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Viewing cable 08BEIJING809, PREMIER'S NPC REPORT PLEDGES MORE REFORM, TACKLES

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Reference ID Created Released Classification Origin
08BEIJING809 2008-03-05 13:57 2011-08-30 01:44 CONFIDENTIAL Embassy Beijing
VZCZCXYZ0776
OO RUEHWEB

DE RUEHBJ #0809/01 0651357
ZNY CCCCC ZZH
O 051357Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5500
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L BEIJING 000809 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 03/05/2033 
TAGS: PGOV SOCI ECON KCUL PHUM CH
SUBJECT: PREMIER'S NPC REPORT PLEDGES MORE REFORM, TACKLES 
TOUGH SOCIAL, ECONOMIC PROBLEMS 
 
REF: A. BEIJING 792 
 
     B. BEIJING 767 
 
Classified By: Political Section Internal Unit Chief 
Dan Kritenbrink.Reasons 1.4 (b/d) 
 
Summary 
------- 
 
1.  (C) The State Council's annual "Government Work Report," 
read by Premier Wen Jiabao at the opening session of the 
National People's Congress (NPC) on March 5, reviewed China's 
major hot-button economic, administrative and social issues 
and provided general policy priorities to tackle them.  The 
rough equivalent of the State of the Union address, it 
closely followed the ideological and policy priorities laid 
out at the 17th Communist Party Congress last fall.  Wen 
issued a strong call for continued market reforms tempered by 
social justice and balanced development and promised to 
devote more resources to a variety of serious infrastructure, 
environmental and social problems.  Wen broke no ground on 
political reform, pledging administrative reform but 
revealing no details on the "super-ministry" plan, while 
reiterating the need to crack down on corruption.  The Report 
also indicated that inflation is a top leadership concern. 
In the section reviewing foreign policy developments, the 
Report used language that suggests some progress in China's 
embrace of a "responsible stakeholder" role and took the 
unusual step of specifically naming the United States, 
placing it first in the list of successful bilateral 
relationships.  The Taiwan portion was consistent with 
China's generally low-key rhetoric in the run-up to the 
Taiwan presidential election this month.  Xi Jinping's 
appointment as co-chair of this session, a position 
previously held by current Vice President Zeng Qinghong, may 
signal that Xi will be "elected" to take Zeng's place later 
in the proceedings.  End Summary. 
 
Curtain Rises on Annual Political Theater 
----------------------------------------- 
 
2.  (C) China's most extravagent display of political 
theatrics, the National People's Congress (NPC), opened on 
March 5 in Beijing amid great fanfare and tight security in 
the Great Hall of the People.  NPC Chairman Wu Bangguo called 
the meeting to order and yielded the floor to Premier Wen 
Jiabao, who read his two-hour and forty minute Government 
Work Report to the nearly 3,000 newly-elected deputies, 
diplomatic and press corps, and a national TV audience. 
Since this was the first plenary session of a new (11th) NPC, 
which is elected to a five-year term, the Report reviewed the 
Government's accomplishments and shortcomings over the past 
five years while laying out the policy priorities for the 
coming year.  Delegates applauded throughout, mostly on cue 
from Wen, but reserved their most enthusiastic, sustained and 
seemingly spontaneous, applause for Wen's remarks opposing 
Taiwan's independence. 
 
3. (C) The session was attended by China's entire senior 
leadership, which included not only the current 25 members of 
the Politburo, but also four former Politburo members who 
retired from their positions at the 17th Party Congress last 
October but still retain Government portfolios.  (Note: 
These four, Zeng Qinghong, Wu Yi, Zeng Peiyan and Cao 
Gangchuan, are all expected to give up their Government 
positions at this year's NPC session.)  The seating of Xi 
Jinping directly to the right of NPC Chairman Wu Bangguo in 
the first row of seats on the dais together with other 
"executive chairman" of the Presidium in charge of this NPC 
session may indicate that Xi is slated to become Vice 
President, which would further solidify his position as heir 
apparent to Hu Jintao in 2012.  Records from five years ago 
indicate that Zeng Qinghong was appointed (and seated) in 
this same position, prior to his elevation to the Vice 
Presidency in 2003.  (Note:  Zeng Qinghong sat with other 
Politburo Standing Committee (PBSC) members, who were seated 
in protocol order, with Zeng sitting in his traditional fifth 
spot.  Current and former Politburo members not on the PBSC 
were seated according to the number of strokes in their 
surnames.) 
 
