UNCLAS SECTION 01 OF 06 BEIJING 016631

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SENSITIVE

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E.O. 12958: N/A
TAGS: PREL ENRG SENV KIPR OREP CH TW
SUBJECT: CODEL Stevens: U.S.-China Inter-Parliamentary
Dialogue

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE
ACCORDINGLY.

SUMMARY
--------------


1. (SBU) CODEL Stevens, accompanied by the Ambassador,
discussed issues including Taiwan, North Korea, Lebanon,
China?s defense policy, energy security, intellectual
property rights (IPR), the exchange rate and bilateral
trade with members of the Chinese National People?s
Congress (NPC) in Guilin, China during the third annual
U.S.-China Inter-Parliamentary Group (IPG) dialogue. (See
paragraph 28 for the Participant List). The CODEL urged
that China do more to address problems including the North
Korean nuclear issue, the lack of transparency in China?s
military buildup and the need for improved IPR protection
in China. NPC members emphasized that that United States
and China share important strategic interests. End
Summary.


2. (SBU) NPC Vice-Chairman and Secretary-General Sheng
Huaren led off the opening session of the Inter-
Parliamentary Group dialogue by noting that U.S.-China
relations enjoy positive momentum. The United States and
China share important strategic interests, but allowances
should be made in handling sensitive questions. Senator
Stevens cited the importance of continuing meaningful
exchanges of views and cooperation. Senator Inouye added
that increasing mutual awareness is the key to maintaining
constructive bilateral relations and peace in the region.

TAIWAN
--------------


3. (SBU) Sheng expressed appreciation for U.S. adherence to
a one China policy, U.S. opposition to unilateral changes
to the status quo and U.S. ?imposition of some constraints?
on Taiwan independence. Sheng stated that Chen Shui-bian
is ?deeply trapped in scandal? and has ?no credibility to
speak of.? He cited concerns that Chen may be pushed, out
of desperation, to attempt to declare Taiwan independence.
NPC Foreign Affairs Committee Chairman iang Enzhu said
that Chen?s stubborn adherenc to independence perpetuates
cross-straits tensions. Jiang noted that Taiwan?s
Democratic Progressive Party (DPP) and the Taiwan
Solidarity Union (T

SU) are planning to put forward a new
draft constitution in September. He warned that this
constitutional re-engineering was ?most dangerous? and said
he hoped the U.S. would help restrict moves towards Taiwan
independence. He cautioned against Congress sending the
wrong signal to Taiwan on this issue. Jiang told the
Senators that China wants peaceful unification, economic
development and stability.


4. (SBU) Senator Stevens stated that the United States
adheres to its one China policy and does not support Taiwan
independence. He urged China to be patient on the Taiwan
issue. Senator Inouye noted that the United States is
aware of China?s efforts militarily ?in space, in the
ocean, and on land,? and cautioned that such activities
should be undertaken carefully and transparently.

ECONOMIC ISSUES
--------------


5. (SBU) CODEL Stevens and the NPC members stressed the
importance of the economic relationship to the health of
the overall bilateral relationship, noting that the U.S.-
China economic relationship has a global impact. Jiang
said that China?s long-term strategic goal is peaceful
economic development, improving Chinese citizens? standard
of living. Jiang noted that while China?s GDP is about USD
2.22 trillion, its per capita GDP is only USD 1,700.
Rural-urban income disparities are still a problem, as is
the need to create job opportunities for 150 million
?redundant employees.? Sheng added that 100 million Chinese
still live on less than one dollar per day. China must
deal with serious pollution, health care, and energy
resource issues. Jiang estimated that it would take
several generations for China to fully achieve
modernization and characterized China?s development as an
opportunity, not a challenge or a threat.


6. (SBU) NPC Financial and Economic Affairs Committee
Vice-Chairman Zhou Zhengqing acknowledged U.S. concerns

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over the growing trade imbalance but stressed that both the
United States and China have benefited from the increase in
trade between the two nations. U.S. companies are
responsible for a large portion of Chinese exports to the
United States and are reaping profits from the trade. Zhou
stressed that China does not seek to perpetuate its trade
surplus, which is a result of globalization, trade
liberalization and attendant industrial restructuring.
Sheng said he hoped that the U.S. would relax its
restrictions on high tech trade with China and its import
quotas on Chinese goods.


7. (SBU) Senator Stevens emphasized the need to establish
controls on distant water fleets, which can do considerable
damage to the oceans. He cited Alaska?s scientific
management of ocean species as a model. On civil aviation,
Senator Stevens said that the development of ?mosquito
fleets? (small, low-cost aircraft with ranges of
approximately 1,200 miles) would be a new form of
transportation that may pose a challenge to maintaining
control of airspace.


