VZCZCXRO1190
RR RUEHCN RUEHGH
DE RUEHGH #0387/01 2560306
ZNR UUUUU ZZH
R 120306Z SEP 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7145
INFO RUEHBJ/AMEMBASSY BEIJING 2103
RUEHIN/AIT TAIPEI 1197
RUEHHK/AMCONSUL HONG KONG 1542
RUEHSH/AMCONSUL SHENYANG 1384
RUEHGZ/AMCONSUL GUANGZHOU 1361
RUEHCN/AMCONSUL CHENGDU 1390
RUCPDOC/USDOC WASHDC 0222
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASH DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7729

UNCLAS SECTION 01 OF 04 SHANGHAI 000387 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
NSC FOR LOI 
USDOC FOR ITA DAS KASOFF, MAC/OCEA 
TREASURY FOR OASIA - HAARAGER, CUSHMAN, WINSHIP 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL ENRG KIRF CH
SUBJECT: SCHOLARS OFFER MIXED ECONOMIC AND POLITICAL VIEWS AT WORLD 
FORUM ON CHINA STUDIES IN SHANGHAI 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
Summary 
------- 
 
¶1. (SBU) The Shanghai Academy of Social Sciences (SASS) hosted 
its third World Forum on China Studies September 7-9, to 
coincide with the fiftieth anniversary of the establishment of 
SASS.  This third iteration of the World Forum on China Studies 
featured 15 panel discussions and three roundtables on economic, 
political, and social issues.  Many discussions focused on 
China's history rather than future prospects, but when 
discussing the future, many panelists offered mixed views on 
likely outcomes; in fact, in the case of the economic growth, 
panelists were generally pessimistic for the short term.  Much 
attention was paid to foreign participants and on foreign 
academic cooperation with China, and many of the participants 
were non-Chinese.  SASS introduced several new panel topics at 
this year's forum, but some growing pains from the expansion 
were evident.  End Summary. 
 
Forum Opening: Looking to the Past 
---------------------------------- 
 
¶2. (SBU) Pol/Econ Chief attended the opening ceremony on 
September 7, which featured high-level Party, government and 
scholarly participation.  Politburo member and Shanghai Party 
Secretary Yu Zhengsheng and Mayor Han Zheng were among the 
presenters of awards to retired SASS scholars, though neither 
were among the half-dozen speakers to address the opening 
assembly of about 1000 persons.  Presentations at the opening 
ceremony largely focused on the history of SASS (which is 
celebrating its 50th anniversary), though a Party official 
reminded scholars and Party alike of the importance of 
"liberating thought" (jiefang sixiang).  A video presentation 
before the many speeches fleetingly referred to the 1966-1978 
Cultural Revolution period; SASS closed its doors from 
1968-1978.  A SASS graduate, now professor at a Shanghai 
university, choked up and nearly brought many persons to tears 
when he called on all to remember that some SASS scholars had 
given their lives for their country during that dark period in 
China's history.  The Forum hosted 15 panels and three 
roundtable discussions on September 8-9 on topics ranging from 
economic development to social issues to rule of law to 
international security, portions of most of which Pol/Econ 
officers and staff attended. 
 
Economists Divided on China's Growth Prospects 
--------------------------------------------- - 
 
¶3. (SBU) Economists at the conference largely reflected concerns 
that China's current economic growth path is not sustainable. 
Dean of Fudan University's School of Economics Yuan Zhigang 
called for 2008 to be a "new historical starting point" in 
China's economic policies, to better handle the rather gloomy 
list of challenges China faces: the U.S. financial crisis, the 
energy crisis, the food crisis, the environmental crisis, 
renminbi appreciation, government revenue volatility, credit 
constraints, and rises in energy and labor costs.  In response 
to panelists whose dull presentations focused on past growth 
successes in Shanghai and Harbin, Huang Fuxing, deputy director 
of the financial markets research office of the Shanghai Academy 
of Social Sciences, offered a striking critique of the 
investment-led growth, and instead called for moving forward 
with developing the service sector and capital markets.  The 
Peterson Institute for International Economics' Nicholas Lardy 
during remarks opening the conference called the Chinese 
renminbi unsustainably undervalued, and later privately remarked 
that Chinese exporters are set for continuing heavy layoffs. 
 
¶4. (SBU) On the other hand, one panel weighted towards 
economists influential in turning Chinese economic policy 
towards greater social spending in the early 2000s was more 
sanguine about China's growth, focusing more on the longer term. 
 
SHANGHAI 00000387  002 OF 004 
 
 
 For example, Hu Angang, director of the joint Tsinghua/Chinese 
Academy of Social Sciences Center for China Studies, made a 
"celebratory" -- in the view of one Western academic attending 
the conference -- presentation on China's success in investing 
in future growth.  According to Hu's paradigm, the rate of 
environmental damage, which he acknowledged has been a major 
detractor from GDP growth, has slowed, while strong investments 
in human capital, as well as foreign direct investment, will 
undergird future growth. 
 
