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INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 04 BEIJING 001315 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: OVIP PREL PGOV ECON PARM MARR CH
 
SUBJECT: SCENESETTER FOR SPEAKER PELOSI'S VISIT TO CHINA 
 
(U) Sensitive but unclassified.  Please handle accordingly. 
 
¶1. (SBU) Madame Speaker, your visit to China comes at a significant 
time.  2009 marks a series of key anniversaries:  January 1 
commemorated 30 years of diplomatic relations between our two 
countries; March saw the 50th anniversary of the 1959 Tibetan 
uprising and the Dalai Lama's flight to India; October 1 will mark 
the 60th anniversary of the founding of the PRC; and June 4, one 
week after your visit, will mark the 20th anniversary of the 
Tiananmen Square massacre. 
 
¶2. (SBU) Given your longstanding advocacy for human rights in China, 
the Chinese leaders, while welcoming your visit, are anxious.  Your 
interlocutors will listen intently to points on human rights and the 
security services will be on high alert.  The Chinese people have 
been taught to question the motives of U.S. leaders who criticize 
their regime, and you may face some skeptics in official and 
informal meetings -- individuals who may project a negative agenda, 
even as you engage positively.  Despite these challenges, your visit 
provides a special opportunity to show the Chinese leaders that we 
seek a mature relationship with China -- a relationship where our 
leaders can talk frankly about issues where we disagree such as 
human rights, religious freedom, Tibet and Xinjiang, while also 
engaging on vital issues of mutual concern like climate change, the 
global economic situation and regional security. 
 
Bilateral Relations 
------------------- 
 
¶3. (SBU) We are working to build an increasingly positive, 
cooperative and comprehensive bilateral relationship with China. 
The Chinese appreciated that Secretary Clinton included China in her 
first visit abroad as Secretary of State, and will be very pleased 
by your early visit as well.  President Obama had a successful first 
meeting with President Hu Jintao in London at the G-20, and the 
Chinese have invited him to visit later this year.  The Chinese 
place great importance on our bilateral links and are pleased we are 
committed to enhancing our bilateral economic and strategic dialogue 
framework to enhance mutual understanding.  We are intensifying the 
seriousness with which we discuss hot-spot issues.  Despite the 
current lull, China's leadership and participation in the Six-Party 
Talks aimed at creating a denuclearized Korean Peninsula show that 
we can engage constructively on vexing issues.  We continue to push 
for increased cooperation on Iran, Pakistan, Afghanistan and Sudan. 
Your interlocutors would benefit from hearing your ideas on this 
sort of collaboration and your suggestions on how 
inter-parliamentary exchanges can boost the overall relationship. 
 
Response to the Financial Crisis 
---------------------------- 
 
¶4. (SBU) China's financial system was relatively insulated from the 
global financial unrest, and Beijing's response to the economic 
crisis has, in general, been responsible and helpful.  They have 
continued to buy U.S. Treasury bills and agency (including Fannie 
Mae and Freddie Mac) debt, and have worked with us in international 
fora such as the G-20 Leader's meetings to achieve global financial 
stability.  We have urged China to provide additional resources to 
the IMF and made clear our support for reforming that institution. 
 
¶5. (SBU) Chinese exports and export-related investment were hard-hit 
by the global economic downturn.  Exports in the first four months 
of this year are down around 20 percent compared to the same period 
last year, and foreign investment is flat.  What declining exports 
have taken away, the Chinese government is trying to replace with 
domestic spending.  Beijing has announced a series of stimulus 
plans, including massive infrastructure, social spending, and 
monetary initiatives.  These programs are bearing fruit, and 
domestic government and SOE investment has expanded enough to return 
China to growth. 
 
