VZCZCXRO9051
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0559/01 0631200
ZNR UUUUU ZZH
O 041200Z MAR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2651
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 04 BEIJING 000559 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN CH TW
SUBJECT: PRESS BRIEFING: DEFENSE SPENDING, FISCAL STIMULUS 
PACKAGE, TAIWAN, LABOR LAW, POLITICAL REFORM 
 
REF: BEIJING 531 
 
Summary 
------- 
 
¶1. (SBU) At a March 4 press conference designed to preview 
the March 5 opening session of the National People's Congress 
(NPC), NPC Spokesman Li Zhaoxing commented on the following 
issues: 
-- Defense Spending:  China's defense spending in 2009 will 
increase by 62.4 billion RMB (approximately 9.2 billion USD), 
or 14.9 percent, which was less than last year's jump of 17.6 
percent.  The PLA's sole mission is to "defend China's 
sovereignty and territorial integrity" and is "no threat" to 
any country. 
 
-- Global Financial Crisis:  The global financial crisis has 
had a severe impact on China's economy, but China is using 
the occasion to effect major changes in fiscal policy, 
including boosts to consumption and social welfare, and plans 
to reduce the tax burden. 
 
-- Stimulus Package:  The four-trillion-RMB (USD 585 billion) 
fiscal stimulus package approved November 2008 will include 
1.18 trillion RMB of central funding over the next two years, 
with local governments and others responsible for the 
remainder. 
 
-- Taiwan:  Cross-Strait relations are improving, economic 
relations should be standardized and consultations should 
begin on a cross-Strait economic cooperation agreement. 
 
-- Foreign Assistance:  China's assistance to developing 
countries will continue in spite of economic pressure from 
the global financial crisis. 
 
-- Political Reform:  Political reform is moving at a pace 
consistent with Chinese conditions, and China's political 
structure suits its society and economy. 
 
-- Labor Contract Law:  The Labor Contract Law is not the 
cause of enterprises' difficulties, and proper implementation 
of the law is the right long-term strategy to respond to the 
economic crisis. 
 
-- NPC Procedures:  The NPC session is shorter this year 
(eight days, March 5-13) because there are no personnel 
decisions to be made and to save money. 
 
-- France:  China "deeply values" PRC-French relations.  End 
Summary. 
 
NPC PREPARATIONS Complete 
------------------------- 
 
¶2. (SBU) NPC Spokesman Li Zhaoxing, who is China's former 
Foreign Minister and current Chairman of the NPC Foreign 
Affairs Committee, began the March 4 initial NPC press 
conference by summarizing several procedural issues resolved 
at that morning's "preparatory meeting" of NPC deputies.  Li 
said the meeting had approved the agenda for the NPC session 
that will open tomorrow, March 5 (ref A), elected a 
171-member NPC Presidium and again elected Politburo member 
and NPC Vice Chairman Wang Zhaoguo as "Secretary General" of 
this year's NPC.  As was the case last year, Li said 
interviews would be arranged for the press with NPC delegates 
and Government officials.  Li previewed the official reports, 
legislation to be considered and this year's NPC press 
conferences -- noting in particular that there would be a 
press conference devoted to the global financial crisis -- 
and then opened the floor to questions.  Li received no tough 
questions this year but appeared well prepared.  (Comment: 
Li's years of experience were evident in his laid-back 
demeanor and grasp of the issues.  His confidence, however, 
may also have been due to his apparently having received the 
questions from journalists in advance.  AP Bureau Chief 
Charles Hutzler (protect) told PolOff that all of the 
questions appeared to have been "planted," revealing that AP 
had been requested to ask questions at Foreign Minister 
Yang's press conference on Saturday, March 7, and at Premier 
Wen Jiabao's concluding press conference on March 13. 
Hutzler concluded that NPC authorities apparently want to 
"control everything" at this year's press events.) 
 
Military Spending Up, But Less than Last year 
--------------------------------------------- 
 
¶3. (U) In response to a question from a Russian journalist, 
Li said China's defense spending would increase by 62.4 
billion RMB (approximately 9.2 billion USD at 1 USD = 6.8 
 
BEIJING 00000559  002 OF 004 
 
 
RMB), or 14.9 percent, a decrease over last year's jump of 
17.6 percent.  (Note:  The increases in 2004, 2005, 2006 and 
2007, according to statistics released at the NPC in previous 
years, were 15.3 percent, 12.5 percent, 14.7 percent, 17.8 
and 17.6 percent, respectively.  Li said this year's defense 
budget of 480.7 billion RMB (70.2 billion USD) accounted for 
1.4 percent of GDP (the same as last year) and 6.3 percent of 
the total Government budget, a figure slightly lower than 
previous years:  7.2 percent in 2008, 7.5 percent in 2007, 
7.4 percent in 2006, 7.3 percent in 2005 and 7.7 percent in 
¶2004.  Defense spending was controlled through the national 
budget process, Li said, including stipulations in the budget 
law and the national defense law.  Li claimed that China 
follows UN standards in reporting its defense expenditures, 
filing annual reports according to UN procedures, and that 
there were no "hidden" expenses in the defense budget. 
 
