AMBASSADOR'S VISIT TO DALIAN FOR THE WORLD

C O N F I D E N T I A L SECTION 01 OF 04 SHENYANG 000168

SIPDIS

DEPARTMENT FOR EAP/CM, INR

E.O. 12958: DECL: 09/17/2019
TAGS: CH ECIN ECON EIND EINT EMIN ENIV ETRD PGOV
PINR, PREL
SUBJECT: AMBASSADOR'S VISIT TO DALIAN FOR THE WORLD
ECONOMIC FORUM

REF: A. OSC REPORT NUMBER CPP20090910066010

B. SHENYANG 152

C. SHENYANG 130

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


1. (SBU) SUMMARY: The Ambassador's message of mutual
cooperation and mutual learning received a warm welcome in
Dalian, Liaoning Province, against the backdrop of the World
Economic Forum's Summer Davos event. Local officials were
eager to discuss increased economic and cultural exchange
between the U.S. and Northeast China, while local business
leaders shared their observations in weathering the global
economic slowdown. END SUMMARY.


2. (SBU) The Ambassador traveled to Dalian September 10-11
to participate in the World Economic Forum's Summer Davos
event. The Ambassador took the opportunity to meet briefly
with Liaoning Governor Chen Zhenggao, Dalian Party Secretary
(PS) Xia Deren, Anshan Steel (AnSteel) President Zhang
Xiaogang, the Vice Chairman of the Dalian Commodities
Exchange, Brilliance Auto President Qi Yumin, and Chongqing
Deputy Executive Party Secretary Wu Wenkang.

LIAONING GOVERNOR: U.S. STRONG IN LIAONING
--------------


3. (SBU) In a short courtesy call on the afternoon of
September 10, Governor Chen praised the Ambassador for his
work as Utah governor and for accepting the appointment as
Ambassador to China. Chen said cooperation between Liaoning
and the United States was growing very rapidly, noting that
the U.S. is the province's fourth largest trading partner
and one of the most important export destinations. Chen
pointed to GM, GE, Intel, and Motorola as examples of U.S.
firms that had successfully established themselves in
Liaoning. The Ambassador stressed President Obama's
interest in U.S.-China relations and used a proverb
("huxiang bangmang, huxiang xuexi") to show the type of
mutual cooperation and mutual learning he hoped would
characterize the relationship. Governor Chen reacted warmly
and invited the Ambassador to return to Liaoning to see a
local-style comedy performance ("xiao pin") that is popular
all over China, joking that this would be a real test of the
Ambassador's language ability.

SUMMER DAVOS: LEARNING LESSONS ON REBALANCING GROWTH
-------------- --------------


4. (SBU) In addition to attending Premier Wen Jiabao's
keynote speech, most noteworthy perhaps for Wen's apparently
memorized delivery of the last few lines on "confidence" and
"perseverance" (Ref A),the Ambassador participated in a
lively panel on "The Global Dimensions of China's Economic
Growth." His comment that China needs more openness on the
pathway of its naturally rapid growth helped temper the
veiled criticism of U.S. policy in the comments from
Nigerian, Mongolian, and Chinese panelists. These seemed to
support a "new" state-trading style model for international
trade and investment in the resource sector. Referring to
China's "communications revolution" and the growing pressure
on Chinese leaders to respond to public opinion, the
Ambassador said China must "provide practical safety nets"
to help consumers feel confident about spending more, noting
the challenges in both countries to improve the health care
and social welfare system. His use of the proverb on mutual
assistance and learning brought approval from the local
press, which crowded around him after the presentation.


5. (U) Local press coverage quoted prominently the
Ambassador's suggestion that the financial crisis showed us
that ethics needed to be strengthened in both China and the
United States. One business daily quoted him saying: "By
looking into the development of Dalian we saw the tremendous
developing potential of China; we would like to introduce
more U.S. companies to Dalian and build regular connections
and exchanges." Another prominent Dalian daily noted the
Ambassador's good humor and Chinese name, reporting that he
owns a Chinese bicycle and that his favorite activities are
cycling around Beijing's traditional neighborhoods, chatting
with the local and mostly elderly denizens, listening to
Chinese radio, and learning Chinese idioms. The paper went
on to quote him saying: "China is a large, complicated
country, and there are many roles and elements functioning,
some good and some bad. Some political dogmatists speak of
China in black and white terms, but such extreme opinions
cannot benefit the long-term relationship.... China and the

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United States should work together on the challenges both
sides are currently facing, such as regional security,
energy, climate, and the prevention of nuclear
proliferation; China and the United States should help each
other, learn from each other, and move forward together."

