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Cablegate: Treasury's Dan Wright Visits Nanjing, Discusses Economy,

VZCZCXRO5410
RR RUEHCN RUEHVC
DE RUEHGH #0444/01 1990014
ZNR UUUUU ZZH
R 180014Z JUL 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6033
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAEPA/EPA WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 6469

UNCLAS SECTION 01 OF 03 SHANGHAI 000444

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR AMB. HOLMER, WRIGHT, TSMITH, AND OASIA - DOHNER,
HAARSAGER, CUSHMAN
USDOC FOR ITA MAC DAS KASOFF, MELCHER, MCQUEEN
NSC FOR WILDER AND TONG

E.O. 12958: N/A
TAGS: ECON PGOV ETRD CH
SUBJECT: TREASURY'S DAN WRIGHT VISITS NANJING, DISCUSSES ECONOMY,
ENERGY, AND ENVIRONMENT


SHANGHAI 00000444 001.2 OF 003


This cable is Sensitive But Unclassified (SBU) and for official
use only. Not for transmission outside USG channels.

1. (SBU) Summary. In a meeting with Treasury's Managing
Director for China and the Strategic Economic Dialogue (SED) Dan
Wright on June 25, Jiangsu academics and officials said the
province had adopted a "One Two Three Four Five" development
framework that relied on the Scientific Development Concept and
had an eye toward establishing a Harmonious Society-current
ideological buzzwords. Jiangsu was heavily reliant on foreign
direct investment and exports from foreign invested firms to
drive growth but was trying to shift to a consumer-led growth
model. It was also concerned about increasing energy efficiency
and reducing its dependency on coal, looking into promising
developments in wind technology. Equally important, Jiangsu was
trying to clean up the environment and lower polluting emissions
and was one of the few provinces to actually meet
nationally-mandated targets. Wright's Shanghai meetings will be
reported Septel. End summary.

2. (SBU) During a June 25 discussion with Jiangsu academics and
government officials, Wright discussed Jiangsu's economic
strategy, and energy and environment situations. Attendees
included: Jiangsu Academy of Social Sciences (JASS) Research
Coordination Office Director Sun Keqiang; JASS's Economic
Research Institute Director Ge Shoukun; Jiangsu Environmental
Protection Bureau (EPB) Foreign Affairs and Foreign Economy
Office Director Huang Yibin; and Jiangsu Provincial Development
and Reform Commission Energy Division Director, Mr. Chen (Note:
No further information is available regarding Chen's name. End
note.)

------------------------
Countdown to Development
------------------------

3. (SBU) Sun Keqiang told Wright that Jiangsu's economic
program was summarized by a "One Two Three Four Five Six"
formulation, which served as the basis for the provincial
five-year plans and was seen as the overarching framework for
development. Sun said that Jiangsu had "one goal" of having a
wealthy people and a strong province (fumin qiangsheng). It
also had "two leadings," namely taking the lead in fully
developing a moderately well-off society, and taking the lead in
basically realizing modernization. Somewhat redundantly, the
"three developments" included: leading development; scientific
development; and "harmonious" development, or ensuring that all
of the people received real benefits from economic development
instead of just a select few (Ref A). (Comment: In fact,
science and harmony played a large role in all aspects of
Jiangsu's "One Two Three Four Five Six" framework, likely
reflecting the party's ideological focus on the Scientific
Development Concept and Harmonious Society. End comment.)

4. (SBU) The "four priorities" of the province were:
conservation; enriching the people; science and education; and
environmental protection. The "five strategies" included:
reinvigorating Jiangsu through science and education; economic
globalization; regional coordinated development between
southern, central, and northern Jiangsu; urbanization
development; and sustainable development, meaning coordinating
all aspects of economic development. All of these were meant to
establish the "six Jiangsus": a peaceful Jiangsu, where there
were no disturbances in the social order; a "rule of law"
Jiangsu; a "green" Jiangsu; a "cultured" Jiangsu; a "credible"
Jiangsu, meaning that the people could trust their leaders; and
a "harmonious" Jiangsu.

----------------
The Safety Dance
----------------

5. (SBU) Poloff asked about a propaganda sign he had read
regarding "safe development" (anquan fazhan) being used to
establish a Harmonious Society. Sun explained that "safe
development" was a Jiangsu construct and that it referred both
to safety in production and also strengthening societal safety.
"Safety," Sun said, was both part of and a prerequisite for
Scientific Development. Wang Yan with the Jiangsu Foreign
Affairs Office, added separately that "safe development" was
also a manifestation of the "putting people first" slogan of the

SHANGHAI 00000444 002.2 OF 003


party.

