FM YANG AND SENATOR HAGEL DISCUSS THE FINANCIAL

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 003941 SIPDIS DEPT FOR EAP/CM, H PLEASE PASS TO SENATOR HAGEL'S OFFICE E.O. 12958: DECL: 10/16/2033 TAGS: OVIP PREL MASS PTER PGOV TW PK KN KS CH SUBJECT: FM YANG AND SENATOR HAGEL DISCUSS THE FINANCIAL SITUATION, DPRK, TAIWAN ARMS SALE, PAKISTAN Classified By: Political Minister-Counselor Aubrey Carlson, Reasons 1.4 (b) and (d). SUMMARY -------------- ¶1. (C) Foreign Minister Yang Jiechi told Senator Chuck Hagel (R-NE) that the current global economic crisis "demands global leadership" and U.S.-China cooperation to overcome the lack of confidence in financial markets. He said that China will "do its best" to ensure a smooth transition of U.S.-China relations during the upcoming change of administration in the United States. China is "unhappy" over the U.S. announcement of arms sales to Taiwan, and wants to erect a "new framework for peaceful development" of cross-Strait relations. China "values highly" the U.S. decisin to delist the DPRK as a state sponsor of terrorism and urges all sides to be "active and flexible" in completing Phase II of the Six-Party Talks process. FM Yang called Pakistan a "kind of fortress against terrorism," adding that the United States and China need to continue supporting the country. END SUMMARY. ¶2. (C) PRC Foreign Minister Yang Jiechi expressed concern over the state of the world economy during an October 14 meeting with Senator Chuck Hagel (R-NE). Calling the current global economic crisis a very important moment in history for U.S.-China relations, FM Yang said that the two sides must work together with other major powers to overcome the crisis. FM Yang said the crisis "demands global leadership" and China believes it is very important to rebuild confidence in financial markets and increase liquidity in the global system. Yang stressed that China will cooperate with international efforts to deal with the challenge, noting that financial stability and rapid, steady economic growth in China have been a major contribution to the stability of the world economy. He said that China will be "as helpful as possible" and that U.S. and Chinese leaders are "on the same wavelength" on how to proceed. The efforts to deal with the crisis should make full use of existing mechanisms such as the Joint Commission on Commerce and Trade (JCCT) and Strategic Economic Dialogue (SED). Describing the U.S. and Chinese economies as "intertwined," FM Yang urged the United States to take into "full consideration" Chinese financial and economic concerns. U.S. Elections -------------- ¶3. (C) On the upcoming U.S. Presidential election, FM Yang expressed hope that the next President would understand that the two countries have a "confluence of interests," adding that China will "do its best" to ensure a smooth transition of U.S.-China relations during the change of administration. Senator Hagel noted that regardless of who is elected, the positive development of U.S.-China relations is expected to continue. Taiwan Arms Sale -------------- ¶4. (C) FM Yang told Senator Hagel that the Bush administration has overseen seven years of generally positive development in U.S.-China relations, but that he was "unhappy" with the recent U.S. announcement of arms sales to Taiwan, especially in the context of "important" developments in cross-Strait relations. He said that China now wants to erect a "new framework for peaceful development" of cross-Strait relations and that "some steps" had been taken already. Such a large-scale arms package represents an obstacle in the development of cross-Strait relations and will encourage pro-independence forces on Taiwan, Yang said. China has expressed its strong feelings on the issue to senior levels of the USG and urged the United States to cancel the deal in the interests of "U.S-China relations and cooperation in various fields." He urged Congress to "take seriously the Chinese position" upon receiving notification of the sale and emphasized the sensitivity of the issue "deep in the hearts of the Chinese people." DPRK -------------- ¶5. (C) On North Korea, FM Yang said that China "values highly" the U.S. decision to delist the DPRK as a state sponsor of terrorism, adding that the North Koreans are in BEIJING 00003941 002 OF 002 turn inviting back IAEA inspectors and have said they will continue with disablement. China will continue its efforts in moving the process forward, Yang added, and he urged all sides to be "active and flexible" in completing Phase II. He stressed that China and the DPRK have normal relations, and that China will encourage the North Koreans to move forward. He called the efforts a good example of US.-China cooperation, and said other examples include efforts to deal with the Iranian nuclear program. Pakistan/Afghanistan -------------- ¶6. (C) Asked about the situation in Pakistan, FM Yang said that China is following closely the recent change in government. China has good relations with President Zardari and his party (the PPP),as well as other factions, he said. The Federally Administered Tribal Areas (FATAs) continue to be a source of concern, and China has noted the reduction of the country's economic rating. Calling Pakistan a "kind of fortress against terrorism," Yang said that the United States and China need to support the country, and Chinese companies are involved in a number of infrastructure development projects, despite the security concerns and the recent kidnapping of two Chinese in Pakistan. ¶7. (C) FM Yang noted that China has seen progress in Pakistan's relations with its neighbors, but challenges remain. Yang reported that China was encouraged that Afghanistan President Karzai was invited to President Zardari's inauguration, and while Pakistan's "national territory and sovereignty" need to be respected, the United States should continue its "good, many-sided" collaboration with Pakistan. He added that the United States and China need to stay "in close touch" on the issue. ¶8. (U) Senator Hagel's staff cleared this message. PICCUTA