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RUEHGH/AMCONSUL SHANGHAI 7434

C O N F I D E N T I A L SECTION 01 OF 04 SHANGHAI 000194 
 
SIPDIS 
 
NSC FOR WILDER, TONG 
SECDEF FOR ISA DAS SEDNEY 
TREASURY FOR AMBASSADOR HOLMER, WRIGHT, DOHNER, CUSHMAN 
 
E.O. 12958: DECL:  6/2/2033 
TAGS: PREL EFIN ECON MARR CH TW JA NU
SUBJECT: BILATERAL AND TAIWAN RELATIONS: SHANGHAI INSTITUTE FOR INTERNATIONAL STUDIES SCHOLARS LOOK AHEAD RE RELATIONS WITH UNITED STATES, TAIWAN AND JAPAN
 
CLASSIFIED BY: Simon Schuchat, Acting Consul General, U.S. 
Consulate General, Shanghai, China, Department of State. 
REASON: 1.4 (b), (d) 

¶1.  (C)  Summary.  Shanghai Institute for International Studies 
leaders outlined for visiting State Department official David 
Shear on May 22 several of China's foreign policy priorities and 
discussed China's growing comfortableness with multilateral 
engagement.  They strongly urge that the next U.S. 
administration continue the Strategic Economic Dialogue (SED), 
the Senior Dialogue and the emerging military-military 
relationship.  The May 20 inauguration speech by new Taiwan 
President Ma Ying-jeou attracted favorable comment and China has 
already reacted positively.  Positive developments from Taiwan 
in cross-strait relations will precede any movement by China to 
grant Taiwan some international space.  Mainland scholars are 
now contemplating whether some international space for Taiwan 
could be arranged by participation in an ASEAN plus three plus 
one (Taiwan) structure.  ARATS and SEF will soon resume 
discussions, to be led on the Chinese side by Chen Yunlin 
(currently head of the State Council's Taiwan Affairs Office). 
China has not acted on Nicaraguan interest to switch its 
diplomatic recognition from Taipei to Beijing on an ad hoc basis 
while considering whether Taipei and Beijing can stop their war 
for diplomatic recognition.  End summary. 
 
¶2.  (C)  David Shear, the next Director of State's Office of 
Chinese and Mongolian Affairs, met on May 23 with SIIS President 
Yang Jiemian and Vice President Chen Dongxiao.  Shear expressed 
condolences for the May 12 Sichuan earthquake; Yang said the 
event had shocked all in China and that for persons of his age, 
brought back recollections of the aftermath of the 1976 
earthquake catastrophe in Tangshan.  All Chinese citizens are 
pouring out sympathy and support to the earthquake victims. 
China thanks the United States for condolences offered and 
support rendered in the aftermath of the Sichuan earthquake. 
 
China's Foreign Policy Priorities 
------------------- ------------------- 

¶3.  (C)  Yang, brother of China's Foreign Minister, enumerated 
several of China's top foreign policy priorities at this time. 
First is improving China's relations with "big powers," foremost 
with the United States.  While ten years ago China might have 
focused only on the United States, globalization and the 
emergence of new powers, China must develop better relations 
with multiple powers.  Today the United States may be the only 
superpower but two decades from now will only be first among 
equals.  Second, China aims to improve its relations within 
Asia.  China needs a foreign policy for Asia that accommodates 
the interests of the United States, Japan and China's neighbors. 
 China must keep the United States informed about its intentions 
and activities within Asia, Yang said, whether or not the United 
States is a part of a particular regional security architecture. 
 One of the means to keep the United States informed is by 
regular high-level exchanges.  Yang strongly urged continuation 
into the new U.S. administration of the Strategic Economic 
Dialogue, the Senior Dialogue and the emerging military-military 
relationship, even if a new administration has new ideas for 
those dialogues or even if the frequency of such exchanges needs 
to be modified.  In its foreign policy, China also seeks to move 
beyond ad hoc arrangements and establish mechanisms in the 
international arena to confront non-traditional security issues, 
such as fighting terrorism and dealing with epidemics or 
emerging diseases such as SARS. 
 
