VZCZCXRO1671
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P 211036Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 7316
INFO RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 06 BEIJING 003414 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO SENATOR MURRAY 
 
E.O. 12958: N/A 
TAGS: OREP PREL PGOV PHUM ECON CH TW IR NK
SUBJECT: SCENESETTER FOR CODEL MURRAY 
 
(U) Sensitive but Unclassified. Please handle 
accordingly, not for Internet publication. 
 
¶1. (SBU) Senator Murray, your delegation will arrive 
in Beijing and Shanghai two months after President 
Obama's November 15-18 visit to China.  Overall, the 
Chinese leadership is pleased with the direction of 
U.S.-China relations and your hosts will likely 
frame this session of U.S.-China Interparliamentary 
dialogue as building on the momentum created by the 
President's visit.  Your arrival kicks off what will 
be a busy year in U.S.-China relations, a year that 
will include a round of the U.S.-China human rights 
dialogue in February, the next round of the 
Strategic and Economic Dialogue in July, and a 
reciprocal visit by President Hu Jintao to the 
United States.  While China has weathered the global 
financial crisis better than most other major 
economies, the leadership is facing serious domestic 
challenges due to the growing gap between rich and 
poor, severe environmental degradation, and unrest 
in the minority regions of Tibet and Xinjiang.  The 
Communist Party remains extremely sensitive on 
issues related to political reform, rule of law, 
civil society and human rights.  2009 has not been a 
good year for human rights in China: harsh security 
policies remained in Tibetan regions, civil society 
groups faced intense scrutiny and harassment, the 
government stripped a number of prominent human 
rights lawyers of their licenses, house churches 
were closed, police locked up dissidents during 
sensitive anniversaries (including the twentieth 
anniversary of the 1989 Tiananmen demonstrations and 
the sixtieth anniversary of the founding of the PRC) 
and Communist Party propaganda officials tightened 
controls over the domestic media, including the 
Internet. 
 
Bilateral Relations 
------------------- 
 
¶2. (SBU) In Beijing last month, Presidents Obama and 
Hu Jintao agreed to expand cooperation in a wide 
range of areas, from aviation, to public health, to 
clean energy.  The breadth of issues on which we 
engage China diplomatically has increased 
dramatically over the past thirty years since the 
United States and the People's Republic of China 
established diplomatic relations.  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. 
 
¶3. (SBU) As President Obama and President Hu agreed 
at their first meeting in London in April 2009, we 
are working to build a "positive, cooperative and 
comprehensive bilateral relationship."  During his 
visit to Beijing, President Obama stated that "the 
United States welcomes China's efforts in playing a 
greater role on the world stage -- a role in which a 
growing economy is joined by growing 
responsibilities."  The Chinese have taken note of 
the importance President Obama and Secretary Clinton 
have placed on the bilateral relationship and have 
also adopted a constructive approach to our enhanced 
Strategic and Economic Dialogue, the first session 
of which took place July 27 in Washington.  Visits 
to China by Secretary of Commerce Gary Locke and 
Secretary of Energy Steven Chu, who came to China 
together in July and accompanied the President to 
China in November, have also received positive 
coverage by the Chinese media.  We continue to push 
for increased PRC cooperation on North Korea, Iran, 
Pakistan, Afghanistan and Sudan.  Your visit 
presents an important opportunity for your hosts to 
hear your views on these issues and your suggestions 
on how inter-parliamentary exchanges can contribute 
to the bilateral relationship. 
 
North Korea 
----------- 
 
¶4. (SBU) The PRC plays a vital role as host of the 
Six-Party Talks, and we have developed a close 
working relationship with our Chinese counterparts. 
The Talks are aimed at the peaceful resolution of 
the security concerns surrounding the DPRK's nuclear 
 
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weapons program.  Since the 2003 inception of the 
Six-Party Talks, Chinese and American experts have 
demonstrated an ability to cooperate and work 
together to address a shared threat. 
 
