VZCZCXRO8438
RR RUEHCN RUEHGH
DE RUEHGH #0195/01 1540535
ZNY CCCCC ZZH
R 020535Z JUN 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6881
INFO RUEHBJ/AMEMBASSY BEIJING 1884
RUEHGZ/AMCONSUL GUANGZHOU 1207
RUEHSH/AMCONSUL SHENYANG 1234
RUEHCN/AMCONSUL CHENGDU 1236
RUEHHK/AMCONSUL HONG KONG 1372
RUEHIN/AIT TAIPEI 1049
RUEHGP/AMEMBASSY SINGAPORE 0145
RUEHUL/AMEMBASSY SEOUL 0212
RUEHKL/AMEMBASSY KUALA LUMPUR 0017
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7438

C O N F I D E N T I A L SECTION 01 OF 05 SHANGHAI 000195 
 
SIPDIS 
 
NSC FOR WILDER, TONG 
SECDEF FOR ISA DAS SEDNEY 
 
E.O. 12958: DECL:  6/2/2033 
TAGS: PREL PGOV EFIN ENRG CH TW IR
SUBJECT: A TOUR D'HORIZON OF THE BILATERAL RELATIONSHIP FROM FUDAN'S 
AMERICAN STUDIES CENTER DIRECTOR 
 
CLASSIFIED BY: Simon Schuchat, Acting Consul General, U.S. 
Consulate General, Shanghai, China, Department of State. 
REASON: 1.4 (b), (d) 
 
 
 
¶1.   (C)  Summary.  During a May 24 meeting Fudan University 
American Studies Center Director Shen Dingli told incoming 
EAP/CM Director David Shear that the Sichuan earthquake, which 
had revealed much weakness in the Chinese government, would be a 
catalyst for positive change.  He appraised the three remaining 
U.S. Presidential candidates and confided that China would be 
most comfortable with Senator McCain as President -- but that 
China needed, and wanted, a good working relationship with the 
U.S. no matter who becomes President.  As tensions reduce across 
the Taiwan Strait, the economic and financial aspects of the 
bilateral relationship are increasingly central.  China needs a 
robust U.S. economy for its own economy to grow and its national 
savings to retain their value.  With the election of Ma 
Ying-jeou, the mainland faces a more adept and effective leader 
on Taiwan, in whose success China now has a stake.  It will have 
to give more "face" to the "Republic of China," he predicted. 
It may be difficult for the U.S. to adapt to a rising China, but 
China's overwhelming needs are for a positive relationship with 
the United States.  China will seek to cooperate with the U.S., 
whether on Iranian proliferation or global energy security, 
because only through strategic cooperation with the U.S. can 
China safeguard its own interests.  End summary. 
 
 
Earthquake as positive catalyst 
------------------------------- 
 
¶2. (C)  Shear began by expressing his condolences over the 
devastating earthquake in Sichuan earlier this month.  Shen 
responded that the earthquake has been a positive catalyst for 
further change in China.  First, the media "disobeyed the 
Party's orders," as journalists headed for the disaster zone to 
report developments firsthand.  According to Shen, this was the 
first time for the media to disregard instructions from the 
Propaganda Department on such a large scale.  As a result of the 
disaster, and the manner in which it was covered in China, 
western media presentations of China went from highly critical 
(because of the situation in Tibet) to highly favorable.  It is 
natural that China should evoke such sympathy, but it is also 
important that China's leadership is perceived to have done a 
good job, particularly in contrast with Burma. 
 
 
Situation in Tibet 
----------------- 
 
¶3.  (C)  Shen traveled to Tibet in late April, as one of the 
first Chinese academics to visit after the disturbances in 
March.  It was his first visit to Tibet.  According to Shen, 
China's strategic interests are such that it will not relinquish 
control over Tibet under any circumstances.  Recalling the war 
with Japan, when the invading forces could not reach Sichuan, 
let alone Tibet, it was clear to Shen that China needed the 
strategic depth which Tibet provided.  He observed that the 
Chinese government has accomplished many positive things for 
Tibet, but nevertheless thousands of people participated in the 
anti-Chinese demonstrations.  The important questions are, why 
do the Tibetans hate the Chinese so?  And why is the Dalai Lama 
more popular than the Chinese government?   Finally, why was the 
Chinese government so ineffectual in handling the 
demonstrations?  Was it because the local authorities were 
overly cautious, or too bureaucratic?  There was essentially no 
government control from March 10 through 13.   Shen noted that 
some have argued that the government did not respond, even when 
rioters attacked civilians and destroyed property, in order to 
build a case for the subsequent crackdown.  However, Shen was 
not convinced by this argument. 
 
