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O 281024Z JUL 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5398
INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 04 BEIJING 002155 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: OREP PREL PGOV ECON PARM MARR CH
SUBJECT: SCENESETTER FOR HOUSE MINORITY LEADER BOEHNER'S 
VISIT TO CHINA 
 
(U) Sensitive but unclassified.  Please handle accordingly. 
 
¶1. (SBU) Minority Leader Boehner, your visit to China comes 
in a year filled with key anniversaries:  January 1 
commemorated 30 years of U.S.-China diplomatic relations; 
March saw the 50th anniversary of the 1959 Tibetan uprising 
and the Dalai Lama's flight to India; June 4 marked the 20th 
anniversary of the Tiananmen Square massacre; our new joint 
State/Treasury Strategic and Economic Dialogue is going on 
currently and October 1 will mark the 60th anniversary of the 
founding of the PRC.  This year also brought one of the most 
serous challenges to Chinese central government authority in 
Xinjiang, as Uighurs and Han battled one another in says that 
might have caught the leadership off guard, all of which 
could well complicate ethnic and religious divisions in 
China's strategic Northwest area. 
 
¶2. (SBU) The breadth of issues on which we engage China 
diplomatically has increased dramatically over the past 
thirty years to encompass a wide range of bilateral and 
multilateral issues.  We seek a mature relationship with 
China -- a relationship where our leaders can talk frankly 
about issues where we disagree such as human rights, while 
also constructively engaging on vital issues of mutual 
concern like energy security, the environment, the global 
economic situation and regional security. 
 
Bilateral Relations 
------------------- 
 
¶3. (SBU) In the words agreed to by President Hu and President 
Obama at their meeting in London in April, 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.  President Obama had a 
successful first meeting with President Hu Jintao in London 
at the G-20, addressed senior U.S. and Chinese policymakers 
at the Strategic and Economic Dialogue in Washington on July 
27 and accepted Hu Jintao's invitation to visit China later 
this year.  The Chinese place great importance on our 
bilateral links and are pleased with our enhanced Strategic 
and Economic Dialogue.  We also have serious and improving 
engagement with the Chinese on hot-spot issues.  Despite the 
current freeze in the Six-Party Talks on the denuclearization 
of the Korean Peninsula, China's leadership of and 
participation in the Talks show that we can engage 
constructively on vexing issue 
s.  We continue to push for increased PRC cooperation on 
Iran, Pakistan, Afghanistan and Sudan.  Your interlocutors 
would benefit from hearing your ideas on such issues 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 rapid 
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 Leaders' meetings, as well as bilaterally 
through the Strategic and Economic Dialogue to promote 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 half of this year were 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 policy 
initiatives.  These programs are bearing fruit, and domestic 
government and SOE investment has expanded enough to return 
China to fairly robust GDP growth (7.1 percent in the first 
half of 2009).  Continued expansion through stimulus and 
government spending is an issue, interestingly, that both the 
United States and China are dealing with. 
 
¶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 
rebalancing its economy toward greater domestic consumption. 
 
BEIJING 00002155  002 OF 004 
 
 
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 these insecurities.  You may wish to 
remind your interlocutors that the majority of Treasuries are 
held by Americans (China holds only about seven percent of 
outstanding USG debt and fourteen percent 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.  Chinese 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 Chinese 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.  Secretary of Commerce Locke made this point 
emphatically during his visit here in mid-July. 
 
¶9. (SBU) China's propensity to employ state power in business 
disputes involving state-owned enterprises is another area of 
concern for us.  The signature recent example of this was the 
arrest under state secrets laws of Australian and Chinese 
national staff of the Australian mining concern Rio Tinto, 
which was involved in complicated discussions, almost all of 
which to our knowledge was derived from the public record, 
with Chinese enterprises relating to ongoing iron ore sales 
and a possible merger/acquisition.  There have been other 
similar cases, including some involving American Citizens. 
We have made the case to the Chinese that overbroad 
interpretations of the state secrets law to threaten and 
punish foreign business partners is inconsistent with 
international norms and damages China's reputation and 
attractiveness as an investment destination. 
 
Labor Issues 
------------ 
 
¶10. (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, including one in late July at 
a major steel works that resulted in the death of a plant 
foreman.  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. 
 
China:  A Growing Energy Consumer 
--------------------------------- 
 
¶11. (SBU) 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 eight percent of 
global primary energy consumption.  This is expected to rise 
to nearly 21 percent by 2030.  China requires access to 
 
BEIJING 00002155  003 OF 004 
 
 
adequate energy supplies; oil accounts for about twenty 
percent of China's current energy mix.  China now relies on 
imports to meet about 50 percent of its fossil fuel needs. 
It is projected that China will need to import some 60 
percent 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 that encourages investment by 
Chinese companies in foreign energy resources.  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 
----------------------------- 
 
¶12. (SBU) Coal remains China's primary source of energy, 
accounting for 70 percent of its energy mix and fueling 80 
percent 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.  Secretary of Energy Chu spoke eloquently during 
his mid-July visit here on the importance of close 
collaboration on clean energy projects. 
 
Opportunities for the U.S. 
-------------------------- 
 
¶13. (SBU) China's audacious plans to improve energy 
efficiency coincide 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 
------------ 
 
¶14. (SBU) 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.  The Chinese further argue that our 
focus on individual rights and liberties reflects Western, 
not universal, values.  We respond to this by noting that 
human rights are indeed universal values, as the Chinese 
themselves acknowledged when they signed the Universal 
Declaration of Human Rights.  Although personal freedoms for 
Chinese citizens have expanded over the past three decades 
(providing what some observers have called "a bigger cage"), 
the overall human rights situation in China remains poor.  We 
continue to emphasize that the expansion of individual 
freedoms, respect for the rule of law and the establishment 
of a free and independent judiciary and press are in China's 
own interests, and would ena 
ble the PRC to better deal with social tensions and achieve 
its goal of building a "harmonious society."  Providing a 
legitimate democratic outlet for political criticism and 
expressions of social discontent might also help the Chinese 
reduce episodes of violence by disenfranchised elements of 
society, such as the July 5-7 riots in Urumqi. 
 
¶15. (SBU) House leaders from both political parties have 
helpfully faced the human rights situation in China head on. 
The late Representative Tom Lantos, a regular visitor to 
China, gracefully expressed 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 
 
BEIJING 00002155  004 OF 004 
 
 
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. 
 
Taiwan 
------ 
 
¶16. (SBU) Your interlocutors may raise the Taiwan issue and 
criticize U.S. arms sales 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 
achieved by PRC President Hu and Taiwan President Ma 
Ying-jeou since the latter's May 2008 inauguration.  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. 
GOLDBERG