¶6. (SBU) We have welcomed Beijing's strong actions to stimulate its 
economy, but continue to emphasize the importance of long-term 
sustainability.  Although we see green shoots in the United States 
and Europe, we expect the U.S. savings rate to increase, and 
American consumers may no longer absorb China's excess production; 
China needs to start re-orienting its economy toward domestic 
consumption.  We point out that, as we have seen in the United 
States, high growth of bank lending and lack of transparency in 
China can be a cause for concern.  A more flexible exchange rate is 
one part of a policy mix that can promote more harmonious balanced 
growth. 
 
China's Concerns 
---------------- 
 
¶7. (SBU) You will likely hear Chinese concerns that future inflation 
in the United States could erode the value of their 
dollar-denominated assets ("please protect China's U.S. 
investments").  Some of their proposals to supplant the dollar with 
an alternative international reserve currency appear derived from 
 
BEIJING 00001315  002 OF 004 
 
 
these insecurities.  You may wish to remind your interlocutors that 
the majority of Treasuries are held by Americans (China holds only 
about 7% of outstanding USG debt and 14% of publically held debt), 
and make a strong statement indicating our intention to fight 
inflation so that it does not erode our own citizens' assets -- such 
a statement would help promote understanding of the situation. 
Beijing interlocutors would also be interested in hearing the 
Congressional position on future budget deficits and the future 
restructuring of Fannie Mae and Freddie Mac. 
 
Our Concerns 
------------ 
 
¶8. (SBU) The majority of U.S. businesses operating here remain 
profitable, especially those that are selling into the Chinese 
domestic market.  However, despite China's frequent calls to ban 
"protectionism" and their claims that they have no "Buy Chinese" 
policy in their stimulus package, U.S. businesses say that the 
Chinese government puts severe restrictions on U.S. companies' 
ability to compete successfully for stimulus-related contracts. 
These biases have exacerbated pre-crisis favoritism for domestic 
firms through use of unique national standards, requirements to 
force firms into joint ventures with Chinese partners, slower 
licensing for foreign firms, and the drafting of selective contract 
specifications to favor domestic firms.  It is valuable to emphasize 
the reality of the "Buy American" requirements in the U.S. stimulus, 
including their limited scope. 
 
Labor Issues 
------------ 
 
¶9. (SBU) With the fallout from the global economic crisis, rising 
unemployment is a serious concern.  Migrant workers and recent 
college graduates are particularly affected by the downturn, and 
failures at export-oriented firms have led to protests in coastal 
provinces.  Inland provinces that are the traditional sources of 
China's estimated 225 million migrant laborers are also being 
impacted.  Labor disputes have been on the increase for several 
years, but the recent surge in formally filed cases may be due to 
workers' awareness of the protections offered by the new Labor 
Contract Law, which was enacted in January 2008.  The risk of 
broader social disruption will depend on the extent of a global 
downturn as well as the central and provincial governments' response 
to it. 
 
China:  A Growing Energy Consumer 
--------------------------------- 
 
¶10. (SBU) No issue is likely to occupy the next generation more than 
energy security.  In less than a generation, China has become an 
influential player in international energy markets and is currently 
the world's fastest-growing energy consumer.  In 1990, China's 
energy use accounted for 8% of global primary energy consumption. 
This grew to 17% by 2007 and it is expect to rise to nearly 21% by 
¶2030.  Access to adequate energy supplies is a high priority for 
China.  Oil accounts for about 20% of China's current energy mix. 
China became a net importer of oil in 1993 and it now relies on 
imports to meet about 50% of its fossil fuel needs.  It is projected 
that China will need to import some 60% of its oil and at least 30 
percent of its natural gas by 2020.  To strengthen the country's 
energy security, China has adopted a "go-out" policy, which 
encourages national oil, gas, and minerals companies to acquire 
equity stakes in foreign extractive industries.  Saudi Arabia, 
Angola, Iran, Oman, and Russia are China's largest oil suppliers; 
China has also made deals in riskier locations such as Sudan, Burma 
and Iraq to cope with growing demand. 
 
