran's
energy sector. American experts continue to emphasize that
Iran's threat to peace and stability in the Middle East
outweighs any short-term advantages China gains from
maintaining good relations with Tehran.

Pakistan
--------

14. (SBU) China and Pakistan have enjoyed decades of close
relations. China is concerned over instability in Pakistan
and, specifically, how Pakistan's political morass affects
Pakistani efforts against terrorism. China believes that
some of these separatist/terrorist elements in Pakistan have
links to the very small armed separatist groups in China's
Muslim West. China welcomes dialogue with the United States
on Pakistan and your visit offers an opportunity to reinforce
the importance of cooperation to help Pakistan, including via
the newly formed "Friends of Pakistan" group.

Burma
-----

15. (SBU) Chinese leaders say that they convey to the Burmese
regime the need for dialogue with the opposition and minority
groups, democratization, and economic reform. China has also
been very helpful in urging Burma to work with UN Special
Advisor Ibrahim Gambari. As a practical matter, China's
efforts have had little to no effect on the situation in
Burma, possibly because China resolutely opposes sanctions
and maintains growing commercial interests in Burma. Chinese
officials counsel patience and persistence and urge Western
nations to have modest, "realistic" expectations for
political change in Burma. We regularly urge China to use
its influence more aggressively in Burma.

Sudan/Darfur
------------

16. (SBU) The Chinese Government was instrumental in
brokering the creation of the "hybrid" UN-African Union
Peacekeeping force in Sudan. China has also contributed a
contingent of engineers to peacekeeping forces. This, for
China, represents significant action on an international
problem. As a result, China bristles fiercely at criticism
that it somehow is not doing enough to end violence in
Darfur. Consistent with their position in other
international crises, Chinese leaders resist robust sanctions
against the Khartoum regime. They also counsel patience and
"realistic" expectations just as they do with Burma. China
has blamed Sudanese rebels for the lack of progress toward a
political solution. We express appreciation for China's
contributions to a solution in Darfur but also urge China to
employ its influence more aggressively to press the Sudanese
Government.

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Military Relations
------------------

17. (SBU) In recent years we have made some progress in
building the U.S.-China military-to-military relationship.
Exchanges in both directions, including by senior military
leaders, have been an important step in beginning to break
down the barriers of mistrust. China justifies its continued
double-digit increases in military spending as necessary
after decades of flat or no growth. However, many experts
remain frustrated by China's lack of transparency about its
military development. The recent decision to sell defense
articles to Taiwan has resulted in the postponement of a
number of military to military and strategic engagements
(more below).

Counter-terrorism
-----------------

18. (SBU) We worked closely with the Chinese in the lead-up
to the Olympics to share best practices in ways to combat
terrorism. Given their own concerns about Islamic
separatists in the western parts of the country, Chinese
officials acknowledge our shared need to stop terrorism.
While we support Chinese efforts to address domestic security
concerns and the violence in China's Muslim west, we also
caution China on the need to avoid infringing on the
religious freedoms of Chinese Muslims under the guise of
fighting terrorism. International human rights groups have
stated that China's efforts to fight what it calls separatism
and terrorism in the west have at times crossed the line into
oppression of the Uighur people.

Non-proliferation
-----------------

19. (SBU) We routinely share information with Chinese
authorities about suspected violations of proliferation
regimes and have had some success in preventing shipments or
shutting down suspect operations. On the positive side,
China adopted several laws in recent years aimed at curbing
proliferation activities by Chinese companies. There is
still a long way to go, and visiting U.S. experts continue to
underscore the need for tougher safeguards and more
transparency in China's own proliferation efforts to track
suspect shipments and to curb proliferation.

Taiwan: Improved Cross-Strait Ties, Arms Sale Tension
--------------------------------------------- ---------

20. (SBU) Taiwan remains the most nettlesome issue in
U.S.-China relations. Cross-Strait relations have
nonetheless witnessed significant improvement since March
2008, following the election of Taiwan President Ma
Ying-jeou, who has publicly pledged not to seek Taiwan
independence. The goodwill Ma has generated resulted in
positive steps such as the re-establishment of the
cross-Strait dialogue mechanism, commencement of weekend
charter flights and Mainland tourist groups traveling to
Taiwan. Many difficult political issues remain, including
the long-term nature of cross-Strait relations, Taiwan's
participation in international organizations and U.S. arms
sales to Taiwan.

21. (SBU) Following the October 3, 2008 notification to
Congress of the U.S. Government's decision to sell defense
articles to Taiwan, the Chinese Government reacted sharply,
issuing a "strong protest" and warning that it will respond
with "corresponding measures." The PRC subsequently
announced it was canceling or suspending a number of
military-to-military contact events in 2008, as well as
suspending cooperation on four bilateral arms control and
nonproliferation matters.

