SCHOLARS SAY SCO EXPANSION, IRANIAN MEMBERSHIP,

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 023353

SIPDIS

SIPDIS

DEPT FOR SCA, EAP/CM AND INR (FOR G. KNIGHT)

E.O. 12958: DECL: 11/02/2031
TAGS: PREL ENRG PTER ZK RS CH IR
SUBJECT: SCHOLARS SAY SCO EXPANSION, IRANIAN MEMBERSHIP,
GREATER ENERGY ROLE POSSIBLE BY NEXT YEAR

REF: A. BEIJING 9673


B. BEIJING 20105

Classified By: Political Minister Counselor Daniel Shields.
Reasons 1.4 (b/d)

Summary
--------------


1. (C) Chinese scholars say that by 2007 the Shanghai
Cooperation Organization (SCO) could be in a position to
accept new permanent and observer members and will further
establish a framework to address economic development, good
governance and energy issues in Central Asia. Iran could
become a permanent member of the organization next year,
scholars told us, although an MFA official was more cautious
about the pace of SCO expansion. SCO activities will likely
include joint military exercises and establishment of an
"Energy Club" among SCO members. China will place priority
on economic and infrastructure development in Central Asia as
a way of promoting stability while protecting security and
preventing terrorism. China continues to voice willingness
to defer to Russia in the region but notes that Russia may
fear China's expanded influence and see Central Asia as a
competitor for meeting China's energy needs. Finally,
Beijing is suspicious of what it sees as U.S. support for
destabilizing "color revolutions." End Summary.


2. (C) Chinese officials and academics say the Shanghai
Cooperation Organization (SCO) hopes to have a framework in
place by next year that would allow the SCO to accept new
permanent and observer members. Iran could become a
permanent member next year if newly drafted regulations for
expanding SCO's permanent and observer members are adopted,
scholar Wang Lijiu of the State Security-affiliated China
Institute of Contemporary International Relations (CICIR)
recently told visiting EAP analysts Sam Chernawski and David
Longenecker. MFA Deputy Director for SCO Affairs Wang Wenli
said Iran and Pakistan have applied for permanent SCO
membership, but that the process was not likely to be
completed by 2007. In its 2007 leaders meeting, the SCO will
likely ratify the newly drafted regulations but would take on
new members only after careful deliberation, she said.
Noting Ref A discussions with U.S. officials, MFA's Wang said
China is aware of U.S. concerns about SCO expansion to
include Iran and is taking a "measured" approach.

Iran a "Natural Fit" to Join SCO, Scholar
--------------


3. (C) It would be "natural fit" for Iran to join SCO as a
permanent member given its historical, political and economic
influence in the region, CICIR scholar Wang said. At the
July and September summits, the SCO delegated to SCO
Secretary General Zhang Deguang authority to establish a

SIPDIS
legal framework to allow for new permanent and observer
members. The SCO is an "open" organization, he said, and the
frameworks developed should provide an opportunity not only
for Iran but perhaps also for the SCO's three other observer
members to become permanent members. The SCO has
contemplated creating some form of dialogue partner status
for the United States, the European Union and other groups
outside the region, he said, but is unlikely to put a high
priority on expansion by non-permanent members outside
Central Asia in order to maintain the SCO's regional focus.

Energy Club Likely To Win PRC Support
--------------


4. (C) China continues to seriously consider the Russian
proposal from the July SCO Summit to establish a separate
"Energy Club" of SCO members by 2008, Assistant to SCO
Secretary General Du Wei told visiting INR analyst Greg

SIPDIS
Knight. It remains unclear what form the energy cooperation
will take, but MFA's Wang said China envisions a club that
governments, private companies and think tanks might join
which would conduct joint research and policy formulation.
The Energy Club would be a more vigorous institution than the
current SCO expert-level energy working group, she said.


5. (C) CICIR's Wang advocates a dialogue between energy
producers and consumers that might later be replicated on a
larger, even global, level to improve coordination and help
stabilize the global energy market. China and Russia agree
on most bilateral issues, CICIR's Wang said, and both see the
proposed SCO "Energy Club" as a friendly vehicle through
which differences between energy exporters and importers

BEIJING 00023353 002 OF 003


could be discussed and resolved.


