EAST CHINA CONTACTS ON LEADERSHIP CHANGES

S E C R E T SECTION 01 OF 06 SHANGHAI 000771

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DEPT FOR EAP/CM, INR/B AND INR/EAP
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, WINELAND, READE
TREAS FOR OASIA - DOHNER/CUSHMAN, WRIGHT
USDOC FOR ITA/MAC - A/DAS MELCHER, MCQUEEN
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E.O. 12958: DECL: MR, X1
TAGS: PGOV PINR PREL ECON CH
SUBJECT: EAST CHINA CONTACTS ON LEADERSHIP CHANGES

REF: SHANGHAI 714

SHANGHAI 00000771 001.4 OF 006


CLASSIFIED BY: Simon Schuchat, Deputy Principal Officer, U.S.
Consulate General, Shanghai, Department of State.
REASON: 1.4 (b),(d)




1. (S) Summary: East China academic and business contacts who
closely follow national political developments say that the size
and selection of the Politburo Standing Committee (PBSC) at the
17th Party Congress in October reflected institutionalization of
power and power transfer. Vice President Zeng's insistence on
maintaining party stability through application of the "Seven
Up, Eight Down" rule precluded removal of PBSC members Jia
Qinglin and Li Changchun, though President Hu would have
preferred their retirement. Former Shanghai Party Secretary
Chen Liangyu's greatest sin was not corruption but challenging
the authority of the center. Xi Jinping's position on the PBSC
ahead of Li Keqiang's is attributed to an excellent and clean
performance record, having offended the fewest Party officials,
and fortuitous timing. Former President Jiang Zemin had also
lobbied for Xi Jingping's elevation in preference to Li Keqiang
because of Jiang's concerns for his family's future and his own
political legacy. The Jiang faction allegedly had a role in
orchestrating the sudden summer downfall of Finance Minister Jin
Renqing, a Hu supporter, in retaliation for the dismissal of
Chen Liangyu. Our contacts also offered their versions of
several provincial and municipal Party leadership changes and
comments on the health of PBSC members. End summary.

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Stability Trumps Personal Power at the Party Congress
-------------- --------------


2. (C) During a November 9 discussion, Carlyle Group Chief
China Representative Luo Yi said that despite all of the
pre-Party Congress rumors of personnel changes in the PBSC, the
Party leadership opted for more institutionalization of power
and power transfer. Luo said, for instance, that Vice President
Zeng Qinghong could have stayed on the PBSC if he had opted to;
that President Hu would have been unable to force him out if he
had truly desired to stay. However, Zeng was interested in
maintaining the stability of Party rule. At the 2002 16th Party
Congress, then-President Jiang Zemin had arbitrarily set the
so-called "Seven Up, Eight Down" rule to force rival Li Ruihuan
from the body. The rule stipulated that PBSC members who had
reached the age of 68 be forced to retire, while those who were
67 could be reelected to another five-year PBSC term.


3. (C) Luo said that rather than fiddle with the age limit
again and confirm people's suspicions that the 16th Party
Congress had been a Jiang power grab, Zeng, who had already
reached 68, decided that it would be best if the age
limit--however arbitrary it might be--was rigidly adhered to.
To that end, Zeng insisted that Jia Qinglin and Li Changchun be
allowed to remain on the PBSC, despite Hu's desire to sack them,
because they have not yet reached the age of 68. To fire them,
Zeng argued, would send the wrong message to the Party and point
to factional cleavages within the Party. Zeng's stability
argument is the only reason Jia is still in place, Luo said.


4. (C) Luo said Zeng had also pushed hard for more inclusion of
members of the princeling party among the top ranks, including
Xi Jinping and Shanghai Party Secretary Yu Zhengsheng. These
people Zeng believes are more inclined to preserve the party's
status quo. Zeng did not think much of the princeling ties of
Organization Department head Li Yuanchao and Politburo member
Liu Yandong, whom Zeng considers more aligned with the Communist
Youth League faction.

-------------- ---
Chen Liangyu: The Exception that Proves the Rule
-------------- ---


5. (C) Luo noted that the exception to the age rule had been
Shanghai Party Secretary Chen Liangyu, who had not reached the
mandatory retirement age for Politburo members when he was
sacked. While Chen was much cleaner than Jia Qinglin, his main
problem was that he had openly rebelled against the Party
Secretary. Luo said that in China you can be as corrupt as you

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want and go your own way on local policy as long as you pay the
proper lip service to the center. Chen, however, had openly
insulted Hu on a number of occasions and had made no effort to

SHANGHAI 00000771 002.4 OF 006


hide his disdain for central policy and central control. Given
Chen's age, he would have been virtually guaranteed a position
on the PBSC and would have been one of the strongest contenders
to replace Hu as Party Secretary--something Hu could not
stomach. Luo joked: "It's a party after all. Don't crash it or
insult the host!"


