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Cablegate: Lianyungang - Entrepot for Jiangsu's Less Developed North

VZCZCXRO2471
RR RUEHCN RUEHVC
DE RUEHGH #0239/01 1770527
ZNR UUUUU ZZH
R 250527Z JUN 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6941
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7503

UNCLAS SECTION 01 OF 03 SHANGHAI 000239

SENSITIVE
SIPDIS

TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP
TRANSPORTATION FOR VARNEY
DEPT FOR EAP/CM

E.O. 12958: N/A
TAGS: PGOV EINV KIPR ELAB ETRD ENRG EWWT CH
SUBJECT: LIANYUNGANG - ENTREPOT FOR JIANGSU'S LESS DEVELOPED NORTH
AND BEYOND

SHANGHAI 00000239 001.2 OF 003


(U) Sensitive but unclassified. Not for dissemination
outside USG channels; not for Internet distribution.

1. (SBU) Summary: During the Consul General's June 12-13 visit
to the city of Lianyungang in northern Jiangsu Province, Mayor
Xu Yiping extolled the virtues of Lianyungang's strategic
location, noting the city has received a large amount of
attention and financial support from the Provincial and Central
Governments. The city is also striving to protect intellectual
property through its IP Complaint Center, focus on legal
software compliance, and cooperation with other IP
administrations in the Yangtze River Delta. During a visit to
the Lianyungang Development Zone, Vice Director Wang Qiang
emphasized that the city is working hard to attract investment,
including foreign investment, which thus far has primarily come
from Japan and Korea (after Hong Kong). A visit to the
Lianyungang Port, China's tenth largest in volume, revealed a
port rapidly expanding capacity to deal with China's burgeoning
trade and internal transshipments, primarily coal. The CG also
called on an American textile business manager, who commented
that the appreciating RMB was having a notable effect on
business. End summary.

A Key to Northern Jiangsu's Economy
-----------------------------------

2. (U) Lianyungang, situated on the northern coast of Jiangsu
Province, is home to 4.8 million residents, with about 820,000
living in the city proper. It plays a key role in Jiangsu
Province's relatively underdeveloped northern half, providing
port access to the products manufactured in both northern
Jiangsu and southern Shandong provinces. In 1984, Lianyungang
was one of the first 14 coastal cities opened to the outside
world for trade, and today it is one of China's top ten foreign
trade ports. The city's per capita GDP in 2007 was USD 3,949.
By comparison, Jiangsu per capita GDP in 2007 was USD 4,705 and
the national per capita GDP was USD 2,226. During the first
quarter of 2008, Lianyungang's GDP growth was 13.5 percent over
the same period last year. In 2007, Lianyungang's total
import-export trade volume was USD 3.2 billion, up 23.1 percent
from the previous year. The total export volume was USD 1.8
billion, up 27 percent from 2006; the total import volume was
USD 1.4 billion, an increase of 11 percent. According to the
Lianyungang Foreign Affairs Office, there are approximately
1,000 foreign invested enterprises in the city, with the vast
majority originating with investors from Hong Kong, Taiwan,
Korea and Japan. There are only a handful of American-invested
enterprises.

Making the Pitch for Lianyungang
--------------------------------

3. (SBU) Lianyungang Mayor Xu Yiping briefed the CG on the
development of the city, emphasizing that both Jiangsu
Provincial Government and Central Government leaders pay a great
deal of attention to the city. He noted that Premier Wen Jiabao
visited Lianyungang in 2007 and said the city should develop
more rapidly. Evidence of the support and attention the city
received is manifest in the high amounts of Provincial and
Central Government funding for road and port development. For
example, the Jiangsu Government has provided RMB 5 billion (USD
715 million) for development of the port. Xu maintained the
city has a balanced plan for development, which plays to all the
city's strengths as a trade center, transportation hub, and
tourist center. Lianyungang also attaches great importance to
environmental protection and is consistently rated as one of the
top cities in China for air quality, according to local
officials. The CG welcomed increased cooperation with
Lianyungang and said that American business people are generally
unaware of northern Jiangsu's advantages, including its
geographic location, people, transportation, and government
policies.

4. (SBU) Mayor Xu elaborated that the city is an ideal place to
invest. A great deal of effort is being made to connect it with
the prosperous southern part of Jiangsu through better road
infrastructure. The people are every bit as talented as those
in southern Jiangsu, and they know how to "chi ku," or "eat
bitterness," to get tough jobs done. Xu also said the city has
put a great deal of work into its development zone to attract
new business; in 2007 alone, there were 70 new business projects
approved for the area. In addition, Xu noted that Lianyungang
has a partnership with the city of Zhenjiang in the south of

SHANGHAI 00000239 002.2 OF 003


Jiangsu. He said the partnership is comprised mostly of
exchanges between government officials on ways to increase
development. Xu noted that the city generally does not have
enough amenities to attract foreign residents, but it does have
a hospital that is "up to standards." Regarding whether the
slow down in the U.S. economy is having an effect on the area,
Xu maintained that it does not because of the relatively low
level of foreign trade-related enterprises.

