THE CONSUL GENERAL DISCUSSES BILATERAL RELATIONS,

C O N F I D E N T I A L SECTION 01 OF 03 SHANGHAI 000410

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E.O. 12958: DECL: 9/22/2028
TAGS: PREL PGOV PHUM ECON CH KN RS TW
SUBJECT: THE CONSUL GENERAL DISCUSSES BILATERAL RELATIONS,
POST-OLYMPICS CHINA WITH SHANGHAI SCHOLARS

CLASSIFIED BY: Beatrice A. Camp, Consul General, U.S. Consulate
General, Shanghai, China, Department of State.
REASON: 1.4 (b),(d)




1. (C) Summary: In the wake of the successful Beijing Summer
Olympic Games, international economic stability is now Beijing's
top priority, according to Shanghai scholars. They regard U.S.
actions leading up to and during the Olympics as having provided
a psychological boost to bilateral relations. Social tensions
remain a major preoccupation of the Chinese leadership, though
it remains to be seen whether pre-Olympics reforms are made
permanent. U.S.-China relations have reached a level of
maturity where both sides can cooperate on a range of issues
despite residual differences. At the same time, bilateral
irritants -- such as potential U.S. arms sales to Taiwan --
remain on the horizon, while international challenges including
the Georgia crisis and the Six-Party Talks may further test the
relationship's durability. END SUMMARY.



2. (U) On September 19, the Consul General hosted several
prominent Shanghai scholars of international affairs for lunch
and a wide-ranging discussion on bilateral relations and
post-Olympics China. Our guests included: Ding Xinghao,
Director, Shanghai Institute for American Studies; Wu Xinbo,
Deputy Director, Center for American Studies (CAS),Fudan
University; Zhuang Jianzhong, Vice Director, Center for Rim-Pac
Strategic and International Studies, Shanghai Jiaotong
University; and Xia Liping, Deputy Dean, School of Law and
Political Science, Tongji University.


ECONOMIC STABILITY CHINA'S TOP PRIORITY
--------------


3. (C) In the wake of the successful Olympic Games, many Chinese
are turning their attention to the world financial situation.
Ding Xinghao observes that the U.S. economic downturn now
appears more severe than it previously did, and increased global
interdependence has made economic stability in the United States
"everyone's problem." Ding suspects that, to maintain growing
prosperity at home, China will "need to help Americans to help
ourselves." Wu Xinbo agrees that, while Beijing was initially
focused on preparations for the new U.S. administration in 2009,
its top priority is now the international economy. China's
prosperous coastal regions had already felt the effects of the
U.S. economic decline earlier this year, Wu asserts, and the
situation has only gotten worse due to recent events on Wall
Street and in Washington.

U.S. APPROACH TO OLYMPICS A BOOST
--------------


4. (C) Reflecting on the success of the Beijing Olympics, Xia
Liping believes that U.S. actions leading up to and during the
Games provided a psychological boost to bilateral relations.
The Chinese people were moved by U.S. aid given to the Sichuan
earthquake victims, and impressed that President Bush attended
the Olympics over strident Western criticism of China during the
unrest in Tibet. More concretely, U.S. security cooperation
with China during the Games was very good, Xia notes, especially
the U.S. contribution of advanced technological equipment to
assist Chinese efforts. Zhuang Jianzhong similarly believes
many Chinese were grateful for President Bush's strong support
during "a hard spring," and that this U.S. support contributed
to an Olympics that was "a success for the whole world."

CHINESE VISA RESTRICTIONS
--------------


5. (C) On the issue of prospective foreign visitors experiencing
difficulties and delays in obtaining Chinese visas before the
Olympics, Wu admits having "heard about the problem" and
believes such cases arose primarily from "political concerns"
over "specific individuals." Ding, however, is optimistic the
problems will not surface again in advance of the 2010 World
Expo in Shanghai. Politics is simply more sensitive in a
political center like Beijing, Ding argues, but Shanghai is

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China's open, economic center. Besides, China has now put on a
successful Olympics, Ding points out, so World Expo organizers
will surely draw many lessons from that experience.

JURY STILL OUT ON CONTINUED REFORM
--------------


6. (C) According to Wu, many Chinese regard as unprecedented the
level and depth of media coverage permitted on the May Sichuan
earthquake, as well as increased access to previously restricted
internet websites during the Olympics. At the same time, Wu
observes, a debate continues within the Chinese leadership
regarding whether these freedoms should be normalized. True
reform cannot merely react to specific events but must fall
within a broader social context, Wu contends, and it is unclear
that these developments represent a "strategic realignment"
rather than "tactical adjustments." Any further social and
political opening is most likely to proceed at the pace of "two
steps forward, one step back."


7. (C) Wu claims that social tensions are "a real concern" to
the Chinese leadership, and that a consensus is finally emerging
that officials must be held responsible for their decisions. Wu
expects Beijing will take some initiative in the area of social
and political reforms this year, perhaps during the Communist
Party Committee session in December. Wu also confirms a Party
Plenum has been scheduled for sometime in October; its agenda
will focus on rural development and a roadmap for reforms.