¶5.  (SBU) On April 5, 2009, North Korea conducted a 
missile launch that tested a Taepodong-2 ICBM, a 
move that caused the Security Council to unanimously 
issue a Presidential Statement condemning the 
launch.  North Korea responded by declaring it was 
no longer bound by the terms of the Six-Party Talks, 
expelling IAEA nuclear inspectors and, on May 25 
exploded a nuclear device underground.  The UN 
reacted by adopting unanimously UN Security Council 
Resolution (UNSCR) 1874 which imposed additional 
sanctions on North Korea.  Since that time, the 
United States Government has adopted a two-pronged 
approach towards the DPRK.  Special Representative 
Stephen Bosworth leads our efforts to bring North 
Korea back into the Six-Party Talks and acknowledge 
its international responsibilities.  Ambassador 
Philip Goldberg leads our international approach to 
enforce the UNSCR 1874 sanctions.  Ambassador 
Goldberg has visited Beijing twice to share 
information and exchange views on sanctions while 
Ambassador Bosworth has been in regular contact with 
the Chinese Chair of the Six-Party Talks. 
Ambassador Bosworth was in Beijing December 11-12 to 
brief the Chinese on his December 8-10 trip to 
Pyongyang and to explore next steps. 
 
Iran 
---- 
 
¶6. (SBU) We have emphasized with our PRC 
counterparts that Iran's failure to follow through 
on the understandings reached in Geneva on October 1 
with the "P5 1" group (which consists of the UN 
Security Council permanent members plus Germany) -- 
including its retreat from the IAEA plan to address 
the low-enriched uranium (LEU)/nuclear fuel issue 
and its unwillingness to meet with the P5 1 
countries for talks focused on the nuclear issue -- 
demonstrates a worrying resolve by the Iranians not 
to engage diplomatically under current 
circumstances. Our PRC interlocutors have counseled 
patience in pursuing diplomatic engagement, but we 
have emphasized, consistent with our dual track 
approach, the need to impress upon the Iranians that 
there are consequences for their non-cooperative 
behavior.  The resolution passed by the IAEA Board 
of Governors was an important signal of 
international unity and commitment to upholding the 
non-proliferation regime. 
 
Taiwan 
------ 
 
¶7. (SBU) Your interlocutors may raise Taiwan and 
strong criticism, based on recent media reports, of 
U.S. arms sales to Taiwan.  We suggest you respond 
by welcoming recent improvements in cross-Strait 
ties achieved by PRC President Hu and Taiwan 
President Ma Ying-jeou.  You may also 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.  You can encourage 
Beijing to maintain positive cross-Strait momentum 
by accommodating Taiwan's meaningful participation 
in international organizations, reducing military 
deployments, particularly missiles aimed at Taiwan, 
and continuing to make progress on cross-Strait 
economic and cultural ties. 
 
Human Rights 
------------ 
 
¶8. (SBU) As the President said during his visit to 
China, we believe that human rights are fundamental 
and universal values, as the Chinese themselves 
acknowledged when they signed the Universal 
Declaration of Human Rights.  The PRC government 
defines human rights broadly to include factors 
affecting economic and social well-being, and 
regularly points out that China's "reform and 
opening" policies over the past 30 years have 
coincided with improvements in the quality of life 
enjoyed by hundreds of millions of Chinese.  The 
 
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Chinese also claim that our focus on individual 
rights and liberties reflects Western, not 
universal, values.  Although personal freedoms for 
Chinese citizens have expanded over the past three 
decades, the overall human rights situation in China 
remains poor.  Secretary Clinton, in a speech at 
Georgetown University December 10, said "in China, 
we call for protection of rights of minorities in 
Tibet and Xinjiang; for the rights to express 
oneself and worship freely; and for civil society 
and religious organizations to advocate their 
positions within a framework of the rule of law." 
In our bilateral engagement with China we continue 
to emphasize that the expansion of individual 
freedoms and the establishment of a free and 
independent judiciary and greater internet and press 
freedoms would strengthen, not threaten, China. 
 
Ethnic Unrest in Xinjiang and Tibet 
---------------------------------- 
 
¶9. (SBU) This year saw violent ethnic rioting in 
China's far western Xinjiang Autonomous Region. 
Clashes between Uighurs (a Turkic Muslim minority 
group) and Han Chinese July 5-7 left 197 dead in 
Urumqi, the regional capital.  The riots 
precipitated a massive security response by the 
Chinese government including deployments of large 
numbers of security forces to Xinjiang and the 
blocking of the Internet in the entire region; 
measures which remain in place today.  China's 
Uighur minority has long complained of human rights 
and religious freedom abuses by the Communist Party 
which maintains tight controls on the practice of 
Islam in Uighur communities.  Officially, China has 
characterized the July riots a "terrorist attack" 
that was coordinated from abroad.  You may wish to 
urge China to investigate the root causes of these 
ethnic tensions, including PRC policies that 
contribute to the Uighurs' sense of alienation from 
Chinese society. 
 