Following Hu Jintao's Blueprint 
------------------------------- 
 
4. (C) Wen's Report hewed closely to the ideological and 
policy prescriptions adopted by the 17th Party Congress 
convened last October which endorsed the economic and social 
"vision" associated with Communist Party General Secretary Hu 
Jintao.  The Report's overview of Government achievements in 
 
the past five years, the "lessons learned" section, the 
ideological slogans and the policy outline for the next year 
reflected Hu's development model:  continued robust market 
 
reforms, balanced and sustainable development that takes 
account of environmental impact and resource conservation, 
and reallocation of resources to close the rural-urban income 
gap and provide adequate health care, education, housing and 
social welfare guarantees.  Wen attributed the successes of 
the past five years to "the correct leadership" of the 
Central Committee "with Hu Jintao as General Secretary." 
 
5. (C) Wen's report was laced with the ideological slogans 
associated with Hu that underpin these economic and social 
policy priorities.  Thus, he described the "Party's 
ideological line" as a call to "liberate our thinking" and 
"follow a realistic and pragmatic approach."  He called for 
holding fast to Hu's primary ideological construct, the 
"Scientific Development Concept," which he called "a major 
strategic concept for developing socialism with Chinese 
characteristics" and "an important guiding principle" for 
China's economic and social development.  He said that while 
development remains the top priority, the Party must continue 
to "put people first" and "promote social fairness and 
justice."  Noting the need especially to improve the lives of 
"low-income people," he said that the purpose of Government 
is to "ensure that all of the people share in the fruits of 
reform and development."  Finally, in a clear shot at 
continuing carping from orthodox Communist officials who seek 
to roll back market reform, Wen, to resounding applause, 
declared that there was no turning back from the reform and 
opening policies of the past 30 years.  This policy 
direction, he said, is a "crucial policy choice" that is 
"shaping the destiny of contemporary China." 
 
Political Reform and Rule of Law 
-------------------------------- 
 
6. (SBU) Wen broke no new ground on political reform, instead 
sticking mostly to typically vague platitudes, though he did 
make some specific proposals, including soliciting public 
opinion on some draft legislation.  Reviewing the past five 
years, Wen made familiar claims that China had made progress 
in developing "democracy" the legal system ad "law-based 
government," while also safeguaring "people's rights and 
interests" and ensuring "social fairness and justice." 
Turning to goals for 2008, Wen drew from language in Hu 
Jintao's 17th Party Congress political report by pledging to 
carry out elections, decision-making, administration and 
oversight "in accordance with the law," while claiming China 
would allow the public to participate in, express views on 
and oversee Government affairs.  Specifically, Wen said China 
would "in principle" release draft legislation to solicit 
public views on issues concerning "the interests of the 
people."  (Note:  Although Wen made general references to 
minor reforms concerning China's law enforcement agencies, 
his comments appeared to fall short of those Hu Jintao made 
in the Party Congress political report, which had stated the 
need to "ensure that courts and procuratorates exercise their 
trial and prosecution powers independently and impartially in 
accordance with the law.") 
 
7. (C) Though he cited the need for administrative reform, 
Premier Wen avoided revealing any specifics regarding the 
Government's plans for restructuring entities under the State 
Council and creating "super ministries."  Wen did, however, 
tout such administrative tinkering as an important type of 
"political reform" with significant implications for the 
economy.  The primary objective of such reforms, Wen said, is 
to raise Governmental efficiency by clarifying the division 
of responsibilities among Government entities, particularly 
those involved in management of the economy and the provision 
of public services, while also improving oversight functions 
and enhancing transparency.  Wen referred specifically to the 
controversial "Super Ministries" proposal but shied away from 
specifics, merely saying the Government's plan will be 
submitted to the NPC for deliberation and approval.  (Note: 
The Government is scheduled to present its State Council 
restructuring plan at an NPC plenary session on March 11.) 
 
