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RR RUEHCN RUEHGH RUEHVC
DE RUEHSH #0168/01 2610108
ZNY CCCCC ZZH
R 180108Z SEP 09
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC 8844
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC 0219
RUEKJCS/DIA WASHDC 0162

C O N F I D E N T I A L SECTION 01 OF 04 SHENYANG 000168 
 
SIPDIS 
 
DEPARTMENT FOR EAP/CM, INR 
 
E.O. 12958: DECL: 09/17/2019 
TAGS: CH ECIN ECON EIND EINT EMIN ENIV ETRD PGOV
PINR, PREL 
SUBJECT: AMBASSADOR'S VISIT TO DALIAN FOR THE WORLD 
ECONOMIC FORUM 
 
REF: A. OSC REPORT NUMBER CPP20090910066010 
     ¶B. SHENYANG 152 
     ¶C. SHENYANG 130 
 
Classified By: Consul General Stephen B. Wickman.  Reasons 1.4(b/d). 
 
¶1. (SBU) SUMMARY: The Ambassador's message of mutual 
cooperation and mutual learning received a warm welcome in 
Dalian, Liaoning Province, against the backdrop of the World 
Economic Forum's Summer Davos event.  Local officials were 
eager to discuss increased economic and cultural exchange 
between the U.S. and Northeast China, while local business 
leaders shared their observations in weathering the global 
economic slowdown.  END SUMMARY. 
 
¶2. (SBU) The Ambassador traveled to Dalian September 10-11 
to participate in the World Economic Forum's Summer Davos 
event.  The Ambassador took the opportunity to meet briefly 
with Liaoning Governor Chen Zhenggao, Dalian Party Secretary 
(PS) Xia Deren, Anshan Steel (AnSteel) President Zhang 
Xiaogang, the Vice Chairman of the Dalian Commodities 
Exchange, Brilliance Auto President Qi Yumin, and Chongqing 
Deputy Executive Party Secretary Wu Wenkang. 
 
LIAONING GOVERNOR: U.S. STRONG IN LIAONING 
------------------------------------------ 
 
¶3. (SBU) In a short courtesy call on the afternoon of 
September 10, Governor Chen praised the Ambassador for his 
work as Utah governor and for accepting the appointment as 
Ambassador to China.  Chen said cooperation between Liaoning 
and the United States was growing very rapidly, noting that 
the U.S. is the province's fourth largest trading partner 
and one of the most important export destinations.  Chen 
pointed to GM, GE, Intel, and Motorola as examples of U.S. 
firms that had successfully established themselves in 
Liaoning.  The Ambassador stressed President Obama's 
interest in U.S.-China relations and used a proverb 
("huxiang bangmang, huxiang xuexi") to show the type of 
mutual cooperation and mutual learning he hoped would 
characterize the relationship.  Governor Chen reacted warmly 
and invited the Ambassador to return to Liaoning to see a 
local-style comedy performance ("xiao pin") that is popular 
all over China, joking that this would be a real test of the 
Ambassador's language ability. 
 
SUMMER DAVOS:  LEARNING LESSONS ON REBALANCING GROWTH 
--------------------------------------------- -------- 
 
¶4. (SBU) In addition to attending Premier Wen Jiabao's 
keynote speech, most noteworthy perhaps for Wen's apparently 
memorized delivery of the last few lines on "confidence" and 
"perseverance" (Ref A), the Ambassador participated in a 
lively panel on "The Global Dimensions of China's Economic 
Growth."  His comment that China needs more openness on the 
pathway of its naturally rapid growth helped temper the 
veiled criticism of U.S. policy in the comments from 
Nigerian, Mongolian, and Chinese panelists.  These seemed to 
support a "new" state-trading style model for international 
trade and investment in the resource sector.  Referring to 
China's "communications revolution" and the growing pressure 
on Chinese leaders to respond to public opinion, the 
Ambassador said China must "provide practical safety nets" 
to help consumers feel confident about spending more, noting 
the challenges in both countries to improve the health care 
and social welfare system.  His use of the proverb on mutual 
assistance and learning brought approval from the local 
press, which crowded around him after the presentation. 
 
¶5. (U) Local press coverage quoted prominently the 
Ambassador's suggestion that the financial crisis showed us 
that ethics needed to be strengthened in both China and the 
United States.  One business daily quoted him saying:  "By 
looking into the development of Dalian we saw the tremendous 
developing potential of China; we would like to introduce 
more U.S. companies to Dalian and build regular connections 
and exchanges."  Another prominent Dalian daily noted the 
Ambassador's good humor and Chinese name, reporting that he 
owns a Chinese bicycle and that his favorite activities are 
cycling around Beijing's traditional neighborhoods, chatting 
with the local and mostly elderly denizens, listening to 
Chinese radio, and learning Chinese idioms.  The paper went 
on to quote him saying:  "China is a large, complicated 
country, and there are many roles and elements functioning, 
some good and some bad.  Some political dogmatists speak of 
China in black and white terms, but such extreme opinions 
cannot benefit the long-term relationship.... China and the 
 
SHENYANG 00000168  002 OF 004 
 
 
United States should work together on the challenges both 
sides are currently facing, such as regional security, 
energy, climate, and the prevention of nuclear 
proliferation; China and the United States should help each 
other, learn from each other, and move forward together." 
 
