BILATERAL AND TAIWAN RELATIONS: SHANGHAI INSTITUTE FOR INTERNATIONAL STUDIES SCHOLARS LOOK AHEAD RE RELATIONS WITH UNITED STATES, TAIWAN AND JAPAN

C O N F I D E N T I A L SECTION 01 OF 04 SHANGHAI 000194

SIPDIS

NSC FOR WILDER, TONG
SECDEF FOR ISA DAS SEDNEY
TREASURY FOR AMBASSADOR HOLMER, WRIGHT, DOHNER, CUSHMAN

E.O. 12958: DECL: 6/2/2033
TAGS: PREL EFIN ECON MARR CH TW JA NU
SUBJECT: BILATERAL AND TAIWAN RELATIONS: SHANGHAI INSTITUTE FOR INTERNATIONAL STUDIES SCHOLARS LOOK AHEAD RE RELATIONS WITH UNITED STATES, TAIWAN AND JAPAN

CLASSIFIED BY: Simon Schuchat, Acting Consul General, U.S.
Consulate General, Shanghai, China, Department of State.
REASON: 1.4 (b),(d)


1. (C) Summary. Shanghai Institute for International Studies
leaders outlined for visiting State Department official David
Shear on May 22 several of China's foreign policy priorities and
discussed China's growing comfortableness with multilateral
engagement. They strongly urge that the next U.S.
administration continue the Strategic Economic Dialogue (SED),
the Senior Dialogue and the emerging military-military
relationship. The May 20 inauguration speech by new Taiwan
President Ma Ying-jeou attracted favorable comment and China has
already reacted positively. Positive developments from Taiwan
in cross-strait relations will precede any movement by China to
grant Taiwan some international space. Mainland scholars are
now contemplating whether some international space for Taiwan
could be arranged by participation in an ASEAN plus three plus
one (Taiwan) structure. ARATS and SEF will soon resume
discussions, to be led on the Chinese side by Chen Yunlin
(currently head of the State Council's Taiwan Affairs Office).
China has not acted on Nicaraguan interest to switch its
diplomatic recognition from Taipei to Beijing on an ad hoc basis
while considering whether Taipei and Beijing can stop their war
for diplomatic recognition. End summary.


2. (C) David Shear, the next Director of State's Office of
Chinese and Mongolian Affairs, met on May 23 with SIIS President
Yang Jiemian and Vice President Chen Dongxiao. Shear expressed
condolences for the May 12 Sichuan earthquake; Yang said the
event had shocked all in China and that for persons of his age,
brought back recollections of the aftermath of the 1976
earthquake catastrophe in Tangshan. All Chinese citizens are
pouring out sympathy and support to the earthquake victims.
China thanks the United States for condolences offered and
support rendered in the aftermath of the Sichuan earthquake.

China's Foreign Policy Priorities
-------------- --------------


3. (C) Yang, brother of China's Foreign Minister, enumerated
several of China's top foreign policy priorities at this time.
First is improving China's relations with "big powers," foremost
with the United States. While ten years ago China might have
focused only on the United States, globalization and the
emergence of new powers, China must develop better relations
with multiple powers. Today the United States may be the only
superpower but two decades from now will only be first among
equals. Second, China aims to improve its relations within
Asia. China needs a foreign policy for Asia that accommodates
the interests of the United States, Japan and China's neighbors.
China must keep the United States informed about its intentions
and activities within Asia, Yang said, whether or not the United
States is a part of a particular regional security architecture.
One of the means to keep the United States informed is by
regular high-level exchanges. Yang strongly urged continuation
into the new U.S. administration of the Strategic Economic
Dialogue, the Senior Dialogue and the emerging military-military
relationship, even if a new administration has new ideas for
those dialogues or even if the frequency of such exchanges needs
to be modified. In its foreign policy, China also seeks to move
beyond ad hoc arrangements and establish mechanisms in the
international arena to confront non-traditional security issues,
such as fighting terrorism and dealing with epidemics or
emerging diseases such as SARS.