China's Relations with the United States and Multilateral Engagement -------------------------------- ---------------- ----------------------------------

¶4.  (C)  Yang noted that in each U.S. Presidential transition 
save one (1989 Reagan to Bush) since the establishment of 
diplomatic relations in 1979, the pendulum in the bilateral 
relationship has swung against China in each President's first 
term.  While China does not foresee far-reaching changes to U.S.  
China policy in 2009, regardless of who wins the U.S. election, 
Yang suggested that with hard work by both sides the impact on 
bilateral relations of a transition in Washington can be handled 
better than in the past.  Yang said he advises the Foreign 
Ministry's U.S. Affairs desk in Beijing to put China's relations 
with the United States against a broader background than just 
the bilateral relationship.  Indeed, China has discovered 
benefits from a more multilateral approach to foreign policy and 
to the United States.  Most notably, into the 1990s, China had 
often been isolated in multilateral settings.  The first APEC 
Summit in Seattle had provided an opportunity for Presidents 
Jiang and Clinton to meet without violating any U.S. sanctions 
and APEC has provided an annual opportunity for meetings to 
exchange views regardless of the bilateral relationship status 
at those times.  Cooperation on the Korean Peninsula nuclear 
issues, a multi-nation undertaking, has also provided 
opportunity to strengthen relations and cooperation with the 
United States.  Hard work with the United States to find ways to 
build the bilateral relationship on its positive aspects, not 
just shared prevention of Taiwan independence, needs to be 
addressed by both sides.  Possible future U.S. rewards to Taiwan 
President Ma for his comparatively good behavior could become 
irritants in the U.S.-China relationship, as would arms sales to 
Taiwan or increased U.S. military contacts with Taiwan.  China 
expects and is worried about more U.S. arms sales to Taiwan, but 
that concern could be managed in part by advance knowledge of 
the sales. 

Financial Consultations; Development of Civil Society 
----------------------- ------------------------- ----------------

¶5.  (C)  Enhanced cooperation in international financial matters 
is a topic for further bilateral engagement, Yang suggested. 
China respects U.S. primacy in international financial matters. 
Still, Chinese academics are engaged in heatedly debating 
Sino-U.S. cooperation in the monetary and financial fields.  The 
renminbi has already appreciated more than 15 percent against 
the U.S. dollar; China has accumulated more than USD 1.7 
trillion in foreign exchange reserves, 70 percent or more of 
which is held in USD-denominated assets such as Treasury bonds; 
every bit more of RMB appreciation against the dollar inflicts 
financial losses on China.  China does not know how to 
productively use its forex reserves.  China will raise this 
topic in the Strategic Economic Dialogue.  China seeks a more 
consultative mechanism for consideration of global and regional 
financial issues.  China will also seek to expand and 
consolidate people-to-people relations with U.S. NGOs.  The 
Chinese people's responses to the Sichuan earthquake and support 
for the Beijing Olympics torch run in reaction to protests in 
foreign locations about China are changing the way Chinese civil 
society will develop.  The Chinese leadership's emphasis on 
saving people's lives first in Sichuan, whereas thirty years ago 
priority would have been given to saving the state's property, 
shows that U.S. and Chinese values are beginning to converge as 
China integrates more fully with the rest of the world.  The 
United States, especially the parochial U.S. Congress, should 
wake up and realize that 9-11 meant the end of physical 
boundaries.  The United States has the might to impose its will 
on others -- for perhaps another 20 years.  Consider how much 
and how quickly China's place in the world has changed in the 
last 20 years; America should display its leadership by example. 
 The United States will need to work harder to maintain its 
leadership role in the world, by reforming education and 
improving customer service at local levels.  Both sides need to 
put new momentum into the bilateral relationship, which remains 
each country's most important bilateral relationship. 
 