22. (SBU) Our message to China on the arms sales has been to
affirm the U.S. commitment to our one China policy based on
the three Joint Communiques and the Taiwan Relations Act
(TRA); express our conviction that U.S. arms sales to Taiwan
contribute to stability in cross-Strait relations; state that
the United States welcomes recent improvements in
cross-Strait relations and supports the peaceful resolution
of differences between the two sides; encourage China to
pursue constructive cross-Strait dialogue to reduce tensions
further; and urge reductions in China's military build-up
across from Taiwan.

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

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23. (SBU) The Chinese like to define human rights broadly to
include factors affecting economic and social well-being,
pointing out that China's "reform and opening" policies of
the last 30 years have coincided with gradual improvements in
the quality of life enjoyed by hundreds of millions of
Chinese. They further argue that our focus on individual
rights and liberties reflects "Western values." We respond
to this self-serving argument by noting that these are
universal values, as the Chinese themselves acknowledged when
they signed the Universal Declaration of Human Rights.
Although freedoms for Chinese citizens have expanded over the
past 30 years, the overall human rights situation in China
remains poor in many respects. We continue to emphasize that
the expansion of individual freedoms, respect for the rule of
law and the establishment of a truly free and independent
judiciary and press are in China's own interests, and would
enable the PRC to deal with social tensions and achieve its
goal of building a "harmonious society."

24. (SBU) May 2008 marked the resumption of our formal Human
Rights Dialogue (HRD) with China, reopening a high-level
channel for raising human rights concerns after a five-year
hiatus. The session, which took place before the Olympic
Games, allowed for a frank exchange of views. Apart from
urging fundamental, institutional reform, we also raised
individual cases to highlight our human rights concerns and
bring hope to activists. Key cases, which we welcome you to
raise if you have the opportunity, include the cases of blind
legal activist Chen Guangcheng, who was imprisoned after
Western media publicized his allegations of widespread family
planning abuse in Shandong Province; rights activist Hu Jia,
who was imprisoned after strenuous advocacy on behalf of
others detained or imprisoned in high-profile human rights
cases; and Gao Zhisheng, whose whereabouts are unknown
following his advocacy for activists and groups claiming
rights abuses by Chinese authorities.

25. (SBU) Many had hoped that the scrutiny brought by the
August 2008 Beijing Olympics would lead to improvements in
China's human rights record, but Chinese leaders made clear
that security and an "incident-free" Olympics, not the
expansion of individual freedoms, were their highest
priorities. They tightened controls over the media,
religion, NGOs and other activists. Foreign media criticized
China for breaking promises it made when it bid to host the
Games. Instead of granting wide media freedom, China closed
off nearly a third of the country to reporters "for security
purposes" after the Tibet unrest in March. Some reporters
were harassed or prevented from conducting interviews during
the Olympics and promises of unlimited Internet access went
unfulfilled. Beijing claimed it set up "protest zones" to
accommodate legal demonstrations during the Olympics,
although not a single protest was allowed to take place,
despite 77 applications having been submitted. Some would-be
protesters reportedly were detained, forcibly returned to
their homes far from Beijing or otherwise harassed. Many
dissidents were separately detained during the Olympics and
Paralympics period, and were released only after the games
concluded.

Religious Freedom
-----------------

26. (SBU) China has made some limited progress on religious
freedom in recent years, as Chinese citizens have gradually
enjoyed more space in which to practice their religious
beliefs. Chinese authorities have recently stressed the
positive role of religion in building a "harmonious society."
Many Christian groups no longer operate in strict secrecy.
Recent U.S. visitors to China have noted these developments
in their meetings with Chinese officials and have underscored
Americans' belief that religious adherents make good citizens.

27. (SBU) Despite these gradual positive steps, problems
clearly remain. House churches, for example, are almost
universally prevented from registering as legal entities, and
therefore do not enjoy legal protections. There have been
multiple reports of the harassment and detention of house
church Christians and the closure of house churches. For
instance, authorities detained prominent house church pastor
Zhang Mingxuan following his unauthorized meeting with
Congressmen Frank Wolf and Chris Smith in late June. The
overall situation is much worse in Xinjiang for Muslims and
in Tibet for Buddhists.

Tibet/Dalai Lama
----------------

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28. (SBU) Tibet remains a raw, emotional issue here for
Tibetans and Han Chinese alike. In March 2008, major
violence and unrest struck Tibetan areas of China, and
Tibetans and international observers accused China of
brutality in the measures it took (and continues to take) to
pacify the region. In July, China held another round of
talks with representatives of the Dalai Lama, but there was
no progress. Another round of dialogue was reportedly
scheduled for this month, but in recent meetings, PRC
officials have only said that they are committed to another
round of talks "this year" -- provided the Dalai Lama ceases
his "splittist" behavior. Recent U.S. visitors have pressed
the Chinese to engage in serious, results-oriented dialogue,
and stop vilifying the Dalai Lama. This step, accompanied by
actions open Tibet to international journalists and
diplomats, can Beijing lend credibility to Tibetan leaders
who favor dialogue and negotiation over violence and unrest.
We have also urged China to demonstrate
greater respect for peaceful Tibetan Buddhist religious
practices, a step which would contribute to long-term
stability in Tibetan regions.
PICCUTA

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