Identifier
Created
Classification
Origin
09SHANGHAI329
2009-07-22 05:16:00
CONFIDENTIAL
Consulate Shanghai
Cable title:  

SHANGHAI SCHOLARS COMMENT ON JUNE SHANGHAI COOPERATION

Tags:  PREL EFIN ENRG MARR CH XD ZK RS IR 
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C O N F I D E N T I A L SECTION 01 OF 05 SHANGHAI 000329 

SIPDIS

SECDEF ALSO FOR ISA
NSC FOR LOI

E.O. 12958: DECL: 7/22/2034
TAGS: PREL EFIN ENRG MARR CH XD ZK RS IR
SUBJECT: SHANGHAI SCHOLARS COMMENT ON JUNE SHANGHAI COOPERATION
ORGANIZATION SUMMIT IN YEKATERINBURG

REF: A. A) YEKATERINBURG 36

B. B) MOSCOW 1696

C. C) BEIJING 1844

D. D) BEIJING 1589

E. E) BEIJING 1698

F. F) 08 SHANGHAI 253 AND PREVIOUS

G. G) BEIJING 1803

SHANGHAI 00000329 001.2 OF 005


CLASSIFIED BY: Christopher Beede, Deputy Principal OFficer, U.S.
Consulate General Shanghai, Department of State.
REASON: 1.4 (b),(d)



C O N F I D E N T I A L SECTION 01 OF 05 SHANGHAI 000329

SIPDIS

SECDEF ALSO FOR ISA
NSC FOR LOI

E.O. 12958: DECL: 7/22/2034
TAGS: PREL EFIN ENRG MARR CH XD ZK RS IR
SUBJECT: SHANGHAI SCHOLARS COMMENT ON JUNE SHANGHAI COOPERATION
ORGANIZATION SUMMIT IN YEKATERINBURG

REF: A. A) YEKATERINBURG 36

B. B) MOSCOW 1696

C. C) BEIJING 1844

D. D) BEIJING 1589

E. E) BEIJING 1698

F. F) 08 SHANGHAI 253 AND PREVIOUS

G. G) BEIJING 1803

SHANGHAI 00000329 001.2 OF 005


CLASSIFIED BY: Christopher Beede, Deputy Principal OFficer, U.S.
Consulate General Shanghai, Department of State.
REASON: 1.4 (b),(d)




1. (C) Summary. Shanghai scholars regard the June 15-16
Shanghai Cooperation Organization (SCO) summit in Yekaterinburg
as an important step in the development of the SCO as an
influential regional organization and one that is broadening its
engagement with the international community. Russia's economic
woes have forced Russia to become more active within the SCO
context on economic cooperation, even if Russia's foremost
interests remain counter-terrorism and energy cooperation. The
scholars believe there is increased interest among SCO members
in use of local currencies (rather than the U.S. dollar) in
settling trade accounts, and increased interest in possible
creation of an SCO Development Fund or SCO Development Bank.
SCO members as a whole and China in particular are worried about
the security situation in Afghanistan, and the SCO could play a
role in Afghanistan's reconstruction. The SCO is not yet ready
to admit new members but took steps to broaden its engagement
with regionally important countries by designating Belarus and
Sri Lanka as dialogue partners. The Shanghai scholars urged
U.S. engagement with the SCO and cooperation through the SCO on
Afghanistan issues. One of the scholars likened post-election
violence in Iran occurring during the week of our meetings to
the Color Revolutions. End summary.


2. (C) P/E Section Chief and cleared State summer intern
called on Shanghai scholars during the week of June 22 to
discuss their views on the significance and outcomes of the June

15-16 SCO Summit meeting in Yekaterinburg, Russia (refs A-D).
Discussants included SHAO Yuqun, Deputy Director of the Center
for South Asia Studies at the Shanghai Institutes for
International Studies (SIIS),one of China's leading foreign
policy thinktanks; Director PAN Guang and Deputy
Secretary-General LI Lifan, Center for Shanghai Cooperation
Organization Studies at the Shanghai Academy of Social Sciences
(SASS); and ZHAO Huasheng, Director of Fudan University's Center
for Russia and Central Asia Studies and concurrently Director of
Fudan's own, separate Center for Shanghai Cooperation
Organization Studies. (Note: East China Normal University in
Shanghai is establishing a new SCO-related research institute
this year as well. End note.)

