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Cablegate: Zhejiang Province's Wenzhou: China's Entrepreneurial Center

VZCZCXRO2474
PP RUEHCN RUEHGH
DE RUEHGH #0174/01 1340304
ZNR UUUUU ZZH
P 130304Z MAY 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC PRIORITY 6850
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 1858
RUEHSH/AMCONSUL SHENYANG PRIORITY 1223
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 1196
RUEHCN/AMCONSUL CHENGDU PRIORITY 1225
RUEHIN/AIT TAIPEI PRIORITY 1035
RUEHHK/AMCONSUL HONG KONG PRIORITY 1356
RUCPDOC/US DEPARTMENT OF COMMERCE HQ WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7402

UNCLAS SECTION 01 OF 03 SHANGHAI 000174

SIPDIS

STATE ALSO FOR EAP/CM, EEB/TRA;
TREASURY FOR OASIA - DOHNER, HAARSAGER, CUSHMAN;
USDOC FOR ITA MAC DAS KASOFF, MELCHER, MCQUEEN;
USDOC PASS PTO FOR ANTHONY, WU

E.O. 12958: N/A
TAGS: EFIN ETRD PGOV KIPR SOCI CVIS CH
SUBJECT: ZHEJIANG PROVINCE'S WENZHOU: CHINA'S ENTREPRENEURIAL CENTER
RESPONDS TO CHANGING TIMES

(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels.

1. (U) Summary: During an April 23-24 visit to Wenzhou,
Zhejiang Province, local officials and entrepreneurs said that
many of Wenzhou's export-oriented enterprises are under pressure
from increasing raw material prices, renminbi (RMB) appreciation
and U.S. economic changes. In response, local enterprises are
trying to upgrade product technology and quality, but this
cannot be accomplished overnight. Some enterprises have reduced
production capacity and some might be forced to close down
altogether. During visits to two of Wenzhou's leading
companies, both described how they successfully filed lawsuits
against foreign companies to protect intellectual property.
During the visit, the CG also visited a Catholic Church and
addressed students at Wenzhou University on the U.S.
Presidential election campaign. End Summary.

Wenzhou: Land of Entrepreneurs
-------------------------------

2. (U) The coastal city of Wenzhou, in Zhejiang Province, is one
of China's most dynamic and entrepreneurial cities. Everyone
has a business and everyone seems to be working some angle. The
people of Wenzhou are admired for their business acumen, but are
also viewed by many in Shanghai and throughout the Yangtze River
Delta as being responsible for driving up property prices in
recent years. The Consul General, accompanied by the Cultural
Affairs Officer and FSN economic analyst, visited Wenzhou April
23-24, 2008.

Meeting with Wenzhou Foreign Trade Office
-----------------------------------------

3. (SBU) Explaining Wenzhou's intense entrepreneurial drive,
Foreign Trade Commission Director Su Xiangqing said that people
from Wenzhou have a long tradition of heading elsewhere,
including overseas, to seek better opportunities. Wenzhou's
natural conditions simply drove people away; nearly 90 percent
of Wenzhou's administrative area was too mountainous or lacked
water and thus was not suitable for residence, farming or
construction. According to Su, about 600,000 Wenzhou natives
are currently working overseas. Many Wenzhou natives are also
scattered around China.

4. (SBU) Su said the United States is Wenzhou's second biggest
trade partner. In 2007, Wenzhou exports to the United States
amounted to USD 962 million and imports from the U.S. equaled
USD 323 million. U.S. investment in Wenzhou is limited, with no
major U.S. investment in the city. Asked about the challenges
Wenzhou's export enterprises currently face, Director Su said
the biggest problem was overcoming their low-technology value.
In addition, weakening foreign demand, including in the United
States, RMB appreciation and rising labor costs are expected to
adversely impact Wenzhou's export enterprises this year,
Director Su continued. He predicted that exports to the United
States will decrease a few percentage points. The Wenzhou
government will help industries upgrade their technology to
increase the value-added content of Wenzhou products. Su was
confident that Wenzhou's export products will eventually be
transformed from the current high-pollution, low-technology
products to those with high-technology and high-quality
characteristics.

