S E C R E T SECTION 01 OF 05 SHANGHAI 000315

SIPDIS

SIPDIS

DEPT FOR EAP/CM, INR/B AND INR/EAP
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, ALTBACH, READE
TREAS FOR OASIA - DOHNER/HAARSAGER/CUSHMAN
TREAS FOR AMB. HOLMER, WRIGHT,TSMITH
USDOC FOR ITA/MAC - DAS KASOFF, MELCHER, MCQUEEN
NSC FOR WILDER AND TONG

E.O. 12958: DECL: X1 MANUAL REVIEW
TAGS: PGOV PNR EINV ECON CH
SUBJECT: MORE EAST CHINA LEADERSHIP PERSPECTIVES

REF: A. SHANGHAI 280 AND PREVIOUS


B. STATE 58571

CLASSIFIED BY: Kenneth Jarrett, Consul General, U.S. Consulate
Shanghai, Department of State.
REASON: 1.4 (b), (d)



CLASSIFIED BY: Kenneth Jarrett, Consul General, U.S. Consulate
Shanghai, Department of State.
REASON: 1.4 (b), (d)




1. (C) Summary. In our latest round of discussions, East China
contacts reported that the Politburo Standing Committee would be
shrinking from nine members to seven with several members
retiring while the Politburo itself would also undergo a major
shake up. Unclear, however, was the fate of Vice President Zeng
Qinghong, who would ostensibly reach the "mandatory" retirement
age, with one well-placed contact saying Zeng would definitely
step down. Also to be decided was who would replace Vice
Premier Huang Ju, with prospective candidates running the gamut
from the heads of China's most powerful economic ministries to
the party secretaries of Hubei and Guangdong and the Beijing
Mayor. Up for grabs too was the powerful position of Secretary
of the Discipline Inspection Commission. While the untimely
death of the Minister of Supervision may have disrupted
succession plans according to one contact, Minister of Public
Security Zhou Yongkang was now the likely candidate, according
to a separate contact. With the Party Congress and National
People's Congress still months away, President Hu was busy
filling ministerial seats, some perhaps as symbolic gestures,
with others apparently designed to give him a political edge in
the leadership jockeying. With all of the leadership changes in
the air, one well-connected contact believed that party elder
Jiang Zemin retained some influence--more than most

elders--particularly on personnel issues. End summary.

--------------
Politburo Shakeup Expected
--------------


2. (C) During a May 14 discussion, Nanjing University Professor
Gu Su said his contacts in Beijing had told him that the current
plan was to shrink the Politburo Standing Committee (PBSC) from
nine, back down to the pre-2002 level of seven. According to
Gu's friends, current PBSC members Li Changchun, Vice Premier
Huang Ju, Chinese People's Political Consultative Conference
(CPPCC) Chairman Jia Qinglin, Central Discipline Inspection
Commission (CDIC) head Wu Guanzheng, and Luo Gan would be
retiring. The new lineup would include President Hu Jintao, Wu
Bangguo, Premier Wen Jiabao, possibly Vice President Zeng
Qinghong, and probably Liaoning Party Secretary Li Keqiang or
Jiangsu Party Secretary Li Yuanchao.


3. (C) During a May 14 discussion with the Deputy Principal
Officer, Hong Kong-based (but Beijing-origin) businessman Tang
Qiongzhang, a friend of the husband of United Front Work
Department Head and Hu Jintao protigi Liu Yandong, said he
likewise expected a major shakeup in the Politburo and the PBSC.
He said Liu Yuandong would be promoted to the Politburo as
would the new Shanghai, Beijing, and Tianjin party secretaries.
Personnel decisions would be ultimately made this summer and the
name list would be finalized this fall prior to the Party
Congress. Current speculation was that Huang Ju, Jia Qinglin,
Wu Guanzheng, and Luo Gan would be stepping down. During a May
14 discussion with Pol/Econ Section Chief, JP Morgan General
Manager for Greater China Andrew Zhang said that the argument
over shrinking the PBSC was really a battle between Hu and
Jiang. He repeatedly stressed that "you could be very surprised
by who will move up."