Building Institutional Confidence and Seeking New Opportunities


3. (C) SIIS's Shao Yuqun described the summit and the
published declaration as showing that the SCO is becoming more
self-confident as a regional organization. She emphasized that
the SCO is defining its role on international issues and that
the SCO believes it can play an important role in resolving
global issues, such as financial instability, drug trafficking,
and terrorism. In 2005, the SCO member states had been
"nervous" due to the presence of NATO in Afghanistan and other
events. In part because NATO has not been very successful in
the region, the SCO has grown more confident that it can play a
positive role in Central Asia and Afghanistan. Shao said that
the SCO wants the United States and the West "to hear the voice
from this region." The SCO is also becoming involved in
building security architecture for the whole Asia-Pacific
region. At the summit, SCO heads of state discussed the North
Korean issue, even though that problem is in Northeast Asia, not
Central Asia. In addition, Shao explained that the SCO is
expanding its scope, as evidenced by the designation of Sri

SHANGHAI 00000329 002.2 OF 005


Lanka and Belarus as SCO "Dialogue Partners." Fudan's Zhao
Huasheng believed the Yekaterinburg Summit marked an important
step forward for the SCO. Zhao was impressed that Russia is
becoming more active in promoting the SCO, hosting the summit
and showing more concern about the security situation in
Afghanistan.

Economic Cooperation, Local Currencies for Trade Settlement,
Financial System Reform


4. (C) SASS's Pan Guang believes that the SCO is becoming more
important as a result of the global financial crisis and the
difficult security situation in Afghanistan. The severe
negative impact that the financial crisis has had upon Central
Asia and Russia has spurred greater economic cooperation in the
SCO. According to Pan, in the past Russia was not interested in
increasing economic cooperation, rather Russia focused on
anti-terrorism, joint military exercises, dealing with NATO, and
seeking support during the war with Georgia. Pan remarked that
Russia was worried about China's economic influence in Russia's
"backyard," but as more and more development projects have been
scrapped, along with decreased oil prices and rising
unemployment in Russia and Central Asia, Russia has embraced the
idea of economic cooperation within the SCO. Shao stressed that
the global financial crisis had badly hurt Central Asia, but
China has met the challenges by providing economic assistance
and investment. In the past, economic cooperation amongst SCO
members has not been very successful but some progress has been
achieved recently. The Chinese Government has begun to compare
economic cooperation in the SCO and economic cooperation in
ASEAN, where there has been much more rapid progress. Holding a
similar view with Pan, Shao explained that China and Russia have
different priorities in the SCO: Russia's emphasis has not been
economics, but rather energy and counter-terrorism in the
Commonwealth of Independent States (CIS),and this has been a
hindrance to increased economic cooperation. According to Pan,
Russia has realized that it cannot deal with the financial
crisis alone, and thus the crisis has been "an opportunity" to
promote economic cooperation within the SCO.


5. (C) Pan's key point was that in dealing with the financial
crisis and promoting development in Central Asia, "you can't do
anything without money." Fudan's Zhao concurred, stating that
the lack of credit available in the past was a hindrance to
moving forward on economic cooperation. Pan believes the
solution to this problem is the creation of an SCO Development
Fund or Development Bank. Although no agreement was reached in
discussions at the Yekaterinburg Summit on an SCO Development
Bank, the idea is gaining currency, Pan asserted. Pan also
relayed that SCO members are becoming more interested in using
local currencies, such as the Chinese renminbi and the Russian
ruble, to conduct bilateral trade. The SCO has been a conduit
in which to encourage the use of local currencies in bilateral
trade in the near term to avoid the negative influence of a
weakened U.S. dollar. The SCO has also been a facilitator for
bilateral trade agreements and huge Chinese investments in
transportation, customs, and oil and gas.


