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Cablegate: Transportation Infrastructure in the Pearl River Delta

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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0559/01 1350738
ZNR UUUUU ZZH
R 150738Z MAY 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6054
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 000559

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELTN KTDB CH
SUBJECT: Transportation Infrastructure in the Pearl River Delta
(Part 1 of 2): Government Plans and Foreign Participation

1. (U) SUMMARY: Guangdong planners hope to spur development in the
western Pearl River Delta (PRD) and create a more sustainable
development model by expanding and integrating the PRD
transportation network. They aim to create an A-shaped network that
links both sides of the delta and integrate the transportation
systems of seven municipalities. U.S. companies have provided
technology for metro systems, heavy machinery for road construction,
and environmental designs for airports and metros. This cable
discusses the overall development plans and the role of foreign
companies; septel describes specific projects. END SUMMARY

The Big Picture: A Linked Region
---------------------------------

2. (U) The PRD, located in south-central Guangdong, covers an area
of 41,700 km sq and includes seven major cities: Shenzhen, Dongguan,
Guangzhou, Foshan, Zhongshan, Jiangmen, and Zhuhai. The PRD is
Guangdong's (and South China's) economic engine, accounting for 83
percent of the province's GDP with 27 percent of its population;
those not in the PRD are engaged in largely rural pursuits. It is
also a center of the province's transportation infrastructure, with
57 percent of Guangdong's expressways, 91 percent of its container
business, and 97 percent of its air passenger business.

3. (U) In its 11th Five-Year Plan (2006-10), Guangdong set aside an
estimated investment of RMB 550 billion (USD 71.5 billion) -- most
for the PRD -- for 62 major transportation projects. The plan is to
integrate the PRD cities' transportation systems, linking them to
major cities in other provinces such as Hunan, Fujian, and Guizhou.
Some of the projects reflect network designs found in U.S. cities,
according to Professor Fu Xinsha of South China Normal University.
He said the Guangdong government has sent experts to the United
States since the 1980s to study transportation linkages.

4. (U) The 11th Five-Year Plan proposes 2,000 km of new expressway,
1,100 of railway, 270 km of light rail, and 262 km of metro rail for
the province. The Guangdong government has announced that it will
spend RMB 48.5 billion (USD 6.3 billion) to improve transportation
infrastructure in 2007, up from RMB 46.2 billion (USD 6 billion) in
2006, which was 13 percent more than 2005.

Linking East to West in the PRD
-------------------------------

5. (U) Thus far, most of the PRD's infrastructure investment has
been in the eastern cities of Shenzhen, Dongguan, and Guangzhou --
where the bulk of the PRD's factories are located. However, with
shortages of land, energy, and labor becoming more acute in the
eastern PRD, the provincial government and investors are looking to
the western PRD as an area to expand. The Guangdong Development and
Reform Commission (DRC)'s Director of Transportation Zhang Zhulin
said that his office has emphasized transportation infrastructure
projects, particularly railways, which link eastern and western PRD
cities. Panyu, located 14 km south of central Guangzhou and in a
central location within the PRD, has been designated as the
transportation hub for rail and expressway networks, according to
Chen Sanliu, Director-General of the Guangzhou DRC.

6. (U) The long-term goal of PRD planners is to create a
transportation network that forms an A-shape, with Guangzhou at the
top and Shenzhen and Zhuhai at the lower ends, according to a March
statement by Guangdong DRC Director-General Chen Shanru. Across the
middle will be a series of bridges linking Zhongshan and Dongguan.
However, Guangdong DRC's Zhang said the Zhongshan-Dongguan link is
an ambitious proposal and is unlikely to be completed by 2010.
Nevertheless, Zhang characterized the PRD's transportation
infrastructure plans as among the most ambitious in China,
supporting a larger and more interconnected network than Shanghai's
Yangzi River Delta.

Shifting Low-Cost Manufacturing Out of the PRD
----------------- ----------------------------

7. (U) PRD infrastructure planning also points to a gradual shift
that is taking place in the region's economy toward higher
value-added and high-technology industries. Behind this shift are
market forces, such as higher land and labor costs and an
appreciating RMB, as well as government efforts to establish a
long-term, sustainable economy. Low-end, highly polluting factories
are being forced to other parts of Guangdong as well as interior
provinces.

