EAST CHINA CONTACTS ON EAST CHINA LEADERSHIP

S E C R E T SECTION 01 OF 03 SHANGHAI 000316

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 PINR EINV ECON CH
SUBJECT: EAST CHINA CONTACTS ON EAST CHINA LEADERSHIP

REF: SHANGHAI 280 AND PREVIOUS

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

1. (C) Summary. During a series of recent meetings, East China
contacts commented on top leaders in Shanghai and Jiangsu. With
his recent appointment as Shanghai Party Secretary, Xi Jinping
was likely out of the running for a top-level job for the next
5-10 years. Meanwhile, Shanghai Mayor Han Zheng was working
under a cloud, with the threat of corruption investigations
always looming on the horizon. Our contacts were mixed on their
opinions about his current job security, with local officials
viewing him as a spent force. Jiangsu Party Secretary Li
Yuanchao was almost certainly in line for promotion; likely as
head of the Organization Department, where one contact believed
he would implement reforms he had piloted in Jiangsu on
personnel selection procedures. How high Li rose, however,
depended in part on relations between Li's mentor Hu Jintao and
Premier Wen Jiabao, with whom Li had had a run-in a couple of
years ago. One contact assessed that the likelihood of
promotion to the highest levels in the military for Rear Admiral
Liu Zhuoming, the son of former Politburo Standing Committee
member and former Central Military Commission Vice Chairman Liu
Huaqing, had increased since the retirement of his father's
nemesis, former-President Jiang Zemin. End summary.

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Xi Here For a While
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2. (C) During a May 11 discussion, Deputy Director of
Shanghai's Office of Financial Services Fang Xinghai said that
with his recent promotion to Shanghai Party Secretary, Xi would
be out of the running for central government positions for the
next five to ten years. During a May 14 discussion with
Pol/Econ Section Chief, JP Morgan General Manager for Greater
China Andrew Zhang agreed that Xi would be in Shanghai for at
least the next five years, but opined that he might be promoted
to a Vice Premier slot after that.


3. (C) Fang thought Xi's tenure might be good for business. Xi
had recently met with a Goldman Sachs executive and later told
Fang that he enjoyed meeting with leaders of foreign companies.
During a May 21 lunch with Consul General, Fudan University
Center for American Studies Director Shen Dingli said that
Shanghai cadres were still nervous about Xi and what officials
he would nominate for local positions. He added that Xi's
priorities were twofold: show the central government that he
supported its policies and could maintain stability; and show
the people of Shanghai that everything was normal and there
would not be a slowdown in the city's economic development.


4. (C) Shanghai officials' nervousness over Xi was
understandable, given the recent personnel upheaval in the
municipal bureaucracy. Fang explained that Shanghai government
officials tended to take a different approach than officials in
other provinces. When Deng Xiaoping and Jiang Zemin were in
power, Shanghai was seen by Shanghai's senior leaders as a
stepping stone to Beijing. However, most middle managers at
around the deputy-general level have been happy to stay in
Shanghai. This was different from places like Anhui where
officials were competing for jobs outside the Province. Thus,
mid-level Shanghai officials tended to have more personally
vested interests and engaged in more long-term investment and
planning, such as in education, health care, or physical
infrastructure.

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Han's Troubles Haven't Gone Away
--------------


5. (C) During a May 14 discussion with the Deputy Principal
Officer, Hong Kong-based (but Beijing-origin) businessman Tang
Qiongzhang, a friend of United Front Work Department Head and Hu
Jintao protigi Liu Yandong's husband, said that Shanghai Mayor
Han Zheng had his own issues that would eventually be
investigated. The problem was that the Party could not oust
both Han and former Party Secretary Chen Liangyu simultaneously.
The leadership had decided to move against Chen first and see
how Han conducted himself, reserving the right to move against
him later if necessary.

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6. (C) Tang said that some in the leadership had felt it more
prudent to move against Chen first rather than risk his
promotion, when it would have been all but impossible to oust
him. Tang opined that if Chen had not been removed, he would
have "automatically" been promoted to the Politburo Standing
Committee (PBSC),being the only candidate to represent
Shanghai's interests on the PBSC if Huang Ju and Zeng stepped
down. (Comment: Tang's assumption being that Shanghai was
entitled to PBSC representation. End comment.) Chen's
corruption problems were not any worse than those of other
leaders--actually, they were much less severe than many.
However, Chen was a "disruptive influence" who had constantly
opposed central policies. Tang added that you could not find a
cadre in the system that didn't have a corruption problem.


7. (C) Tang noted that there had always been daylight and
mutual distrust between Chen and Han. Chen's wife had a
position at a bankrupt state-owned enterprise or bank in
Shanghai that never required her to do any work or even show up
at the office. Han had long chided Chen over that particular
issue. Shen added that Chen was currently trying his best to
torpedo Han since he believed that Han played a role in his
downfall. Shen had heard that Han would either stay on as
Shanghai Mayor or, if he came out of the pension scandal
unscathed, might move to Beijing as deputy director of the
Organizational Department. Nanjing University Professor Gu Su
noted in a May 14 conversation, however, that since Xi Jinping's
promotion to Shanghai Party Secretary was announced, Shanghai
officials had stopped calling Han. The officials assessed that
Han was a spent force and his days were numbered.