6. (C) On international finance, Shao said that it is the
responsibility of the "big members to help the smaller members"
within the SCO framework. Shao said that the BRIC group, of
which three SCO participants (two SCO member states and SCO
observer India) are part, want their voice heard about the
global financial crisis and reform of the international
financial system. This stems in an important part because of the
impact the global financial crisis has had upon on the spread of
terrorism. Pan commented that reform is needed in the G-20 and
in the international financial system but did not elaborate.
Zhao commented international financial system reform is seen as
necessary by the SCO participants in order to make the system
more "just" and "favorable" to developing countries.

Energy Cooperation

SHANGHAI 00000329 003.2 OF 005




7. (C) With regards to energy, Shao explained that China and
Kazakhstan have resisted Russian efforts in creating an "energy
club" within SCO, citing Chinese concerns over western attitudes
towards such a club. According to Shao and Zhao, the SCO can
promote energy cooperation among state members, but bilateral
means are used to achieve tangible signed deals on energy
cooperation.

Afghanistan, Terrorism, Regional Security, Manas Airbase


8. (C) Shao believes that the most successful area of
cooperation between SCO member states is counter-terrorism.
Shao said that terrorists have begun moving from Afghanistan and
Pakistan and into Tajikistan and the Ferghana Valley, sparking
the concern of SCO members. Pan also emphasized that the SCO
and China are very concerned about the security situation in
Afghanistan. With Islamic influence on the rise in Central
Asia, China remains anxious about Al Qaeda and, in particular,
the East Turkestan Islamic Movement (ETIM). Pan remarked that
until the UN plays a greater role in Afghanistan, Chinese
soldiers and peacekeepers cannot be dispatched because they
cannot be under the command of NATO. China is less sensitive to
the idea of cooperating with NATO than Russia is, however, and
Pan encouraged the idea of high level dialogue between China and
NATO on Afghanistan.


9. (C) Pan also discussed U.S. use of the airbase in Manas,
Kyrgyzstan. He said that while China believes foreign troops
should set a timetable to leave SCO territory, China is hesitant
to use strong, critical language of the U.S. military presence
in the SCO area. Shao and Zhao also commented that SCO members
are nervous about the U.S. military presence in the region.
Pan, though, said the precondition for withdrawal of U.S. forces
would of course be the situation in Afghanistan, and currently
the Afghanistan government struggles to control much of its own
territory. Pan warned that civilian casualties in Afghanistan
and Pakistan caused by U.S. forces would do nothing to resolve
the crises there, adding a reference to Japan's experience in
China during the Second World War.


10. (C) Pan and his colleague Li expressed Chinese concern
about poverty, unemployment, and social instability and the
"three evils" (separatism, extremism and terrorism) in Central
Asia. The USD 10 billion loan China granted to the Central Asian
member states at the summit is designed to alleviate the impact
of the financial crisis, but is also aimed at "creating harmony
and peace" in Central Asia. The member states would like to do
more on counter drug trafficking, and although they have many
mechanisms to do so, there has not been much progress to date.
Because the situation in Afghanistan deteriorated in 2007-2008,
drug smuggling in the region has peaked. All of the drugs
entering China through Xinjiang originate from Afghanistan, Pan
asserted. Shao noted that before the next SCO summit, the
member states have been tasked to prepare proposals to increase
cooperation on drug trafficking issues.

No New Members Soon; Dialogue Partners


11. (C) With regards to the new "Dialogue Partners" Sri Lanka
and Belarus, Shao explained these nations first expressed their
interest in attending SCO activities, after which the SCO member
states discussed and approved their attendance. Sri Lanka was
important to the SCO because it impacts the security of all of
South and Central Asia. Belarus, on the other hand, offers a
balance for the Russian side, explained Shao. Pan added that he
was surprised that Sri Lanka and Belarus were the first Dialogue
Partners, although they are important regionally. (Li added
that many Russian scholars were also puzzled as to why these two
nations were the first Dialogue Partners). Nepal, Turkey and
Bangladesh have all expressed interest in interacting with the
SCO, Pan said. Zhao himself said he did not put much meaning
behind the addition of "Dialogue Partners," and although it is

SHANGHAI 00000329 004.2 OF 005


not a bad thing to have dialogue with Sri Lanka and Belarus, the
SCO should concentrate on having dialogue with bigger nations
and organizations. Zhao said it would be "much more
interesting" for the SCO to engage with and cooperate with the
United States, the EU and NATO.


