Cablegate: Pearl River Flotsam and Jetsam, July 24, 2007

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UNCLAS SECTION 01 OF 03 GUANGZHOU 000832

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SENSITIVE
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E.O. 12958: N/A
TAGS: ELAB ECON PINR SENV PGOV CH
SUBJECT: Pearl River Flotsam and Jetsam, July 24, 2007

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD
NOT BE DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN
ANY PUBLIC FORUM WITHOUT THE WRITTEN CONCURRENCE OF THE
ORIGINATOR. IT SHOULD NOT BE POSTED ON THE INTERNET.

1. (U) SUMMARY: This is the first in a series of periodic
cables that will feature snapshots of the Guangzhou
consular district. We expect to cover items that are
timely for Washington consideration but at this point, do
not merit fuller treatment. We are, of course, willing to
take a second look at some of the matters raised in these
"miscellany" cables should there be interest. Highlights
of this first piece include: labor unrest; the new role of
public relations firms; American company complaints and
concerns about technology transfer restrictions; food and
water; a mass swim in the Pearl River; foreign firms that
focus on middle-class Chinese; and the change in Haikou
city leadership. END SUMMARY

Unrest and Apparent Resolution in Heyuan
-----------------------------------------

2. (U) The June 29 labor dispute at a hydroelectric plant
construction site in Guangdong's Heyuan city appears to
have been resolved. Approximately 300 employees of Qiutian
Construction Company, a contractor of Fuyuan Hydropower
Development Company, had earlier complained to Fuyuan
management that they had not been paid for four months.
When their demands for compensation were turned down, the
angry migrant workers started to dismantle installations at
the power station - and not surprisingly, they were
attacked by roughly three hundred thugs armed with spades,
axes and steel pipes. Three of the workers died from wounds
sustained during the melee.

3. (U) The Dongyuan county government reportedly resolved
the situation by forcing the construction company to
compensate the unpaid workers; more than RMB 140,000
(roughly USD 18,500) in wages has already been paid to
eight workers, with the remainder of their colleagues
expected to be paid soon.

New Roles for Public Relations Firms
-------------------------------------

4. (SBU) The influence of public relations campaigns on
both government policy and legal rulings is increasing in
South China. Coalition-based lobbying (CBL) is becoming a
popular instrument for companies looking to influence
government policy in China, particularly in the field of
intellectual property. According to Marc Parich, whose
public relations firm APCO Worldwide pioneered the first
CBL model, coalition-based lobbying provides investors an
opportunity to present controversial views to the
government while insulating them from negative government
or media reaction. Parich points to the success of APCO's
Intellectual Property CBL, the Quality Brands Protection
Committee (QBPC), as an example of the popularity of the
CBL method. As of today, QBPC is comprised of more than
160 multinational companies representing over USD 70
billion of investment in China.

5. (SBU) When it comes to supporting litigation, public
relations firms are finding opportunities in South China
that are unavailable in other parts of the country.
According to Ouyang Jun, a former government official and
current associate director for APCO Worldwide, this is
primarily due to the region's welcoming business climate.
As part of its litigation support strategy, APCO promotes
its clients through media conferences and television and
newspaper interviews. Although Jun cautions against being
too critical of the opposition in litigation, he believes
that the process, when handled sensitively, has influenced
public opinion and even affected the outcome of several
litigations. Jun noted that the media in South China has
been especially receptive to assisting in this area, as
commercially-related topics are one of the few subjects
which the press is relatively free to explore.

Complaints from Across the Sea
------------------------------

6. (SBU) While the majority of complaints by businesspeople
in South China relate to local regulatory impediments, many
companies have also raised concerns about the
discriminatory treatment of several U.S. regulations. In
particular, some companies are worried that technology
transfer restrictions have put them at a competitive
disadvantage with their European competitors; the latter
often face fewer barriers to the types of technology

GUANGZHOU 00000832 002 OF 003

allowed for export. According to APCO Worldwide, clients
primarily complain when the restriction applies to a
particular technology which is already openly available in
the Chinese market. Nevertheless, this has led many, such
as Nicholas Blank, Director of Kroll Asia, to counsel U.S.
clients to err on the side of caution by not selling any
technology which could conceivably have a dual-purpose use.