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Li Yuanchao-Pending Promotion May Portend Personnel Pilot Program
-------------- --------------


8. (S) Professor Gu said Li Yuanchao was the likely candidate
to take over either the propaganda portfolio or fill in as
Director of the Organization Department. In any event, Li was
almost certainly heading for Beijing. Li had told the Nanjing
University Party Secretary to stop telling people about his
pending transfer for fear of jinxing his chances.


9. (C) Gu believed that if Li were selected as head of the
Organization Department, it would be a signal of impending
reforms. In 2003, Li began implementing personnel selection
reforms at the provincial department level head (tingzhang) and
below. Under these reforms, any Chinese qualified citizen could
apply for these positions, regardless of residence (including
Chinese living abroad). Would-be contenders had to face both
written and oral examinations designed to narrow the field.
Those who passed the exams would then participate in a televised
live public debate. While everyone in the province could watch,
a panel of 200 reviewers comprised of officials above a certain
level would score each candidate's performance. The scores were
tallied and averaged and the party committee then chose the
person with the highest average score. It was Li's innovative
approach to finding the most qualified personnel that had led to
his being considered for the post of Organization Department
head. Gu believed that if Li were promoted to this slot, within
five years Li's Jiangsu pilot program would be implemented
nationwide.

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Problems in Li's Past Could Limit His Rise
--------------


10. (C) Although he assessed that Li Yuanchao was a contender
for a PBSC slot, Gu noted that it was more of a long shot. Li
was currently only an alternate member of the Central Committee.
A promotion to the PBSC would be a jump of three levels (i.e.
Central Committee Member, Politburo, and PBSC),making it
difficult for Hu to justify, particularly if he were also trying
to get Li Keqiang on the PBSC.


11. (C) Moreover, Li Yuanchao had come under some criticism
from Premier Wen two or three years ago for Jiangsu's support of
Tieban Steel. Under Li, the Jiangsu provincial government and

SHANGHAI 00000316 003 OF 003


the Changzhou municipal government had jointly invested in the
facility, without the approval of the central government. When
Wen found out about it, he personally traveled to Jiangsu and
had several people thrown in jail over the incident. Gu said Li
had taken a page from Chen Liangyu's strategy of develop first,
ask permission later and had personally come under strong
criticism from Wen. Gu assessed that if Li ran into problems
with promotion, they would likely stem from the Tieban incident.
The case would also be a bellwether of the Hu/Wen relationship.

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Liu Zhuoming: An Unexpected Princeling
--------------


12. (C) On May 13, the Consul General and Poloff traveled with
PACOM Commander Admiral Keating to visit the Nanjing Naval
Command College (NNCC) and meet with its Commandant, Rear
Admiral Liu Zhuoming. One of the People's Liberation Army (PLA)
delegation members informed the CG that Liu's father was former
Central Military Commission (CMC) Vice Chairman and PBSC member
Liu Huaqing. Professor Gu separately commented that Liu
Zhuoming's prospects for promotion were better now that
former-President Jiang Zemin's influence was fading. Liu
Huaqing had been promoted to the PBSC by Deng to help control
Jiang when Jiang moved to Beijing in 1989 to be Party Secretary.
Later, Jiang had helped orchestrate Liu Huaqing's removal.
With Jiang retired, his influence over the military has faded.
For instance, all of the naval commanders Jiang appointed had
been forced out due to corruption or the 2003 submarine
accident. (Comment: In April 2003, Ming-class submarine Number
361 sank in the Beihai sea, killing all 70 aboard. Hu's deft PR
handling of the event--expressing condolences while
acknowledging shortcomings in training and pledging greater
support for modernization earned him praise, while Jiang was
criticized for only extolling martyrdom and avoiding tackling
the cause of the accident. End comment.) Gu, whose former
student works as a professor at the NNCC, assessed that as a
princeling with strong credentials, Liu Zhuoming could rise to
the Central Committee or even eventually be elected as a vice
chairman of the CMC. Liu's position, Gu said, was not far below
that of the Nanjing Military Region Commander.


13. (C) During the official meetings, Liu at first came off as
wooden and aloof. He stuck to and read his remarks to Admiral
Keating and was continually scanning the room. As the meeting
progressed, however, it became obvious that Liu had a keen,
albeit deadpan, sense of humor. Although he spoke no English
during the meeting, it was clear that Liu understood a great
deal, occasionally responding to Admiral Keating's words before
the translator could speak and at one point laughing at a joke
before it was translated. Liu bemoaned the fact that he had not
been on a U.S. aircraft carrier before and expressed his desire
to visit PACOM and tour one. Liu also expressed his hope to see
a Chinese aircraft carrier operational before he retired.
Separately, Gu noted that Liu's sister was involved in arms
sales to foreign countries through Huawei and other military or
quasi-military companies on whose boards she sat.
JARRETT