Coal Dominates the Energy Mix 
----------------------------- 
 
¶11. (SBU) Coal remains China's primary source of energy, accounting 
for 70% of its energy mix and fueling 80% of China's electricity 
production.  Dependence on coal has come at a high environmental, 
economic, and public health cost.  By most measurements, more than 
half of the world's most polluted cities are in China.  China's 
sulfur dioxide, carbon dioxide, and mercury emissions are the 
highest in the world.  According to a recent study by the World 
Health Organization, diseases caused by outdoor and indoor air 
pollution in China kill 656,000 Chinese citizens every year.  The 
World Bank estimates that economic losses due to pollution total 
between 3 and 7 percent of GDP annually. 
 
Climate Change and China 
------------------------ 
 
¶12. (SBU) China surpassed the United States last year as the world's 
largest annual emitter of greenhouse gases (GHGs).  The United 
States is seeking to establish a new level of cooperation on climate 
change with China.  During Secretary Clinton's February visit, China 
agreed to establish a partnership on energy/climate change and also 
agreed that the U.S. and China should work together for the success 
 
BEIJING 00001315  003 OF 004 
 
 
of the UNFCCC climate change meeting in Copenhagen.  Because China 
and the United States together represent 40% of world emissions, no 
post-Kyoto climate change framework will be meaningful without 
China.  Although the U.S.-China Ten Year Framework (TYF) on Energy 
and Environmental Cooperation established in June 2008 does not 
specifically address climate change concerns, the Framework and its 
action plans will support this new partnership. 
 
 
China's Current Position on Climate Change 
------------------------------------------ 
 
¶13. (SBU) Although China is now the world's largest emitter of GHGs, 
it has not directly acknowledged this fact.  You can expect your 
interlocutors to point out that historically and on a per capita 
basis, China's emissions are only a fraction of those of the 
developed countries.  China is devoted to the UNFCCC principle of 
"common but differentiated responsibilities."  To China, as a 
"developing country," this means it is the responsibility of the 
developed countries to deal with cumulative historical emissions and 
it is unfair to expect developing countries to take on these same 
targets.  China also adheres to the UNFCCC principle that the 
developed countries have an obligation to provide technology and 
financing to developing countries to address their energy needs. 
Although China does not have national emissions targets, it does 
have a target for reducing energy intensity by 20% by 2010, and it 
has a goal of reaching a 16% renewable energy share by 2020. 
Despite China's declared solidarity with the developing countries, 
it is also acutely aware of its vulnerability to the effects of 
climate change, including increasing rates of glacial melt and 
desertification, rising sea levels, and extreme weather events. 
 
Opportunities for the U.S. 
------------------------- 
 
¶14. (SBU) China's 11th Five-year Plan calls for a 20% improvement in 
energy efficiency between 2005 and 2010 (3.7 percent at an 
annualized rate).  This goal coincides with U.S. interests in 
maintaining energy security and developing opportunities for U.S. 
companies in the Chinese market.  U.S. firms are just beginning to 
tap into opportunities in China to introduce energy efficiency, 
pollution control, and clean coal technologies.  China is a 
particularly attractive market because of its significant efforts to 
adopt clean energy technology even while its economy is becoming 
more industrialized.  China will invest USD 175 billion in 
environmental protection in the next five years, according to the 
U.S. Commerce Department.  U.S. companies are very competitive in a 
range of clean energy technologies, including renewable energy, 
power generation, gasification, energy efficiency, nuclear, and 
others.  Clean energy projects draw on the rich resources of both 
U.S. and Chinese ingenuity and lead to jobs in both countries. 
Westinghouse, for example, estimates that several thousand 
U.S.-based jobs are retained every time China orders another nuclear 
reactor from them. 
 