6. (C) On November 14 JPMorgan Greater China Vice Chairman
Andrew Zhang said corruption is not an issue unless you fall out
of political favor. PBSC members do not see it as their
responsibility to do away with all corruption in the Party,
rather to protect the right people and prosecute those who
challenge them. Zhang said Chen Liangyu has not yet been
sentenced because it has been difficult to find an appropriate
sentence for him. Chen had not ended up with much in his own
pockets from the Shanghai social security fund scandal. Chen's
brother had been the biggest beneficiary and he had already
committed suicide. Chen's hair has all turned grey and his
teeth have all fallen out during his detention, Zhang said.

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A Wash For Hu
--------------


7. (C) Luo described the results of the 17th Party Congress as
a "wash" for Hu Jintao. Although he was able to promote his
protege Li Keqiang to the Politburo Standing Committee (PBSC),
he was unable to prevent Xi Jinping from likewise gaining a
promotion. Moreover, Hu failed to get Li promoted ahead of Xi,
making Xi the leading candidate to take over Hu's position as
Party Secretary. Zhang said that while Hu did not emerge as the
clear winner at the 17th Party Congress, he is well positioned
for the 2012 Party Congress. Of particular importance, Zhang
said, Hu now controls the Organization Department--which
recommends candidates for promotion--through his protege Li
Yuanchao.

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Xi Jinping and Li Yuanchao--Clash of the Titans
-------------- --


8. (C) During a November 26 discussion, Jiaotong University
International and Public Affairs Dean Hu Wei said that Li
Keqiang's taking second place to Xi does not mean that Li is out
of the running for the job. Hu said the two men will be
competing for Hu Jintao's job up through the next Party
Congress. Nanjing Party School (NPS) Standing Committee member
and Vice Director He Jiaquan on November 27 likewise assessed
that it is not a foregone conclusion that Xi will replace Hu
Jintao. Vice Director He said that "five years is quite a long
time." It is possible that at some point during their current
tenure, Xi and Li Keqiang might switch positions. During a
November 27 discussion, Nanjing University Professor Gu Su said
that Vice President Zeng's portfolio will be split three ways,
adding to the uncertainty of who would succeed Hu. While Xi
will have the title of Vice President with responsibility for
the Hong Kong and Taiwan portfolios, Li Changchun will be made
President of the Central Party School, and He Guoqiang will be
given oversight of the Organization Department.


9. (S) Jiaotong's Professor Hu attributed Xi's surpassing Li
Keqiang in the PBSC ranking to his charm. Prior to the Party
Congress, there had been an internal poll of the party
leadership on their views of different candidates for top-level
jobs. Xi scored higher than Li Keqiang, making it impossible
for Hu Jintao to push Li Keqiang's promotion through. Those
polled consider Xi more polished and able to build bridges
between leaders. Li Keqiang, on the other hand, has offended
more officials on his way up the ladder. (Comment: Xi's status
as a princeling would likely have also given him a serious
advantage in building bridges, allowing him face time with a
wide range of party leaders throughout his career. End comment.)


10. (C) NPS Vice Director He attributed Xi Jinping's rapid rise
from Shanghai Party Secretary to heir apparent in Beijing
foremost to lucky timing. Xi's seven-month term in Shanghai was
most noticeable for the absence of new turmoil and absence of an
economic downturn following former Party Secretary Chen
Liangyu's removal late in 2006. He said Xi's broad acceptance
throughout the Party is founded on his rich prior experience,
from the district and county levels to party secretary-ships at
the Provincial and centrally administered municipal (Shanghai)
level. Vice Director He said a Chinese aphorism has much appeal

SHANGHAI 00000771 003.4 OF 006


to this day and touched on Xi's rise, namely, that a supreme
leader should come from the county level and a general should
come from the common people. Party officials throughout the
nation were aware of Xi's excellent performance record,
beginning from the local level.


