1. (C) The 2006 Quadrennial Defense Review (QDR) contains
positive language about China but PRC analysts are concerned
about the identification of China as the country having the
greatest potential to compete militarily with the United
States as well as the explicit reference to a policy of
hedging, according to Yuan Peng, Vice Director of U.S.
Studies at the Chinese Institute for Contemporary
International Relations (CICIR). Chinese analysts recognize
that the primary focus of the QDR remains the war on
terrorism and U.S. military restructuring, Yuan said. The
PLA is studying areas where it may open up more of its
military budget to "transparency." Yuan suggested that the
Embassy use the Chinese media to present U.S. perspectives on
the QDR to reduce misunderstandings. The PLA is preparing a
proposal for a disaster relief joint exercise. End summary.

QDR readout


--------------------------





2. (C) Poloffs visited Dr. Yuan Peng, Vice Director of U.S.
Studies at the Chinese Institute of Contemporary
International Relations (CICIR), a Chinese
Government-affiliated think tank with international security
interests on February 13. Dr. Yuan's February 8 article (ref
A), "US, not China, Stands at Strategic Crossroads" reviewed
the QDR's implications for U.S.-China relations. Yuan told
Poloffs that the QDR statement that "China has the greatest
potential to compete militarily with the United States" was
the most surprising aspect of the report for China. He
called the phrase "harsh" and not what the PRC expected
following the visits of President Bush and Defense Secretary
Rumsfeld as well as Deputy Secretary Zoellick's "stakeholder"
speech and Senior Dialogue exchanges. Although Chinese
analysts recognize that the primary focus of the QDR remains
the "long war" on terrorism and U.S. military restructuring,
specifying China as a potential military competitor was
disruptive, in Yuan's view. Many Chinese analysts expected
that the strongest language on Chinese military affairs would
not appear until the summer 2006 annual Report to Congress on
Chinese Military Power.



4. (C) Yuan expressed concern about the QDR reference to the
need to "hedge" against the PRC, saying that this was the
first time he has seen this wording in an official U.S.
document. He said PRC analysts are concerned about the
implications of a U.S. "hedging" strategy, particularly as
there is disagreement about the meaning of the term. On the
positive side, he expressed appreciation for the positive
language about working with China.



5. (C) Poloff responded that it is difficult to argue against
the notion that China has the greatest potential to compete

military with the United States in the future. Yuan said
that while this may be correct, it should not have been said
in such a direct way in an official document, as this sends a
strong political signal. Poloff commented that while this
may be true in a PRC political context, the U.S. context
requires acknowledging such an obvious fact. The reference
to the need to hedge is made in the context of both the
uncertainties of the future as well as China's lack of
military transparency.

PLA Studying Moves Toward Transparency


--------------------------





6. (C) Yuan acknowledged the U.S.'s long-standing concern
over defense transparency and said that the PRC leadership
recognizes that U.S. statements about the PLA's lack of
transparency have resonated within the region. Commenting
that Beijing must find a way to address this issue, he stated
that several working groups within the PLA are studying ways
to increase transparency. In response to a question about
the definition of greater transparency in PRC military
development, Poloffs raised U.S. concerns on China's
development of asymmetric capabilities and lack of
transparency in its defense development, particularly the PLA
budget, force structure, doctrine, capability and intentions.
Noting that other countries have reason to share these
concerns, Poloffs pointed out that China's capability to
project power have regional implications. Lack of
understanding of China's long-term goals make assessing the
PLA's military buildup difficult and can create

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misunderstandings. Enhanced opportunities for substantive
military exchanges can help demystify the two militaries'
views of each other, as Secretary Rumsfeld indicated in
October 2005.

Use Chinese Media to Discuss the QDR?


--------------------------





7. (C) Yuan said out that the Chinese people do not have a
good understanding of the QDR and suggested the Embassy might
seek to make its case through the Chinese mass media to help
inform Chinese public opinion about the QDR.

Chinese Interest in Joint Humanitarian Relief Exercise


--------------------------



--------------------------





8. (C) Asked about the overall state of bilateral military
ties, Yuan said that many analysts feel that military
cooperation lags behind U.S.-China engagement in other
fields. He continued that the PLA is interested in future
joint military exercises with the United States and that a
PLA study group was drafting a proposal for a U.S.-China
joint humanitarian disaster relief exercise.
Randt