ANSHAN STEEL: HQ MOVING TO DALIAN
--------------


5. (SBU) At dinner on September 10, AnSteel President Zhang
told the Ambassador that the much delayed merger of
centrally-owned AnSteel, China's third largest steel
producer, with Benxi Steel (Bensteel) would finally be
consummated next year. Alluding to the rivalry with
provincially-owned Bensteel, which allegedly received
special favors and advantages from the provincial government
that his centrally-owned company did not receive, Zhang said
the final merger plan was approved on condition of the
company's headquarters remaining in Liaoning. Hence,
AnSteel would move its headquarters to Dalian after building
a financial tower in the new downtown port area. Zhang said
his company's after-tax net profits were down precipitously
from last year in the first eight months (RMB 1.5 billion
compared to RMB 12.3 billion last year). By comparison,
however, troubled Tonghua Steel in Jilin Province reported
an RMB 12.5 billion loss during the first eight months of
2008 and still had a loss of RMB 1.5 billion in the same
period this year (Refs B and C provide more information on
the labor unrest at Tonghua).


6. (SBU) Zhang also reported that AnSteel was taking a
minority ownership position in four new U.S. rebar plants
being established around the United States by the former
chairman of Nucor Steel. The plants would take advantage of
the U.S. stimulus package to create jobs and expand
Ansteel's presence in the United States without competing
with U.S. Steel (USX),a longtime cooperative partner.
Zhang said AnSteel has no desire to compete with U.S.
companies in the quality steel market, noting that he had
nixed collaboration with George Soros on a USD 5 billion
silicon steel factory.


7. (SBU) Zhang welcomed the Ambassador to visit Ansteel's
new Bayuquan facility on Liaoning Bay. The facility is one
of the most technologically sophisticated steel operations
on the globe and which utilizes green technologies, such as
wind and solar power to run some operations.

DALIAN PARTY SECRETARY: WARM WELCOME
--------------


8. (SBU) On the evening of September 10 at Dalian CPC
headquarters, PS Xia thanked the Ambassador for making
Dalian one of his first stops outside of Beijing and for
attending one of Dalian's premier events. He noted that the
Ambassador is already well-known and highly regarded by many
Chinese because of his success as one of the youngest U.S.
governors and one of the youngest U.S. Ambassadors when he
was appointed to Singapore. Xia invited him to visit Dalian
in the summer, whenever Beijing "felt too crowded." He went
on to say Dalian is not as big as Beijing or Shanghai but is
one of the most livable cities in China and has a reputation
for being environmentally-friendly. The port is the biggest
in Northeast China and fourth-largest in all of China.
Dalian is also a leading city in the technology and
pharmaceutical sectors. He ended by saying HP, IBM, and
Intel were just some of the more well-known examples of
American companies that had either set up rep offices or
subsidiary companies in Dalian.


9. (SBU) Asked how U.S. companies could improve their
operations in Dalian and about his vision of the future, Xia
said most American companies in Dalian had already achieved
their goals. Nearly ninety Fortune 500 companies have
located in Dalian, and half of them are American. While
Intel is building a USD 2.5 billion first-phase wafer
fabrication plant in Dalian, future investment could focus
on higher-level technology industries. U.S. companies
should focus on Dalian's strengths in education, quality
human resources, and IPR protection. In ten years, Xia
predicted that Dalian's key industries would continue to be
manufacturing, shipbuilding, and machine building. In
twenty years, Xia envisioned a service-based economy that
focused on tourism, logistics, software, and information
services. While Xia highlighted the success of Dalian's IT
sector, he admitted that it would be hard to overtake
Beijing and Shanghai.

SHENYANG 00000168 003 OF 004




10. (C) Asked how relations with the DPRK affected Dalian's
economy, Xia said he had no independent analysis but that in
his view the DPRK's actions had zero effect on Dalian. Xia
cited Dalian's past superior economic performance during
both tense and calm periods on the Korean Peninsula as the
reason for his confidence.