¶4. (SBU) In what has become a canned response to this annual 
question, Li defended the increase by claiming that it was 
primarily an effort to keep military spending in line with 
economic development and by asserting that China spends 
considerably less of its national budget as a percent of GDP 
than the United States, Great Britain, France and Russia. 
(Note: At last year's press conference, the NPC spokesman 
also included figures for India, and the year before for 
Japan.)  Li provided more detail this year than in the past 
on the military budget allocations.  As in recent years, he 
emphasized that part of the increase will be used to boost 
military incomes and quality of life to match the civilian 
standard of living.  In addition, Li said the money would be 
spent on continuing to modernize the PLA's information 
technology capabilities, expanding capacity for non-combat 
emergency and security response, especially disasters and 
terrorism, and to boost support for military units that 
remain in Sichuan's earthquake disaster zone to rebuild 
infrastructure.  As usual, Li reiterated China's claims that 
the sole mission of its military is to "defend China's 
sovereignty and territorial integrity" and that it is "no 
threat" to any country. 
 
Global Financial Crisis: Its Start, PRC Response 
--------------------------------------------- --- 
 
¶5. (U) The global financial crisis, Li asserted, had been 
triggered mainly by deficiencies in the U.S. financial 
regulation system.  The crisis has had a "severe impact" on 
China's economy, creating "enormous pressure" on Chinese 
enterprises.  The whole country now was fighting the crisis 
and the government hoped to use this "challenge" as an 
"opportunity" to effect major changes in fiscal policy, 
including boosts to consumption and social welfare.  Li 
listed some spending categories that would increase in the 
2009 budget:  infrastructure (particularly in rural areas), 
education, health care, employment and re-employment, social 
safety net, government-subsidized housing, earthquake zone 
reconstruction, energy conservation, pollution control, 
technology upgrades, and services.  Beyond the new spending 
priorities, Li said the government planned reforms to reduce 
tax burdens on both individuals and enterprises, and to 
promote consumption.  Among other measures, he said there 
would be more export tax rebates or reductions on certain 
products. 
 
Fiscal Stimulus Package: Four Billion RMB 
----------------------------------------- 
 
¶6. (U) Several Chinese journalists posed questions about 
aspects of the Government's four trillion RMB (USD 585 
billion) fiscal stimulus plan announced last November, 
including how officials would avoid inefficiency and 
duplication and ensure good value for their expenditures.  Li 
said the central government would provide a total of 1.18 
trillion RMB over the next two years, with local governments 
and other sources responsible for the remainder.  The initial 
tranche of 100 billion RMB for the fourth quarter of 2008 
included 30 billion from the 2008 budget and another 70 
billion from 2009 funds; the second tranche of 130 billion 
for the first quarter of 2009 being drawn from the 2009 
budget, which must be approved by the NPC.  To avoid 
duplication and inefficiency, the government was focusing on 
priority projects that were selected carefully, with 
strengthened supervision and inspection of their 
implementation. 
 
Labor Law One Year Later 
------------------------ 
 
¶7. (U) A reporter from Xinhua News Agency asked whether the 
year-old Labor Contract Law (LCL) is responsible for the 
financial difficulties some Chinese employers now face, and 
 
BEIJING 00000559  003 OF 004 
 
 
whether Li agreed that it should be amended or suspended.  Li 
gave a vigorous defense of the LCL, rejecting various 
criticisms raised about it during the past year.  He noted 
that it passed the NPC with a large majority and after 
extensive public consultation.  Poor management of the 
financial sector in the United States led to the global 
financial crisis, and that was the main reason Chinese 
companies are facing difficulties.  Li said proper 
implementation of the LCL was the right long-term strategy to 
respond to the crisis, and that this would require better 
coordination between workers and employers to protect their 
common interests. 
 