5. (SBU) The CG underscored that this would require better
protection of intellectual property rights. In that regard he
asked about the status of a patent infringement case filed by 3M
and now before the Wenzhou Intermediate Court. The defendants
have already acknowledged the infringement and it is now up to
the Court to decide on a fine. The CG urged fair, prompt and
transparent action on the case and added that the financial
penalties should be sufficiently large to have a deterrent
impact. Later in the evening, at a dinner hosted by a Vice
Mayor, Director Su said he had inquired with Wenzhou
Intermediate Court officials and understood that the court was
currently working with the plaintiffs and defendants to
determine a fine amount.

Meeting with Wenzhou Party Secretary

SHANGHAI 00000174 002 OF 003


------------------------------------

6. (SBU) During an April 23 meeting with Wenzhou Party
Secretary Zhan Shaowei and Vice Mayor Chen Hongfeng, both
gentlemen also attributed Wenzhou's entrepreneurial spirit to
the city's limited usable land resources. There are now 159
Wenzhou Business Chambers across China and around the world.
Wherever there are business opportunities, one finds people from
Wenzhou, added Zhan. He gave high marks to Wenzhou
entrepreneurs for their integrity. For example, Wenzhou banks'
non-performing loan ratio is the lowest in China. Party
Secretary Zhan admitted that weak external demand is having a
strong negative impact on many of Wenzhou's small and
medium-sized enterprises, along with the rising costs of labor
and raw materials and the impact of RMB appreciation against the
dollar. On the other hand, Zhan believes RMB appreciation and
weak U.S. demand will force companies in Wenzhou to focus more
on product quality, instead of cheap price alone. Wenzhou's
first quarter 2008 inflation hit 6 percent, still below the 8
percent national average. Wenzhou Municipal Government provides
subsidies to low-income families to help them to deal with this
rising inflation. The city also works closely with local
schools and industries to encourage technological innovation and
regularly sends officials overseas, including to the United
States, for training.

Visits to Local Enterprises: General Protecht and CHINT
--------------------------------------------- ----------

7. (U) The CG visited the General Protecht company in Wenzhou's
Yueqing city, called China's "capital of home appliances."
General Protecht was founded in 2001 as an export-oriented
company and specializes in GFCI (Ground-Fault Circuit
Interrupter) products, LCDI (Leakage Current Detection
Interruption) products, RCCB (Residual Current Circuit Breaker)
products and switch products. General Protecht's annual sales
exceed USD 30 million. All of its products are exported to the
United States, Canada, South America and the European Union.
The company's 800-plus staff members include 10 PhD degree
holders as well as dozens of certified engineers. The company
holds nearly two dozen Chinese and foreign patents. The company
won acclaim in China in 2007 when a Federal District Court in
New Mexico ruled for defendant General Protecht in a patent
infringement suit filed against the company by the U.S. company
Leviton.

8. (U) General Protecht Chairman's son Sean Chen and Vice
General Manager of the firm's International Property Department,
Ye Xiangfa, outlined General Protecht's investment project in
Atlanta. In May 2007, General Protecht signed an agreement with
Lamar County, Georgia, to build a 253-acre industrial park. The
total investment should reach USD 236 million. Phase one is
scheduled for completion in August 2009 and phase two in
December 2012. Most of the funding will come from General
Protecht itself, or from bank loans. Chen cited three problems
which the project has faced: 1) numerous governmental approvals;
2) foreign exchange constraints in China; and 3) financing
issues as China tightens monetary policy. Chen said the U.S.
economic slowdown has actually benefited General Protecht, as
the land purchase price for the investment was less than
originally forecast. Chen stressed the company's great
attention to IPR protection issues, as IPR has beeen critical to
the company's success to date. General Protecht plans to expand
its business into higher profit margin areas to offset rising
labor and input costs.