6. (C) Xia Yishan of the MFA-affiliated China Institute for
International Studies (CIIS),a consultant in the SCO's
formation, told poloff that energy is the field where
divergence of Chinese and Russian interests with respect to
Central Asia is most likely. China would prefer bilateral
energy cooperation with Cental Asian states, such as a
pipeline from Kazakhstan, with those channels only later
opening to Russia, he said. Russia wants to maintain
"bottleneck" control of the ability to transfer Central Asian
oil and gas to Europe and forer Japanese PM Koizumi's August
trip to Central Asia added to concerns about competition ovr
the region's natural resources, Xia said. Russia also sees
Central Asian states, specifically Kazakhstan and
Turkmenistan, as competitors for serving China's growing
energy market, he said. As a result, SCO members may begin
discussing energy cooperation, but Xia found it unlikely that
a SCO energy pipeline or corridor would be established
anytime soon.

Economics, Governance On Par With Security Issues?
-------------- --------------


7. (C) China believes it must foster economic development in
Central Asia in order to create a more secure environment
because economic backwardness contributes to instability,
according to both the MFA's Wang and CICIR's Wang. Applying
President Hu Jintao's "harmonious world" philosophy to the
region, China supported economic development projects in
Central Asia, including several announced at the September
SCO Prime Minister's meeting, according to CIIS' Xia. At the
September meeting (ref B),China announced support for large
development grants, extension of electrical grids,
construction of a road and transport corridor and many other
infrastructure projects, Xia said. These projects are funded
by a $900 million Chinese loan and by $720 million funded by
central banks in the region which aims to become a SCO
interbank network, Du said.


8. (C) The SCO continues to expand from its origin as a
regional security and terrorism prevention network to address
good governance, law enforcement and other fields, Du said.
March Uzbek-Kyrgyz border exercises, August military
exercises involving Kazakhstan and China, and September
anti-terrorism exercises in Tajikistan conducted under SCO
auspices show that the SCO's framework for enhancing military
cooperation is complete, Du said. MFA's Wang said the joint
exercises conducted this year focused on law enforcement
aspects of counter-terrorism and counter-narcotics, often
involving police forces. An anti-terrorism military exercise
slated to be held in the Russian Far East during the first
half of 2007 will be coordinated by defense ministries and
will be of much larger scale than this year's exercises, she
said.


9. (C) SCO leaders emphasized their interest in focusing on
transportation and energy during their September meetings,
but MFA's Wang said the SCO has no overall plan that guides
recent, spontaneous ministry-to-ministry exchanges in other
areas. Cooperation among SCO ministers in governance and
cultural aspects has expanded greatly, she said. In
September, China hosted a meeting of SCO Supreme Court
Presidents, while in October SCO Education Ministers
exchanged ideas at a session held in Beijing. Prosecutors,
customs officials, culture ministers and the heads of
environmental protection agencies from SCO nations also met
in China in recent months, the SCO Secretariat's Du said.

China Lets Russia Take Lead But Expands Own Network
-------------- --------------


10. (C) Du disputes the premise that China is becoming a
monopolistic leader within the SCO. While China's fast
economic development is obvious and has become a model for
some Central Asian countries to emulate, Du said the SCO's
emphasis on consensus decision-making prevents China or
Russia from dominating the organization's deliberations.
Moreover, China continues to defer significantly to Russia on
relations with Central Asian states. China knows that it
cannot compete with personal relationships between Russian
and Central Asian leaders that were built up over decades, Du
said. Renmin University Dean for international political
economy Zha Daojiong noted that China was initially
interested in donating more than $900 million to Central Asia
this year for bilateral infrastructure projects. But after
scholars raised possible concern that Russia would view a

BEIJING 00023353 003 OF 003


larger donation as too aggressive and threatening to its
regional interest, the Chinese government cut back its
proposed contribution, Zha and CIIS' Xia separately told us.
China has no intent to challenge Russian influence, Xia said,
but cannot exclude the possibility that Russia is concerned
about an expansion of China's relations in Central Asia.

Color Revolutions Destabilizing, Scholars Say
--------------


11. (C) Changes of government are destabilizing in Central
Asia, Xia told poloff. China believes strong leaders in
Central Asia are necessary to control the risk of Islamic
fundamentalism and fears U.S. ideological intentions because
future "color revolutions" might increase the chance that
Islamic extremists take power, he said. CICIR's Wang also
expressed skepticism about U.S. support of "color
revolutions" and asked whether the United States places a
greater priority on democracy or on regional stability.
Visiting EAP officials disputed China's view that stability
and democracy are contradictory and emphasized that U.S.
policy is designed to support both objectives.


12. (C) INR analyst Knight and EAP officials Longenecker and
Chernawski, whose meetings contributed to the substance of
this message, did not have an opportunity to clear this cable.
Randt