¶10. (SBU) Tibetan areas of China remain mostly calm 
but tense following widespread unrest in March 2008. 
China opposes any meetings between U.S. officials or 
members of Congress and the Dalai Lama.  Your hosts 
will likely ask you and members of your delegation 
to refrain from meeting the Dalai Lama when he next 
visits the United States.   You may wish to reply by 
urging the PRC to meet with representatives of the 
Dalai Lama and resume talks which were suspended in 
November, 2008.  The Dalai Lama rejects violence and 
has said repeatedly he is seeking autonomy within 
the Chinese constitution, not independence, for 
Tibet.  You could also urge China to open Tibet to 
foreign journalists, members of Congress and U.S. 
officials, who, with the exception of rare, closely 
supervised, visits, are excluded from the region. 
 
Response to the Financial Crisis 
-------------------------------- 
 
¶11. (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 the United States 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. 
 
¶12. (SBU) China's export industries were hard-hit by 
the global economic downturn.  Exports in the first 
ten months of this year were down around 21 percent 
compared to the same period last year, although 
November data indicate the first positive change in 
a year.  The Chinese government has compensated for 
the export decline through massive fiscal and 
monetary stimulus programs, largely focused on 
infrastructure investment.  Rising domestic 
household consumption also has bolstered growth this 
year.  The result is that GDP growth should meet or 
exceed the government's eight percent target for 
2009, and may accelerate slightly to 8.5-9.0 percent 
in 2010.  In recent policy announcements, the 
 
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government indicated it will continue the fiscal 
stimulus measures in 2010, while carefully 
moderating new credit issuance.  Beijing also 
intends to shift slightly the stimulus focus and 
improve the "quality of growth" by directing more 
resources to domestic consumption and sectors such 
as housing, health care, and education. 
 
¶13. (SBU) Throughout this process the United States 
and other governments have encouraged Beijing's 
strong actions to stimulate its economy, and we 
welcome its initiatives to promote rebalancing and 
long term sustainability.  We also repeatedly have 
cautioned Chinese counterparts that, with U.S. 
savings rates apparently returning to more typical 
historical levels, the PRC should not expect 
American consumers to continue to absorb China's 
excess production, meaning that China will need to 
identify other growth engines for its economy; such 
changes would be in China's own interests and 
improve the standard of living for its people.  We 
and others also 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.  In addition, a more flexible exchange rate 
is one part of a policy mix that can promote more 
harmonious, balanced growth. 
 
China's Concerns 
---------------- 
 
¶14. (SBU) You will likely hear Chinese concerns that 
large and continuing U.S. fiscal deficits could 
generate inflation in the United States that would 
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, as well 
as initial efforts to promote greater 
internationalization of the Chinese currency (RMB), 
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 
------------ 
 
¶15. (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. 
 
¶16. (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 
 
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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. 
 
Boeing and Microsoft 
-------------------- 
 
¶17. (SBU) Boeing traditionally has dominated the 
aircraft market in China, helping the U.S. achieve 
an annual USD 6-8 billion trade surplus in this 
sector.  In spite of the economic downturn, Boeing 
estimates that China will require an additional 
3,700 airplanes worth $390 billion to satisfy demand 
over the next 20 years.  Boeing sells an average of 
60-80 aircraft a year in China and shares the market 
for narrow body aircraft roughly 50/50 with Airbus. 
In late 2008, the Civil Aviation Administration of 
China encouraged Chinese airlines to delay or cancel 
aircraft deliveries in 2009 to cope with the 
economic downturn, but Boeing has not publicly 
announced any cancelled orders.  Chinese officials 
have been particularly vocal about their 
dissatisfaction with Boeing 787 delivery delays, 
which they claim have hampered their expansion 
plans, although Chinese orders account for just 
seven percent of the 850 outstanding 787 orders. 
The Airbus strategy includes an assembly facility in 
Tianjin for the A320, with commitments for 
increasing local content.  Boeing sources partly 
from Chinese firms, but has pursued cooperation in 
innovation, services and air traffic safety rather 
than localize production.  Boeing anticipates China 
will become its largest aircraft market within 
twenty years, and views China's plans to manufacture 
commercial aircraft, such as the 150 passenger C919, 
as its greatest long-term competitive threat. 
Nevertheless, Boeing cooperates with local 
manufacturers and has not opposed their suppliers' 
involvement in these projects. 
 