12. (C) Despite its growing self-confidence and broadening
view of its scope of interests and engagement with others, the
SCO is not yet mature to admit new full members, according to
all of these Shanghai scholars. The SCO is focused on making
progress on the existing agreed areas of work and establishing
legitimacy as a regional organization in Central Asia. In time,
the SCO may be able to consider admitting new members, but until
then, the SCO has created "Observers" and "Dialogue Partners" to
satisfy interested states. Pan then added he thought the SCO
would allow Turkmenistan to join the SCO any time it wished.

SCO Not Anti-U.S., But Won't Carry Our Water, Either


13. (C) In 2006, when the SCO summit was held in Shanghai,
Shao said, Ahmadinejad's presence caused many Americans to
believe China was supporting anti-U.S. sentiment in the SCO.
While Shao said that China is certainly interested in developing
good relations with Iran, she cautioned that China is trying to
avoid anti-U.S. attitudes in the SCO. At the same time, China
welcomes Iran to participate in the SCO as an observer because
Iran is a big energy supplier and a big regional player. Pan
said there was a feeling among SCO members that during the Bush
Administration the SCO was viewed as a potential enemy. Zhao
also voiced his concern that "western scholars believe the SCO
is anti-U.S." Zhao continued that the SCO is not anti-U.S. or
a balance against the United States in the region, only that SCO
members believe the Color Revolutions brought instability to the
region and that the SCO could not be an advocate of U.S.
interests.

SCO-U.S. Cooperation - Or at Least Communication?


14. (C) Shao said that China is the motivating force behind
improved U.S.-SCO relations since 2007 and responsible for the
absence of anti-U.S. remarks at SCO meetings. She said the
participation of a U.S. Deputy Assistant Secretary of State at
the SCO's conference on Afghanistan convened in Moscow in March
2009 as an indication that U.S.-SCO relations are improving.
Shao continued that it is realistic to imagine U.S.-SCO dialogue
and cooperation, and that the SCO should play a role in
Afghanistan's reconstruction. Because China has no relationship
with NATO, Shao suggested that the U.S. and the SCO engage in
"track two" dialogue about how to cooperate in Central Asia on
issues such as counter- narcotics operations within Afghanistan.
Shao suggested that if a dialogue between the U.S. and SCO is
"too sensitive," the U.S. should engage in dialogue with each
SCO state individually, as the U.S. needs a broader policy for
Central Asia. Pan repeatedly said that there is a need for the
SCO to work together the United States on Afghanistan.
Additionally, Pan mused that "Dialogue Partner" status would be
fitting for the United States, the EU and Japan, or that there
could be productive "SCO plus 3" discussions. Zhao also thought
that "Dialogue Partner" would be an apt way for the SCO to begin
to realize its members' largely shared goal of substantive
engagement with the United States.

Post-Election Violence in Iran: Worryingly like the Color
Revolutions


15. (C) Because Iran had come up in our discussions with these
SCO scholars, we also asked them for their brief views on the
post-election violence occurring in Iran during that week of
June 22 when we spoke with them. SIIS's Shao said that the
situation in Iran reminds most Chinese observers of the Color
Revolutions, an unwelcome and worrisome similarity for those
Chinese observers. Because the Supreme Leader had told Mousavi
and his supporters to cease protests, but the protests continue,

SHANGHAI 00000329 005.2 OF 005


she saw this as indication that there is outside support to the
Iranian protest movement. Shao admitted she has less scholarly
familiarity with Iranian issues than with Central and South
Asian issues, and said Chinese scholars lack a clear picture of
U.S.-Iranian relations. Pan's reply was retrospective,
recalling that during his 2005 visit to Iran, many younger
Iranians told him that Iran "needs an Iranian Deng Xiaoping" to
open Iran's doors to the outside world. Fudan's Zhao said Iran
was beyond his scope of research and expertise.
CAMP