China's Relations with the United States and Multilateral Engagement -------------- -------------- --------------


4. (C) Yang noted that in each U.S. Presidential transition
save one (1989 Reagan to Bush) since the establishment of
diplomatic relations in 1979, the pendulum in the bilateral
relationship has swung against China in each President's first
term. While China does not foresee far-reaching changes to U.S.
China policy in 2009, regardless of who wins the U.S. election,
Yang suggested that with hard work by both sides the impact on
bilateral relations of a transition in Washington can be handled
better than in the past. Yang said he advises the Foreign
Ministry's U.S. Affairs desk in Beijing to put China's relations
with the United States against a broader background than just
the bilateral relationship. Indeed, China has discovered
benefits from a more multilateral approach to foreign policy and
to the United States. Most notably, into the 1990s, China had
often been isolated in multilateral settings. The first APEC
Summit in Seattle had provided an opportunity for Presidents
Jiang and Clinton to meet without violating any U.S. sanctions
and APEC has provided an annual opportunity for meetings to
exchange views regardless of the bilateral relationship status
at those times. Cooperation on the Korean Peninsula nuclear
issues, a multi-nation undertaking, has also provided
opportunity to strengthen relations and cooperation with the
United States. Hard work with the United States to find ways to
build the bilateral relationship on its positive aspects, not
just shared prevention of Taiwan independence, needs to be
addressed by both sides. Possible future U.S. rewards to Taiwan
President Ma for his comparatively good behavior could become
irritants in the U.S.-China relationship, as would arms sales to
Taiwan or increased U.S. military contacts with Taiwan. China
expects and is worried about more U.S. arms sales to Taiwan, but
that concern could be managed in part by advance knowledge of
the sales.

Financial Consultations; Development of Civil Society
-------------- -------------- --------------


5. (C) Enhanced cooperation in international financial matters
is a topic for further bilateral engagement, Yang suggested.
China respects U.S. primacy in international financial matters.
Still, Chinese academics are engaged in heatedly debating
Sino-U.S. cooperation in the monetary and financial fields. The
renminbi has already appreciated more than 15 percent against
the U.S. dollar; China has accumulated more than USD 1.7
trillion in foreign exchange reserves, 70 percent or more of
which is held in USD-denominated assets such as Treasury bonds;
every bit more of RMB appreciation against the dollar inflicts
financial losses on China. China does not know how to
productively use its forex reserves. China will raise this
topic in the Strategic Economic Dialogue. China seeks a more
consultative mechanism for consideration of global and regional
financial issues. China will also seek to expand and
consolidate people-to-people relations with U.S. NGOs. The
Chinese people's responses to the Sichuan earthquake and support
for the Beijing Olympics torch run in reaction to protests in
foreign locations about China are changing the way Chinese civil
society will develop. The Chinese leadership's emphasis on
saving people's lives first in Sichuan, whereas thirty years ago
priority would have been given to saving the state's property,
shows that U.S. and Chinese values are beginning to converge as
China integrates more fully with the rest of the world. The
United States, especially the parochial U.S. Congress, should
wake up and realize that 9-11 meant the end of physical
boundaries. The United States has the might to impose its will
on others -- for perhaps another 20 years. Consider how much
and how quickly China's place in the world has changed in the
last 20 years; America should display its leadership by example.
The United States will need to work harder to maintain its
leadership role in the world, by reforming education and
improving customer service at local levels. Both sides need to
put new momentum into the bilateral relationship, which remains
each country's most important bilateral relationship.