DALIAN COMMODITIES EXCHANGE (DCE): INCREASED TRADE
-------------- --------------


11. (SBU) DCE Vice President Qu Lifeng took the Ambassador
on a tour of the DCE trading floor on the morning of
September 11. Founded in 1993, the DCE is one of China's
three futures exchanges; prior to 1993, all grain and
agricultural crops were traded with spot prices. From the
outset, the DCE traded agricultural futures; three
petrochemical products were added to the list in 2007.
DCE's trading volume accounts for over half of China's
trading in agricultural products, and has kept this position
for nine consecutive years. China's overall grain yield
averages 500 million tons per year, but the total DCE
trading volume in 2008 was 630 million contracts (10 tons
per contract),having a face value of RMB 27 trillion --
nearly as large as China's GDP but still much lower as a
percentage of total production or GDP than for U.S.
exchanges. The trading volume for the first eight months of
2009 had increased 33 percent over last year to 560 million
contracts, valued at RMB 25 trillion.


12. (SBU) Currently, only Chinese domestic traders and those
foreign and joint ventures registered in China can buy and
sell at the DCE. Vice President Qu personally believed that
DCE would be able to open to off-shore foreign traders in
the future. However, this move will take a long time as it
would have to be approved by the State Council.


13. (SBU) DCE has already signed memorandums of
understanding with the Chicago Board of Trade (CBOT),the
Chicago Mercantile Exchange (CME),Chicago Board Options
Exchange (CBOE),and the New York Mercantile Exchange
(NYMEX). There are also frequent personnel exchanges
between Chinese and American counterparts. In the absence
of formal exchange programs, some U.S. universities and
research institutes have assigned their staff and students
to DCE for exchange purposes. Qu asked the Ambassador to
introduce more U.S. scholars to the DCE, promote exchanges
with the DCE's U.S. counterparts, and expressed appreciation
for the Department's International Voluntary Visitor
Leadership Program.

BRILLIANCE AUTO: FORECAST INCREASED VEHICLE DEMAND
-------------- --------------


14. (SBU) Brilliance Chairman Qi told the Ambassador he
foresees increased prospects for vehicle demand in China,
citing the fact that China has only 29 automobiles per 1000
people. Noting that India only has 8 vehicles per 1000
people and that he knew the Tata leadership well, Qi
predicted that Indian demand will be for lower-quality
products and the bottom end of the production line. Qi
flagged the increased potential for U.S. investment in
Northeast China, noting that the Harbin-Dalian high speed
rail project, which uses mainly German technology, still
relies on GE electronics. As a result, he said GE would
double its investment in Dalian.


15. (SBU) Chongqing Deputy Executive Party Secretary Wu
noted that the city's first-half GDP growth for 2009 was
initially pegged at 8 percent but that revised data showed
that growth had topped 12.5 percent. HP had just signed a
contract to build a facility in the city capable of
producing nearly 20 million laptops a year and RMB 200
billion in revenue. Wu looked forward to further such
cooperation and hoped that the Ambassador would have a
chance to visit soon with PS Bo Xilai.


16. (C) Bio Note: Wu, who made a special trip from
Chongqing to join the luncheon with the Ambassador, and Qi
are close confidantes of Bo Xilai. Wu, whose family lives
in Dalian, was Bo's right-hand man in Dalian and Liaoning
when Bo was here. Qi was Vice Mayor of Dalian under Bo. Wu
remained in Liaoning when Bo moved to Beijing, staying
behind to work closely with then-PS Li Keqiang. When Bo
left Beijing again, Wu initially split his time between
Chongqing and Dalian. Wu told the Ambassador he was
particularly proud of occupying an office that used to be

SHENYANG 00000168 004 OF 004


Madam Chiang Kai-shek's bedroom in the Chiang family's old
Japanese Resistance-era mansion. He said the only
photograph of Chairman Mao and the Generalissimo together
was taken in front of this building and that Qi and Wu posed
for a photo in the same spot, Wu posing credibly as Mao and
Qi a bit less authentic as Chiang. When the Ambassador
referred to Qi as having successfully "dropped into the
ocean" ("xia hai") -- a reference to cadres who leave office
and take corporate jobs -- Wu said, "Yes, Qi wanted to come
back to shore ("shang an") but Li Keqiang ordered him to
stay at Brilliance."

WICKMAN