BEIDAIHE ENDS WITHOUT RESOLUTION

S E C R E T SECTION 01 OF 03 SHANGHAI 000508

SIPDIS

SIPDIS

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

E.O. 12958: DECL: MR, X1
TAGS: PGOV PINR EINV ECON CH
SUBJECT: BEIDAIHE ENDS WITHOUT RESOLUTION

REF: A) SHANGHAI 485; B) BEIJING 5139

SHANGHAI 00000508 001.2 OF 003


CLASSIFIED BY: Simon Schuchat, Acting Consul General, U.S.
Embassy, Beijing, Department of State.
REASON: 1.4 (b),(c)




1. (S) Summary: According to a well-connected contact who just
returned from Beidaihe, the Work Conference that had been
convened to sort out the Politburo name list for the 17th Party
Congress has ended without resolution as different factions
found it difficult to compromise on candidates. Unwilling to
push the date of the Party Congress into November, President Hu
Jintao has ordered the Work Conference to reconvene within 10
days and has stated that the name list must be finalized by
early October at the latest. The only promotion to the
Politburo Standing Committee (PBSC) that seems certain at this
point is Liaoning Party Secretary Li Keqiang. Hu also dispelled
rumors that Wen Jiabao would retire, claiming that China needed
Wen to remain as Premier. Prior to the Work Conference, party
elder Jiang Zemin came under blistering criticism from his
fellow elders after he submitted his own "suggested" name list
for the PBSC. End summary.

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Beidaihe Ends, Name List Not Finalized
--------------


2. (S) During an August 10 discussion, Nanjing University
Professor Gu Su told Poloff that the Work Conference that had
convened at Beidaihe on August 2 had recently concluded. Gu had
returned earlier in the morning from a conference on economic
law in Beijing with Development Research Center Economist Wu
Jinglian and Beijing University Management School Dean Li Yining
and, earlier in the week, from Beidaihe. (Comment: Although Gu
said he had been "invited" to Beidaihe, it was not clear in what
capacity. Gu was not privy to any of the leadership discussions
and obtained his information second or third hand from other
attendees. End comment.) Although the purpose of the Work
Conference had been to finalize the name list for the Politburo
for the upcoming 17th Party Congress, discussions had broken
down and the meeting concluded without reaching its stated aims.



3. (S) Gu said Wu described the Work Conference and the
surrounding factional disagreements as a "complicated" and
"violent" struggle. Aside from President Hu Jintao's Communist
Youth League Faction and the remnants of the so-called Shanghai
faction associated with former President Jiang Zemin, there were
other factions that were involved in the leadership debate.
Some of these included factions associated with former Premier
Zhu Rongji and former legislative chief Li Peng. Although not
as prominent as Hu's and Jiang's factions, these other factions
nonetheless maintained significant influence within the Central
Committee. The discussions had stalled because it was almost
impossible to find Politburo and Politburo Standing Committee
(PBSC) members that were acceptable to all the different
constituencies.

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Party Congress to be Held in October, Beidaihe to Reconvene
-------------- --------------


4. (S) Gu said that some within the party had floated a
proposal that the Party Congress, originally scheduled to begin
on or around October 16th, be pushed back to November to
accommodate further discussion, particularly concerning who
should be promoted to the PBSC. President Hu Jintao had
rejected that proposal, stating that the list must be finalized
by the end of September or the beginning of October at the
latest and that he would hold to the mid-October date. As a
result, the leadership will be returning to Beidaihe for another
round of meetings within the next 10 days.

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Li Keqiang Makes it; Others Uncertain
--------------


5. (S) Despite the lack of a full name list, at least decision
had been reached; Liaoning Li Keqiang would be elevated to the
PBSC. This, Gu opined, indicated that Li had been tapped to be
Hu's replacement at the 18th Party Congress in 2012. Gu noted
that Jiangsu Party Secretary Li Yuanchao had likewise been
considered for a PBSC slot, but had faced much opposition over

SHANGHAI 00000508 002.2 OF 003


to his "mixed" track record in Jiangsu. As a result, Li
Yuanchao would not likely be on the PBSC, but was likely to fill
a Politburo slot, filling the role of Head of the Organization
Department, "chief of staff," or vice Premier--possibly even
Executive Vice Premier. Li Yuanchao might be in line to replace
Premier Wen Jiabao in 2012, but Gu believed it more likely that
that would be Trade Minister Bo Xilai's position to lose.
Professor Li Yining spoke highly of both Lis, calling them his
"good students," who were both rather "enlightened." Li told Wu
Jinglian that he expected he would have significant influence
with both Li Keqiang and Li Yuanchao in the future.


