Chinese Think-tank Addresses Challenges to

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STATE PASS USTR FOR STRATFORD, WINTER, PORTER, LAWRENCE
TREASURY FOR OASIA/KOEPKE
USDOE FOR OIC AND OFFICE OF FOSSIL FUELS

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E.O. 12958: N/A
TAGS: ECON ENRG PREL PGOV SOCI SENV CH
SUBJECT: Chinese Think-tank Addresses Challenges to
Sustainable Development



1. (U) Summary: Officials at the Central Government's
premier foreign affairs research and policy institution
stressed the importance of sustainable human-based
development at a meeting on June 6. A comprehensive
approach, which takes into account social, environmental,
and resources costs, is necessary to build a harmonious
society, they said, which is necessary not only to ensure
domestic stability, but also to demonstrate to the region
and globe China's desire for peaceful development. In
addition to concerns about internal stability, researchers
at the institute also focused on recent economic growth
trends and overcapacity, as well as China's view on energy
security. End Summary.


2. (U) Tao Jian, Vice President of the China Institutes of
Contemporary International Relations (CICIR) and a senior
advisor to the Chinese leadership on sustainable
development, briefed Embassy-sponsored visitors from the
Defense Orientation Conference Association (DOCA) on
China?s sustainable development goals on June 6. During
the briefing (also attended by Econoffs),Tao and CICIR
officials gave their take on the 11th Five-Year Plan,
economic development, and energy policy.

CICIR on China's Efforts to Build A Harmonious Society
-------------- --------------


3. (U) Reiterating already promulgated policy, Tao stated
that China's economic development priorities are to develop
western China, to rebuild China's northeastern "rust belt,"
and to promote development in rural areas. Tao added that
developed coastal areas will continue to play a leading
role in paving the way for spreading their economic
development to these areas. Specifically, Tao said, the
developed areas will have responsibility for helping
develop neighboring provinces. Overall, Tao continued, the
Central Government's goal is to strike a balance between:
a market-driven and centrally-planned economy, local and
Central Government control, and social and economic
development. China's number one goal, he said, is to
improve the overall standing of Chinese citizens. CICIR's
view is that economic progress is essential for two main
reasons: to promote a harmonious society and strengthen
national security.


4. (U) Concentrating on economic development by
prioritizing human-based development is indispensable to
forming a harmonious society and maintaining internal
stability, CICIR officials said. Without strong economic
development, CICIR argues, China is more vulnerable to
internal and external threats and will not be able defend
its national security interests. To illustrate recent
economic success, CICIR pointed to recent predictions of
China's gross domestic product (GDP) reaching USD 3
trillion by 2010.


5. (U) Balancing social progress and economic development
within China's borders is one of the main reasons for
highlighting a harmonious society, CICIR officials said,
because if China does not achieve at least 7-8 percent
growth annually, then the economy will not be able to
provide for the 8-10 million jobs that are needed each year.
According to one researcher, the number of registered urban
unemployed in China has reached approximately 24 million.
The same researcher noted that China must also deal with an
aging population, and pointed out that 10 percent of
China?s population (134 million) is over the age of 60.
Furthermore, China's social welfare safety net is deficient,
with less than 10 percent of the population receiving
social welfare benefits according to CICIR statistics. In
a similar vein, the researcher expressed concern about
China's growing rich-poor wealth gap, an increasingly
sensitive issue. (Note: Recent media reports state that
China's Gini coefficient has reached 0.46, one of the worst
income distribution ratios in the world. End note.)

CICIR on China's "Overheating" Economy
-------------- --------------


6. (U) CICIR officials disputed claims by international
experts that China's economy is "overheating," and
attributed unexpectedly high first quarter 2006 GDP growth
(which reached 10.2 percent according to the National

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Bureau of Statistics) to a surge in investment during the
last quarter of 2005. High growth in the first quarter of
2006 also was due to increases in consumer spending,
technological improvements, increases in export volume, and
rises in living standards, they said. In addition, CICIR
officials hope that the New Socialist Countryside program,
officially approved as a part of the 11th Five-Year Plan
during the March 2006 session of the National People's
Congress, will boost consumption in rural areas and
stabilize the economy in the long-term, enhancing China's
ability to achieve economic development, improving
stability, and raising the overall quality of life in rural
areas.


7. (U) CICIR officials noted three potential challenges
regarding economic growth in the near future: 1) internal
and external uncertainties; 2) "overcapacity" in industries
such as steel; and 3) China's shortage of electricity
resulting from an increased demand for energy sources.
CICIR officials gave as examples of internal uncertainties
limited natural resources and industrial accidents such as
coal mine disasters, and as examples of external
uncertainties trade friction with major trading partners
and the rising cost of crude oil.

CICIR on China's Energy Security and Strategy
--------------


8. (U) China's energy strategy, according to the CICIR
officials, aims to diversify energy sources, rely more on
domestic energy sources, and concentrate on coal and oil as
the main sources of energy. Energy security is a priority
in the Eleventh Five-Year Plan, CICIR officials noted.


9. (U) In terms of industrially-consumed energy, it is
vital to improve efficiency in the use of natural resources,
CICIR officials asserted. To address this problem, CICIR
officials believe that industrial-sector businesses need
more specific guidance from the Central Government. Also,
CICIR officials stressed the importance of reducing energy
consumption by 20 percent per unit of output, which they
believe is possible to achieve in the next five years.


10. (U) CICIR officials stated several potential challenges
in terms of securing domestic sources of energy: 1)
diversifying energy resources; 2) environmental protection
and cooperation with international counterparts; and 3)
opening energy companies up to private sector investment.


11. (SBU) Comment: CICIR's official comments reinforce and
support the official party line. Building a harmonious
society, strengthening the economy, and securing a sound
energy strategy are three essential areas of concentration
for Chinese officials. Overall, CICIR officials noted
three major challenges that China will have to confront in
the near future: 1) finding a solution to the impact
economic growth is having on the environment, 2) striking a
balance between economic and social progress, and 3)
mitigating external risks and challenges to China's
progress. However, given the historically strong emphasis
on GDP growth over other areas such as labor rights,
environmental considerations, and social progress, these
goals will not be easy to achieve, especially in the short
term. End Comment.

RANDT