 
Assessing the U.S. Presidential Candidates 
------------------------------------------- 
 
SHANGHAI 00000195  002 OF 005 
 
 
 
¶4.  (C)  China is concerned about the U.S. Presidential 
election, Shen explained.  He described difficulties he had when 
invited to observe the 2004 election, when Chinese government 
approval for his trip was first given and then withdrawn.  Shen 
attributed the about-face to the leadership's desire to see 
President Bush reelected, and a concern that if there was too 
much interest in China in President Bush's opponents, they might 
be blamed for giving aid and comfort to his enemies.  In a like 
manner, the Chinese government cannot say that it would like to 
see Senator McCain elected, but it does prefer McCain to the 
other candidates.  In fact, polls today suggest that McCain will 
lose, but according to Shen, the Chinese government greatly 
prefers a Republican to any Democrat. 
 
¶5.  (C)  Shen confided that he did not look favorably on any of 
the three remaining Presidential candidates.  In his view, 
Senator Obama is still too young and inexperienced, with only a 
few years experience in the Senate.  All he has done so far is 
oppose the war in Iraq, but even that he has done largely as a 
state legislator, not as a national-level legislator.  Senator 
Clinton would make a good President, in Shen's view; she is very 
capable.   Her fundamental weakness is arrogance and she has 
therefore alienated many people.  She has failed to apologize 
for her vote authorizing the Iraq war, which Shen saw as a 
failure of leadership.  That is, her vote for the war was an 
expedient decision, rather than a principled one, and thus she 
did not demonstrate Presidential leadership. 
 
¶6.  (C)  Among the three, Shen gave highest marks to Senator 
McCain, who has demonstrated his commitment to the country.  He 
spoke honestly when he said America might be in Iraq for a 
century, just as the U.S. has been in Japan for more than 60 
years already.  McCain understands that, even if the United 
States mistakenly went into Iraq, it should not mistakenly 
leave.  So, in Shen's appraisal, Senator McCain is more 
responsible, acknowledging the burden of staying and is honest 
in recognizing that there cannot be a complete withdrawal. 
According to Shen, if the situation in Iraq stabilizes, China 
would certainly want the U.S. to remain.   For strategic 
reasons, the United States has a responsibility to clean up the 
mess there, and an uncontrollable, but weak Iraq could well 
attack the United States or even China.  Furthermore, for 
tactical reasons it is in China's interests for the United 
States to remain in Iraq. 
 
 
China wants to be a good partner to the next administration 
--------------------------------------------- -------------- 
 
¶7.  (C) There is both rivalry and competition between the U.S. 
and China.  Although the situation has improved, Taiwan is still 
an issue between us.  Of course, China should not make any 
mistakes, but if the U.S. is tied up with Iraq, there are more 
opportunities for China to demonstrate that it is a good partner 
and that the U.S.-China relationship should be further 
strengthened.  For the near term, China wants to be seen as a 
helpful friend to the United States.  In the longer term, the 
PRC will of course continue to develop its own comprehensive 
national strength, but even then, Shen believes that China's own 
interests will increasingly coincide with U.S. interests. 
 
 
¶8. (C) Shen stated that China would be eager to cooperate with 
the next U.S. administration, whoever is President, particularly 
in those areas where China already has a stake, so that 
cooperation would advance China's existing interests; and in 
areas where China is vulnerable.  In both cases, for China to 
address U.S. concerns would help China.  China's highest 
priorities are economic cooperation, and a stable relationship 
with Taiwan.  Internally, China is concerned with progress in 
systemic reform, maintaining and bolstering regime legitimacy, 
and proceeding with sustainable development.  For all these 
purposes it is highly desirable that the U.S. continue to be 
China's partner.  China needs capital, technology, and access to 
the U.S. market, although with China's growing surpluses, 
capital is a less pressing need.  It is crucial for China that 
 
SHANGHAI 00000195  003 OF 005 
 
 
the U.S. have a robust economy, so that it can keep buying 
Chinese exports, and so that the value of China's reserves do 
not decline.  China sees opportunities in U.S. vulnerability. 
In Shen's assessment, whether the U.S. experiences a natural 
decline, or a strategically manipulated decline, in either case 
it will hurt China. 
 