6. (S) Gu said that his contacts had told him that the PBSC
would probably shrink, noting that Hu preferred a seven person
PBSC. The smaller PBSC, Hu believed, was easier to control.
Vice President Zeng Qinghong, Central Discipline Inspection
Commission (CDIC) head Wu Guanzheng, and head of the Politics
and Law Portfolio Luo Gan would all retire, having reached the
age of 68. In order to force Zeng to abide by the rule, Hu had
also accepted that Vice Premier Wu Yi, whom Hu had favored for
promotion, step down in accordance with the party's established
"seven up, eight down" rule. (Comment: If this is true, Hu may
never have intended to promote Wu Yi. Rather, he may have used
the prospect of her promotion as a bargaining chip against
Zeng--who, according to press reports, had been trying to find a
loophole to stay on the PBSC--to leverage him out. End
comment.) Vice Premier Zeng Peiyan would also be retiring.


7. (S) Organization Department Head He Guoqiang and Public
Security Minister Zhou Yongkang were the leading candidates to
replace Wu Guanzheng. Despite "strong opposition," Guangdong
Party Secretary Zhang Dejiang, a Jiang associate, was also a
PBSC contender and might also fill in the CDIC slot or replace
Huang Ju as Executive Vice Premier and assume Huang's
portfolios. However, Vice Premier Hui Liangyu was the leading
candidate to replace Huang. Gu noted that opposition to Hui
continued to be strong owing to his close ties to Jiang and
corruption allegations that had dogged him from his time in
Anhui Province. Hui had even been criticized by the CDIC "for a
while." Gu added that that in addition to Li Yuanchao and Bo
Xilai, Shanghai Party Secretary Xi Jinping and Qinghai Party
Secretary Zhao Leji were leading candidates for Politburo slots.

SIPDIS

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Damning Wen With Faint Praise
--------------


8. (S) Another decision that had been "reached" at the Work
Conference was that Wen Jiabao would remain as Premier. Wen had
been coming under heavy criticism from the Shanghai faction and
there was talk that he would be stepping down at the Party
Congress. However, Hu argued that the leadership needed Wen to
stay on board at the present time. China was facing serious
economic problems, such as inflation, and major environmental
problems and the nation needed a steady hand. Besides, Hu
argued, there was no one currently who was qualified to replace
Wen. Despite Hu's apparent support for Wen, however, Gu noted
that there was more tension between Wen and Hu than had appeared
earlier in their term. Wen was unhappy with Hu's constant
meddling in government affairs.

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Jiang Criticized at Democratic Life Meeting
--------------


9. (S) On July 15, approximately two weeks before the Beidaihe
Work Conference, many current leaders assembled with party
elders in a "democratic life meeting" (minzu shenghuo hui) to
preliminarily discuss personnel arrangements. Prior to this
meeting, Jiang had circulated a "recommended" name list of the
nine people he felt should be on the PBSC, including, among
others, current PBSC members Jia Qinglin and Li Changchun, as
well as He Guoqiang to replace Wu Guanzheng, and Zhou Yongkang
to replace Luo Gan. Jiang also openly opposed promoting Li
Keqiang to the PBSC on the grounds that he was "too young" and
had been promoted "too fast."


10. (S) According to Gu, Party elder and Jiang critic Li
Ruihuan was chairing the meeting and fellow party elder and
Jiang critic Qiao Shi was the main speaker. Qiao tore into
Jiang, accusing him of meddling in personnel decisions and
exceeding his authority for submitting his suggested PBSC name
list. Qiao upbraided Jiang at one point saying "You've been
retired now for five years! How can you presume to be trying to

SHANGHAI 00000508 003.2 OF 003


arrange the new Politburo Standing Committee?" Qiao accused
Jiang of having "broken the rules" at the 16th Party Congress by
expanding the PBSC and packing so many of his supporters onto
the Politburo, particularly so many--such as Huang Ju and Chen
Liangyu--who had such serious problems. Qiao firmly stated "We
cannot allow you to do this again!" Later, Qiao also
reprimanded Jiang for having broken protocol and brought his
wife to Huang Ju's funeral, noting that none of the other
leaders had brought their wives. Qiao asked "What were you
doing? Were you trying to show your intimacy with Huang's
family?" Jiang reportedly left the meetings severely chastened
and unhappy.


11. (S) Gu noted that in theory, these "democratic life
meetings" were supposed to be held each month at national,
provincial and local levels of governance. In practice,
however, retired leaders usually did not want to be bothered
with monthly meetings and held them on a more erratic basis,
only showing up if there was something particularly interesting
to discuss. In the summer, the central-level meetings were held
at Beidaihe, while in the winter, the meetings might be convened
in Beijing, Shanghai, or a warmer city. In the run-ups to party
congresses, however, party elders insisted on holding these
meetings regularly. In fact, Gu said that the elders planned to
hold another one in August to continue their discussions of
leadership issues.

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Comment: It is Still Fluid
--------------


12. (S) The feathers are flying, and while our contact seemed
to believe that progress was being made, we are hesitant to say
that any of these so-called "decisions" will remain binding
through the Party Congress. Last minute brokering and arm
twisting can significantly alter the outcome, even up until the
final hour. As our contact notes, the situation is more
complicated than a simple "two-line struggle." End comment.
SCHUCHAT