7. (SBU) In contrast, few companies in South China have
complained about, or received, penalties for violations of
the Foreign Corrupt Practices Act. In a business climate
often fraught with issues of corruption, foreign investors
have generally maintained compliance with U.S. regulations
on prohibited payments to government officials. Similarly,
U.S. companies in the region have had few complaints
related to the Alien Tort Statute, which regulates the
treatment of employees by American companies overseas.
According to Harley Seyedin, President of AmCham - South
China and CEO of First Washington Group, which established
the first Western majority-owned power plant in South China,
this is a direct reflection of the favorable treatment
received by local employees of U.S. companies in the region.
In its 2006 report, AmCham - South China reported that less
than twenty-five percent of U.S. companies were concerned
about criticism for operating "sweatshops" in the country.
Seyedin estimates that figure has dropped below twenty
percent in the past year.

Man Bites Rat! And Drinks Unsafe Water!
---------------------------------------

8. (U) Guangdong Party Secretary Zhang Dejiang is concerned
about news reports that rats from Hunan are being sold in
Guangdong for food, and has asked relevant government
agencies to put and end to the rat-selling. The Guangzhou
Food Safety Office and the Guangzhou Food and Drug
Administration have warned citizens against eating rats,
but reports of truckloads of the vermin making their way to
Guangdong persist. This is one of those delicacies that the
Chinese used to (but no longer necessarily) enjoy putting
on a platter in front of a visiting guest and joking about
the disposition of Mi Lao-shu (or Mickey Mouse).

9. (U) The Guangdong Water Resource Department reported on
July 18 that 16.65 million people in the province drink
water with excessive fluorine, excessive arsenic, or water
with a bitter and salty taste. According to the Eleventh
Five-Year Plan, Guangdong's goal is to solve the unsafe
drinking water problem for 7.5 million people. Presumably,
the remaining 9.15 million people hope to be included in
the next Five Year Plan.

Human Flotsam
--------------

10. (SBU) Weeks in the making! A pivotal moment in the
environmental clean-up of the once heavily-polluted Pearl
River! Imagine, if you will, the image of 3,600 people,
including senior city officials, from "danweis" large and
small, swimming between Sun Yat-sen University and the
Xinghai Conservatory? What could better demonstrate the
commitment to a "green" water system? Well, start with the
fact that three weeks before the big swim, the flow of
water from other polluted rivers was blocked off. Then
every day, for 21 days running, a fleet of small vessels
with large nets trawled the area where the swim would take
place, removing everything from leaves and Styrofoam
containers to the odd fish or tennis shoe floating on the
surface. Of course, while removing the "debris," the boats
left behind an oil slick that was hardly "environmentally
friendly."

11. (SBU) And then the big day: pomp (speeches and skiing
and racing boats) and ceremony (more, but better speeches
because they were read out by "higher ups."). The big
moment came when, flashbulbs a-poppin', city officials
jumped in for the all-important photo - only to jump out
and be replaced by others in the big swim. Well, "float"
would be more like it. It is unclear whether there really
were 3,600 participants, but there were enough to make it
look that way; surrounding the signs (suspended on pontoons)
of the various organizations were hordes of people, in
circles or oblongs, perched on top their floats, paddling
along from one side of the river to the other. And then it
was over, a great success!

12. (SBU) Day two: the water was a curious brackish green
and brown. We asked why. Well, the water from the other
rivers was flowing back in and adding a bit of "color."
And besides, the swim (float) was over, the Pearl River

GUANGZHOU 00000832 003 OF 003

saved (for one day at least) and next year would see a
bigger and better event, for sure.

Major Companies Shifting Focus Toward Domestic Market
--------------------------------------------- --------

13. (SBU) Production of goods or services for the China
market currently ranks first among the top company goals
for foreign invested enterprises (FIEs) in South China.
Many businesspeople in the region attribute this to the
increased purchasing power of China's rising middle class.
Proctor & Gamble, for instance, no longer produces a single
bottle of shampoo in South China for export to the United
States, and instead invests solely in the production of a
lower-quality good directly targeting middle-class Chinese.
Similarly, IBM recently has invested millions of dollars in
research and development to uncover new strategies for
tapping into China's middle markets. According to the
local American Chamber of Commerce, the fact that China's
burgeoning middle class remains mostly untapped will
continue to invite large amounts of investment from a wide
range of industry sectors.

New Acting Mayor for Haikou
---------------------------

14. (SBU) The Haikou Foreign Affairs Office notified post
on July 17 that Xu Tangxian had recently been elected
Acting Mayor of Haikou City. NOTE: Haikou, with a
population in excess of 600,000, is the capital of Hainan
Province. END NOTE. Xu, most recently the Executive Vice
Mayor of Haikou, has held a series of jobs in both local
government and the Communist Party since 1999. Prior to
that, he taught at Zhongnan University of Finance and
Economics. On leave from the university, Xu studied
accounting in the United States from 1992-1995. Xu was
born April 1954, in Hubei province.

GOLDBERG

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