Meeting with CHINT, the Biggest Enterprise in Wenzhou
--------------------------------------------- --------

9. (U) The CG also visited CHINT, China's leading company in the
low-voltage electrical and power transmission and distribution
industries. CHINT's annual sales turnover exceeds USD 2
billion. Founded in July 1984 in Wenzhou, the company has
expanded from a home workshop of seven workers to a major
manufacturer of electrical products, with six specialized
branches, more than 50 holding companies, over 800 specialized
cooperative partners and 16,000 employees. CHINT is the biggest
private enterprise in Wenzhou. Vice President Lin Kefu stressed
that the company's innovation capability has been its key to

SHANGHAI 00000174 003 OF 003


success. Through the years, CHINT has filed 200 patents in
China. Lin said CHINT will offset increasing labor costs and
the impact of RMB appreciation by increasing production
efficiency, lowering production costs and increasing product
sales prices about 15 percent.

10. (U) CHINT is another Wenzhou company with recent IPR
litigation experience. In August 2006, CHINT found that
Schneider Electric was selling five products with CHINT
technology but not with CHINT's permission. CHINT asserted that
Schneider had made a RMB 330 million (almost USD 50 million)
profit through these alleged IPR infringements. On September
29, 2007, Wenzhou Intermediate Court ruled against Schneider and
as a result, Schneider had to pay CHINT a 330 million RMB fine.
This IPR case set the record for the highest IPR infringement
penalty fee in China to date. Lin emphasized to the CG that
CHINT's legal action in this IPR case was the result of CHINT's
strong IPR protection awareness.

Wenzhou Nanmen Catholic Church
------------------------------

11. (SBU) The CG also visited Wenzhou Nanmen Catholic Church and
met with Father Ma Xianshi and members of the congregation.
Wenzhou has a history of Catholic religious practices dating
back over 100 years to the arrival of missionaries from France.
Nowadays, the majority of Wenzhou's 165 Catholic churches are
either newly built or have been renovated in the past 20 years.
Most Catholic clergy in Wenzhou are trained in Shanghai; there
are currently 30 priests serving Wenzhou. Father Ma said this
was not enough. He attributed Wenzhou's large Catholic presence
to deep historical roots and the strong influence of family
religious practices on younger generations. Father Ma said the
local government also provides strong support. The church
gathers the majority of its funding from donations and currently
has sufficient funds for its daily activities, he said.

Visit and Lecture at Wenzhou University; Media Outreach
--------------------------------------------- ----------

12. (U) The CG also visited Wenzhou University and gave a
presentation, in Chinese, to around 100 students on the U.S.
Presidential Election. Following the presentation, students
asked a variety of engaging questions on the election and U.S.
foreign policy, including U.S. relations with Taiwan, Tibet, the
Olympics and changes in China over the past 30 years. On April
25, Wenzhou's most popular paper, the "Wenzhou Urban Daily"
(Party-owned daily, circ. 300,000) printed a full-color,
front-page photo showing the CG's meeting with Chen Ailing,
Director of the Wenzhou Municipal Foreign Affairs Office. On
the same day, the paper also published an interview with the CG
in an article entitled "U.S. Consul General Kenneth Jarrett
Speaks on U.S. Visas."

Visa issue is the no.1 question
--------------------------------

13. (U) Throughout the visit, the CG received questions about
visas from all quarters. Although this happens on all trips,
the frequency of the queries was remarkable. There were the
usual questions about waiting times for an interview and the
negative impact this has on business. There were also the usual
misperceptions about the refusal rate. In addition, many
expressed an absolute conviction that the Consulate harbors a
prejudice against applicants from Zhejiang province, and Wenzhou
in particular. The CG did his best to debunk such notions.
JARRETT

© Scoop Media

 
 
 
 
 
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