Cablegate: Pearl River Delta Flotsam and Jetsam, November 19, 2007

DE RUEHGZ #1231/01 3240833
R 200833Z NOV 07




E.O. 12958: N/A
SUBJECT: Pearl River Delta Flotsam and Jetsam, November 19, 2007

1. (U) SUMMARY: This is the third in a series of periodic cables
that will feature snapshots of the Guangzhou consular district.
Highlights of this installment include: advanced television
flat-panel manufacturing; a HIV/AIDS treatment facility; enforcement
of air pollution laws; and PRD labor trends.

TCL to Build Advanced Flat-Panel Factory

2. (SBU) TCL Multimedia Technology Holdings Ltd. will soon build
China's most advanced TFT-LCD panel manufacturing facility in
Guangdong, according to TCL Vice President Morgan Chen. There are
already 6th generation fabs (fabricating facilities) in China
(producing 1500mm x 1850mm glass substrates), but TCL plans to build
a 7.5 generation one (1950mm x 2250mm) or 8th generation (2160mm x
2460mm) facility. Chen indicated that the firm would be seeking
assistance from foreign partners and possibly from the Chinese
government in financing the capital-intensive project. He estimated
the new facility would take approximately 18 months to build.
Flat-panel sets currently account for 30 percent of the firm's
television sales, but it has no panel manufacturing facilities of
its own. TCL purchases all of its panels from overseas suppliers,
mainly in Taiwan and Korea, and assembles them into televisions sets
in its factories in China. TCL is one of the world's largest
television manufacturers, claiming 9.2 percent of the global market.

--------------------------------------------- ------
New HIV/AIDS Center - Largest District CDC Facility
--------------------------------------------- ------

3. (U) Downtown Guangzhou's Yuexiu District opened a new CDC
HIV/AIDS services facility, the largest district-level CDC facility
in China. The center, which began operations October 16, will
provide HIV/AIDS consultation services, free HIV testing, and a
methadone treatment center. AIDS Care China, a leading HIV/AIDS NGO
in Guangzhou, provided training for the center's staff. Guangdong
province ranks fifth in China for HIV/AIDS cases, with an estimated
total of 17,505 carriers in 2006. Some experts believe these
figures dramatically understate the total number of cases, which
could be as high 40,000.

Foshan and Shenzhen Try to Clear the Air

4. (U) South China's Regional Air Quality Management Network, a
cooperative entity formed by Guangdong and Hong Kong environmental
agencies, ranked Foshan as the "dirtiest" city for air quality in
the Pearl River Delta. Much of Foshan's air pollution has been
blamed on the ceramics industry, which is heavily concentrated
there. In an effort to clean up its act, Foshan's Environmental
Protection Bureau complied a list of ceramics factories for closure
or relocation to special zones where factories can be grouped
together and more closely supervised. Facing the threat of
restrictions imposed by the central government, the Foshan municipal
government has set a goal of reducing sulfur dioxide emissions by 43
percent by 2010.

5. (U) Shenzhen has also taken some innovative steps to improve air
quality. The Shenzhen Environmental Protection Bureau (EPB)
recently submitted to local banks a list of 114 companies that have
violated air pollution regulations. Banks have been instructed to
stop distributing loans to the violators. Media reports indicate
that the move will result in the suspension of RMB 110 million
(nearly US$15 million) in loans.

Foxconn Will Move Production Out of PRD

6. (SBU) Foxconn, China's largest exporter, will reduce staffing at
its massive Shenzhen campus; operations there will be focused on
research and development, design, product testing, marketing, and
other non-production processes. A Foxconn human resources executive
told econoff that the firm would reduce employment at the site from
its current level of approximately 270,000 employees down to about
200,000 (a year ago at this time, Foxconn was planning to build the
workforce level up to 300,000). He said rising wages in the
Shenzhen were an important factor in the decision to move out
production processes but not the only one. Production will move to
various other sites in China depending on advantages offered by
different locations. For example, production for the Japanese and
Korean markets will be moved to facilities in Shandong Province,

GUANGZHOU 00001231 002 OF 002

closer to those markets. Manufacturing of products that require
large amounts magnesium or iron will move closer to production
centers of those inputs in Shanxi and Wuhan, respectively. Foxconn,
which is a subsidiary of Taiwan's Hon Hai Precision Industries,
makes electronic components and a wide variety of consumer
electronic goods (as OEM) under contract for other companies,
including Apple, Microsoft, Motorola, Nintendo, Nokia and Sony.

Revolving Door at Shenzhen Factories

7. (U) Shenzhen firms have much higher turnover rates than companies
in other "first-tier" Chinese cities, according to the latest survey
by Hewitt Associates LLC, a human resources consulting firm. The
survey of Beijing, Guangzhou, Shanghai and Shenzhen showed that
voluntary labor turnover rates in Shenzhen were 17.4 percent for
non-manufacturing firms and 31.3 percent for manufacturing firms.
Guangzhou had the second highest rates in the survey at 15.5 percent
for non-manufacturing firms and 14.8 percent for manufacturing. One
of the Hewitt Associates who presented the survey results at an
American Chamber of Commerce of South China briefing told econoff
that a 2006 survey had indicated that turnover exceeded 50 percent
for unskilled workers in Shenzhen manufacturing firms. The Hewitt
Associate explained that turnover rates in Shenzhen were
particularly high because high-tech industries, which are
concentrated in the area, experience higher turnover rates overall.


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