Auto Sector Experts Cite Concerns 
--------------------------------- 
 
¶5. (SBU) Sector experts participating in a panel on the Chinese 
auto industry echoed concerns voiced by economists on near-term 
growth.  Zhang Guangsheng, Vice Chairman of Shanghai Auto, said 
China is now the world's second largest passenger auto market 
behind the United States and boasts 12 - 15 percent of global 
automobile production, but 2008 is likely to be a challenging 
year for the sector because: 
 
--the high domestic producer price index (PPI) reflects the 
surging price of raw materials, namely steel, copper and 
plastic; 
 
--higher labor costs as a result of the China's Labor Contract 
Law (LCL), which entered into force on January 1, 2008; and 
 
--weaker domestic demand as evidenced by the drop in vehicle 
sales in August for the first time in two years; while 
 
--high oil prices and slower growth in the equity markets could 
result in lower vehicle demand in the future. 
 
Overall, Chinese auto manufacturers are unable to pass through 
their higher production cost to their end customers.  Zhang said 
the industry would consolidate in the future to create a few 
giant auto makers.  He is not very positive on the industry 
prospects due to what he regarded as an overall negative 
economic outlook. 
 
¶6. (SBU) Lue Keqin, General Manager of Kostal, discussed the 
Chinese auto parts industry, reiterating many of Zhang's 
concerns, including the difficulty of passing through higher raw 
materials prices to end customers.  Auto parts companies will 
need to both improve technology and lower production costs in 
order to survive, Lue said.  In the past, each auto maker had 
its own components suppliers, but Lue believes this will change 
in the future given auto components will become more 
standardized and auto makers will focus more on quality and 
technology.  Lue also believes more than 50 percent of Chinese 
auto parts suppliers will shut down due to the challenging 
market environment. 
 
China's Role in the World 
------------------------- 
 
¶7. (SBU) Panelists on global political and security issues also 
offered an uncertain picture on the near-term outlook.  On East 
Asian regional cooperation, most participants agreed on the need 
for integration on some level, but differed regarding how this 
might be achieved, what arrangements of which states offer the 
best way forward, and what role the United States should play. 
During the question and answer period, several attendees aired 
the view that Washington has "ignored" the region and that 
integration has been a response to U.S. inaction.  Others, 
including Cai Penghong of SASS, argued that regional efforts 
have been lackluster thus far precisely because the United 
States has been insufficiently involved.  Egyptian academic 
Mohammed Selim's questioned the reasoning behind the continuing 
U.S. military presence in East Asia and the case for its 
involvement in a regional integration project.  In response, 
moderator and former U.S. Ambassador Nicholas Platt pointed out 
that the United States remains in East Asia by invitation, and 
noted that whatever differences East Asian countries may have 
with the United States, in the end they trust Washington more 
 
SHANGHAI 00000387  003 OF 004 
 
 
than they do each other. 
 
¶8. (SBU) Presenters on China's new global role covered a 
hodgepodge of issues.  Huang Renwei of SASS set China's growing 
global engagement against the rise of mid-level powers, as well 
as the growth of transnational threats and opportunities.  Huang 
regards China as "a leader in identifying new threats" and, as 
the developing world's largest member, best suited to represent 
developing countries.  Chen Zhimin of Fudan University discussed 
Confucian ideals in a global context, stressing that adherents 
are not "peace fundamentalists" but recognize that military 
force will have some role in maintaining stability.  Tel Aviv 
University's Aron Shai, meanwhile, caught audience attention by 
making the case for a Sino-Israeli strategic relationship, and 
Massoud Daher of Lebanese University disputed Selim's 
exhortations that China transform its mainly economic engagement 
with the Middle East to a more multifaceted approach, stating 
that China's only interest in the region is opening more export 
markets. 
 
¶9. (SBU)  During a discussion of Chinese diplomacy, Gafar Karar 
Ahmed, a former Sudanese diplomat and current political 
consultant to the Qatar Ministry of Foreign Affairs, 
characterized Beijing's approach as subtler than is often 
portrayed.  Claiming he had "seen the minutes" of meetings 
between Sudanese officials and the former Chinese envoy to 
Sudan, Zhai Jun, Karar Ahmed described the Chinese side as tough 
behind closed doors.  During a meeting preceding the first UNSC 
resolution on the Darfur issue, Zhai told his counterpart that 
"Sudan is acting negatively" with regards to Darfur and must do 
something.  When Khartoum did not respond, China supported that 
resolution.  In the lead-up to the second UNSC resolution, Karar 
Ahmed said Zhai warned Sudan that China would not use its veto 
if Khartoum "did not act."  When Sudan again did not respond, 
China abstained from the vote.  Chinese diplomacy is low profile 
but effective, Karar Ahmed concluded. 
 