4. (C) During a May 11 meeting with Pol/Econ Section Chief,
Deputy Director of Shanghai's Office of Financial Services Fang
Xinghai said that the key issue was not the number of people on
the PBSC, but who the youngest members were. Fang said that if
Hu was smart, he would name two younger protigis as PBSC members

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and let them compete to see who would emerge the winner. Fang
suggested the "two Li's"--Liaoning Party Secretary Li Keqiang
and Jiangsu Party Secretary Li Yuanchao as two possible
candidates.

--------------
The Once and Future Zeng?
--------------


5. (C) Speculation over the future status of Vice President
Zeng Qinghong was rife, with opinions all across the board.
According to Professor Gu's Beijing sources, despite having
reached the ostensible retirement age of 68, Zeng's status had
not yet been finalized. Tang, however, was confident that Zeng
would remain in place despite his age because he was still seen
as the guardian of Jiang's interests while Jiang was alive, and
in view of his status as the senior representative of the
princelings. Tang explained that the late party elder Chen Yun
had set down the principle that there must be a certain number
of the children and grandchildren of senior party leaders in top
positions within the party to protect the interests of the
Party. These princelings would have too much of a personally
vested interest in the system to ever turn against the party or
to allow others to undermine the party's primacy. (Comment:
Post has also heard this principle ascribed to Deng Xiaoping.
Regardless of who said it, the sentiment appears to have been
widely held and effectively implemented by top leaders as
judging from the name list of princelings to be promoted said to
be maintained by the Organization Department (Ref A). End
comment.)


6. (C) According to Tang, Jiang Zemin was also supporting
Zeng's bid to remain on the PBSC. Jiang had a personal
obligation to Zeng stemming from early in Jiang's tenure, when
his position with the military was still very weak. Zeng had
once been a Secretary to Marshal (and former Minister of
Defense) Zhang Aiping. Zeng worked to convince Zhang to support
Jiang, and Zhang in turn was instrumental in moving Jiang's
detractors out of the Central Military Commission and putting
Jiang in firm command of the military.


7. (S) During a May 16 discussion with Pol/Econ Section Chief,
Chief Representative for China of The Carlyle Group Luo Yi was
equally convinced that Zeng was definitely retiring. Luo said
this information came from a source in Beijing who was "very
close to Zeng." (Note: although Luo did not specify who his
contact was, he is known to have connections to relatives at the
very top of the Chinese leadership, including relatives of Hu
Jintao and Wen Jiabao. End note.)

--------------
Who Will Represent The Families?
--------------


8. (C) If Zeng were to retire, it would leave the question of
who would represent the princelings on the Politburo Standing
Committee. Andrew Zhang believed that Hu was going to try to
limit the number of princelings who could move up to senior
positions. He wanted more people who had total allegiance to
him and did not have many "debts" in their past. That said,
Zhang expected that Trade Minister Bo Xilai would be promoted to
the PBSC. Bo's father was party elder and Deng Xiaoping
contemporary Bo Yibo.

--------------
Huang Ju Replacements Considered
--------------


9. (C) Our contacts offered up several possibilities--some more
likely than others--for who might replace Huang Ju as Vice
Premier in charge of financial policy, not necessarily as
Executive Vice Premier. During a May 16 discussion, Gaohua
Executive Director Raymond Yin argued that Trade Minister Bo
Xilai was the leading contender to take over Huang's slot, with
Beijing Mayor Wang Qishan also a front runner. (Note. Luo also
had suggested Wang as a front-runner in a prior conversation
reported septel. End note.) Other people under consideration
for the job included Chongqing Vice Mayor Huang Qifen, the

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Liaoning Governor, and the National Reform Development
Commission (NDRC) Chairman Ma Kai. Yin assessed that if the job
went to Ma, that would be a negative sign since in Yin's
opinion, Ma was not a reformer. Yin also shrugged off People's
Bank of China (PBOC) Governor Zhou Xiaochuan's prospects, noting
that while Zhou was good on policy, he lacked the political
clout needed to secure the position.


