CHINA/ENERGY: SENIOR DIRECTOR HUNTER, NDRC VICE-CHAIRMAN

UNCLAS SECTION 01 OF 03 BEIJING 023938

SIPDIS

SIPDIS
SENSITIVE
STATE FOR EAP/CM GWARD AND PSECOR, EB/ESC PHAYMOND
NSC FOR RHUNTER, JSHRIER, DWILDER
USDOE for DOE OIC DPUMPHREY, OFFICE OF THE SECRETARY for
MWILLIAMSON
TRESURY FOR OASIA/ISA ADAMS/DOHNER/CUSHMAN
USDOC FOR 4220/ITA/MAC/CMMCQUEEN/HAMROCK
USDOC FOR 1003/ITA/OUS/OC
USDOC FOR 6310/ITA/TD/OIEM/KMURPHY/HBURROUHGS
UDDOC FOR 6000/ITA/TD/RPACE

E.O. 12958: N/A
TAGS: ENRG PREL ETRD SENV TRGY CH
SUBJECT: CHINA/ENERGY: SENIOR DIRECTOR HUNTER, NDRC VICE-CHAIRMAN
ZHANG XIAOQIANG MEET TO DISCUSS BILATERAL ENERGY ISSUES

REF: BEIJING 23859

Summary
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1. (SBU) NSC Senior Director Roszell Hunter and National
Development and Reform Commission (NDRC) Vice-Chairman Zhang
Xiaoqiang met to discuss energy and environmental issues relating to
the Strategic Economic Dialogue (SED) on November 16, 2006. Senior
Director Hunter stated Washington wants cross-cutting discussions
during the SED that move it beyond an exchange of talking points and
towards frank exchanges. The United States has thirty years
experience balancing economic growth and environmental protection
that China can draw on during the SED. Washington policymakers
have broad interest during the SED in learning more about the role
of market forces in China's energy policy, said Senior Director
Hunter. Vice-Chairman Zhang stated China also wants a cross-cutting
approach to the SED. China is looking for assistance to meet energy
conservation goals. The NDRC hopes the SED will give Beijing a
better understanding why Washington has inconsistent standards for
western oil companies and Chinese oil companies as they conduct
business abroad. Zhang noted that China needs a long-term
commitment from the United States in order for Westinghouse to
secure the contract to bid the next generation of China's nuclear
power plants. End Summary.

Senior Director Hunter Raises SED Framework
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2. (SBU) NSC Senior Director Roszell Hunter and NDRC Vice-Chairman
Zhang Xiaoqiang met to discuss energy and environmental issues
relating to the SED on November 16, 2006. Senior Director Hunter
said that his objective visiting the NDRC is to facilitate
cross-cutting discussions during the SED. Washington's goal is to
move the SED beyond an exchange of talking points and towards frank
exchanges focused on finding solutions to common problems. For
example, discussing the role of market forces in economic
development can bring senior energy and health care policymakers
together. Both groups must ensure government enables timely and
effective delivery of critical services, such as electricity and
medical care, to customers, according to Senior Director Hunter.



3. (SBU) Senior Director Hunter emphasized that the United States
now has more than thirty years legal and regulatory experience
managing the relationship between economic growth and environmental
protection. These experiences can be helpful to China as it manages
its own economic growth. The SED is a good opportunity for Beijing
to gain greater access to this type of assistance from the United
States, according to Senior Director Hunter. United States
Government officials participating in the SED have broad interest in
learning more about the role of market forces in China's energy
policy. For example, they want to learn more about the role of the
market in regulating China's energy demand and enabling China to
improve its energy supplies while discouraging wasteful energy
practices, said Senior Director Hunter.

Zhang: Cross-cutting Approach Best
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4. (SBU) Vice-Chairman Zhang stated during the last round of
meetings about the SED representatives from both countries agreed
for the need to have a cross-cutting approach. This technique helps
when attempting to balance energy needs and environmental concerns
in a way that fosters sustainable economic development. Zhang said
that China has a very ambitious plan to develop renewable energy
resources and other energy resources such as nuclear energy. China
is looking for technology, equipment, and capital to help develop
these resources.


5. (SBU) Vice-Chairman Zhang noted that Beijing and Washington
should use the SED to explore opportunities for cooperation in the
energy and environmental protection arena. China's participation
in the United States-led Futuregen clean coal power plant program is
a good example of the type of cooperation the two sides should
further develop. Additionally, Beijing will look to Washington to
provide assistance in helping China reduce its energy intensity
level. China's Eleventh Five Year Plan has an ambitious goal of a
twenty percent cut in energy intensity by 2011. The NDRC is anxious

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for any assistance the United States can provide in enabling China
to meet this goal, according to Zhang.