The Rule of Law and Social Issues 
--------------------------------- 
 
¶10. (SBU) Rule of Law scholars said China would continue to make 
incremental improvements in the justice system, encouraging more 
amendments of laws and promoting a stronger role for local 
legislatures.  Li Lin, Director of the China Social Science 
Association Law Institute, claimed that among the 229 current 
valid laws passed by China's National People's Congress (NPC), 
71 of them have been amended at least once.  During the previous 
five years from 2003 to 2008, the NPC amended more laws than it 
drafted.  Li said the amendment trend would continue in order to 
keep pace with China's rapid economic development.  Shen 
Guoming, Director of the Legislative Affairs Commission Standing 
Committee of the Shanghai Municipal People's Congress (SMPC), 
agreed with Li and said that also at the local level, amending 
old laws has become more common than drafting new laws. 
 
¶11. (SBU) Both Li and Shen said local People's Congresses would 
play a more important role in China's legislative process.  Li 
said that strong local legislatures would promote the 
development of the national legislature by allowing more 
experiments at the grass-roots level before introducing a new 
national law.  Shen added that local legislatures can more 
quickly adjust to economic development and cited the LCL as an 
example of a law that might be needed in some parts of the 
country but is causing economic harm in East China and 
enterprises are complaining about the heavy cost burden 
resulting from the LCL. 
 
¶12. (SBU) A panel on social transformations that have resulted 
from economic reform also focused on winners and losers from 
reform, with the first two speakers focusing on the large income 
gap.  Wu Xiaogang, a Social Sciences professor from Hong Kong 
University of Science and Technology, said there is a 
qualitative difference between "inequality" and "inequity" as 
there are different views on "how much is considered poor and 
how much is rich?"  Wen Jun, Director of the Sociology 
Department at East China Normal University, discussed the fate 
 
SHANGHAI 00000387  004 OF 004 
 
 
of rural-to-urban migrants in Shanghai and ensuring a safe, 
secure, cost-effective flow of migrants to the city. 
Unfortunately, he said, with his study indicating that more than 
90 percent of migrants hope to permanently settle in Shanghai 
but with many migrants denied an urban registration, it remains 
unclear how migrants will fare in the near future. 
 
Forum Firsts:  Debut Panels on Religion and Energy 
--------------------------------------------- ----- 
 
¶13. (SBU) In this, the Forum's third iteration, several panel 
topics appeared for the first time as Forum organizers attempted 
to branch out and cover new issues.  One panel on "China's 
Transitional Society and Social Services of Religious 
Organizations" noted the significant contributions of 
faith-based NGOs in China during 2008, particularly during the 
Sichuan earthquake and the snow storms that battered central and 
southern China in January and February.  The Chinese Government 
lacks the human resources, funding and experience to manage 
religious affairs, several panelists said, and government 
officials remain concerned about religion's influence on 
society.  Fudan University's Edward Xu asked how the current 
religious policy would affect the status quo, how the policy 
affects China's international image, and whether religion would 
affect national security.  Yan Kejia and Ge Zhuang, both 
religious scholars at SASS, focused on the Shanghai Municipal 
Government's efforts to better serve expatriate religious groups 
and Muslim migrant workers. 
 
¶14. (SBU) Another first-time panel, "Energy, Sustainable 
Development and Climate Change" attracted approximately 20 
academics, government officials, and entrepreneurs.  According 
to Yu Guosheng of the Shanghai Municipal People's Congress, the 
city government's target for energy conservation and emission 
reductions would be very difficult to meet.  Shanghai fell short 
of its energy conservation target in both 2006 and 2007, Yu 
said.  Zheng Yuxin of the China Academy of Social Sciences said 
government officials would need to take a broader approach to 
include more consumer sectors rathern than only industries when 
considering energy conservation and emission reduction targets. 
 
Comment: Still Some Growing Pains 
--------------------------------- 
 
¶15. (SBU) Congenoffs and staff attending panel and roundtable 
discussions uniformly thought too many of the discussions on 
economic, political and social issues looked predominately 
backward rather than forward.  When looking ahead to near-term 
economic growth or security, however, views were decidedly 
mixed, with optimism and pessimism both on display.  There often 
appeared to be more focus on foreign cooperation and foreigners' 
views on China rather than what is happening inside the country 
or China's influence on the region and world.  In many cases, 
invited foreign speakers had little experience in China and 
therefore offered little value to the conference.  Congenoffs 
observed that the Forum faced some growing pains as several of 
the panels -- especially the new ones -- experienced 
difficulties organizing discussions of similar themes within the 
nominal panel topics.  Several SASS scholars asked Congenoffs 
for feedback on the Forum, which we will provide to them in the 
near future. 
CAMP