10. (C) Fang assessed that Hubei Party Secretary Yu Zhengsheng
or Guangdong Party Secretary Zhang Dejiang stood the best chance
at replacing Huang. Fang noted that Huang's shoes would be hard
to fill. Fang said that although he came to Shanghai after
Huang had moved to Bejing, there was still strong support for
Huang and positive memories of Huang's contribution to
Shanghai's development. Huang was seen as a "deep thinker" who
considered the consequences of various policies. For instance,
Huang had been the central government leader behind the
non-tradable share reform. Currently, with Huang out of action,
China Security Regulation Commission Chairman Shang Fulin was
too scared to make difficult decisions and was primarily
concerned with securing his next position. Every big decision
went directly to the State Council. Premier Wen did not have
the confidence or expertise on financial policy issues that his
predecessor Zhu Rongji had so decisions were just not happening.


11. (C) Andrew Zhang believed that PBOC Governor Zhou, NDRC
Chairman Ma and Finance Minister Jin Renqing were the leading
candidates. Jin was "too old," however, and would be unable to
stay in position for two terms, which Zhang believed would hurt
his prospects. Ma Kai held considerable power as head of the
NDRC, a "super ministry" with 6 minister-level and 15
vice-minister level leaders. Anyone wanting a business deal
approved in China needed to work with someone from the NDRC.
(Note: Zhang said that was getting more difficult with recent
rules that prevented former government officials from lobbying
their former ministries for at least one year after departing.
End note.) However, as the head of such a powerful ministry, Ma
had also made a number of political enemies and had few strong
political backers. Zhang believed that Zhou, seen as a
technocrat without strong backing, actually stood a better
chance at Huang's job "than most give him credit." (Comment:
Zhou's prospects were virtually nonexistent according to
previous conversations with other East China contacts. End
comment.)

--------------
And the New CDIC Head is...
--------------


12. (C) Gu said that recently deceased Minister of Supervision
Li Zhilun had been one of the leading candidates to replace Wu
Guanzheng as CDIC head. His death had thrown a monkey wrench
into the current succession planning. Gu had also heard that
one of the CDIC vice chairs was a contender for the job. (Note:
Gu could not remember the name, he could only remember that the
person was in his mid-50s and hailed from Qinghai. End note.)
During a May 15 discussion, Jiaotong University School of
International and Public Affairs Executive Dean Hu Wei said that
he believed Minister of Public Security Zhou Yongkang was the
likely candidate to move up and take over the CDIC from Wu
Guanzheng.

--------------
Method to the Ministerial Madness
--------------


13. (C) Gu explained that the timing of the recent ministerial
appointments--five in the past several months--was not
coincidental. In most cases, these appointments could have
waited until the 2008 People's Congress. However, Hu needed
more votes on the Central Committee and was trying to pack it
with his people in a bid to gain support for his personnel and
policy changes. Gu speculated that current Minister of
Education and Jiang Zemin protigi Zhou Ji might be removed soon
as a product of Hu's ongoing efforts. Zhou had recently been
coming under increasing public criticism from NPC
representatives due to his poor policies and the rampant
corruption and wasting of funds by the presidents of many of the

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universities under the Ministry's control. Criticisms had
appeared in the People's Daily and the Southern Weekend
newspapers. (Comment: Gu was aware that a ministerial
appointment did not necessitate a Central Committee appointment,
but that it often resulted in one. End comment.)


14. (C) According to Fang, the last several ministerial
appointments indicated Hu Jintao's effort to promote technocrats
due to their substantive expertise rather than simply their
political connections. For instance, Foreign Minister Yang
Jiechi was a graduate of the London School of Economics and had
spent considerable time in the United States. MOST Minister Wan
was also an example of a technical expert-turned minister as
were the new Ministers of Land and Natural Resources and Water
Resources--both highly-trained geologists. The Land Minister,
Fang noted, also had political connections and had "followed"
Premier Wen for the past 20 years. Fang expected that Hu might
put more of his Communist Youth League cronies out in the
provinces.

--------------
Wan Gang: Loved by Wen, Adored by Germany
--------------


15. (C) Hu Wei said that newly appointed Minister of Science
and Technology (MOST) Wan Gang--the first non-Communist Party
minister in several decades--was chosen, in part, to symbolize
the party's commitment to multi-party cooperation. Hu agreed
with an earlier assessment that Wan's lack of party standing was
unimportant to his actual authority, stating that what was
important was his willingness to listen to the central
government (Ref A). During a May 16 discussion, People's Daily
Shanghai Politics and Law reporter Bao Jian said she also
believed that Wan's promotion was a symbolic gesture. She
explained that MOST was largely an unimportant Ministry and that
Hu could safely install a non-party Minister without taking a
serious risk. (Comment: The new Minister of Health Chen Zhu,
also not a party member, was appointed after we spoke with our
contacts. However, we assess that for the most part, the
appointment did not conflict with our contacts' assessments.
End comment.)