 
¶9.  (C)  China also needs a stable currency.  Currently, 
according to Shen, some Chinese experts argue that the RMB needs 
a predictable, natural decline in value, while others argue that 
further appreciation is necessary, either gradually or in a 
one-time jump.  This is important because increasingly the axis 
of the U.S.-China relationship is less and less defined by the 
Taiwan issue, and more and more by economic and financial 
concerns.  Thus, currency valuation is a leading factor in the 
relationship.  If a Democrat is elected President, Shen believed 
that the currency would still be a leading issue.  Therefore, 
many in the PRC hope that Senator McCain will be elected: he 
would also address economic and financial imbalances, but in a 
gradual, respectful manner.  This is another reason for China's 
general preference for a Republican. 
 
 
The SED is valuable for China 
------------------------------- 
 
 
¶10.  (C) China will continue to reform its economy, restructure 
its industry, and keep itself open to the rest of the world. 
China's growth provides many opportunities for other countries. 
According to Shen, this will be a leading theme on the Chinese 
side at the next Strategic Economic Dialogue (SED) in Washington 
this June.  No one can say whether the next U.S. administration 
will continue the SED, but in fact it has helped to stabilize 
the economic relationship.  It has forced the Chinese government 
to organize itself in order to respond to U.S. pressure, and 
kept the need to consider U.S. views in the forefront of 
economic policymakers' minds.  The dialogue helps China 
accomplish its own goals.  With too little pressure, China does 
too little, although it will ultimately respond if it is in its 
own interests.  The SED helps make China become more competitive 
economically.  The problem is that if there is perceived to be 
too much pressure, the policymakers lose face, and the affected 
industries push back.  Shen said that the Chinese government is 
getting weaker, and more vulnerable to internal pressure groups. 
 The internet also creates more pressure; the central Government 
now needs to respond to a certain kind of public pressure. 
Since the government is not elected, it needs to be more 
responsive in order to preserve its legitimacy. 
 
 
Weak Central Government and Earthquake Response 
--------------------------------------------- --------- 
 
¶11.  (C) Expanding on his view of the central Government as 
weak, Shen explained that it was necessary for Premier Wen 
Jiabao to travel to the earthquake affected region and 
coordinate the reform efforts.  Otherwise, there would have been 
no coordination at all.  The center is weak, and local 
government could not respond, so relief efforts were up to the 
military.  However, the military was also incapable and 
unwilling.  Premier Wen had to compel them to act, admonishing 
them that "the people raised you, you have to decide how to do 
this."  The earthquake revealed serious technical problems with 
the PLA and its lack of preparedness.  The military's capability 
was in fact low, and it was overly concerned about its own 
casualties.  By day three of the disaster the PLA was finally 
ready to act, but only because it was under enormous pressure. 
The Chengdu Military Region was poorly prepared and lost 
considerable face as a result; it had to bring in helicopters 
from other military regions. 
 
A new cross-strait environment and a smarter counterpart 
--------------------------------------------- ------------- 
 
 
 
SHANGHAI 00000195  004 OF 005 
 
 
¶12.  (C) Turning to the Taiwan issue, Shen said that this would 
continue to be a long-term, core concern, but in the future the 
relationship between Taiwan and the mainland would be more 
competitive.  The PRC needed to find a way to deal with the 
Republic of China (ROC).  He noted that during the earthquake, 
China had accepted aid from Taiwan and that included tents which 
had "ROC" printed on them.  The PRC would have to find a way to 
give the ROC more face.  Chinese academics were "thrilled" that 
Ma Ying-jeou had used the phrase "Chinese nation" (Zhonghua 
minzu) in his inaugural address, and had emphasized that the ROC 
was founded by Sun Yat-sen.   Among the Taiwan-watching 
community in China, there was a recognition of the need to 
respond positively to Ma's speech, as well as an understanding 
that now was not the time to emphasize reunification.  Ma had 
been very smart, focusing on the need to unite the people of 
Taiwan; to calm the PRC; and have the U.S. perceive him as a 
responsible leader.  Shen thought this meant that there would be 
arms sales from the U.S. to Taiwan in the near future. 
 
 
¶13.  (C) Ma's position of "no independence, no unification, no 
use of force, and respect reality," was actually not so popular 
in the mainland, particularly his call to "respect reality" 
which could be taken as meaning "accept Taiwan's de facto 
independence."  Ma represented a new type of "responsible 
Taiwanese."  Ma Ying-jeou's logic is that the ROC could not 
become democratic on the mainland, but could do so on Taiwan. 
His interpretation of the "92 Consensus" is that the mainland is 
part of the ROC, but in terms of its span of control, the ROC is 
virtually equal to Taiwan.  This re-raises the legitimacy issue, 
since Ma won't seek to return to the mainland.  Shen repeated 
that Ma was very smart, having left all sorts of clues that 
there are virtually two governments in one China, although he 
will do nothing to change that to a legal reality.  For eight 
years he can sustain his "three noes," and won't betray those 
who didn't vote for him.  For Shen, this was the importance of 
Lai Xiuyun's appointment as head of the Mainland Affairs Council 
(MAC).  She won't make policy -- that will remain in Ma's hands 
-- but she will implement, and be a guarantor of the interests 
of those who did not vote for Ma. 
 
