XI JINPING'S JOURNEY TO THE EAST

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000127

SIPDIS

DEPARTMENT FOR EAP/CM, INR

E.O. 12958: DECL: 07/17/2019
TAGS: CH ECON PGOV PREF PREL RS
SUBJECT: XI JINPING'S JOURNEY TO THE EAST

Classified By: Consul General Stephen B. Wickman. Reasons
1.4(b/d).


1. (C) Summary. On July 8-10 Chinese Vice-President Xi
Jinping paid a stealthy and unusual visit to Dalian and
Yingkou, two key areas of strength and support for First Vice
Premier Li Keqiang. The visits were characterized by
witnesses as "unfriendly." We also learned that two major
Liaoning State-Owned Enterprises (SOEs) are under substantial
pressure to merge with centrally- owned SOEs. Such mergers
would serve to dilute Li Keqiang's power base in Liaoning.
Several contacts intimated that a key Li ally, Lu Lin, may
have struck a deal with Xi's supporters. Chongqing Party
Secretary and princeling Bo Xilai,s supporters, were in
Dalian coordinating Bo's real estate interests. Bo's
supporters appeared to be allied with Li's. End summary


2. (C) According to long-standing, reliable contacts in
Dalian's port, Vice-president Xi Jinping paid a brief visit
July 8-10 to Dalian and Yingkou, two of the five points in
Liaoning's "Five Points-One Line" economic development area.
The visit was unusual for a number of reasons. First, no
local or provincial press coverage was allowed for the
visits.. Additionally, &in-house8 photographers who
normally record visits to the Port for display in the
reception center, had their cameras seized and the memory
cards removed. Although the cameras, absent their memory
cards, were returned, the photographers were told to depart
the area and not to discuss the events with anyone. Our
contacts said one local reporter insisted that he had the
right to cover events at the port. In response, Mr. Xi's
handlers seized the reporter's press credential and destroyed
it on the spot, telling the reporter that he no longer had
the right to cover any events whatever.

3. (C) Contacts present for the Dalian event reported that,
when Mr. Xi arrived at the meeting room, Xi's staff directed
everyone but Dalian Port Authority (PDA) Chairman Sun Hong to
leave. Again, the departing staff were instructed not to
discuss the events. After a private meeting with the PDA
Chairman, Mr. Xi and his entourage departed the area.
Contacts told Econoff there were none of the customary
dinners or niceties. Mr. Xi left and traveled by motorcade
to the airport. According to various reports, every street
between the airport and the Port of Dalian was completely
closed to normal traffic for both the arrival and departure
of Mr. Xi's group. Contacts told Econoff it was odd that, at
least to their knowledge, Xi did not meet with Dalian Party
Secretary Xia Deren.

4. (C) One contact in Dalian said that Mr. Xi's visit to
Yingkou's Bayuquan Development Zone was similarly strange,
with a no-press, closed-door meeting with the Development
Zone Director and one with the Chairman of the newly opened
AnSteel plant. The source said that he had also heard that
Xi visited Anshan, but that he had been unable to confirm
this due to a lack of confidants there...
SOE Mergers:

5. (C) Our contacts said that another brewing power struggle
is the pressure on two high profile Liaoning SOEs to complete
mergers with nationally-owned SOEs. BenSteel continues to
resist a forced marriage with centrally owned AnSteel.
BenSteel was, until the recent economic downturn, Liaoning's
most profitable business. While the merger was announced in
2005, there is absolutely no cooperation between the
companies, and Li Keqiang's help has facilitated the
resistance for several years.

6. (C) Similarly, Huachen Motors is trying to sidestep a
renewed takeover attempt by First Auto Works, according to
our industry contacts. The company successfully resisted a
previous attempt near the end of Li's tenure in Shenyang,
reportedly with direct assistance from Li. However, company
officials recently told Econoff the company has been unable
to secure assistance from "anyone in Beijing," and is taking
the unusual approach of trying to ward off the merger by
selling off the only truly valuable asset controlled by the
group, the publicly traded Brilliance Automotive Company.
Brilliance will begin talks next week to negotiate sale of a
controlling interest to an American investor. We were told
that Huachen Chairman, Qi Yumin, previously close to Bo Xilai
and currently a Li ally, will not be involved in the talks,
primarily to afford him deniability in the event that the
deal is not well-received should word of the talks leak.

7. (C) In the midst of these events, our contacts said
several people close to Bo Xilai are working behind the
scenes, apparently in concert with those closely tied to Li.
These people control several major real estate developments
in Dalian and are major shareholders in the PDA Group. One
of them warned Econoff that another contact, Mr. Lu Lin,

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Director of the Dalian Bonded Port Area, had suddenly become
"very ambitious" and was making "new friends." Lu is a
rapidly rising young leader, who was appointed to his
position by Li Keqiang. The implication was that Lu may have
forged a new relationship with Xi. Lu's lead assistant, Luan
Haitao has recently been spending a great deal of time at the
Central Party School, which our sources said is very close to
Xi.
Comment:

8. (C) These visits are highly unusual and may be
indicative of a power struggle between Xi and First
Vice-premier Li Keqiang. The "Five Points-One Line" plan is
Li's personal project and a key source of both his income and
support. The PDA Chairman has long been close to Li, as has
the Director of Bayuquan Development Zone. PDA is by far the
most successful company in the region and has been extending
its influence throughout the region, with major investments
in Shenyang, Harbin, Dandong and Jinzhou. That Xi would be
surreptitiously visiting Li's key supporters for closed door
meetings that were reportedly unpleasant (one witness
described the PDA Chairman as looking "like a ghost" after
the meeting) fits in with other indicators of a developing
tussle.
WICKMAN