Zhang: Free Market Not Always the Best
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6. (SBU) Vice-Chairman Zhang went on to state that China is working
to find the balance between market forces and the regulatory role of
the Central Government in energy matters. Beijing's view is that at
times the market's "invisible hand" fails to adequately provide for
the welfare of average citizens. Problems relating to
build-own-operate (BOT) power plant projects in the Philippines and
California's power shortages in 2001 are examples of how markets
left to their own design can fail to provide adequate services at an
appropriate price. As a domestic example, Zhang highlighted that
many industrial polluters in China, such as power plants, have
installed emissions controls at their facilities. Unfortunately,
the emissions controls are only operational during environmental
inspections because the equipment is expensive to operate, according
to Zhang.

Zhang: United States Restricting China's Energy Market Abroad
-------------- --------------


7. (SBU) Vice-Chairman Zhang stated a cross-cutting approach to the
SED should also facilitate discussions on energy security since that
issue involves numerous factors including geopolitics,
transportation security, and the role of market speculators in the
international energy market. China and the United States as the
world's leading energy consumers have a shared responsibility to
promote energy security. NDRC Chairman Ma Kai believes that China
and the United States have a shared, but differentiated
responsibility in that regard, said Zhang.


8. (SBU) Vice-Chairman Zhang said that the NDRC wants to gain a
better understanding why the United States Government is so
concerned about where, and with whom China seeks oil deals. The
NDRC believes the United States has inconsistent standards for
western oil companies and Chinese oil companies, said Zhang. For
example, Washington is very concerned about Chinese companies
seeking deals in Iran. The United States is apparently unconcerned
about British, French, Italian, Japanese, and Russian firms doing
the same, according to Zhang. SED discussions on this issue do not
have to take place at a country-specific level, but a broad
discussion would help Beijing to better understand Washington's
thinking on the matter.

Zhang: Need MOU for Westinghouse Deal
--------------


9. (SBU) Vice-Chairman Zhang noted that China needs a long-term
commitment from the United States in order for Westinghouse to
secure the contract to bid the next generation of China's nuclear
power plants. The United States and China currently have good
energy cooperation, but if the United States continues to retain
strict control over exports of civilian high-technology products to
China, then Washington will hurt the competitiveness of American
companies. Zhang acknowledged that Beijing has received advocacy
letters on behalf of Westinghouse from Energy Secretary Bodman,
Commerce Secretary Gutierrez, and Secretary of State Rice.


10. (SBU) Vice-Chairman Zhang stated that the letters demonstrate
Washington's commitment to helping Westinghouse win the nuclear
power plant contract. The letters do little to provide assurances
on the United States' long-term view on energy cooperation with
China. Zhang claimed that Beijing is concerned that if bilateral
ties become strained, or if the United States enacted some sort of
new sanctions against China, cooperation on the nuclear power plant
contract could be affected. Beijing also is concerned that
tightened export control restrictions could impede the progress of
the program. The best way to mitigate this concern is for
Washington and Beijing to sign a memorandum-of-understanding
relating to the project, said Zhang.

Hunter: More Information Needed On MOU
--------------


11. (SBU) Senior Director Hunter responded that the United States
Government understands China's concerns about export control

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restrictions. Washington does not normally use
government-to-government MOU's to support commercial transactions.
Senior Director Hunter said that because of this fact it is
important for the NDRC to provide a clear understanding of what it
expects to be in such an agreement. (Note: Embassy Beijing met
with NDRC officials on Friday November 17, 2006 in response to
Senior Director Hunter's request for more information. See Reftel
for more information. End Note.)

Participants and Clearances
--------------


12. (U) Chinese participants:

Zhang Xiaoqiang, Vice-Chairman of the NDRC
Ma Xin, Director General, NDRC Department of Foreign Affairs
Li Bin, Deputy Director General, NDRC Department of Foreign Affairs
Gu Jun, Director, NDRC Department of Foreign Affairs
Guo Xin, NDRC Department of Foreign Affairs (Interpreter)


13. (U) United States participants:

Roszell Hunter, Senior Director, NSC
Robert Dohner, Deputy Assistant Secretary of Treasury
Robert Luke, Economic Minister-Counselor
Deborah Seligsohn, Environmental, Science, Technology, and Health
Counselor
Marco Dicapua, DOE Beijing Office Director
Cheryl McQueen, Director, Office of the Chinese Economic Area,
Market Access & Compliance, Commerce Department
Sarah Ellerman, Commercial Officer
Brian Jones, Economic Officer (Notetaker)


14. (U) Senior Director Hunter and his delegation did not have an
opportunity to clear this cable before departing Beijing.

RANDT