VFM HE YAFEI AND AMBASSADOR DISCUSS FINANCIAL

C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 004062

SIPDIS

DEPT PLS PASS TO DEPT OF TREASURY OIA FOR TTYANG AND
CWINSHIP

E.O. 12958: DECL: 10/27/2033
TAGS: PARM PREL EFIN CH PK
SUBJECT: VFM HE YAFEI AND AMBASSADOR DISCUSS FINANCIAL
SITUATION, PAKISTAN, HUMAN RIGHTS, NONPRO, TIBET, TAIWAN
ARMS DEAL

Classified By: Ambassador Clark T. Randt, Jr.
Reasons 1.4 (b/d).

SUMMARY
--------------


1. (C) Vice Foreign Minister He Yafei expressed to the
Ambassador October 27 his belief that the United States and
China should hold consultations before the November 15 G-20
summit, in part to ensure that European-sponsored proposals
for an overhaul of the global financial system are tempered
to take into account the "real economy" concerns of
developing nations. He portrayed China as being for less
"radical" reforms than the EU and as the voice for the
concerns of less developed countries (LDCs) at the summit,
and expressed concern that the financial crisis is spreading
to the "real economy" in many countries. He expressed
concern over the recent announcement of U.S. arms sales to
Taiwan, adding that a rumored sale of F-16's would be
particularly problematic. He reiterated the Chinese demand
that the ethnic Uighur PRC citizens held in Guantanamo be
repatriated to China or not released. On Pakistan, VFM He
insisted that Chasma III and IV are grandfathered under
existing Nuclear Suppliers Group (NSG) agreements. The
Ambassador raised human rights issues as well as
nonproliferation concerns. Other issues discussed included
Iran, North Korea, U.S. participation in the Shanghai Expo,
and diplomatic facilities issues. END SUMMARY.

Financial Crisis Tops ASEM Agenda
--------------


2. (C) At an October 27 lunch hosted by the Ambassador, VFM
He said that the unfolding international financial crisis was
the most important topic of discussion at the October 24-25
ASEM summit in Beijing. He stressed that Asian countries are
very worried about the spreading effects of the financial
crisis and the potential to impact their "real economies."
Developing Asian countries have been alarmed at how quickly
capital has fled their economies. The statement from the
ASEM summit tried to boost confidence among market actors
that government is responding, especially given that,
according to He, 60 percent of world GDP is in the Asian and
European continents.

PRC Suspicious of Overhaul, Concerned for LDCs
-------------- -


3. (C) VFM He expressed appreciation for USG efforts to deal
with the crisis, and said that President Hu is looking
forward to attending the November 15 G-20 summit. He
cautioned that European countries, especially France, may
push for "drastic changes" in the international financial
system. China in general views the goals of the summit as
the United States does, he added, with "some changes" to the
existing system. He questioned the need for a "total
overhaul" of the international financial system.


4. (C) VFM He stressed the importance of considering the
needs of less developed countries (LDCs) at the summit. He
said that China has been hearing concerns from Asian and
African nations that as the major powers focus on revamping
the financial system, their needs will be overlooked.

China Seeks Bilateral Consultations Ahead of Summit
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5. (C) VFM He requested that the United States and China meet
bilaterally before the drafting of the G-20 summit statement
begins in order to take into account the views of less
developed countries. He suggested a round of "very
important" consultations before the end of October via
telephone or in Beijing if there are any high-level U.S.
visitors coming through. He said he hopes to use a bilateral
discussion to exchange thoughts on expectations of the summit
and how to strike a balance between revamping the financial
system and considering the needs of developing countries. He
stressed the United States and China have a shared interest
and that China is "not siding" with the Europeans on the
issue. He stressed the need for a "realistic" approach and
avoiding ideology in moving forward. The Ambassador noted
that the President is not attending any bilateral meetings
during the summit.


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6. (SBU) VFM He said he likely would act as the Chinese
Sherpa for the G-20 summit. (Note: Separately, the MFA told
us the State Council has not yet made a final decision on who
will act as Sherpa.)


7. (C) VFM He said he looks forward to more detailed
information on the G-20 summit as soon as it is available,
including agendas, meeting schedules, to allow for time for
planning. He wondered aloud if the President-elect's
staffers would be attending the summit, noting his hope that
the new administration would follow up with a second summit
early in 2009 to ensure momentum on the process is
maintained.


8. (C) VFM He said he is looking forward to the various
bilateral visits currently on the calendar, including a
planned visit to Beijing by Treasury Secretary Paulson for
the Strategic Economic Dialogue, the next round of the Senior
Dialogue in December, and events surrounding the
commemoration of 30 years of U.S.-China diplomatic relations
early in 2009.

SED Must Go On
--------------


9. (C) VFM He asked if the next round of the Strategic
Economic Dialogue (SED) would go forward given the unfolding
financial crisis. The Ambassador stressed that it would. It
is especially important to continue the development of the
10-year Framework for Cooperation on Energy and the
Environment. It was also critical for China to liberalize
its financial services sector, the Ambassador stressed,
noting that it would be a mistake to link the financial
crisis to China's reform of its financial services sector.
VFM He cautioned that while there may be no direct link
between the two, the public may see a link between such
liberalization and increased vulnerability in the real
economy in China. The Ambassador cautioned He that the next
U.S. Administration will be watching the SED carefully to see
if it is worth continuing.

Taiwan Arms Sales
--------------


10. (C) VFM He expressed continuing PRC unhappiness over the
October 3 announcement of U.S. arms sales to Taiwan, noting
the issue has negatively affected U.S.-China relations and
exchanges. Additionally, the Chinese are concerned that some
in Washington are advocating the sale of F-16 C/D fighter
planes to Taiwan. VFM He called upon the USG not to
authorize such a sale and to advise the next Administration
of PRC sensitivities regarding such a sale.


