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Cablegate: Not-so-Scientific Development: Looking for Fast Growth In

VZCZCXRO5762
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #7389/01 3410043
ZNR UUUUU ZZH
P 070043Z DEC 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 3882
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 2052
RUEHFR/AMEMBASSY PARIS 4218
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 007389

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ENRG PGOV SOCI CH
SUBJECT: NOT-SO-SCIENTIFIC DEVELOPMENT: LOOKING FOR FAST GROWTH IN
CENTRAL CHINA

SUMMARY
-------

1. (SBU) Third-tier cities in Central China are aiming for more
investment and faster growth even as the Central Government promotes
"Scientific Development" following the 17th Party Congress. Hu
Jintao's Scientific Outlook on Development calls for more balanced
and sustainable development, but a recent visit to Henan Province
clearly demonstrated the growing economic policy gap between the
Central Government and the provinces. A policymaker in Zhengzhou,
Henan's provincial capital, said the province would follow Beijing's
dictate, focusing simultaneously on growth and environmental
protection. Contacts in two of Henan's third-tier cities, however,
shared the view that attracting investment and pushing economic
growth outweigh other considerations. While they talked about
Scientific Development, they offered differing opinions on the
concept's meaning. Central China continues to be an important
battleground for the Central Government, as the region struggles to
close the economic gap with the more developed coast, despite a lack
of resources, overdependence on state-owned enterprises, and a lot
of redundant labor. END SUMMARY

TRAVEL TO HENAN PROVINCE
------------------------

2. (U) Emboffs traveled to Henan Province November 13-16 with stops
in Anyang, Kaifeng, and Zhengzhou. Emboffs met with officials from
the Municipal Foreign Affairs Office, Development and Reform
Commission, and Bureau of Commerce in Anyang (an industrial city)
and Kaifeng (a tourism destination), both of which are considered
"third-tier" cities in China, and exchanged views with students at
Henan University in Kaifeng. Emboffs visited Zhengzhou on November
16 to meet with Provincial level officials and talk to students at
Henan Light Industry University. Zhengzhou is a VPP city, and
photos from this trip can be found at http://zhengzhou.usvpp.gov.


TALE OF TWO CITIES: ANYANG AND KAIFENG
---------------------------------------

3. (SBU) Anyang and Kaifeng both are characterized as third-tier
cities and fit different niches in Henan's overall development plan.
Anyang, a city of 5.25 million people in northern Henan, primarily
is a heavy industry (steel) production base with coal resources.
Anyang also attracts some tourists as the home of the Oracle Bones
-- a 3,000-year-old writing system dating from the Shang Dynasty.
Kaifeng, with a population of 4.5 million, lies east of Zhengzhou
and is primarily a tourist destination. Kaifeng was the capital of
the Song Dynasty and has the second longest city wall in China, but
also is seeking to diversify its economy by promoting agricultural
production and food processing. Both cities lag behind Zhengzhou
and Luoyang, which are the province's two most developed urban
centers.

4. (SBU) Anyang and Kaifeng miss out on commercial opportunities
because there is not enough available information on third-tier
cities in Central China, said Wei Zhiyong, Head of the Foreign
Economy Department at the Henan Provincial Development Reform
Commission (HPDRC). An Honghai, Director of the Kaifeng Municipal
Development and Reform Commission, added that Kaifeng has few large
industrial projects, and the city is trying to diversify its
production to textiles, agriculture, and petrochemicals and also
become and educational center. Anyang is in a better situation on
the industry side, according to an economic policymaker in the city,
but its service sector is weak.

FULL SPEED AHEAD: GDP AND FDI GROWTH STRONG
-------------------------------------------

5. (SBU) Despite challenges, both Anyang and Kaifeng are growing at
a brisk pace with Anyang's GDP growth rate hitting 15.6 percent in
2006 and Kaifeng pushing 13 percent. An Anyang official boasted of
250 Foreign Direct Investment (FDI) projects in the city and added
that Anyang would like to attract more western investors (most FDI
projects are from Hong Kong or Singapore, he said). Wei Zhiyong at
the HPDRC pointed out that Anyang's economic base remains largely
dependent on Angang, a state-owned steel manufacturer. In this
regard, Anyang is a typical third third-tier city in Central China
due to its overdependence on a large state-owned enterprise (SOE),
Wei said.

6. (SBU) Kaifeng may be lagging farther behind Anyang, but Li Jie at
the Municipal Commerce Bureau said the city successfully attracted
110 new foreign companies in 2007. FDI increased 46 percent

BEIJING 00007389 002 OF 002


year-on-year in Kaifeng -- most of which originated in Asia (Hong
Kong, Taiwan, Japan, Thailand, Singapore, Korea, Malaysia).

THE EMPEROR IS FAR AWAY: VIEW FROM HENAN
----------------------------------------

7. (SBU) Our contacts in Anyang, Kaifeng, and Zhengzhou emphasized
the primacy of Scientific Development in their respective economic
policies, but only one month after the Scientific Development
concept was enshrined in China's Constitution during the 17th Party
Congress, they all had different definitions of what Scientific
Development entails. In Anyang, an economic policymaker said
improving energy efficiency and combating pollution are paramount
considerations of Scientific Development. A Commerce Bureau
official in the city argued that the Central Government's Central
China Rising strategy in pursuit of more balanced regional economic
growth is part and parcel of the Scientific Development approach and
therefore to Anyang's advantage. Nevertheless, contacts in Anyang
and Kaifeng all agreed that the need for more balanced development
is subordinate to continuing to attract investment and push growth.


8. (SBU) The HPDRC's Wei argued that Henan's challenge fundamentally
is to balance economic growth against environmental protection
considerations, particularly with regard to conserving water use and
discouraging polluting industries. The province's macroeconomic
control policies must therefore simultaneously promote faster than
average GDP growth while also pushing for better than average
reductions on SO2 and CO2. Jia Huaqiang, a professor at the Central
Party School who specializes in sustainable development, said it
will be difficult for Central China to meet Beijing's standards on
Scientific Development. Officials in the provinces should know the
meaning of Scientific Development, Jia said, and the concept does
not include as many focus areas as put forth in Henan.

AS CENTRAL CHINA GOES...
------------------------

9. (SBU) Comment: Central China continues to be an important
battleground region for the Central Government's efforts to
implement macroeconomic controls and balance economic growth with
other considerations such as environmental protection and social
stability. Provinces (including Henan) and municipalities (such as
Anyang, Kaifeng and Zhengzhou) in the region are struggling to
overcome a lack of resources, overdependence on state-owned
enterprises, and redundant labor to close the economic gap with the
more developed coast. Henan Province, with nearly 100 million
people and a low GDP per capita, is a prime example of this
challenge. The province -- including third-tier cities there -- are
seeking to open up to outside investors in order to meet its
economic growth goals, but major western investors likely will wait
to dive in until after Anyang, Kaifeng, and other third-tier cities
establish a proven track record with investors from coastal China
and Asia. End Comment.

RANDT

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