8. (C) Still, Wu points out, social unrest is no small problem,
with over 250 "mass incidents" estimated to occur every day in
China. Several recent high profile cases, including the murder
of a girl in Guizhou and a riot in Yunnan between local peasants
and a rubber industry investor, have only increased the pressure
on the Chinese leadership. At the same time, Wu observes, even
if Beijing learns to improve its approach and transparency, the
lesson will not necessarily carry over to localities. The
unfolding milk powder scandal, in which dairy products tainted
with melamine have sickened Chinese children, is a case in
point. Although Central Government intervention later pushed
the Hebei Provincial Government to reverse course, local
authorities initially "took the old approach" and tried to cover
up wrongdoing when it was revealed. Pressure from ordinary
citizens also played an important role, Wu notes. When it
became clear the Central Government refused to be made to take
responsibility for the fiasco, many Chinese realized they could
hold local authorities' feet to the fire without fear or
repercussion to themselves; local officials are being forced by
the center to take responsibility for actions or omissions at
the local level. The important point, Wu avers, is that Party
and government officials are being punished in this fiasco.


BILATERAL RELATIONSHIP A MATURE ONE...
--------------


9. (C) Reflecting on the thirty years of U.S.-China relations,
Wu believes their most important legacy has been establishing an
effective bilateral framework. Both sides now have a clear idea
of their differences, where their concerns intersect, and how to
maturely deal with the other. More recently, Wu continues, the
strong personal relationship between Presidents Hu and Bush has
further enhanced bilateral ties. Hu is privately comfortable
with President Bush in a way Hu is not around other leaders, Wu
contends. When Hu welcomed President Bush to the Olympics and
referred to him as "my friend," this was "no token gesture," but
an expression of Hu's true feelings.


10. (C) Zhuang believes that, on the whole, bilateral relations
have reached a "new stage" where the United States and China
enjoy more common ground on issues as varied as the Six-Party
Talks and the Georgia crisis. Zhuang points to the August 28
Shanghai Cooperation Organization (SCO) summit joint statement
-- which Beijing played a key role in drafting, and which calls
on member states to respect states' territorial integrity -- as
evidence that Chinese and international norms are converging.
As for North Korea, "time will show how important a role China
can play," Zhuang concludes.


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...THOUGH POTENTIAL IRRITANTS REMAIN
--------------


11. (C) Wu acknowledges, however, that China has a number of
short-term policy concerns. Beijing is closely monitoring how
President Bush decides to act on arms sales to Taiwan, and is
anxious to strengthen the bilateral economic relationship during
the next Strategic Economic Dialogue (SED) in December. In
addition, Wu fears there will be little progress made in the
Six-Party Talks. Although "the ball is currently in North
Korea's court," Pyongyang may have decided to wait out the Bush
Administration.


12. (C) Xia reports that many Chinese believe that the Bush
Administration gave Georgian President Mikhail Saakashvili at
least a tacit go-ahead to strike South Ossetia. This was a bad
move, Xia argues, because Moscow is much stronger than it was a
decade ago. Russia has a revived economy, greater political
stability, and is regrouping as a military power. Wu notes that
Beijing has been very cautious on the Georgia crisis. China is
refraining from open criticism of Russia because of "national
interests," Wu admits, but sees echoes of cross-Strait politics
in Georgia's difficulties with its breakaway provinces. Ding
points out that while some observers have argued China stands to
benefit from deteriorating U.S.-Russian relations, Beijing has
not played the "Russia card." In any event, Xia cautions, more
U.S. pressure on Russia will only elicit a sharp reaction.


13. (C) On the Six-Party Talks, Xia argues the United States
must act now to remove North Korea from the State Sponsors of
Terror list and from Trading with the Enemy Act (TWEA)
restrictions. Pyongyang is using U.S. inaction as an excuse to
do nothing, Xia asserts; a quick delisting would allow the other
Six-Party member states to credibly put pressure on North Korea.
Xia considers the most important accomplishment the Six-Party
Talks might achieve to be securing North Korea's existing stock
of nuclear materials. Such items are easily transportable
across borders, Xia notes, and "there is no telling where they
might wind up" if the current regime in Pyongyang implodes. Xia
said North Korea has produced sixty-two kilograms of plutonium.
Xia concludes that Beijing and Washington must begin bilateral
discussions addressing the contingency of regime collapse.
Referring to reports that North Korean leader Kim Jong-il is in
poor health, Xia speculates Kim has fewer than five years to
live, though "he may pull through this time."


U.S. POLITICS
--------------


14. (C) Both Wu and Zhuang agree there is largely consensus on
international issues between the U.S. presidential candidates,
Senators Barack Obama and John McCain, and believe U.S. domestic
issues will decide the race. Ding, meanwhile, is relieved that
China has not emerged as a political issue during the campaign.
Wu points out that, apart from the presidential contest, U.S.
political history is currently in vogue among Chinese leaders.
In fact, many are reading about President Theodore Roosevelt's
life and times, hoping to glean insights into the United States'
handling of its industrial development at the turn of the 20th
century, regarded as roughly equivalent to China's current stage
of economic development. In the coming year, Wu's hunch is that
Beijing will become more inwardly focused, as Beijing takes time
to become acquainted with the new administration in Washington.
The close relationship between Hu and Bush, Wu laments, may not
be so easily replaced.
CAMP