8. (U) Railways and highways are currently under construction to
link Guangzhou and Guiyang, Guizhou. The rail project, which will
include RMB 68 billion (USD 8.8 billion) in investment and take four
years, will cut the travel time from 21 hours to less than five.
The 890 km expressway will reduce driving time from 24 hours to 8
hours. Guizhou Governor Lin Shusen commented in a recent article

GUANGZHOU 00000559 002 OF 003


that the projects will help move labor-intensive industries (and
likely attendant environmental problems) westwards from the Pearl
River Delta region. Similar hopes are being pinned on a planned
560-kilometer high-speed railway connecting Guangzhou and Nanning,
Guangxi that will be completed in 2008. The Guangzhou-Guilin
expressway scheduled for completion at the end of this end or early
next will cut travel time between the two cities to a bit more than
five hours.

Division of Responsibility
--------------------------

9. (U) Guangdong DRC's Zhang said government funds for
transportation infrastructure projects are typically divided 50-50
between central and provincial government budgets. Municipal
governments are in turn responsible for obtaining land and
compensating farmers. (Note: to state the obvious, this has at
times led to what amounts to confiscation, rather than compensation,
with opportunities for enrichment of private contractors and
construction companies and local government officials. (End Note)
In general, central-level ministries take the lead in planning,
closely coordinating with provincial DRC offices. Zhang
acknowledged that planning for projects that cross multiple
jurisdictions can be difficult to coordinate.

U.S. Success in PRD Projects
----------------------------

10. (U) According to Guangdong DRC's Zhang, foreign companies are
primarily involved in road, light rail, and airport projects in the
PRD. Most foreign investment in port infrastructure comes from Hong
Kong. U.S. companies have found the strongest foothold in selling
technology and heavy machinery for road, metro, and airport
projects.

11. (U) U.S. companies, including Caterpillar as well as a number of
SMEs, are key suppliers of heavy-duty machinery used in road
construction, such as paving equipment and excavators. PRD
governments also rely on U.S. expertise in road maintenance,
according to Professor Fu, who himself recently visited road
maintenance firms in Michigan for training.

12. (U) Though European firms dominate the market in high-speed rail
technologies, U.S. companies supply more rail maintenance equipment
and service vehicles than their European competitors. U.S.
high-tech companies such as IBM, Cisco, and HP have won contracts
for many of the computer hardware and software contracts for metro
systems in the PRD. U.S. companies have also found success in
supplying air conditioning systems and general engineering for the
Guangzhou and Shenzhen metro systems.

Foreign Expertise in Management and Environmental Design
------------------------------- -----------------

13. (U) As recently as the early 1990s, PRD governments rarely hired
consulting companies on major infrastructure projects, as they were
considered too expensive. In recent years, however, officials have
increasingly looked to professional engineering and planning firms.
PRD governments will send a team of experts to Britain in 2007 to
study management and planning concepts, according to Professor Fu.
One of the aims of the trip is to incorporate modern safety
standards into PRD work sites. In addition, Guangzhou's Baiyun
Airport is reportedly looking for foreign firms to help improve the
airport's management. Already, the airport has accommodated Fedex's
interest in handling certain air traffic control operations for its
cargo flights into Baiyun.

14. (U) As the PRD focuses on a greener growth model and better
energy efficiency, foreign services firms are also finding an
expanding market for their services. The central government
recognized Guangzhou for the energy efficiency of its metro in 2006.
U.S. firm ITT provided air conditioning equipment for the metro,
and Booz Allen designed its passenger interchanges. The main
terminal at Guangzhou's Baiyun Airport, which has a design that
utilizes natural light, was designed by U.S. architectural firm
Parsons. Clearly, the key question for PRD planners is can they
keep up with the service and infrastructure needs of a region whose
economic development strategies are changing from a manufacture base
to one that will require greater focus on services.

Comment: An Opportunity for U.S. Companies
----------------------- ------------------

15. (U) PRD governments are eager to build a world-class
transportation system in Guangdong, and are looking to Hong Kong and
western countries for models. U.S. companies can continue to play a
key role in both the design and construction phases of these
projects. With the central government's push for improved energy

GUANGZHOU 00000559 003 OF 003


efficiency, environmental awareness, and safety, U.S. companies with
the right expertise and equipment are well positioned to benefit.
U.S. firms will face ever greater competition from domestic
consultants and machinery suppliers, however, as Chinese companies
gain experience in the country's fast-paced development.

GOLDBERG

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