MS5220 -- C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 001760

C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 001760

SIPDIS

SIPDIS

EO 12958 DECL: 03/15/2032
TAGS PGOV, PREL, ECON, SOCI, CH

SUBJECT: FIFTH GENERATION STAR LI KEQIANG DISCUSSES
DOMESTIC CHALLENGES, TRADE RELATIONS WITH AMBASSADOR
REF: SHENYANG 26

Classified By: Ambassador Clark T. Randt, Jr. Reasons 1.4 (b) and (d).

Summary
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¶1. (C) Liaoning Party Secretary Li Keqiang, a front runner for elevation to the Politburo this fall and potential successor to President Hu Jintao in 2012, described the challenges he faces as a provincial leader to the Ambassador over dinner on March 12. Engaging and well-informed, Li related that despite brisk economic growth, Liaoning’s income gaps remain severe. To create a “harmonious society,” he has tried to guarantee minimum living standards by providing new housing to the destitute and a job to every household. The public is dissatisfied with education, health care and housing, but it is corruption that truly incenses them. On foreign policy, Li said United States-China relations are developing smoothly, welcoming bilateral cooperation on North Korea. Turning to trade relations, Li claimed that China is boosting imports, domestic consumption and social safety nets both to balance trade and further its own development. Concerned by protectionist sentiment in the United States and what he described as a lack of understanding about China in Congress, Li passionately argued in defense of free trade and said more Members of Congress should visit the PRC. Regarding China’s ongoing National People’s Congress session, Li judged that passage of the draft property law and promoting programs to address social issues are most important. End Summary.

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The Economy: Not By the Numbers
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¶3. (C) Describing some of the challenges he faces as Party Secretary, Li related that despite brisk economic growth of
SIPDIS 12.8 percent in 2006, Liaoning’s income gaps remain severe. Liaoning ranks among the top 10 Chinese provinces in terms of per capita GDP, yet the number of its urban residents on welfare is among the highest in the country and average urban disposable income is below the national average. By contrast, rural disposable incomes are above the national average. Even so, incomes for Liaoning farmers are only half that of urban residents.

¶4. (C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures:
1) electricity consumption, which was up 10 percent in Liaoning last year;
2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and
3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.

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Intel Investment in Dalian
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¶15. (C) Regarding export licenses for Intel’s possible investment in Dalian (see reftel), the Ambassador told Li that Intel is working closely with the appropriate government agencies to ensure full compliance with United States export-control requirements. Li was grateful for the information, stressing how important major multinational corporations like Intel are to Liaoning’s future development. More than just the capital invested and the chips produced, Liaoning hopes to learn from Intel’s advanced management techniques. There will be absolutely no obstacles to the investment on the Chinese side, as the Central Government has already approved the investment. Intel’s president will visit China later this month, and if all goes well, there may be a signing ceremony to finalize the deal, Li said.
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