 
¶14.  (C) Overall, Shen saw Ma as a much more adept adversary 
than either Lee Teng-hui or Chen Shui-bian.  Having observed how 
the PRC had responded to Lee and Chen, he has presented the 
mainland with a challenge: if you see me as an enemy, then I 
will be an enemy.  By engaging in mutual shaping, he is retaking 
the initiative.  The mainland needs to prevent Ma from becoming 
an enemy, and will have to deal with him, by lowering its own 
pace and refraining from alienating him.  The mainland now has a 
stake in Ma Ying-jeou's success and this will keep it inclined 
to respond positively. 
 
 
"Rising China" and the U.S. Response 
-------------------------------------- 
 
¶15.  (C) From a broad perspective, China's systemic cohesiveness 
is growing.  China's GDP is increasing and the gap with the 
United States is narrowing.  President Bush's focus has been 
diverted away from China because of the war on terror, and has 
had to cooperate with China.  Thus, Shen observed, at the 16th 
Party Congress in 2002 the Chinese Communist Party said that it 
need to take advantage of this "strategic opportunity."  But now 
this pause is coming to an end.  The U.S. will withdraw, at 
least in part, from Iraq, and in fact the situation in Iraq may 
be improving.  This means that U.S. foreign policy will be 
re-prioritized; thus, at the 17th Party Congress, the language 
about the "strategic opportunity" was not repeated.   In any 
case, China is now better prepared and has more resources to 
deal with other contingencies. 
 
 
¶16.  (C) However, the Chinese government has to work hard for 
its legitimacy and continue to produce economic benefits in 
order to stabilize the country.  China will continue to need 
foreign investment for at least another twenty years.  The 
 
SHANGHAI 00000195  005 OF 005 
 
 
earthquake has demonstrated that the government doesn't have 
enough funds to build safe schools.  Shen observed that China's 
constitution requires that four percent of all government 
expenditure go to education, but "we can't even meet our own 
poor standards."  Shen believes that educated people will 
increasingly challenge the system and force it to improve. 
Thus, he repeated, the earthquake will be a positive catalyst 
for change.  This should lead to a China that has a better 
government, and will be a better competitor for America.  The 
power alignment in the U.S.-China relationship will continue to 
change; by 2025, China's nominal GDP should equal that of the 
U.S., while per capita GDP will be about one-fifth of the U.S. 
level.  So, the question for the future is how will the U.S. 
deal with a more confident and capable China, albeit not an 
equal.  The U.S. has no experience with a cooperative rival; the 
U.S. relationship with the USSR was entirely confrontational. 
 
Iran and energy 
---------------- 
 
¶17.  (C) Shen said that Iran is a worry, for China and the U.S., 
in different ways.  It would be bad if Iran came between the 
U.S. and the PRC.  Shen has written two papers for the 
Washington Quarterly on the Iran issue, and whether sanctions 
can stop proliferation.  He believes that Iran is testing 
China's restraint, and that China will need to redefine its 
interests in the issue.  China would not have so much at stake 
in a U.S.-Iran war, nor does it have as much influence with Iran 
as it does with North Korea.  However, China's overall interests 
mean it must cooperate with the U.S. with regards to Iran. 
Doing so enhances China's international respectability. 
However, he acknowledged that this is an area where the U.S. is 
vulnerable and a war might benefit China.  In any case, there 
are clear differences between China's position and that of 
Russia.  China has been supporting sanctions resolutions, even 
though they are not strong enough.   A related area for 
cooperation, in Shen's view, is in U.S.-China dialogue on energy 
security.  This is increasingly important for China.  If China 
feels less strategic pressure, then it would work less with 
Sudan, Venezuela, Burma, and other such states, and more with 
Australia or Indonesia.  China needs to feel assured that, as 
long as it behaves responsibly, the U.S. will not block China's 
access to resources.  Overall, only through strategic 
cooperation with the U.S. will China's situation improve. 
 
¶18.  (U) Mr. Shear has cleared this cable. 
SCHUCHAT