8. (SBU) Senator Cochran stressed the importance of
protecting intellectual property rights (IPR), reminding
the NPC members of China?s TRIPs and bilateral commitments
in this area. He noted China?s efforts to enforce
compliance to date, including a recent crackdown on 14
factories that produced pirated CDs, and encouraged further
actions. Citing the effect of currency valuation on U.S.
manufacturing, Senator Cochran encouraged further moves
toward a flexible renminbi (RMB) exchange rate. He noted
that China imports USD 1.4 billion in U.S. cotton and USD 1
billion in U.S. soybeans and stated hopes for expansion of
U.S. beef and poultry exports to China. He raised the
importance of port and shipping security and lauded China?s
participation in the Container Security Initiative (CSI).


9. (SBU) Noting President Hu Jintao?s recent visits to
Boeing and Microsoft in Washington, Senator Murray
expressed appreciation for China?s recent purchases of
Boeing aircraft. She noted China?s efforts to ensure
proper software licensing, especially on Chinese Government
computers, but expressed concern over draft laws and
standards that might discriminate against foreign products.
Senator Alexander reiterated the need for enhanced IPR
protection, noting in particular the problem with artist
royalties. Increasingly, there will be U.S.-China
collaboration in the sciences and the arts, and the results
of these collaborative efforts must be protected.


10. (SBU) Senator Specter stated that trade and economic
development requires international peace and stability, as
well as a strong judicial system. In discussing the need
for stable judicial institutions, Senator Specter raised
the case of a Chinese-American librarian detained in China
and the need for greater protection of human rights. The
Senator spoke about the separation of powers in the U.S.
system and recent U.S. Supreme Court decisions. In
Pennsylvania, there are concerns about dumping of
subsidized steel from China, he said. The Senator
concluded by urging China to refrain from blocking internet
sites that do not violate laws or pose explicit threats.

RMB EXCHANGE RATE
--------------


11. (SBU) Zhou Zhengqing noted that since July 2005, China
has implemented a ?floating? rate of exchange for the RMB
based on a basket of foreign currencies. Since that time,
the RMB has appreciated 3.7 percent against the dollar.
Zhou remarked that a faster appreciation is neither
workable for China nor a viable solution for the U.S. trade
deficit. Zhou cited the example of the rapid appreciation
of the Japanese yen and the resultant economic stagnation.
Zhou suggested that the trade imbalance could be solved by
?altering the economic structure? in the United States,
increasing the U.S. savings rate and increasing high tech
exports to China. He cautioned that a rush to alter the
RMB exchange rate would lead to economic losses on both
sides.

INTELLECTUAL PROPERTY RIGHTS
--------------


12. (SBU) NPC Law Committee Vice-Chairman Hu Kangsheng
detailed China?s efforts to comply with its legal

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obligations regarding IPR and its successes in IPR
enforcement. Hu said China has committed itself to its
TRIPs obligations and revised judicial interpretations,
patent, trademark and copyright laws. China has made
considerable progress in enacting legislation to protect
and nurture IPR. China established the IPR Working Group
in 2004, has conducted anti-piracy public awareness
campaigns, established special IPR tribunals and has
increased the number of prosecutions of IPR-related crimes.
IPR cases involving Borland, Colgate, Crest, and Hugo Boss
were specifically mentioned. China has made efforts to
improve communication on IPR issues with investors and
Chambers of Commerce.


13. (SBU) Sheng added that the NPC and the Government plan
to strengthen IPR protection laws. Sheng admitted the
Chinese legal system is not perfect, that the market system
needs improving, and that the Chinese Government
understands the importance of punishing IPR violators.
Sheng urged any Senators who have information on IPR
violations to bring it to his attention so he can forward
it to the appropriate department. He hoped this would help
convince the Senators that the NPC is ?serious and
proactive? on IPR issues. Senator Stevens thanked Vice-
Chairman Sheng and committed to taking him up on his offer
regarding IPR violations.

THE MIDDLE EAST
--------------


14. (SBU) Senator Stevens stated that radical, militant,
Muslim forces not controlled by governments, most
prominently Al-Qaeda, are the biggest threat to
international security. The Senator noted apparent
coordination of attacks in Iraq and the Hezbollah attacks
in Lebanon. Stressing the dangers of supporting extremist
elements, he urged China to change its policies with regard
to countries such as Iran and Venezuela. Senator Dayton
stated that conflicts in the Middle East, Lebanon in
particular, show that the destructive power of conventional
weapons makes citizens less secure. The use of such
weapons can set a country?s economic progress back by
decades.