8. (SBU) In accordance with the Government's emphasis on 
anti-corruption the past few years, Premier Wen sounded tough 
on cracking down on malfeasance, using rhetoric that was 
perhaps slightly harsher and more detailed than last year. 
Wen said in the past five years, the Government had combated 
corruption and improved Government conduct by cracking down 
on bribery in business and by uncovering illegality and 
dereliction of duty among officials.  In the year ahead, Wen 
pledged to "attach even greater importance to combating 
corruption and encouraging integrity."  Wen said China would 
 
take a "dual approach" to countering corruption that combined 
both prevention and punishment, with the greatest emphasis on 
prevention.  Describing the causes of corruption, Wen 
delineated the problems of "excessive concentration of power 
and lack of checks on power," which he pledged to address 
through various ill-defined administrative measures.  Issuing 
a warning to Government officials, Wen resolved to "strictly 
curb bribery in business, resolutely bring corrupt people to 
justice and prosecute them to the full extent of the law." 
 
Economic Plan for 2008: Inflation a Major Challenge 
--------------------------------------------- ------ 
 
9. (C) In addressing the state of the economy, Wen warned of 
mounting inflationary pressure in China and said inflation, 
as evidenced by the 4.8 percent increase in the Consumer 
Price Index (CPI) in 2007, is the "biggest concern of the 
people."  Wen admitted it will be difficult for the 
Government to control prices.  Media reports and statements 
by Government officials prior to the NPC session indicated 
that controlling inflation would be the major economic 
challenge for the Central Government, and Wen stated in the 
Work Report that preventing fast economic growth from 
becoming overheated growth and keeping price increases from 
turning into significant inflation would be the primary tasks 
for macroeconomic regulation in 2008. 
 
10. (C) The Premier said the GDP should grow by approximately 
8 percent in 2008, and the CPI should not rise above 4.8 
percent.  (Comment:  Central Government estimates of GDP 
growth during the NPC always are lower than the actual 
expectation, and most analysts believe China's GDP will 
experience double-digit growth again in 2008 (the GDP grew by 
11.4 percent last year).  A CPI increase of 4.8 percent would 
be the same as 2007 but may be unrealistic, as on the eve of 
the Work Report, Goldman Sachs upgraded its annual inflation 
forecast to 6.8 percent in 2008.  End Comment.)  Wen stated 
that China is increasingly wary of possible external shocks, 
specifically singling out the potential negative impact on 
China of the U.S. sub-prime mortgage crisis, the falling 
dollar and growing risks in global financial markets. 
 
Macroeconomic Controls 
---------------------- 
 
11. (C) In addition to controlling inflation, Wen said 
efforts to improve macroeconomic regulation in 2008 would 
focus on: 
 
-- Fiscal Policy:  As in previous years, Wen stressed the 
importance of reforming the budget system, reducing the 
budget deficit and making better use of surplus government 
revenue, which totaled RMB 723.9 billion (USD 100.5 billion) 
in 2007, by increasing rebates on consumption and value-added 
taxes, and boosting spending on agriculture, environmental 
protection, education and building a social safety net.  Wen 
emphasized the need to improve the transfer payments process 
and reform sub-provincial fiscal systems but did not propose 
any specific plans for such reforms. 
 
-- Monetary Policy:  Wen said China will maintain a tight 
monetary policy in response to excess liquidity, inflationary 
pressure and potential growth in fixed asset investments. 
Wen reiterated that China will limit credit growth to 
energy-intensive or polluting enterprises and industries with 
excess production capacity while extending credit support for 
agriculture, rural areas, small and medium-sized enterprises, 
energy conservation, environmental protection and balancing 
regional development. 
 
-- Foreign Exchange:  Wen repeated language from last year's 
Work Report, which stated that China would improve the RMB 
exchange rate regime to make the exchange rate more flexible. 
 He also reiterated the need to develop new channels and 
means for using foreign reserves and called for improvements 
to China's international balance of payments.  In addition, 
Wen said China will improve its system for foreign exchange 
settlements. 
 
-- Disaster Relief:  One month after a snowstorm hit southern 
and central China, Wen said the Central Government would 
quickly repair infrastructure and restore agricultural 
production.  He said the government had learned from the 
incident and would improve its disaster response system. 
 
Further Economic Reform and Opening 
----------------------------------- 
 
12. (C) Wen reiterated China's commitment to further reform 
 
and opening, pledging to take the following measures: 
 
-- SOE Reform:  Wen stated that the Central Government would 
focus more on market-oriented State Owned Enterprise (SOE) 
reform proposals, including corporate governance, the 
separation of secondary SOE businesses from their core 
businesses and a call to standardize the transformation of 
SOEs into stock companies. 
 