11. (C) JPMorgan's Andrew Zhang suggested to Congenoffs that
Xi's proactive accomplishments in Shanghai were just two:
attending a Municipal Party Congress meeting and seeing the
already planned Special Olympics through to a successful
conclusion in October. However, Xi enjoyed a reputation as a
"Mr. Clean"--having on at least one occasion refused a bribe of
100,000 RMB during his time in Xiamen. Xi has no need to risk
taking bribes given the amount of money his wife, a famous
singer, pulls in. Xi is very bland--the most colorless of the
candidates--and was therefore the easiest compromise.


12. (S//NF) As a side note, Luo said that while Li Keqiang is,
in fact, Hu Jintao's protege, he also enjoys excellent relations
with number two on the PBSC, legislative chief Wu Bangguo. Luo
had asked that question point blank to Wu Bangguo's son-in-law
during a recent meeting. (Note: Luo recently accepted an offer
from Wu Bangguo's son-in-law (a former Merrill Lynch executive)
to jointly form a private equity fund with a hedge fund manager
of Chinese descent currently working for the Soros fund, and Li
Keqiang's son, who is currently studying in university. End
note.)

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Influence of Jiang on Party Deliberations
--------------


13. (C) Nanjing University Professor Gu said that former
President and former Party Secretary Jiang Zemin had also
vehemently opposed Li Keqiang's appointment and had argued for
Xi's appointment. Gu assessed that Jiang sees Xi with his
princeling background as someone who will protect Jiang's
interests. This is especially important to Jiang given that his
elder son, Jiang Mianheng, has been blocked from rising to any
greater heights within the leadership due to his recent bout
with cancer. Gu said he had heard that Jiang Mianheng suffers
from kidney cancer and has already had at least two
operations--one in China and one abroad.


14. (C) Gu noted that although his younger son, Jiang
Miankang, holds the rank of general (shaojiang) in the PLA's
Nanjing Military Region--Gu said he deals with logistics--Jiang
Zemin spent too much of his political capital in attempting to
secure a political future for Jiang Mianheng, leaving Jiang
Miankang likewise futureless. Gu said that in the Chinese
political system, if you fail to get your people in
place--proteges and/or family members--you have nothing: no
protection for your family; no protection for yourself; no
prestige; and no guarantees that your policy legacy will be
protected.


15. (C) Gu said he has heard that Jiang Zemin is very upset
these days, believing that he has lost a great deal of personal
power and influence. He is also greatly upset that his family
has no political prospects. As a result, he is playing more of
a spoiler role than anything else these days. Jiang is taking
his wrath out on Premier Wen Jiabao, whom Jiang hates for being
close to the late disgraced Party Secretary Zhao Ziyang. Jiang
is blaming Wen for all of China's current economic problems.
Jiang's criticisms could lead to Wen's early retirement, which
would be akin to Jiang shooting himself in the foot. If Wen
steps down, Li Keqiang will likely take over for Wen, giving Li
greater leverage to make the switch to Party Secretary in 2012.


16. (C) Jiaotong's Professor Hu Wei said that by official party
regulation, Jiang Zemin maintains a role in top-level decision
making. The regulation states that the retired Party Secretary
must be consulted on all serious or contentious issues. He is
given official protocol rank--number two, just behind the
current Party Secretary--and has a right to weigh in on whatever
issues he wants to speak on. This right given to Jiang is not
based on Jiang's personal gravitas but by virtue of his past
political status. Whoever succeeds Hu Jintao will likewise be
required to extend the same privileges to Hu. Similarly, late
paramount leader Deng Xiaoping was extended the same privileges
by Jiang.

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Jiang's Tonic for Jin
--------------


17. (S) Andrew Zhang noted that the sacking of Finance Minister
Jin Renqing, a Hu Jintao protege, was Jiang Zemin's revenge for
Hu's sacking of former Shanghai Party Secretary Chen Liangyu.
Zhang described Jin as an honest official and a loyal husband.
Jin worked his way up the chain, beginning his career as a rice
rationer in Yunnan Province. He had maintained a spotless
record throughout his career. Jin's wife developed an
unspecified mental illness 13 years ago, and yet Jin remained
faithful, going home to her every night. Jin only occasionally
went out drinking with his male secretary.


18. (S) Zhang said that Jiang's people had attempted to put Jin
in a compromising position with the woman he is accused of
having an affair with, but that Jin had refused her advances.
Failing to corrupt Jin, Jiang's associates attempted to have the
woman seduce Jin's son. At the same time, they arranged a
transfer of 500,000 RMB into Jin's son's bank account. By the
time the son realized that there was a large sum of money of
unknown origins in his account, the matter had already been
turned over to the Ministry of Public Security for
investigation. Minister Jin was told that if he did not resign
his son would be prosecuted. Zhang said that Jin is not under
house arrest but is working at a think tank in Beijing. Luo,
however, said that Wu Bangguo's son-in-law told him that Jin did
in fact have sexual relations with the woman in question and was
under the so-called "shuang gui" restrictions.

