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ZNR UUUUU ZZH
P 082306Z JUL 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 5065
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0508
RUEHBU/AMEMBASSY BUENOS AIRES 0246
RUEHRL/AMEMBASSY BERLIN 1799
RUEHBY/AMEMBASSY CANBERRA 9723
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RUEHJA/AMEMBASSY JAKARTA 1993
RUEHLO/AMEMBASSY LONDON 3577
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RUEHFR/AMEMBASSY PARIS 4611
RUEHPG/AMEMBASSY PRAGUE 0841
RUEHSA/AMEMBASSY PRETORIA 0479
RUEHRO/AMEMBASSY ROME 1059
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RUEHSM/AMEMBASSY STOCKHOLM 1629
RUEHKO/AMEMBASSY TOKYO 2674
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RUEHWL/AMEMBASSY WELLINGTON 0660
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEAEPA/HQ EPA WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 06 BEIJING 001911 
 
STATE FOR EAP/CM-HABJAN, EAP/CM, EAP/PD-STOLTZ 
STATE FOR OES DAS MIOTKE, OES/EGC, OES/ENV, AND OES/PCI 
STATE FOR S/SECC-STERN, S/P-GREEN, EEB, AND ECA 
STATE PASS TO CEQ SUTLEY 
USDOE FOR INTERNATIONAL 
USDOC FOR MAC AND MAS 
USDOC PASS USPTO FOR WU 
EPA FOR INTERNATIONAL/MKASMAN/GIANNINI-SPOHN 
NSC FOR LOI, SHRIER 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: OVIP PREL PGOV ECON PARM MARR SENV ENRG KGHG CH
 
SUBJECT: SCENESETTER FOR DOE SECRETARY CHU VISIT TO CHINA 
 
(U) Sensitive but unclassified.  Please handle accordingly. 
 
¶1.  (SBU) Secretary Chu, Chinese leaders are eagerly looking forward 
to your visit to China and to engaging you on issues of energy, 
climate change and science, among others, that will help determine 
the quality of life of the Chinese and American people over the next 
few decades.  Your visit comes as Chinese leaders again are 
confronted with issues of ethnicity and dissent in a far off place, 
this time in Xinjiang and are wrestling, with some success, with the 
impact of the global economic crisis on their economic development 
plans.  But it also comes at a time of some considerable pride, with 
the commemoration of 30 years of diplomatic relations between our 
two countries and upcoming 60th anniversary of the founding of the 
PRC. China's leaders have been very clear that they want what they 
are now calling a positive, cooperative and comprehensive 
relationship with the United States.  The question is always how 
they see and deal with us on issues of disagreement - Tibet (this 
year was the 50th anniversary of the Tibetan Uprising and the Dalai 
Lama's flight to India), questions of history (this is the 20th 
anniversary of the Tiananmen massacre), human rights and religious 
freedom, among other matters.  We have also provided information 
below on issues that might be raised in your meetings such as Taiwan 
and our military-to-military relationship (paragraphs 18-19). 
 
¶2.  (SBU) This year also marks the 30th anniversary of the 
U.S.-China Agreement on Cooperation in Science and Technology.  The 
agreement--signed by President Carter and President Deng Xiaoping 
just prior to the formal establishment of diplomatic relations--is 
the longest standing accord between our two countries and has 
facilitated an era of robust government-to-government S&T 
collaboration.  China's leaders, scientific and academic community 
and its more creative thinkers about energy issues are ready to work 
with you - as is this mission on enhancing how we move forward on 
S&T and these issues of global significance. 
 
Bilateral Relations 
------------------- 
¶3.  (SBU) The Chinese appreciated Secretary Clinton's including 
China in her first visit abroad as Secretary of State, and were 
particularly pleased that the new U.S. climate change envoy Todd 
Stern accompanied her. They have invited the President to visit 
Beijing later this year, looking forward to discussions with him and 
other senior U.S. leaders to move forward key issues in our 
bilateral strategic and economic dialogue.   We are also 
intensifying the seriousness with which we discuss hot-spot issues 
such as North Korea, Iran, Afghanistan and Pakistan. 
 
¶4.  (SBU).  China has hosted the Six-Party Talks aimed at creating a 
denuclearized Korean Peninsula since the Talks' inception in 2003. 
On April 5, North Korea launched a Taepodong-2 ICBM in violation of 
UN Security Council Resolution (UNSCR) 1695.  On May 25, North Korea 
conducted its second test of a nuclear device in violation of UNSCR 
1718 and other international agreements.  On June 12, China and 
 
BEIJING 00001911  002 OF 006 
 
 
other members of the Security Council adopted UNSCR 1874 to condemn 
the nuclear test and to call for North Korea not to conduct further 
nuclear tests or ballistic missile launches, re-establish its 
moratorium on missile launching, comply with UNSCR 1718, return to 
the Non-Proliferation Treaty and IAEA safeguards, and abandon all 
nuclear weapons, WMD and ballistic missile programs in a complete, 
verifiable and irreversible manner.  Since that time, the USG has 
been in regular contact with senior Chinese officials to discuss the 
effective implementation of UNSCR 1874. 
 
Response to the Financial Crisis 
-------------------------------- 
¶5.  (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 have worked with us in 
international fora such as the G-20 Leader's meetings to achieve 
global financial stability.  China has provided $50 billion in 
additional resources to the IMF and we have made clear our support 
for reforming that institution. 
 