-- Foreign Trade and Investment:  Further opening of the 
services sector in China was mentioned.  Noticeably absent 
this year was support for specific multilateral trade 
negotiations such as the WTO Doha Round.  Instead, Wen 
highlighted broad support for promoting free trade zones and 
honoring treaties already signed. 
 
-- Financial System Reform:  New to this year's report, Wen 
called for the establishment of a deposit insurance system. 
(Comment:  There is broad consensus among Chinese financial 
regulators that a deposit insurance system is needed, but 
bureaucratic wrangling and technical issues have held up 
progress.  The FDIC has been engaged with the Chinese in an 
advisory role on this issue. End Comment.)  However, Wen's 
financial sector reform proposals were similar to last 
year's, including the call for development of bond and 
futures markets.  He reiterated other themes from last year's 
report, including deepening reform of state-owned banks, 
improving the rural banking system, developing capital 
markets, expanding insurance coverage and strengthening 
financial oversight. 
 
Energy and Product Safety 
------------------------- 
 
13. (C) Wen emphasized the importance of conserving energy, 
reducing emissions, protecting the environment, and ensuring 
product quality and safety, focusing much of his attention in 
this area on energy consumption and food safety: 
 
-- Energy Consumption:  Wen detailed successes in reducing 
energy consumption per unit of GDP and emissions, while 
saying that this year is crucial for meeting obligatory 
targets in the 11th Five-Year Plan (FYP) for energy 
conservation and emissions.  Nevertheless, he did not provide 
information on China's progress towards meeting its FYP 
energy efficiency targets.  Wen outlined a plan to close down 
"backward" production facilities (including electricity, 
steel, cement, coal and papermaking) but did not offer 
specific information on those industries' production and 
generation capacities.  (Comment:  The lack of specifics on 
meeting 11th FYP energy efficiency targets suggests that the 
Central Government still is facing significant challenges 
meeting the targets.  End Comment.) 
 
-- Product Quality and Safety:  There were several rounds of 
applause when efforts to improve product quality and safety 
were addressed.  Wen specifically mentioned the need for 
domestic confidence in food and consumer product safety and a 
good reputation for Chinese exports.  His plan laid out 
specific recommendations for updating national standards, 
improving legal guarantees and oversight and control. 
(Comment:  Inclusion in this year's Work Report certainly was 
a response to several recent highly publicized Chinese food 
and product safety export issues.  End Comment.) 
 
Rural Areas, Balanced Development and Social Issues 
--------------------------------------------- ------ 
 
14. (C) Not surprisingly, Wen again this year focused on 
rural development, balancing the structure of the economy and 
social issues: 
 
-- Rural Areas:  Following the release of the 2008 Number One 
Document in January, which named rural development as the 
State Council's top priority for the fifth year in a row, Wen 
announced in the Work Report that funding for rural 
development would increase by 30 percent. 
 
-- Changing the Pattern of Development:  Wen stressed the 
importance of shifting China's growth pattern from a reliance 
on investment and exports to a more balanced structure that 
encourages consumption.  He criticized development that 
depends on blindly promoting investment projects, 
particularly in energy intensive industries.  He said that 
China should promote research and development and he 
announced that Central Government funding for science and 
technology would increase 13.4 percent in 2008. 
 
-- Promoting Regional Development:  The Premier reiterated 
 
the importance of balancing development among regions, and he 
said the Central Government would continue to support the 
Great Western Development Program, Northeast China 
Revitalization Program and Central China Rising Policy. 
 
-- Education:  As in 2007, the Premier again emphasized the 
importance of developing education, particularly focusing on 
rural compulsory education and education for children from 
poor families and children of migrant workers. 
 
-- Health Care:  Wen said the Central Government would 
improve access to medical care in both urban and rural areas, 
and he officially announced that the Central Government and 
local governments would double their contribution to the 
Rural Cooperative Medical System. 
 
-- Population and Family Planning:  Wen said China would 
continue to carry out the one-child policy in order to 
maintain a low birthrate and improve maternal and child 
health.  (Comment:  There had been speculation leading up to 
the NPC session that the Central Government would ease 
restrictions on having more than one child.  End Comment.) 
 
