UNCLAS PARIS 007201

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/WE; DRL/IL; OES; NP; EB/ESC, AND EB/CBA
USDOC FOR 4212/MAC/EUR/OEURA
DOE FOR ROBERT PRICE PI-32 AND KP LAU NE-80

E.O. 12958: N/A
TAGS: ENRG EPET EIND EINV ELAB PREL PGOV FR CH
SUBJECT: PRESIDENT CHIRAC'S VISIT TO CHINA-STRENGTHENING THE
FRANCO-CHINESE ECONOMIC AND POLITICAL RELATIONSHIPS

REF: PARIS 1697

NOT FOR INTERNET DISTRIBUTION

Summary
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1. (SBU) French President Jacques Chirac's most recent four-day
visit to China on October 25th through the 28th was notable due to
the signing of trade deals worth approximately 5 billion euro and
for his personal efforts to improve Franco-Chinese political ties.



2. (U) "Never have we been so confident in our relationship, both
in the political arena as well as in the economic arena," was how
Chirac summed up Franco-Chinese relations in a briefing to
journalists on October 28 in the central city of Wuhan. Chirac, in
remarks made to the 30 CEOs of French industrial groups traveling
with him, also reportedly noted China's poor human rights record.
Thirteen economic and technical cooperation agreements were signed
between the two countries during this visit, in areas as diverse as
nuclear power, agriculture and preventing infectious diseases, and
aviation and rail transport. President Chirac also used his visit
to engage with President Hu Jintao on issues of shared security
concerns and to urge China to assume the responsibilities that come
with its increasing role as a global power. End Summary.

More Trade Deals...
--------------

3. (U) Headlining the new contracts was China's multi-billion-dollar
order of 150 Airbus A320 aircraft, along with an option to buy 20 of
the European aerospace giant's new wide-body A350 planes. While no
figures were released about the value of the contract, Airbus
officials said the average list price for one A320 was between 50.5
million and 78 million dollars. China placed an earlier order in

December 2005, when Chinese Premier Wen Jiabao visited France, for
150 Airbus planes with a list price of nearly 10 billion dollars.
As part of the deal, Airbus gave a final green light to the building
of an A320 assembly plant in the northern Chinese port city of
Tianjin -- the first of its kind outside Europe. The new plant will
complete its first aircraft in 2009 and will subsequently
manufacture four per month, the aircraft maker said.


4. (U) In Wuhan, Chirac laid the foundation stone for a new
Peugeot-Citroen factory, while urging French industry chiefs to
further expand their "strategic alliance" with China. The new
Peugeot-Citroen factory, a 50-50 joint venture with China's
Dongfeng, is expected to begin production in 2009 and will tap into
China's voracious appetite for new cars with an eventual annual
production capacity of 150,000 vehicles.


5. (U) The two countries also signed a 1.5-billion-euro contract
involving Alstom SA helping to build 500 Chinese freight
locomotives. The French group will only claim 340 million euro,
however, while the Chinese partner, Datong Electric, will keep the
rest. A second contract was signed in which Alstom SA will provide
hydroelectric equipment to China.


6. (U) Chirac also pressed the French bid for the multi-billion
dollar four nuclear reactor sale to China. However, in commentary,
Chirac noted that it was "a difficult case" for Franco-German
nuclear reactor supplier Areva/Siemens. (Comment: China launched
the bidding for the third-generation reactors in September 2004 with
France's Areva, Westinghouse and Russia's AtomStroyExport seen as
the front runners. A Chinese official said in June 2006 that no
decision on the bid had been made. Commenting on the French
proposal, Chirac noted the "political dimension" of the bid. The
bid was originally thought to be valued at about eight billion
dollars for the four reactors, but China may be trying to lower the
costs by buying the reactor designs and building the plants itself,
according to French media. However, Chirac underscored that Areva
was building a version of its third generation reactor (the European
Pressurized Reactor) in Finland, while Westinghouse's proposed model
existed only on paper. France's nuclear industry has long been
engaged in supplying reactors to China with four of the country's
currently operating 11 nuclear reactors French-made. End Comment)


7. (SBU) GOF officials tell us one sour note occurred during a
session of the Intergovernmental Commission on Trade on the eve of
Chirac's arrival. Trade Minister Christine Lagarde apparently was
treated to a long harangue on French protectionism by her Chinese
counterpart, prompted in part by the EU's recent decision to impose

tariffs on footwear.

A few political issues

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

8. (U) Chirac's primary political priority in China was to discuss
the North Korean nuclear tests and insure that China would continue
to take a firmer stand toward North Korea than it has in the past.
In a press conference following conversations with Hu Jintao, Chirac
announced that he "had not observed today any divergence of view
between the Chinese authorities and the international community" on
the question of sanctions. According to press reports, the Chinese
in private meetings expressed their frustration with North Korea's
stubborn attitude and their lack of receptivity toward the Chinese
presidential envoy that went to Pyongyang on October 9, the day
after the nuclear tests. The Chinese told Chirac that the North
Koreans wanted direct talks with the US, according to press
reports.


9. (U) Chirac further hoped that encouraging China to demonstrate
its strong stance toward North Korea would set an example for Iran
of unanimous opposition to nuclear testing. Chirac argued in
meetings with Chinese leaders that Tehran closely watches the
Security Council's response to North Korea, and could be positively
influenced by China's support for sanctions. Chirac also took
advantage of a press conference in Wuhan on October 27 to speak out
publicly in support of "reversible" sanctions against Iran.
Although he conceded that he himself has never been a great advocate
of sanctions, he said that "the international community, and notably
China, but also Russia, the Europeans, and the U.S., recognize that
Iran's ambitions are not compatible with our idea of
non-proliferation."


10. (U) On the question of human rights, Chirac offered a muted
reproach, but reserved his strongest criticism for private
discussions. He noted that with the 2008 Summer Olympics in
Beijing, China will find itself "at the heart of international
observation" and should "bend to reality, notably in regard to human
rights." He later added that France and China agreed to move
forward with discussions on human rights. On September 30, Chinese
border police were caught on tape while opening fire on a group of
Tibetans trying to cross the border into Nepal, killing a Buddhist
nun, and eliciting an international outcry against China's
administration of Tibet and its human rights policy.


11. (U) Finally, Chirac reiterated his opposition Q the European
Union's arms embargo on China. In a joint statement issued October
26, Chirac and Hu Jintao announced that "the time has come for the
European Union to embrace the consequences of the developing
partnership between the EU and China, notably by lifting the arms
embargo, which is no longer pertinent."

COMMENT
--------------

12. (SBU) As expected, Chirac did not take a hard line on any
particularly sensitive issues during his visit because his primary
goal was to court Chinese business and secure contracts for French
companies. On the economic front, the contracts between the French
and Chinese should help alleviate France's 15 billion euro deficit
with China. This is just under half of France's overall trade
deficit. France is pushing for its share of the Chinese market to
increase from its current 1.4 percent to 2 percent, which is about
half of Germany's market share. Also, French exports to China,
which measured 5.7 billion euros last year, grew by 27.5% in the
first half of 2006 supporting an upward trend in French/Chinese
trade relations.

Stapleton