Taiwan: Positive Reaction to Ma's Inauguration Speech
-------------- --------------


6. (C) Ma Ying-jeou's May 20 Presidential inauguration speech
in Taipei was positive in the mainland's view in at least three
aspects. First, Ma has put cross-strait rapprochement among his
government's top three priorities, along with improving Taiwan's
relations with the United States and with Japan. These choices
show why Ma was elected and Chen Shui-bian and Frank Hsieh were
rejected by Taiwan's voters. Second, Ma responded favorably to
President Hu Jintao's 16-character prescription for cross-strait
relations (shelve disagreements, seek common development) that
Hu had spoken to Taiwan Vice President-elect Vincent Siew at the
Boao Forum this spring. Ma's speech generated a favorable
response by State Council Taiwan Affairs Office Minister Chen
Yunlin on May 22. Chen will quickly move over to China's
Association for Relations Across the Strait (ARATS) which will
resume cross-strait talks with Taiwan's Strait Exchanges
Foundation (SEF) as soon as possible. Third, Ma had spoken
about the Chinese people (zhonghua minzu) rather than using a
term like "compatriots" in discussing the Chinese in the
mainland.

Nicaragua, WHO, and An ASEAN-plus Structure
-------------- --------------


7. (C) China will closely watch Ma's words and actions.
Developments in cross-strait relations will precede any change
regarding Taiwan's international space. China awaits gestures
from Taiwan in the next two months or so, and China is already
showing its good will towards Taiwan. For instance, the
recently elected leaders of Nicaragua wished to switch
diplomatic recognition from Taipei to Beijing upon entering
office, Yang claimed. China decided not to implement that
offered change, at least for now, to see whether an
understanding can be reached that would allow a cessation to the
war between Taipei and Beijing for diplomatic recognition.
China is well aware of Taiwan's interest in joining the World
Health Organization, but any changes to China's opposition will
take some time. Mainland scholars are now contemplating whether
some international space for Taiwan could be arranged by
participation in an ASEAN plus three plus one (Taiwan) structure.

Ma the Man
--------------


8. (C) China sees a difficult challenge in understanding and
dealing with Ma Ying-jeou. Ma's actions are sometimes
value-based, sometimes ideological. He is "green" in that he is
an inexperienced leader. Ma promised too much to Taiwan
following his election. Ma is a Harvard-trained lawyer with
excellent English and has seen much of the world. Ma needs to
work with three factions in Taiwan, namely, the "KMT retirees"
led by Lien Chan, the current KMT party leadership led by Wu
Po-hsiung, and his own government. Cross-strait relations are
less likely to be harmed by accident following establishment of
direct air links and arranging for convertibility between the
renminbi and the new Taiwan dollar. Chinese officials must also
bear in mind that Taiwan is a bipartisan place, that is, Ma can
be voted out of office if the voters are not pleased with
developments. China needs to work together with Taiwan in this
first real opportunity for cross-strait progress since Lee
Teng-hui took office. Unlike the early days of ARATS-SEF
engagement, when China's economy was much more laggard, today
Taiwan is worried about being marginalized alongside the
mainland economic juggernaut.

China-Japan Relations
--------------


9. (C) Yang said that all educated Chinese think about China's
relations with three places, the United States, Japan and
Taiwan. The bilateral relationship with the United States is
the most important of these, as it has great impact on the other
two. Yang commented briefly on important recent positive
developments in China's relations with Japan. First, China
under Hu Jintao has de-linked Japanese leaders' visits to the
Yasukuni Shrine from the issue of Presidential summits and other
high-level engagement. Neither China nor Japan can afford to
have forward movement in this important bilateral relationship
held in abeyance by the Yasukuni issue, as was the case for
nearly a decade. Second, Japan now sees the importance of
improving its relations with China. Third, both China and Japan
are considering a wider range of issues than during past
bilateral engagement. During Hu's May visit, he notably
emphasized the "future" and "Asia," for instance. China hopes
that the United States can play a positive and constructive role
in keeping China and Japan in the right track as they seek to
improve their bilateral relations.


10. (U) Mr. Shear has cleared this report.
JARRETT