15. (SBU) Senators Specter and Stevens questioned the NPC
members concerning a media report that the missile that hit
an Israeli ship in the Mediterranean was manufactured in
China and possibly modified in Iran. While Senator Specter
emphasized that this was only a media report, he stressed
that Iran is a known supporter of terrorism with ties to
Hezbollah and that Chinese arms sales to certain countries
are a concern. Senator Stevens stated that it was clear
that Hamas and Hezbollah have received considerable
weaponry from Iran. The U.S. policy is to stop trading
with countries that transfer weapons to third parties, he
said. What would China do if this media report on the
missile were true? The Chinese delegation avoided a direct
response. Foreign Affairs Committee Vice-Chair Lu Congmin
said that China has been ?prudent? and ?very responsible?
in its export of arms. China exports a ?limited number of
conventional weapons? to sovereign nations and urges these
nations not to transfer them to third parties. Lu
commented that both the United States and China need to be
careful in exporting any type of weapons so as not to pose
a threat to international security.


16. (SBU) Lu stated that in the UN Security Council, China
has expressed its deep concern about the conflict in
Lebanon. China calls on all sides to cease fire
immediately and engage in discussions. China has no
problem with the current draft of the UNSC resolution, but
it hopes the U.S. and France can make adjustments which
will help ensure full implementation. China is willing to
stand with the U.S. to find a text that is acceptable to
all sides.

DPRK
--------------


17. (SBU) Senator Specter stated that North Korea is a
threat to peace and international stability and that the
United States needs China?s assistance in dealing with the
DPRK. While the Senator said that the USG policy is
multilateral talks, some Senators felt that direct talks
should be undertaken. Senator Dayton warned that if the
DPRK or Iran develops nuclear weapons, the situation could

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go ?beyond the point of no return.? The lack of progress
in the Six-Party Talks is alarming and destabilizing, he
said. The Senator urged U.S.-China cooperation to prevent
nuclear proliferation and protect existing nuclear
stockpiles to prevent possible terrorist use.


18. (SBU) Jiang stated that China opposed the DPRK missile
test. UN Security Council Resolution 1695 sends a clear
message to the DPRK. All parties need to maintain dialogue
and build mutual trust. China and the United States have a
common strategic interest in stability and a peaceful
resolution of these issues. Jiang said the Six-Party Talks
are at an impasse. The DPRK says it is committed to
implementing the September Joint Statement from the Talks,
but will not return to the Six-Party Talks while the
?financial sanctions? are in place. Jiang said that China
is working on North Korea concerning these issues and
stated that "we should not sacrifice the greater issue for
a lesser issue.? He said China is willing to cooperate in
creating an environment for a DPRK return to the Six-Party
Talks.

CHINA?S DEFENSE POLICY
--------------


19. (SBU) NPC Standing Committee and Foreign Affairs
Committee Member Li Yuanzheng said China has a peaceful
foreign policy and that its military intent is transparent.
Li stated that China has ?not a single soldier or military
base abroad.? China will not use nuclear weapons and
opposes an arms race, Li said. He suggested that the five
nuclear powers should conclude a no first strike agreement.
China believes in ?post-emptive? strikes and ?will never
launch a pre-emptive attack.? Li acknowledged increases in
China's defense spending and pointed to U.S. statements
citing China as a potential military threat. Li asserted
that, given China?s long land borders and problems with
Taiwan, Tibet and "East Turkestan" elements, any increase
in defense spending is normal. Li said that the increase
will go to raising soldiers? pay and purchasing fuel and
more modern equipment. China?s 2006 defense budget of USD
35 billion is only 1.5 percent of China?s GDP and only 7
percent of the total national budget. Li speculated that
China may be as much as 20 years behind the United States
militarily.


20. (SBU) Senator Inouye said that relations can falter
because of misinformation, rumors and innuendo. The
Senator stated that we know China has is developing a
submarine-launched nuclear missile, a carrier aircraft wing
and advanced space instruments. The Senator said that
these are not defensive weapons. Li responded by saying
that China has an "active defense" policy. Senator Stevens
added that the U.S. has forces in 121 countries and the
United States protects our (and China?s) trade routes.
U.S. forces protect freedom in general. The United States
wants China to have a strong military so China can help
maintain peace and stability in the world.

ENERGY SECURITY
--------------


21. (SBU) Senator Inouye emphasized shared interests in
bilateral energy cooperation and development of new
technologies. Senator Coleman noted that China is expected
to double its energy consumption by 2020 and said that
China's oil dependency could have a negative impact on
U.S.-China relations, if it involves dealings with
countries that foment instability and violate international
norms and treaties, such as Iran. It is essential for the
United States and China to develop alternative and
renewable energy sources, such as wind, solar, biofuel,
hydrogen fuel cells, clean coal, and nuclear fusion.