ANSHAN STEEL: HQ MOVING TO DALIAN 
--------------------------------- 
 
¶5. (SBU) At dinner on September 10, AnSteel President Zhang 
told the Ambassador that the much delayed merger of 
centrally-owned AnSteel, China's third largest steel 
producer, with Benxi Steel (Bensteel) would finally be 
consummated next year.  Alluding to the rivalry with 
provincially-owned Bensteel, which allegedly received 
special favors and advantages from the provincial government 
that his centrally-owned company did not receive, Zhang said 
the final merger plan was approved on condition of the 
company's headquarters remaining in Liaoning.  Hence, 
AnSteel would move its headquarters to Dalian after building 
a financial tower in the new downtown port area.  Zhang said 
his company's after-tax net profits were down precipitously 
from last year in the first eight months (RMB 1.5 billion 
compared to RMB 12.3 billion last year).  By comparison, 
however, troubled Tonghua Steel in Jilin Province reported 
an RMB 12.5 billion loss during the first eight months of 
2008 and still had a loss of RMB 1.5 billion in the same 
period this year (Refs B and C provide more information on 
the labor unrest at Tonghua). 
 
¶6. (SBU) Zhang also reported that AnSteel was taking a 
minority ownership position in four new U.S. rebar plants 
being established around the United States by the former 
chairman of Nucor Steel.  The plants would take advantage of 
the U.S. stimulus package to create jobs and expand 
Ansteel's presence in the United States without competing 
with U.S. Steel (USX), a longtime cooperative partner. 
Zhang said AnSteel has no desire to compete with U.S. 
companies in the quality steel market, noting that he had 
nixed collaboration with George Soros on a USD 5 billion 
silicon steel factory. 
 
¶7. (SBU) Zhang welcomed the Ambassador to visit Ansteel's 
new Bayuquan facility on Liaoning Bay.  The facility is one 
of the most technologically sophisticated steel operations 
on the globe and which utilizes green technologies, such as 
wind and solar power to run some operations. 
 
DALIAN PARTY SECRETARY: WARM WELCOME 
------------------------------------ 
 
¶8. (SBU) On the evening of September 10 at Dalian CPC 
headquarters, PS Xia thanked the Ambassador for making 
Dalian one of his first stops outside of Beijing and for 
attending one of Dalian's premier events.  He noted that the 
Ambassador is already well-known and highly regarded by many 
Chinese because of his success as one of the youngest U.S. 
governors and one of the youngest U.S. Ambassadors when he 
was appointed to Singapore.  Xia invited him to visit Dalian 
in the summer, whenever Beijing "felt too crowded."  He went 
on to say Dalian is not as big as Beijing or Shanghai but is 
one of the most livable cities in China and has a reputation 
for being environmentally-friendly.  The port is the biggest 
in Northeast China and fourth-largest in all of China. 
Dalian is also a leading city in the technology and 
pharmaceutical sectors.  He ended by saying HP, IBM, and 
Intel were just some of the more well-known examples of 
American companies that had either set up rep offices or 
subsidiary companies in Dalian. 
 
¶9. (SBU) Asked how U.S. companies could improve their 
operations in Dalian and about his vision of the future, Xia 
said most American companies in Dalian had already achieved 
their goals.  Nearly ninety Fortune 500 companies have 
located in Dalian, and half of them are American.  While 
Intel is building a USD 2.5 billion first-phase wafer 
fabrication plant in Dalian, future investment could focus 
on higher-level technology industries.  U.S. companies 
should focus on Dalian's strengths in education, quality 
human resources, and IPR protection.  In ten years, Xia 
predicted that Dalian's key industries would continue to be 
manufacturing, shipbuilding, and machine building.  In 
twenty years, Xia envisioned a service-based economy that 
focused on tourism, logistics, software, and information 
services.  While Xia highlighted the success of Dalian's IT 
sector, he admitted that it would be hard to overtake 
Beijing and Shanghai. 
 
SHENYANG 00000168  003 OF 004 
 
 
 
¶10. (C) Asked how relations with the DPRK affected Dalian's 
economy, Xia said he had no independent analysis but that in 
his view the DPRK's actions had zero effect on Dalian.  Xia 
cited Dalian's past superior economic performance during 
both tense and calm periods on the Korean Peninsula as the 
reason for his confidence. 
 