Human Rights 
------------ 
 
¶15. (SBU) Your counterparts will likely remind you that the PRC 
government likes to define human rights broadly to include factors 
affecting economic and social well-being, pointing out that China's 
"reform and opening" policies of the past 30 years have coincided 
with gradual improvements in the quality of life enjoyed by hundreds 
of millions of Chinese.  They further argue that our focus on 
individual rights and liberties reflects Western values.  We respond 
to this self-serving argument by noting that human rights are 
universal values, as the Chinese themselves acknowledged when they 
signed the Universal Declaration of Human Rights.  Although freedoms 
for Chinese citizens have expanded over the past three decades (what 
some observers have called a bigger "cage"), the overall human 
rights situation in China remains poor in many respects.  We 
continue to emphasize that the expansion of individual freedoms, 
respect for the rule of law and the establishment of a truly free 
and independent judiciary and press are in China's own interests, 
and would enable the PRC to deal with social tensions and achieve 
its goal of building a "harmonious society." 
 
¶16. (SBU) House leaders from both political parties have helpfully 
faced the human rights situation in China head on.  The late 
Representative Tom Lantos was a regular visitor to China who 
gracefully evinced respect for China's long history and rich culture 
while at the same time reminding Chinese leaders that China could 
not truly reach its full potential until it also reached 
international human rights norms.  Representatives Chris Smith and 
Frank Wolf have repeatedly emphasized to the Chinese that religious 
freedom is a basic human need and that religious adherents make good 
citizens.  Hill leaders have worked with U.S. experts and law 
schools to promote the rule of law in China. 
 
¶17. (SBU) Your words and deeds while visiting the PRC will further 
advance this cause.  By attending worship services, you can give 
 
BEIJING 00001315  004 OF 004 
 
 
heart to religious believers in China.  By giving an address at a 
public forum, you can advance issues of importance ranging from the 
need to promote civil society by allowing NGOs to form more freely, 
the need to respect minority cultures, or the vital importance of an 
independent judiciary and a functioning criminal defense bar.  A web 
chat would connect you to the largest on-line community on earth, 
China's 300 million Internet users.  The web chat system is not 
perfect, but it is a step in the right direction.  While your topic 
might be on the environment, we think the participation will also 
demonstrate how government leaders should be held accountable. 
 
¶18. (SBU) We also stand ready to help your staff gather information 
about individual prisoners of concern.  We are convinced that by 
raising such cases in private meetings with Chinese leaders, you 
will help to improve the plight of prisoners of conscience. 
 
Taiwan 
------ 
 
¶19. (SBU) Your interlocutors will probably subject you to lengthy 
discourses on Taiwan and offer warnings on the serious consequences 
should the United States continue to sell arms to Taiwan.  You may 
choose to respond by emphasizing our obligations under the Taiwan 
Relations Act to consider Taiwan's legitimate defense needs and that 
we believe our sales of defense articles to Taiwan have been 
conducive to cross-Strait peace and stability.  We suggest you 
welcome the improvements in cross-Strait ties pushed by PRC 
President Hu and positively embraced by Taiwan President Ma 
Ying-jeou since his inauguration in 2008.  You can encourage Beijing 
to maintain the positive momentum by accommodating Taiwan's 
meaningful participation in international organizations such as 
observership at the World Health Assembly (now a reality), by 
reducing military deployments aimed at Taiwan, and continuing to 
make progress on cross-Strait economic and cultural ties. 
 
Military-to-Military Relations 
------------------------------ 
 
¶20. (SBU) Military-to-military relations lag behind most other 
aspects of the bilateral relationship.  Military exchanges were 
suspended by the Chinese last October after DOD notified Congress of 
pending arms sales to Taiwan.  Although exchanges have resumed, they 
will be limited until Defense Consultative Talks are held in late 
June. You may wish to emphasize the importance of our two militaries 
improving relations and point to a number of opportunities for 
cooperation.  The PLA Navy's recent deployment to combat piracy off 
the Horn of Africa is but one opportunity for closer cooperation. 
You may also want to stress that recent harassment by Chinese Navy, 
Coast Guard and fishing vessels against unarmed U.S. Naval vessels 
(i.e. USNS IMPECCABLE) conducting routine surveillance operations in 
international waters undermine mutual trust and risk unforeseen 
calamities that could negatively impact our relationship. 
 
PICCUTA