China's Foreign Assistance: Standing By Old Friends 
--------------------------------------------- ------ 
 
¶8. (U) China will not decrease its assistance to other 
developing countries because of the global financial crisis, 
Li said in response to a Times of India reporter's question. 
Li asserted that China was either implementing current 
agreements and maintaining current levels of assistance and 
cooperation or, in some cases, increasing assistance 
consistent with China's capabilities.  Li emphasized that 
China appreciates its "true friends" in the developing world, 
particularly in Africa.  He said the support of African 
countries was key to China's "regaining" its seat at the 
United Nations in 1971 as well as its bid for the 2008 
Olympics and the 2010 Shanghai World Expo.  China would 
deliver on the commitments it made at the 2006 Beijing Summit 
of the China-African Cooperation Forum, Li said. 
 
Taiwan:  It's All About Economics 
--------------------------------- 
 
¶9. (U) In response to a "softball" question from a Taiwan TV 
journalist as to whether the NPC would establish exchanges 
with Taiwan counterparts, Li praised the natural beauty of 
"this gorgeous island of China's" and said he has long wanted 
to visit.  Li applauded the "positive changes" in 
cross-Strait relations, especially the increase in "friendly 
exchanges," but focused primarily on comments made by 
President Hu Jintao on cross-Strait economic relations in his 
December 31 Taiwan policy speech.  Li underscored Hu's 
remarks on "normalizing" economic relations and 
"institutionalizing" economic cooperation, and he urged 
near-term consultations to implement Hu's proposal to 
establish a formal "economic cooperation agreement." 
 
Political Reform?  Nah!! 
------------------------ 
 
¶10. (U) In response to a People's Daily reporter's question 
about allegations in foreign media that political reform in 
China was lagging behind economic reform, Li was careful to 
follow the reporter's lead in using the official rhetoric 
"political restructuring" versus "political reform."  Li 
listed the usual Party claims about advances in transparency, 
rule of law and democracy and asserted that there would 
continue to be "steady progress" in "political 
restructuring."  As evidence that China's political system 
corresponded to its economic system, he cited the current 
supposed "stability and harmony of society" and China's 
"continued economic growth."  Li declared, however, that 
China would continue to pursue a political model that fits 
China's "national conditions," that is, "socialism with 
Chinese characteristics," and warned that China would not 
follow any Western models. 
 
Leading Questions About the NPC 
------------------------------- 
 
¶11. (U) Li answered seemingly pointed questions from PRC 
journalists that appeared critical of NPC operations.  In 
answer to a Legal Reporter's question about the alleged 
difficulty of access by ordinary citizens to their NPC 
delegates, Li provided examples of measures being taken to 
improve access.  For example, Li noted that NPC delegates 
serve part-time and had their own jobs, and said the NPC 
leadership was organizing "delegates groups" to interact with 
constituents.  Li also provided information on points of 
contact for these sorts of events, to include roundtables and 
other outreach programs. 
 
¶12. (U) When asked by Hong Kong's Phoenix TV if the timeframe 
of the NPC was shorter this year in order to save money or to 
"avoid the distractions" of last year's NPC," Li said the 
reason was because, unlike last year when personnel decisions 
were made, this year was a "normal" year.  (Note:  This 
year's NPC will only run eight-and-a-half-days, March 5-13 
rather than the 10-day norm of recent years.  Last year's 
 
BEIJING 00000559  004 OF 004 
 
 
NPC, however, as the first plenary session of the 11th NPC, 
ran nearly two weeks due to the "elections" of new Government 
leaders to five-year terms.  The reporter's mention of 
"distractions" appeared to allude to the riots in Tibet last 
March which erupted toward the end of last year's NPC.)  Li 
confirmed that economics was a factor in shortening the NPC 
timeframe but denied there was an attempt to avoid 
disruptions, claiming that there were no such incidents last 
year. 
 
¶13. (U) Li seemed surprised by a question from Phoenix TV 
about the propriety and legality of offering NPC delegates 
money to "facilitate" their work.  (Note:  The questioner 
stated that Guangdong NPC delegates were subsidized to the 
tune of 1000 RMB each by the Guangdong government to help 
them "improve the quality" of their legislative proposals.) 
Li did not address the ethical or legal question, simply 
stating that such measures were a matter for local 
authorities to decide. 
 
IMPROVING CHINA-FRANCE RELATIONS 
-------------------------------- 
 
¶14. (U) In response to a China News Service reporter's 
question about the state of China-France relations, Li 
avoided specifics but stated that China "deeply values" its 
relationship with France, noting the long history of China's 
interaction with France and quoting former Foreign Minister 
and State Councilor Tang Jiaxuan on the need for good 
relations with France.  Li dodged the reporter's question on 
whether the recent flap over an auction in Paris of stolen 
Chinese cultural artifacts would affect relations, stating 
that the Foreign Ministry spokesperson and other 
spokespersons had amply covered the issue.  However, Li spent 
considerable time offering his personal views on the moral 
aspects of the issue. 
PICCUTA