¶18. (SBU) Microsoft's number one problem in China is 
IPR violations, approximately 80 percent of software 
used in China is pirated.  Microsoft is working 
closely with the Chinese government to create more 
understanding of the problem.  The company is in 
talks with the Hangzhou municipal government in 
Zhejiang province to start a pilot project to help 
enterprises and government offices to identify the 
installations of pirated software.  Microsoft has 
invested more than USD 1 billion in China and 
conducts cutting-edge research and development at 
centers throughout the country. 
 
Shanghai: China's Commercial Capital 
------------------------------------ 
 
¶19. (SBU) Often called the "New York" of China, 
Shanghai is China's commercial capital and home to 
the world's busiest port.  Shanghai enjoyed 
double-digit GDP growth for the 16 consecutive years 
prior to 2008 but fell below 10 percent in 2008, and 
GDP growth in the first quarter of 2009 dropped 
dramatically to 3.1 percent year-on-year.  Growth 
rebounded in the second half of the year, however, 
and is GDP growth is expected to reach 8 percent for 
the year.  Shanghai's per capita GDP remains more than 
USD 11,600, more than three times the national average. 
With its strategic location, highly skilled 
workforce and solid infrastructure, Shanghai is a 
magnet for foreign direct investment (FDI). 
Foreign-invested companies account for half of 
Shanghai's trade and roughly 20 percent of 
employment. 
 
U.S. Economic Presence in Shanghai 
---------------------------------- 
 
¶20. (SBU) Shanghai has over 5,500 U.S.-invested 
projects, including GM, Intel, GE, Kodak, and UPS. 
A majority of investment is in manufacturing, but 
investments in service industries are growing 
rapidly.  U.S.-invested companies in Shanghai 
account for approximately one-eighth of the total of 
40,000 foreign invested companies in Shanghai.  The 
American Chamber of Commerce (AmCham) Shanghai, with 
more than 1,500 member companies and approximately 
3,500 individual members, is Asia's largest American 
 
BEIJING 00003414  006 OF 006 
 
 
business organization.  More than 25,000 Americans 
are long-term residents in the Shanghai Consular 
District (Shanghai and the provinces of Anhui, 
Jiangsu and Zhejiang), with up to 50,000 visiting at 
any time. 
 
Gearing Up for the Shanghai 2010 World Expo 
------------------------------------------- 
 
¶21. (SBU) As the Beijing Olympics were China's 
opportunity to introduce itself to the world, the 
longer, bigger Shanghai 2010 World Expo is a chance 
for the world to introduce itself to China.  The 
Shanghai Expo, which will open on May 1, 2010, will 
be the largest World Expo in history with 192 
countries and regions as participating exhibitors. 
The Expo will run through October 31, 2010 and 
Shanghai officials predict it will attract more than 
70 million visitors, the vast majority from China. 
The theme of the Expo, "Better City - Better Life", 
signifies Shanghai's commitment to green urban 
development and status as a major economic and 
cultural center. 
 
¶22. (SBU) The United States Government was able to 
confirm its participation in the Shanghai 2010 World 
Expo during summer 2009 after receiving sufficient 
support from the private sector.  (Note:  The State 
Department is prohibited by 1994 and 1999 statutes 
from spending appropriated funds to support a 
national pavilion in the absence of a specific 
Congressional authorization.  End Note.)  The 
estimated total budget of the USA Pavilion is USD 61 
million, which includes all construction, staffing, 
operation, show presentations, and post-Expo 
building demolition and materials removal costs. 
Construction of the U.S. Pavilion began in July, and 
Commerce Secretary Gary Locke attended the 
groundbreaking ceremony.  Most recently, Secretary 
Clinton visited the site in November. 
GOLDBERG