------------------------------------------
Foreign Investment and the Five Strategies
------------------------------------------

6. (SBU) Keying in on economic globalization--one of the "five
strategies"--Ge Shoukun said that Jiangsu has relied heavily on
trade and foreign investment for development. The province's
top foreign investors were Taiwan followed by the United States.
Foreign invested companies also accounted for a large
percentage of exporters in the province. For instance, in
Suzhou, 93 percent of the municipality's exports were produced
by foreign-invested companies, compared to the national average
of 57-58 percent. Jiangsu planned to utilize more foreign
investment in the future in, especially in the areas of energy
and environment. Ge noted that the province's overall trade
surplus was declining.

7. (SBU) Ge said that Jiangsu needed to stimulate consumer
spending in order to shift from an export-led economic growth
model to a consumer-led model. To do that, Ge said, Jiangsu
needed to increase people's income. It would then be natural
for people to spend more. Ge explained that increased incomes
needed to be coupled with social safety guarantees, to prevent
people for saving their extra income for a rainy day. He
specifically mentioned education and health care as two major
issues that were traditionally major causes of concern and that
the central government was tackling. He noted that credit
consumption was new to most Chinese and was just starting to
catch on. Having a good social safety net would also help
people feel comfortable to engage in credit consumption, Ge
opined.

------------------------------------
Finding the Energy Needed to Develop
------------------------------------

8. (SBU) Director Chen noted that Jiangsu's energy development
had two challenges: supply and the environment. The 11th Five
Year Plan (FYP) had several goals to meet both challenges. Chen
said that Jiangsu currently consumed 160 million tons of
standard coal per year, much of which came from other provinces.
Chen said that currently, coal accounted for 68 percent of
Jiangsu's primary energy consumption. The goal within the 11th
FYP was to reduce coal as a percentage of energy consumption to
65 percent and then to 60 percent by the year 2020. Chen noted
that under the WTO framework, China and the United States had
agreed to discuss trade in clean coal technology and was
interested in integrated gasification combined cycle technology
(which turns coal into gas to generate power) to help improve
energy efficiency.

9. (SBU) Under the 11th FYP, Jiangsu was also seeking to
develop new, cleaner energy sources, such as nuclear, natural
gas, biomass (including agricultural residuals and garbage), and
wind. In addition, the FYP dictated energy conservation and
energy structure adjustment measures to reduce overall energy
consumption. Nationwide the goal was to close small power
plants totaling 10 gigawatts worth of power. Jiangsu's goal was
to close plants totaling 1.5-2 gigawatts of power.

10. (SBU) Focusing on wind, Chen said that Jiangsu would
develop 1.5 gigawatts of wind power capacity during the 11th
FYP. The province had a large area of shoals, perfect for
constructing wind turbines. Chen estimated that the wind
harnessed there could eventually produce up to 10 gigawatts of
power per year-the equivalent of the power produced by the Three
Gorges Dam. However, this would require a lot of work both to
construct the power grid and to protect the eco-system.
Technology was currently still the major bottleneck.

11. (SBU) In terms of energy efficiency, Chen said Jiangsu was
doing well in reaching its targets. Jiangsu's energy efficiency
was only 60 percent of the national average and it was only one
of two provinces to reach the 4 percent reduction target
mandated by Beijing. Chen noted that Jiangsu had new strict
energy efficiency requirements for new projects.

---------------------------
The Sweet Stench of Success

SHANGHAI 00000444 003.2 OF 003


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

12. (SBU) According to the EPB's Huang Yibin, strides were not
only being made in energy efficiency and emissions reductions,
but in environmental protection as well. Over the past two
decades, Jiangsu increased its sewage treatment capacity from
700,000 tons in 1990 to 4.3 million tons in 2005. Jiangsu had
received loans from the World Bank to increase its sewage
treatment capacity and had begun raising prices on sewage
producers to pay back the loans. Fees had increased from 0.10
RMB per cubic meter in 1998 to 1.05-1.15 RMB for southern
Jiangsu and 0.80 RMB for central and northern Jiangsu today.
Huang said that as sewage treatment became more profitable, it
would encourage the building of more plants.

---------------------
Green Gas is Good Gas
---------------------

13. (SBU) Huang said that Jiangsu had invested 3.5 billion RMB
in improving emission standards compliance. Major power plants
were required to install desulphurization units and provided
subsidies for so doing. They were charged penalties for failing
to comply. According to the PDRC's Chen, Jiangsu was one of
only four provinces to reach the nation-wide emission reduction
goal in 2006. Chen said that Jiangsu's sulfur dioxide emissions
have dropped 30 percent over the past five years and that they
would drop a further 15 percent during the current FYP.
KJARRETT

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