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National and Ministerial-level Changes
--------------


19. (S) Andrew Zhang said that the lengthy time it took to
resolve the personnel line-up--July to October--bodes ill for
the leadership's ability to quickly resolve government
leadership changes. He noted that it was difficult to find
consensus on the party jobs and that it will be even harder to
come to agreement on power sharing within the government. In
contrast, Luo said that the major government positions have been
basically decided, although some of the ministerial positions
are still being debated. PBSC member Li Keqiang will be taking
over the Executive Vice Premier slot. Guangdong Governor Zhang
Dejiang will be transferring to Beijing to take up Wu Yi's trade
portfolio as a vice premier. Beijing Mayor Wang Qishan will
also be promoted to vice premier and will take up part of Zeng
Peiyan's industry portfolio, which will be split. Liu Yandong
will be replacing Chen Zhili as State Councilor in charge of
science, education, and women's issues. During a November 27
discussion, Nanjing University Professor Gu Su said he had heard
that Liu Yandong might take over Wu Yi's position, icluding the
trade portfolio.


20. (C) Luo said he had heard three officials' names being
bandied about for the job of National Development Reform
Commission (NDRC) chairman: NDRC Vice Chairman Zhu Zhixin, NDRC
Vice Chairman Chen Deming, and State Council Deputy Secretary
General Zhang Ping. He noted that Zhang had served in the NDRC
or its predecessor organizations (State Planning) before moving
to the State Council. (Chen Deming's selection as the Commerce
Minster-designate was announced in the final week of November.
Earlier Chinese press reports and Luo speaking on November 9 had
predicted that Jilin Party Secretary Wang Min would replace Bo
Xilai as Minister of Commerce.)


21. (C) Zhang said that Li Changchun, a Jiang protege, will
still continue to hold the Propaganda Portfolio on the PBSC.
However, Li has been effectively sidelined and real power is
being wielded by the Propaganda Minister, whom Zhang said is a
Hu acolyte. Li is in place to safeguard Jiang's legacy. Zhang
said he would not be surprised if Li suffered a heart attack or
stroke before the next Party Congress. Luo noted that the
current Propaganda Minister, Liu Yunshan, is also a Jiang
protege. (Note: It is unclear if Zhang meant current Propaganda
Minister Liu Yunshan or a Vice Minister underneath him. End
note.)

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Horse Trading in Shanghai and the Provinces
--------------

Shanghai

SHANGHAI 00000771 005.4 OF 006


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22. (C) Luo said that the domino effect of personnel changes
will also be felt in the provincial changes as well. Luo
believed Shanghai Mayor Han Zheng will be moving soon (Note: Luo
had thought Han might transfer to Anhui as Party Secretary,
although that job has recently been filled. End note.). Han
will probably retire from his next post, if he avoids coming
under arrest, Luo added jokingly. Shaanxi Governor Yuan
Chunqing will likely replace Han as Shanghai Mayor. Luo said
that the Central Government is trying to put Shanghai in its
place by replacing both top jobs with outsiders--something many
Shanghai observers did not think would ever happen. Andrew
Zhang separately agreed that the Central Leadership is trying to
teach Shanghai a lesson. Zhang believes Yu Zhengsheng will
finish out his career as Shanghai Party Secretary, marking the
first time in a long while that the top Shanghai post is not
being filled by an up-and-comer.


23. (C) Zhang said that Mayor Han's career will effectively end
when he leaves the Shanghai Mayoralty, whether at the early 2008
end of his current term or even if his Mayoral term is extended
to serve and support the recently arrived Shanghai Party
Secretary. Nanjing University Professor Gu Su told us on

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November 27 that he thought it likely that the new Party
Secretary would require Mayor Han's service through the end of

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2008. A Wenling, Zhejiang Party cadre emphasized to us on
November 14 that the whole Party and whole nation had seen that
Mayor Han was passed over - twice - for the Shanghai Party
Secretary position. If Han is transferred to an economically

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lagging province to serve as provincial Party Secretary, others
would think of it at best as a lateral move for someone coming
from one of the senior-most leadership positions in cosmopolitan
Shanghai, despite the move technically being a promotion. Zhang
noted that bringing in an outsider for the top Shanghai slot and
the current rumors of Han's departure are very disruptive to
Shanghai's governance. The uncertainty of Shanghai's political
standing is compounded by the fact that there is currently no
heir-apparent for Han's job among the Shanghai Vice Mayors.