16. (C) Hu assessed that Wan was well-liked by Premier Wen
Jiabao. While Wan was in Germany working for Audi, he prepared
a report for the State Council on how to develop China's
automobile sector. Wen was so impressed with the report and
Wan's "cleverness" that he tasked then-MOST Minister Xu Guanhua
to entice Wan to return to China and help implement the
suggestions in his report. Xu personally flew to Germany to
meet with Wan and, with the support of Wen, helped arrange a
posting for Wan as Dean of Tongji University's Automotive
School. Wen later supported Wan's promotion to Assistant
President, Vice President, and President of the university, and
ultimately his transfer to Beijing for his current slot. Hu was
impressed at the speed with which Wan shot up through the ranks,
attaining the post of minister just seven years after returning
to China.


17. (C) Hu assessed that Wan had close ties to Germany and the
German automobile industry that would help pave the way for
closer cooperation between MOST and the EU in the future.
Professor Hu believed this was one of the reasons the leadership
had supported Wan's promotion. China was pursuing a foreign
policy of "multi-polarization," or deepening relations with
other economic and political centers, such as the EU, rather
than "hang itself from a single tree" in building ties to the
United States. Hu said there were many scholars, entrepreneurs,
and even people within the leadership who believed that war with
the United States was inevitable and that China needed to have a
network of friends that it could fall back on when that time
eventually came. No one, Hu said, believed that war with the EU
was a future possibility. Hu said that multi-polarization did
not necessarily come at the cost of the U.S.-China relationship,
adding that U.S. firms had been working for some time to build
stronger relations with Wan. GM, for instance, had donated more
than USD 370 million in software, other intellectual property,
and facilities to Tongji's Automotive School.


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18. (C) Fang was not sure of the significance of Wan's
appointment since MOST was never a powerful bureaucracy to begin
with. Fang believed that without a party member at its head,
MOST's influence would be even more limited. Moreover, without
party rank, Wan would be excluded from MOST party committee
meetings and would not even have the power to appoint people in
his own Ministry--a job reserved for the party secretary.

--------------
Elders Not too Important, Except for Jiang
--------------


19. (C) According to Tang, most party elders were no longer
very influential in politics or personnel. Elders Li Peng, Qiao
Shi, Li Ruihuan and the like all received internal party
documents for review and were allowed to make suggestions on
party deliberations, but they had actually very little power or
authority by themselves. Tang assessed that if several of them
were to join forces and present a unified voice on a given
issue, then Hu Jintao and the rest of the PBSC would have to
take them seriously. However, given that many of the
elders--such as Li Peng, Zhu Rongji, and Qiao Shi--did not get
along well, it was unlikely that they would put aside their
differences to work together. (Comment: Tang's assessment
implies that there is nothing that the current leadership is
doing that more than a few party elders find offensive. End
comment.)


20. (C) Most elders exercised influence indirectly through
their protigis on the Politburo. For instance, PBSC member Luo
Gan was Li Peng's protigi, Wen Jiabao was Zhu Rongji's, and Wu
Guanzheng was Qiao Shi's. Former Chairman of the Chinese
People's Political Consultative Conference Li Ruihuan was of a
different mold than his contemporaries, having earned his
political break due to his status as a "model worker" and was
seen by his peers as more of a political lightweight. Everyone
on the PBSC represented someone's patronage chain.


21. (C) Tang believed, however, that party elder Jiang Zemin
maintained more influence than his peers, particularly over
personnel issues. Tang himself was attempting to persuade Jiang
to support Hong Kong legislator Phillip Huang Yihong in his bid
to become the token Hong Kong vice chair at the National
People's Congress (NPC). Tang thought Jiang would have
significant say over choosing Hu Jintao's successor. Tang did
not believe that Hu had Deng's or even Jiang's political stature
and would be unable to impose his will on the other PBSC members.


22. (U) This cable was cleared by Embassy Beijing.
JARRETT