IPR Protection in its Nascent Stages
------------------------------------

5. (SBU) The CG emphasized the importance of adequate IP
protection in developing the economy and asked what the city was
doing in this regard. Xu said the city was one of the three
cities in Jiangsu that has an IPR Complaint Center, but it has
not received many complaints thus far. There have been no
foreign rights holders that have filed complaints at the IPR
Complaint Center. The local government has also made sure that
all government agencies use legitimate software and is now
focusing on ensuring all large companies are compliant.
Municipal Science and Technology Bureau Deputy Director Zhang
Yunni said there is a special tribunal in Lianyungang that
handles all IPR-related cases. In addition, Customs coordinates
closely with the Municipal Government on IP-infringement cases
involving the port. The city is also part of the Yangtze River
Delta IPR-coordination network on administrative cases. Zhang
noted that the city has had no cases of Internet piracy, unlike
its neighboring city of Yancheng, which is known for Internet
piracy. Zhang also maintained the city has not seen any cases
of counterfeiters moving from southern Jiangsu to escape a
crackdown. (Note: U.S. companies have repeatedly asserted that
as southern Jiangsu has cracked down on counterfeiters, they
have simply moved to the more "lenient" northern part of the
province.)

A City Itching to Develop
-------------------------

6. (SBU) During a separate meeting, Lianyungang Development
Zone Vice Director Wang Qiang acknowledged that while the area
was not growing as fast as Southern Jiangsu, it is still growing
at a rapid clip. He attributed the growth to the city's ideal
location on a natural harbor, the integrated transportation
network, and the city's attractiveness as a tourist destination.
The Port of Lianyungang is located half way between the ports
of Shanghai and Qingdao. It also serves as the terminus for the
Longhai/Lanxia rail line that reaches all the way to Xinjiang
and services a "hinterland" of 260 million people. The area
also recently completed a highway that cuts transportation time
to Shanghai from 7 hours to 4.5 hours. However, Wang
acknowledged that more needs to be done to develop the area's
infrastructure, including more road connectivity and a deeper
channel for the port. A stable energy supply is also one of the
city's advantages. As the city is a routing stop for a great
deal of coal coming from western provinces for the rest of the
country, coal is never in short supply. The city also has a new
nuclear power plant that was built as a joint project with the
Russians, who provided the technology. The power plant went
into operation in May 2007 and currently has two 1,000 megawatt
generators. Once all phases are completed, it will have a total
capacity of 8 generators of 1,000 megawatts each. According to
local officials, the power plant will also service other parts
of East China.

7. (SBU) Wang also emphasized the city is doing a great deal to
attract investment by ensuring good development plans and
advertising them widely. One of the major attractions for
investors is the abundant space in the area and the lower cost
for land. Another is the local labor force, which tends to be
relatively more educated and more stable than other areas since
there are not many migrants. Wang, however, pointed out that
one of the city's weak spots is the lack of amenities for
foreigners, such as an international school. There are some
Korean and Japanese long-term foreign residents, but U.S. and
European residents are rare.

A Little-Known Port with an Eye for the Future
--------------------------------------------- -

8. (U) According to city statistics, Lianyungang port is the
tenth largest seaport in China in volume and has relations with
approximately 1,000 ports in over 150 countries. Lianyungang

SHANGHAI 00000239 003.2 OF 003


has ten international container lines with over 160 voyages per
month directly to most countries and regions in the world.
Lianyungang port has 28 productive berths, which include
special-purpose docks for coal, wood, grain and hazardous cargo.
The port terminal is connected by a rail link that has an
annual organizing capacity of 30 million tons. The port is also
the fifth largest coal export port in China, a crude oil loading
and unloading center, and one of the seven largest transit ports
for ore in China.

9. (SBU) During a visit to the port, Lianyungang Port Group
Executive Vice Director Song Tiande briefed the CG on port
operations. In 2007, the port handled over 3 million TEU and 85
million tons of cargo. In 2008, it is expected to handle 5
million TEU and 100 million tons. In 2020, the port projects an
annual throughput capacity of 10 million TEU and 300 million
tons. To handle the increasing volume, Song pointed out that
the port is expanding rapidly. Song also noted that the Port of
Lianyungang is primarily a transshipment port that transfers
goods from inland China, such as Shanxi, Sichuan, and Anhui to
other parts of China and abroad. The port handles a large
volume of coking coal and thermal coke from Shanxi to cities
like Shanghai, Nanjing, and Guangdong. Approximately 70 percent
of the port's traffic is import and export related. According
to Song, the port handles about 2 million tons of soybean
imports from the United States each year. Other large imports
from the United States are scrap paper and some scrap metal. In
addition, Song noted that 60-70 percent of the financial support
for the port comes from the local government. The remaining 30
percent of the funding comes from the Central Government. The
staff at the port is mostly comprised of local people.

A U.S. Company Feels the RMB Pinch
----------------------------------

10. (SBU) In a meeting with APlus Group LYG Aiyeh Non-Woven
Product Co. Ltd Managing Director Zhang Xuefeng, the CG inquired
about the effect RMB appreciation is having on the business.
Zhang replied that since the company produces entirely for the
export market (70 percent going to the United States alone),
they are definitely feeling a pinch. The company currently
supplies about one third of the U.S. market for medical textiles
(draping clothes, etc.) and is a wholly-owned U.S. company
headquartered in Los Angeles. Aplus also has production
facilities in Kunshan and Changzhou (both in the southern half
of Jiangsu Province), Shanghai, and Qingdao (in Shandong
Province). The company's Lianyungang workforce is comprised
primarily of approximately 1,000 local workers, who are housed
nearby in dormitories. The average salary for the workers is
RMB 1,000 (USD 140) per month. Zhang said the local business
environment is conducive to investment, and the company has good
relations with the local government at all levels.
JARRETT

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