22. (SBU) NPC Internal and Judicial Affairs Committee
Member Sun Jinlong gave a presentation on China?s energy
production and consumption, including production of 2.19
billion tons of coal and 180 million tons of oil per year,
accounting for 90 percent of China?s energy consumption.
Sun noted that China only consumes 8 percent of the world?s
supply of oil and that China?s energy consumption is no
threat to world consumption. Nevertheless, China is giving
priority to energy efficiency measures and hopes to reduce
pollution and energy consumption per unit of GDP. The
trend for the 21st century is towards alternative and
renewable energy sources and China plans to increase

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nuclear power generation from the current 16,000MW to
40,000MW by 2020.


23. (SBU) Chinese Academy of Sciences Institute of Plasma
Physics Vice-President Wu Songtao made a detailed
presentation on China?s efforts to develop nuclear fusion.
Wu outlined the benefits of fusion as opposed to fission
reactors in regards to safety, waste disposal, and fuel
limitations. Wu explained the need for further research to
achieve controllability and sustainability of a fusion
reaction. He speculated that a commercially viable fusion
reactor could be available by 2050. Wu invited CODEL
members to visit the Institute of Plasma Physics facility
in Hefei, Anhui Province.


24. (SBU) Senator Burr emphasized the need for adequate,
predictable, and affordable energy streams today and in the
near future. In the near term, oil prices need to become
more affordable and we need to ensure adequate supplies for
both China and the United States, the Senator said. He
stated that nuclear power generation is essential for the
immediate future. Senator Burr stressed that the
government can be the source of seed money, can set goals
and give direction, but that the private sector is
essential to making things a reality. Senator Coleman
mentioned that in the United States, the maximum capacity
for ethanol production is about 16 billion gallons. With
additional cooperation and collaboration between the U.S.
and China, cellulosic ethanol production could jump to 60
billion gallons.

TIBET
--------------


25. (SBU) NPC Internal and Judicial Affairs Committee
Vice-Chairman and Chinese Buddhist Association Vice-
President Jia Muyang delivered a prepared speech on Tibet
and the Qinghai-Tibet railway, stating that Tibetans
welcome the railway and that it is important for the
economic and social development of the region. Government-
funded railway construction was completed a year ahead of
schedule and President Hu presided over the inauguration
ceremonies in July. The railway demonstrates the unity of
Chinese minorities, he claimed, but stated that "some
people" have expressed unhappiness with the railway. He
characterized this latter group as ?ethnic secessionists?
led by the Dalai Lama.

AVIAN FLU
--------------


26. (SBU) NPC Education, Science, Culture, and Public
Health Committee Vice-Chairman Sang Guowei outlined China?s
efforts to prevent avian flu outbreaks and to prepare
response measures in case of an outbreak. Sang said that
the current avian flu situation in China is stable. China
has optimized its laws, increased disease monitoring and
reporting, engaged in intense research to develop a vaccine
and implemented culling of birds, according to Sang.


27. (SBU) Senators Stevens and Inouye thanked their
Chinese hosts and Senator Stevens suggested that the IPG
expand to include Japan for trilateral discussions. Sheng
did not respond directly to the suggestion, noting only
that the IPG should continue on a long-term basis and that
the next round should be in the United States.

PARTICIPANTS
--------------


28. (U) U.S. Participants:
Senator Ted Stevens, IPG Co-Chairman
Senator Daniel Inouye, IPG Co-Chairman
Ambassador Clark T. Randt, Jr.
Senator Thad Cochran
Senator Arlen Specter
Senator Patty Murray
Senator Mark Dayton
Senator Lamar Alexander
Senator Norm Coleman
Senator Richard Burr
Senate Staff
Interpreters
Notetaker

Chinese Participants:

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Sheng Huaren, IPG Chairman
Jiang Enzhu, IPG Executive Chairman
Hu Kangsheng, Legal Affairs Committee Vice-Chair
Lu Congmin, Foreign Affairs Committee Vice-Chair
Zhou Zhengqing, Finance and Economic Affairs Vice-Chair
Jia Muyang, Internal and Judicial Affairs Committee Vice-
Chairman and Chinese Buddhist Association Vice-President
Sang Guowei, Education, Science, Culture, and Public Health
Committee Vice-Chairman
Li Yuanzheng, Foreign Affairs Committee
Sun Jinlong, Internal and Judicial Affairs Committee
Wu Songtao, Chinese Academy of Sciences Institute of Plasma
Physics Vice-President
Xin Chunying, NPC Deputy
Ni Yuefeng, NPC Deputy
Fang Xin, NPC Deputy
Wang Wanbin, NPC Deputy


29. (U) CODEL Stevens cleared this message.

RANDT