DALIAN COMMODITIES EXCHANGE (DCE): INCREASED TRADE 
--------------------------------------------- ----- 
 
¶11. (SBU) DCE Vice President Qu Lifeng took the Ambassador 
on a tour of the DCE trading floor on the morning of 
September 11.  Founded in 1993, the DCE is one of China's 
three futures exchanges; prior to 1993, all grain and 
agricultural crops were traded with spot prices.  From the 
outset, the DCE traded agricultural futures; three 
petrochemical products were added to the list in 2007. 
DCE's trading volume accounts for over half of China's 
trading in agricultural products, and has kept this position 
for nine consecutive years.  China's overall grain yield 
averages 500 million tons per year, but the total DCE 
trading volume in 2008 was 630 million contracts (10 tons 
per contract), having a face value of RMB 27 trillion -- 
nearly as large as China's GDP but still much lower as a 
percentage of total production or GDP than for U.S. 
exchanges.  The trading volume for the first eight months of 
2009 had increased 33 percent over last year to 560 million 
contracts, valued at RMB 25 trillion. 
 
¶12. (SBU) Currently, only Chinese domestic traders and those 
foreign and joint ventures registered in China can buy and 
sell at the DCE.  Vice President Qu personally believed that 
DCE would be able to open to off-shore foreign traders in 
the future.  However, this move will take a long time as it 
would have to be approved by the State Council. 
 
¶13. (SBU) DCE has already signed memorandums of 
understanding with the Chicago Board of Trade (CBOT), the 
Chicago Mercantile Exchange (CME), Chicago Board Options 
Exchange (CBOE), and the New York Mercantile Exchange 
(NYMEX).  There are also frequent personnel exchanges 
between Chinese and American counterparts.  In the absence 
of formal exchange programs, some U.S. universities and 
research institutes have assigned their staff and students 
to DCE for exchange purposes.  Qu asked the Ambassador to 
introduce more U.S. scholars to the DCE, promote exchanges 
with the DCE's U.S. counterparts, and expressed appreciation 
for the Department's International Voluntary Visitor 
Leadership Program. 
 
BRILLIANCE AUTO: FORECAST INCREASED VEHICLE DEMAND 
--------------------------------------------- ----- 
 
¶14. (SBU) Brilliance Chairman Qi told the Ambassador he 
foresees increased prospects for vehicle demand in China, 
citing the fact that China has only 29 automobiles per 1000 
people.  Noting that India only has 8 vehicles per 1000 
people and that he knew the Tata leadership well, Qi 
predicted that Indian demand will be for lower-quality 
products and the bottom end of the production line.  Qi 
flagged the increased potential for U.S. investment in 
Northeast China, noting that the Harbin-Dalian high speed 
rail project, which uses mainly German technology, still 
relies on GE electronics.  As a result, he said GE would 
double its investment in Dalian. 
 
¶15. (SBU) Chongqing Deputy Executive Party Secretary Wu 
noted that the city's first-half GDP growth for 2009 was 
initially pegged at 8 percent but that revised data showed 
that growth had topped 12.5 percent.  HP had just signed a 
contract to build a facility in the city capable of 
producing nearly 20 million laptops a year and RMB 200 
billion in revenue.  Wu looked forward to further such 
cooperation and hoped that the Ambassador would have a 
chance to visit soon with PS Bo Xilai. 
 
¶16. (C) Bio Note:  Wu, who made a special trip from 
Chongqing to join the luncheon with the Ambassador, and Qi 
are close confidantes of Bo Xilai.  Wu, whose family lives 
in Dalian, was Bo's right-hand man in Dalian and Liaoning 
when Bo was here.  Qi was Vice Mayor of Dalian under Bo.  Wu 
remained in Liaoning when Bo moved to Beijing, staying 
behind to work closely with then-PS Li Keqiang.  When Bo 
left Beijing again, Wu initially split his time between 
Chongqing and Dalian.  Wu told the Ambassador he was 
particularly proud of occupying an office that used to be 
 
SHENYANG 00000168  004 OF 004 
 
 
Madam Chiang Kai-shek's bedroom in the Chiang family's old 
Japanese Resistance-era mansion.  He said the only 
photograph of Chairman Mao and the Generalissimo together 
was taken in front of this building and that Qi and Wu posed 
for a photo in the same spot, Wu posing credibly as Mao and 
Qi a bit less authentic as Chiang.  When the Ambassador 
referred to Qi as having successfully "dropped into the 
ocean" ("xia hai") -- a reference to cadres who leave office 
and take corporate jobs -- Wu said, "Yes, Qi wanted to come 
back to shore ("shang an") but Li Keqiang ordered him to 
stay at Brilliance." 
 
WICKMAN