Jiangsu
--------------


24. (C) Luo said that former Jiangsu Provincial Governor Liang
Baohua will finish his career in the next two to three years in
his new role as Jiangsu Party Secretary. Backfilling for Liang,
Nanjing Party Secretary and Organization Department head Li
Yuanchao protege Luo Zhijun will be promoted to Jiangsu
Governor. Luo Zhijun will also likely be in line to replace
Liang as Jiangsu Party Secretary when Liang steps down.

Chongqing
--------------


25. (S) Luo predicted in our November 9 discussion that
Minister of Commerce Bo Xilai's expected (and since announced)
move to Chongqing to become Party Secretary will be his final
career move. While Bo may serve two terms, he will not be
promoted higher. Bo is not happy with his onward assignment.
Jiaotong University Professor Hu Wei on November 26 repeated his
Beijing contacts' comments that Bo had for several days been
withdrawn following the decision on his onward assignment and
that he had ceased his past pattern of incessant contacts with
other domestic figures whose support he had so ardently courted
in the leadup to the Party Congress.


26. (S) Nanjing's Professor Gu said Bo's move to Chongqing puts
an ambitious, arrogant and widely disliked competitor for a top
position in a trouble-filled position far from Beijing. Gu
noted that Bo had been angling for promotion to Vice Premier.
However, Premier Wen had argued against the promotion, citing
the numerous lawsuits brought against Bo in Australia, Spain,
Canada, England, the United States, and elsewhere by Falungong
members. Wen successfully argued Bo's significant negative
international exposure made him an inappropriate candidate to
represent China at an even higher international level. Wen's
arguments found fertile soil among officials who still harbor
resentment against Bo for his treatment of his
family--particularly his father--during the Cultural Revolution
(1966-76). In order to make himself politically above reproach,
Bo, at the time, had made a public statement denouncing his
father and renouncing his kinship ties. Gu said that people
value familial feelings above all else and many see Bo as a

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"base traitor" who is "less than human" for his actions.


27. (C) Gu listed a litany of challenges facing the new Party
leader in Chongqing: Chongqing is huge and beset with problems
of air and water pollution, Three Gorges Dam resettlement and
safety concerns, unemployment, pestilence and illness. Bo will
surely have his hands full, and concerns about Three Gorges
safety issues are rising. Should Bo prove his mettle and
somehow overcome these challenges, he might yet be a contender
five years from now. Gu also noted that Bo's transfer to
Chongqing enabled President Hu to move prior Chongqing Party
Secretary Wang Yang, a Hu supporter, to a better position before

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any disasters befall Chongqing and the Party leadership there.

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Only the Good Die Young
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28. (S) Luo said that most leaders, when they retire, want to
stay retired. He pointed to Zhu Rongji, Li Ruihuan, and others
(mostly ministers),noting that while they are in power, top
leaders work extremely hard, often long into the night. They
now retire before the age of 68, healthy and vigorous and
wanting to enjoy their remaining years with their families,
feeling that is a right they have earned. For instance, Vice
Premier Zeng Peiyan's fondest wish is to be able to spend a few
hours a day with his grandson. (Note: Luo is friends with Zeng
Peiyan's son and attributed his insights into Zeng's mind to
that relationship. End note.)


29. (S) While most leaders are happy to retire, that does not
mean they cease enjoying exercise of authority, Luo said.
People like Jiang Zemin are used to holding a great deal of
influence. While they do not want to go back into the office
for long days on the job, they do enjoy remaining influential in
politics behind the scenes. Luo speculated that Zeng Qinghong
will not be able to completely remove himself from politics,
despite his willingness to retire.


30. (S) On a slightly related point, Luo confirmed that Wu
Bangguo recently underwent surgery and treatment for lung
cancer. The cancer was detected in its early stages and Wu is
expected to make a complete recovery. Li Changchun had also
been treated for liver cancer. Luo said that it was
unprecedented to have three sitting PBSC members--Huang Ju died
of cancer earlier in 2007--be diagnosed with cancer at the same
time and joked that it must be something in the Beijing air.
(Note: Wu Bangguo's cancer came to Luo's attention during
business discussions with Wu's son-in-law, he said. End note.)JARRETT