Taiwan:  Positive Reaction to Ma's Inauguration Speech 
-------------------------------- ---------------------------------- 
 
¶6.  (C)  Ma Ying-jeou's May 20 Presidential inauguration speech 
in Taipei was positive in the mainland's view in at least three 
aspects.  First, Ma has put cross-strait rapprochement among his 
government's top three priorities, along with improving Taiwan's 
relations with the United States and with Japan.  These choices 
show why Ma was elected and Chen Shui-bian and Frank Hsieh were 
rejected by Taiwan's voters.  Second, Ma responded favorably to 
President Hu Jintao's 16-character prescription for cross-strait 
relations (shelve disagreements, seek common development) that 
Hu had spoken to Taiwan Vice President-elect Vincent Siew at the 
Boao Forum this spring.  Ma's speech generated a favorable 
response by State Council Taiwan Affairs Office Minister Chen 
Yunlin on May 22.  Chen will quickly move over to China's 
Association for Relations Across the Strait (ARATS) which will 
resume cross-strait talks with Taiwan's Strait Exchanges 
Foundation (SEF) as soon as possible.  Third, Ma had spoken 
about the Chinese people (zhonghua minzu) rather than using a 
term like "compatriots" in discussing the Chinese in the 
mainland. 
 
Nicaragua, WHO, and An ASEAN-plus Structure 
------------------------------- ---------------------------- 

¶7.  (C)  China will closely watch Ma's words and actions. 
Developments in cross-strait relations will precede any change 
regarding Taiwan's international space.  China awaits gestures 
from Taiwan in the next two months or so, and China is already 
showing its good will towards Taiwan.  For instance, the 
recently elected leaders of Nicaragua wished to switch 
diplomatic recognition from Taipei to Beijing upon entering 
office, Yang claimed.  China decided not to implement that 
offered change, at least for now, to see whether an 
understanding can be reached that would allow a cessation to the 
war between Taipei and Beijing for diplomatic recognition. 
China is well aware of Taiwan's interest in joining the World 
Health Organization, but any changes to China's opposition will 
take some time.  Mainland scholars are now contemplating whether 
some international space for Taiwan could be arranged by 
participation in an ASEAN plus three plus one (Taiwan) structure. 
 
Ma the Man 
-------------- 

¶8.  (C)  China sees a difficult challenge in understanding and 
dealing with Ma Ying-jeou.  Ma's actions are sometimes 
value-based, sometimes ideological.  He is "green" in that he is 
an inexperienced leader.  Ma promised too much to Taiwan 
following his election.  Ma is a Harvard-trained lawyer with 
excellent English and has seen much of the world.  Ma needs to 
work with three factions in Taiwan, namely, the "KMT retirees" 
led by Lien Chan, the current KMT party leadership led by Wu 
Po-hsiung, and his own government.  Cross-strait relations are 
less likely to be harmed by accident following establishment of 
direct air links and arranging for convertibility between the 
renminbi and the new Taiwan dollar.  Chinese officials must also 
bear in mind that Taiwan is a bipartisan place, that is, Ma can 
be voted out of office if the voters are not pleased with 
developments.  China needs to work together with Taiwan in this 
first real opportunity for cross-strait progress since Lee 
Teng-hui took office.  Unlike the early days of ARATS-SEF 
engagement, when China's economy was much more laggard, today 
Taiwan is worried about being marginalized alongside the 
mainland economic juggernaut. 
 
China-Japan Relations 
--------------------------- 

¶9.  (C)  Yang said that all educated Chinese think about China's 
relations with three places, the United States, Japan and 
Taiwan.  The bilateral relationship with the United States is 
the most important of these, as it has great impact on the other  
two.  Yang commented briefly on important recent positive 
developments in China's relations with Japan.  First, China 
under Hu Jintao has de-linked Japanese leaders' visits to the 
Yasukuni Shrine from the issue of Presidential summits and other 
high-level engagement.  Neither China nor Japan can afford to 
have forward movement in this important bilateral relationship 
held in abeyance by the Yasukuni issue, as was the case for 
nearly a decade.  Second, Japan now sees the importance of 
improving its relations with China.  Third, both China and Japan 
are considering a wider range of issues than during past 
bilateral engagement.  During Hu's May visit, he notably 
emphasized the "future" and "Asia," for instance.  China hopes 
that the United States can play a positive and constructive role 
in keeping China and Japan in the right track as they seek to 
improve their bilateral relations. 
 
¶10.  (U)  Mr. Shear has cleared this report. 
JARRETT