¶6.  (SBU) Chinese exports and export-related investment were 
hard-hit by the global economic downturn.  Exports in the first five 
months of this year were down around 26 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 state-driven 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 that most economists are expecting China to grow at least 7-8 
percent this year.   [NOTE: Media reports have made much of the fact 
that electricity use is falling while official production rates rise 
- this is in part due to statistical factors, and anecdotal evidence 
supports the Chinese growth data.  END NOTE.] 
 
¶7.  (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. 
 
¶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 
 
BEIJING 00001911  003 OF 006 
 
 
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. 
 
China:  A Growing Energy Consumer 
--------------------------------- 
¶9.  (SBU) No issue is likely to occupy China's next generation of 
leaders 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, sometimes 
with deals that help prop up regimes that use the money to sustain 
themselves in power.  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 
----------------------------- 
¶10.  (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. 
 
¶11.  (SBU) In an effort to address these issues China is working on 
a range of domestic energy policies and incentives to reduce its 
reliance on coal and address its most pressing pollution issues, 
including subsidies for cars with small engines and solar energy 
equipment, more energy efficient buildings, and the construction of 
dozens of new nuclear reactors that will nearly double China's 
 
BEIJING 00001911  004 OF 006 
 
 
current nuclear power output by 2020.  Although China has ambitious 
renewable energy plans, connecting to the grid remains a major 
obstacle. China hopes to address these challenges through 
cooperation with the United States on smart grid technology. 
 
¶12.  (SBU) In a bid to scale up bilateral cooperation on clean 
energy, senior Chinese leaders including Vice Premier LI Keqiang, 
State Councilor LIU Yandong, and Minister WAN Gang of the Ministry 
of Science and Technology (MOST) have all signaled their support for 
the establishment of a U.S.-China clean energy research and 
development center.  Chinese leaders have also indicated that the 
new center should include participation from large enterprises and 
private industry such as U.S. and Chinese automakers, which are 
working on electric car development. 
 
Climate Change and China 
------------------------ 
¶13.  (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 of the UNFCCC climate change meeting in Copenhagen. 
The concept for addressing both issues through a single partnership 
was also outlined in a non-paper submitted to the NDRC in early-June 
and discussed at length with NDRC Vice Minister Xie, Vice Premier 
Li, and State Councilor Liu. 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 TYF and its action plans are intended 
to support this new partnership. 
 
¶14.  (SBU) Nevertheless, senior NDRC officials have recently 
expressed concerns over the USG's expressed preference for 
formalizing the link between climate change and clean energy. During 
a June 30th meeting to walk through a draft agreement of the 
U.S.-China Partnership on Clean Energy and Climate Change, MA Xin, 
the NDRC's Director General of the Department of International 
Cooperation said that given the time and effort that went into 
negotiating the TYF, NDRC's strong preference is that it remain 
intact and that existing action plans be allowed to yield results. 
He also said that replacing, dismantling, or fragmenting the 
existing TYF will likely require repeating the difficult 
negotiations over text that occurred in 2008, and is unlikely to be 
completed before the July S&ED. Ma also expressed concern that 
combining climate change and clean energy in the same partnership 
may be contentious on the Chinese side and that consensus on clean 
energy collaboration may get derailed by more challenging 
negotiations on the climate change portion of the agreement. Ma 
clearly noted that his reactions were preliminary and not an 
 
BEIJING 00001911  005 OF 006 
 
 
official NDRC position and said NDRC needs some time to digest the 
draft. 
 
China's Current Position on Climate Change 
------------------------------------------ 
¶15.  (SBU) Although China is now the world's largest emitter of 
GHGs, it has not directly acknowledged this fact; nevertheless, some 
Chinese ministers have privately conceded this fact in meetings with 
U.S. officials.  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. 
-------------------------- 
¶16.  (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.  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 
------------ 
¶17.  (SBU) 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 
 
BEIJING 00001911  006 OF 006 
 
 
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."  Senior leaders will likely share with you their views on 
the recent unrest in Tibet and Xinjiang.  Violence in Tibet erupted 
in March 2008, after police in Lhasa moved in to quell a peaceful 
commemoration by Tibetan monks of a failed 1959 uprising against 
Chinese rule. The unrest spread to Tibetan communities in 
neighboring provinces.  On July 5, 2009, bloody riots broke out in 
China's far western province of Xinjiang between ethnic Muslim 
Uighurs and Chinese Han in the capital city of Urumuqi, leaving more 
than 150 persons dead.  Members of minority groups in Tibet and 
Xinjiang have complained for years about growing immigration by Han 
Chinese into their areas and controls on religious practices. 
 
Taiwan 
------ 
¶18.  (SBU) It is unlikely that yoQinterlocutors will subject you 
to lengthy discourses on Taiwan or offer warnings on the serious 
consequences should the United States continue to sell arms to 
Taiwan.  If they do, 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 
------------------------------ 
¶19.  (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, but resumed in late June with the 
Defense Consultative Talks in Beijing led by Under Secretary of 
Defense Policy Michele Flournoy. The PLA Navy's recent deployment to 
combat piracy off the Horn of Africa is but one opportunity for 
closer cooperation; however, 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 could undermine mutual trust and risk 
unforeseen calamities that could damage our relationship. 
 
GOLDBERG