11. (C) In response, the Ambassador made clear that the
United States' longstanding policy of selling defensive
weapons to Taiwan in accordance with the three U.S.-China
Communiques and the Taiwan Relations Act remains unchanged.
He urged China to reduce its build-up of arms aimed at Taiwan
across the Strait.

Shanghai Expo 2010
--------------


12. (U) VFM He expressed Chinese desire to see the United
States represented with a pavilion at the 2010 Shanghai Expo.
Noting it was hard to imagine such an international event
without U.S. representation, he asked what the problem is.
The Ambassador made clear the problem is not a lack of USG
interest, but rather a lack of private sector funding, and
undertook to report VFM He's concerns. VFM He noted that
Shanghai would be helpful and flexible in assisting U.S.
efforts to have a pavilion.

U.S. Sanctions on PRC Companies
--------------


13. (C) VFM He complained about recently announced U.S.
proliferation-related sanctions against three PRC firms,
which came without warning or prior consultations, according
to VFM He. Such actions by the USG create obstacles to
U.S.-China nonproliferation cooperation, VFM He said. In
response, the Ambassador stressed the importance of
continuing the U.S.-China nonproliferation dialogue. Due to
the unwillingness of MFA Arms Control and Disarmament

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Department officials to meet with EmbOffs since the October 3
announcement of arms sales to Taiwan, the Ambassador took the
opportunity of this meeting to pass two proliferation-related
nonpapers (see septel).

Guantanamo Uighurs
--------------


14. (C) VFM He expressed the PRC view that the PRC national
ethnic Uighurs being held in Guantanamo, Cuba, should either
be returned to China or continued to be held by the United
States, not set free. The Ambassador noted VFM He's concern
as well as the importance of continuing bilateral
counterterrorism cooperation.

Human Rights
--------------


15. (C) The Ambassador raised several human rights cases,
urging the Chinese to take concrete action to address U.S.
concerns. He noted in particular the cases of imprisoned
rights activists Hu Jia, Chen Guangcheng and Gao Zhisheng,
Internet dissidents Yang Zili, Wang Xiaoning and Shi Tao, and
Pastor Zhang Mingxuan and his family. On the latter case,
the Ambassador urged the Chinese Government to address
concerns that Zhang has been detained, his wife evicted from
their apartment and their sons beaten with iron bars. The
Ambassador also asked VFM He to inquire on progress in the
review by the local procuratorate in the death of American
Citizen Darren Russell. VFM He asked the Embassy to provide
additional details on these cases and indicated he would
follow up on the U.S. requests.


16. (C) The Ambassador also urged that the Chinese Government
take advantage of upcoming talks with representatives of the
Dalai Lama to achieve concrete results. See septel.

Diplomatic Facilities Issues
--------------


17. (C) COCA II: Stressing the importance of reaching
agreement on a new Conditions of Construction Agreement (COCA
II),the Ambassador noted the lack of agreement is holding up
USG construction of new consular facilities in Guangzhou. A
major stumbling block is over PRC insistence on intrusive
inspections of diplomatic shipments in support of the
construction project. The Ambassador noted that, as China
had remodeling and construction plans for its diplomatic
facilities in the U.S., cooperation is a win-win proposition.
We are only asking to continue the arrangement which allowed
our respective new embassies to be built.


18. (U) Sale of Er Ban: The Ambassador urged the Chinese to
remove obstacles to the U.S. sale of Embassy property to the
UK.


19. (U) NEC lighting and guards: The Ambassador requested
that the MFA do its part to support Embassy requests for
improved security, to include lighting around the perimeter
of the New Embassy Compound. VFM He promised to rectify any
shortfall in security personnel and to look into getting
Beijing City to improve perimeter lighting.

Pakistan
--------------


20. (C) The Ambassador urged China to join U.S. efforts to
urge Pakistan to combat extremism and terrorism, especially
given the potential dangers from rising instability. He
noted President Zardari's recent visit to China and expressed
U.S. concern that Chinese support for Chasma III and IV
nuclear power plants would violate Chinese commitments under
the Nuclear Supplies Group (NSG) framework.

PRC: Chasma III and IV Do Not Violate NSG Agreement
-------------- --------------


21. (C) VFM He responded that combating instability and
terrorism in Pakistan are in the common interest of the
United States and China and stressed the importance of a
viable economy in maintaining stability. Pakistan is in
negotiations with the IMF for fiscal support, and the United
States and China should work together to help them, but He
cautioned that we cannot force Pakistan to take steps that

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would undermine its internal political unity. He asserted
that while China offered support to Pakistan for Chasma III
and IV, these projects are grandfathered under the existing
NSG agreement as a continuation of the original Chasma
project and do not represent new projects. He alleged that
the USG interpretation of China's NSG commitments in this
regard is wrong and cautioned that without further
development on the Chasma project, Pakistan would have to
import fuel to meet its electricity needs, putting further
pressure on the budget.

Iran/North Korea
--------------


22. (C) The Ambassador urged VFM He to send AFM Liu Jieyi to
participate in the next round of the P5-plus-1 talks on the
Iranian nuclear issue to be held in France in early November.
He noted recent progress on the Six-Party Talks and
expressed hope for further progress. He also sought VFM He's
views on the health of DPRK leader Kim Jong-Il. VFM He
disavowed any knowledge of Kim's health, but noted that the
PRC Embassy in Pyongyang has reported that despite the recent
rumors the situation remains normal and that the government
is in "full control."
RANDT