ANRE'S HOSAKA "BORED" WITH EAST CHINA SEA

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002529

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E.O. 12958: DECL: 06/04/2017
TAGS: ECON ENFR PREL PGOV CH JA
SUBJECT: ANRE'S HOSAKA "BORED" WITH EAST CHINA SEA
DISCUSSIONS

Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 (b,d)


1. (C) Summary. The eighth round of director- general level
talks between Japan and China on May 25 over the disputed oil
and natural gas deposits in the East China Sea broke no new
ground. Japan expected a new proposal from China but none
was proffered. The two sides will step up the frequency of
their meetings in hopes of reaching a resolution before Prime
Minister Shinzo Abe,s expected visit to China in the autumn.
Politics have not yet affected the talks although a Cabinet
shuffle after the July 11 Upper House elections might change
that. Japanese investment in East Siberian energy projects
remains small. The Ministry of Economy, Trade and
Industry,s June sale of shares in Japan Petroleum and
Exploration Co. was decided in 2003 and therefore
unsurprising. End summary.

"Bored" with Lack of Progress on East China Sea
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2. (C) Ministry of Economy, Trade and Industry (METI) Agency
for Natural Resources and Energy (ANRE) Petroleum and Natural
Gas Division Director Shin Hosaka told Econoff on May 31 that
despite positive media coverage of the May 25 director
general-level (assistant secretary-level) meeting between
China and Japan, he remained very skeptical and "bored" with
the process. Ministry of Foreign Affairs Asian and Oceanian
Affairs Bureau Director General Kenichiro Sasae and ANRE
Director General Harufumi Mochizuki met with Chinese Foreign
Ministry Department of Asian Affairs Director Hu Zhengyue for
the eighth time to discuss joint development of the oil and
natural gas deposits under the East China Sea. Sasae
announced to the media afterward that the meeting was
successful in deepening understanding between Japan and
China. At the root of the discussion is the dispute over the
boundary line delineating the two countries, exclusive
economic zones (EEZs). Hosaka reported that the two sides
agreed to convene director general-level meetings once a
month and director-level (i.e., U.S. office director
equivalent) meetings twice a month. The schedule of the next
director general meeting is not yet decided but probably will
be at the end of June in Tokyo.

Contrary to Expectations, No New Chinese Proposal
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3. (C) Japan was surprised and disappointed that China did
not offer any new proposals for joint development of the East
China Sea. Hosaka explained that Liberal Democratic Party
(LDP) politicians Taku Yamasaki, Koichi Kato and Masahiko
Komura had traveled to China on April 27-28 to meet with
Chinese State Councilor Tang Jiaxuan who told them that China
was preparing a new proposal for joint development of the
natural resources in the East China Sea. As a result, the
Japanese delegation did not prepare anything new and so was
frustrated that China offered nothing during the May 25
meeting. Hosaka added that the Japanese oil company Teikoku
Sekiyu is anxious to begin exploration of the disputed area
but so far has refrained due to concerns over safety.

Abe,s Autumn China Visit a Motivation
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4. (C) Hosaka noted that Prime Minister Shinzo Abe,s plans
to visit China in the autumn to meet with President Hu Jintao
is motivating both sides to find a resolution but Hosaka is
highly doubtful this is possible.

Politics Could Start to Play Larger Role
--------------


5. (C) Asked whether the upcoming Upper House elections and
possible Cabinet shuffle would have any effect on the talks,
he said no, although he cautioned that this could change. If
Abe's popularity continues to decline and LDP Policy Research
Council head Shoichi Nakagawa, for example, who is a
hard-line negotiator on China issues, were to take a more

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prominent role in the administration, politics might start to
play a larger role.

Japanese Investment in East Siberia Remains Small
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6 (C) Hosaka continued to maintain that Japanese investment
in Russia's East Siberia is marginal. Currently Japanese
companies are involved in two projects in the region, one
with Russian gas major Gazprom and the other with oil major
Rosneft. Hosaka said that ANRE plays the role of
intermediary between Japanese companies and Gazprom in the
downstream gas project that came out of the February 2007
ministerial meeting between Russian Industry and Energy
Minister Viktor Khristenko and METI Minister Akira Amari in
Tokyo in February 2007. Hosaka has no confidence in the
Rosneft project involving a proposal for a Pacific coast oil
refinery because Russian Minister of Economy and Trade German
Graf has insisted many times there is not enough oil to fill
a pipeline to the Pacific coast.

METI's Sale of JAPEX Shares Unsurprising
--------------


7. (C) Hosaka explained that the recent announcement about
METI's plans to sell its shares in Japan Petroleum and
Exploration Co. (JAPEX) should surprise no one because the
Japanese government decided in 2003 to sell them. Now is the
right time based on energy security and maximizing returns
for the government and the Japanese people. The current
market environment is very good, he said, so the government
has decided to reduce its stake in JAPEX from 49 percent to
34 percent. METI's remaining one-third ownership ensures
that METI can maintain its influence in the company were
China or Russia, for example, to buy up some of the shares.

Comment
--------------


8. (C) The East China Sea talks drag on with neither side
willing to alter its position on where joint development
might occur in the East China Sea. Hosaka's comment that he
is "bored" is indicative of the inflexibility in both Beijing
and Tokyo on the substance of the East China Sea issue
despite the ostensibly successful visit by Chinese Premier
Wen Jiobao in April and the Abe-Hu summit planned for the
fall.
SCHIEFFER