-- Employment:  Wen said the Central Government will enforce 
the Employment Promotion Law and Labor Contract Law and would 
continue to expand employment. 
 
-- Urban and Rural Incomes:  Wen stressed the importance of 
increasing both urban and rural incomes in order to maintain 
social harmony and stability. 
 
-- Social Safety Net:  The Premier echoed his statements of 
previous years, urging the Central Government to improve the 
social safety net, specifically by expanding social security 
coverage and improving the social assistance system. 
 
-- Housing:  Although less of a focus than in 2007, housing 
prices also were a priority in the Work Report, in particular 
ensuring the provision of housing for low income families. 
(Note:  Henan Party Secretary Xu Guangchun told the 
Ambassador on March 5 that he was very interested in the 
Premier's remarks on housing, as rising housing prices are a 
significant concern in Zhengzhou, the provincial capital (see 
septel).  End Note.) 
 
Foreign Policy:  U.S. Role Highlighted 
-------------------------------------- 
 
15. (C) Following past precedent in Government Work Reports, 
foreign policy and cross-strait relations received less 
attention than economic, political and social issues. 
Nonetheless, this year's report provided insight into China's 
priorities and focus for the coming year, including language 
that suggests some progress in China's embrace of its 
"responsible stakeholder" role.  As was the case last year, 
the Report is devoid of the ideological shibboleths of the 
past, such as attacks on international "power politics" and 
"hegemonic" behavior, clear references to the United States. 
Wen laid out China's diplomatic priorities as being first 
focused on major "developed" countries, then on "neighboring 
countries" and finally on developing countries.  He took the 
unusual step of mentioning key developed countries by name, 
listing the United States first among its list of successful 
bilateral relations.  Wen said that over the past five years, 
relations with the United States developed "steadily," with 
Russia "reached new heights," with Europe "went from strength 
to strength" and with Japan "improved."  Wen also highlighted 
China's "major multilateral diplomatic activities" and 
China's "active and responsible" role in resolving issues in 
international and regional "hotspots."  While not hitting the 
"harmonious world" theme as hard as in the 2007 work report, 
Wen said that in 2008 China would again actively work to find 
"appropriate solutions" to major hotspots and global issues. 
With respect to defense policy, the Report's language offered 
a possible indication of a broadening focus away from 
preparing only for a Taiwan contingency.  In addition to 
standard language about protecting sovereignty, security and 
territorial integrity, Wen called on the military to enhance 
its ability to "respond to security threats and accomplish a 
diverse array of military tasks" 
 
16.  (C) Wen also addressed the Olympics, noting that the 
entire Chinese nation is looking forward to the Games, which 
will be of great importance in promoting China's economic and 
social development as well as friendship with other 
countries.  He pledged to prepare and organize well for the 
Games and cooperate with the international community to 
ensure the Games are "unique and well-run." 
 
Hong Kong, Macao and Taiwan 
---------------------------- 
 
17. (C) There was a slight shift in language that put greater 
emphasis on Hong Kong and Macao's own efforts  at 
development, as opposed to last year's report that called on 
the NPC to work together with the people of Hong Kong and 
Macao to promote prosperity and stability.  The Taiwan 
portion was consistent with China's generally low-key 
rhetoric in the runup to the Taiwan presidential election 
this month, providing little in the way of sound bites that 
might influence the election outcome.  (Note:  The Report's 
language was considerably less sharp than that of NPC 
spokesman Jiang Enzhu on March 4. (Ref A).  Echoing language 
in last October's 17th Party Congress political report, Wen 
stressed the peaceful resolution of differences and improving 
conditions for Taiwan investors in the mainland.  Wen 
reiterated Beijing's desire for the direct mail, transport 
and trade links and, on the basis of the one-China principle, 
a resumption of cross-Strait negotiations to address major 
issues of concern. He made an oblique reference to the UN 
referendum by noting that any issue relating to China's 
sovereignty must be decided by all Chinese people, including 
those in Taiwan, and that efforts to deny the "one China" 
reality or undermine peace across the Strait were "doomed to 
fail."  As with past years and the 17th Party Congress 
Political Report last fall, the audience gave frequent, 
spontaneous and emotional applause during the presentation on 
Taiwan and was particularly boisterous in supporting the 
assertion that China will never tolerate Taiwan independence. 
RANDT