PRC-RUSSIA: SNAPSHOT OF RELATIONS AS HU JINTAO

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 001679

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/14/2017
TAGS: PREL ENRG MARR RU CH
SUBJECT: PRC-RUSSIA: SNAPSHOT OF RELATIONS AS HU JINTAO
PREPARES TO VISIT MOSCOW


Classified By: Robert Griffiths, Acting Political Section Chief.
Reasons 1.4 (b/d).

Summary
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1. (C) Hu Jintao will visit Moscow later this month at a time
when many Chinese analysts believe the China-Russia
relationship is at an all-time high, according to a leading
Chinese academic on Russia. Hu's visit will kick off the
Year of China in Russia and will serve as an opportunity for
him to meet key leaders, including possible successors to
Putin. Bilateral issues, such as military ties, energy and
trade, will top the agenda for talks between Hu and Putin.
The Shanghai Cooperation Organization (SCO),Northeast Asia
and Kosovo will figure among regional and international
issues discussed, our contact said. End Summary.


2. (C) Chinese President Hu Jintao will visit Moscow at a
time when many Chinese analysts believe China-Russia
relations have reached their historically best level,
according to the Director of the Chinese Academy of Social
Sciences' (CASS) Russia and East Europe Institute Xing
Guangcheng. MFA officials previously announced that Hu would
visit Moscow at the end of March. Xing confirmed that the
visit would probably occur on March 26-29, although he
understood the MFA is still finalizing the dates. Hu is
slated to open a Chinese exhibition for the start of the
China Year in Russia on March 26, Xing said, noting that he
had also been invited to that ceremony.

Political, Military & Energy Ties Push Partnership
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3. (C) Hu's visit aims to strengthen China and Russia's
strategic partnership and implement the political consensus
outlined in the China-Russia Friendship Treaty, Xing told us.
Hu's visit reciprocates Putin's trip to Beijing in March
2006 for the opening of the Russia Year in China. The mutual
"national years" seek to educate the public in both
countries, encourage exchange and foster mutual
understanding. In addition to talks with Putin, Hu will meet
the head of the Duma and several Russian cabinet members,
including contenders to succeed Putin as President in 2008,
Xing said.

China Interested in Diversifying But Has Little Choice
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4. (C) Hu and Putin will likely discuss the strong
military-to-military ties between Beijing and Russia, Xing
acknowledged. China continues to purchase a large percentage
of its advanced military equipment from Russia, although Xing
would not confirm reports that the total approaches 90
percent. China would like to diversify the sources of its
advanced military technology, he said, but
"American-motivated restrictions" prevent China from
purchasing advanced weaponry from the United States, from
Israel and help to keep the EU arms embargo against China in
place. This leaves China with few places to turn for
advanced weaponry other than Moscow, he claimed.


5. (C) China's energy cooperation with Russia, including
imports of oil, natural gas and electricity, will also figure
in the leaders' discussions, Xing predicted. The Chinese
government prefers to have exclusive energy supply agreements
and has begun to diversify its energy supplies, given Russian
hesitancy about some exclusive deals with China. In this
regard, he noted a new pipeline from Kazakhstan and efforts
to import energy from Africa and Australia. Still, Russia
remains the largest nearby energy source and has lower
transport costs to China than the alternatives, Xing said,
leading to a mutually beneficial relationship.


6. (C) Russian backtracking on promises to build an oil
pipeline to China and hesitancy to finalize arrangements for
a second natural gas pipeline have led to some bilateral
tension, Xing said. Progress on a natural gas pipeline from
Russia that will join the Chinese network at Xinjiang
continues, but it appears talks have broken down over a
possible second pipeline into China's northeast. Xing said
it appears that the second pipeline will go to Vladivostock,
where natural gas can be sold on the open market, a decision
China "was not happy about, but can live with." Given the
tension over pipeline issues, Xing predicted that the leaders
would not discuss this issue in much detail and would leave
it for other officials to work on.

Border Trade: China Complying with Russian Law
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7. (C) A Russian law restricting foreign traders
disproportionately affects Chinese business people,
especially in the Russian Far East, Xing said, leaving many
Chinese traders unhappy. China has decided to prevent the
new law from becoming a significant bilateral issue,
instructed its traders to respect the law and urged Chinese
business people to work through China's larger trading
companies, rather than via more free-wheeling independent
traders, he said. Border trade with Russia totaled $7
billion in 2006, accounting for 20 percent of bilateral
trade, according to Ministry of Commerce figures released
March 1. China remains interested in increasing its sale of
goods to Russia to offset its large imports of arms and
energy, Xing noted.

International and Regional Issues
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8. (C) Government ministries have consulted him and other
scholars more about the bilateral component of Hu's visit and
less about the international and regional issues, Xing said,
but he nonetheless predicted that the SCO, Northeast Asia and
Kosovo would be topics of discussion. Xing, who is also Vice
Chair of China's SCO Research Center, said he expects Putin
to push for significant Chinese participation in the SCO
military exercise, Peace Mission 2007, to be held in July in
Russia, as well as to formalize Putin's proposal for an SCO
Energy Club. Initially, Putin was not very positive about
SCO cooperation, but he has become increasingly interested as
China shows it has no intention to dominate the SCO, Xing
said.


9. (C) On Northeast Asia, the two would undoubtedly discuss
progress in the upcoming round of Six-Party Talks and the
future of the Korean Peninsula, Xing said. China also
remains concerned about Japan, including Japanese efforts to
interfere with China-Russia exclusive energy deals and the
Sakhalin natural gas project. Russia remains "very
suspicious" of possible UN action on Kosovo, Xing added.
China shares some of Russia's concerns about the negative
precedent that could be set if the UN interferes to divide
Serbia without Belgrade's agreement and the possibility of
reigniting instability in the Balkans, Xing said.


10. (C) Bio Note: This was our first meeting with Xing since
he was promoted to be Director of CASS' Russia Institute
after spending 2006 at China's Central Party School, a
training year typically given to rising stars within the
Party. Xing's discussion included frequent mention of Hu
Jintao's "harmonious world" and "harmonious region" concepts,
especially on the SCO. He remained the candid interlocutor
we dealt with in the past and he openly discussed issues
about which the MFA is rarely willing to comment.
RANDT