Cablegate: Hi-Tech Zones in the Western Pearl River Delta Strive To

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DE RUEHGZ #0496/01 2300902
ZNR UUUUU ZZH
R 180902Z AUG 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0850
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0223
RUEHBJ/AMEMBASSY BEIJING 0659
RUEHHK/AMCONSUL HONG KONG 0225
RUEHGH/AMCONSUL SHANGHAI 0161
RUEHSH/AMCONSUL SHENYANG 0171
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RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE 0012
RHMFIUU/HQ EPA WASHINGTON DC 0024
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0081
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0127
RHEHAAA/NSC WASHINGTON DC 0047
RUEAIIA/CIA WASHDC 0214
RUEKJCS/DIA WASHDC 0210
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 000496

SENSITIVE
SIPDIS

STATE FOR EAP/CM, OES/PCI, DRL, AND EAP/PD
STATE ALSO PASS USTR FOR CHINA OFFICE

E.O. 12958: N/A
TAGS: EIND EINV ECON ETRD SENV ELTN CH
SUBJECT: Hi-Tech Zones in the Western Pearl River Delta Strive to
Compete

REF: Guangzhou 0418

GUANGZHOU 00000496 001.2 OF 003

1. (SBU) Summary. Guangdong province is eager to move beyond the
labor-intensive export processing industries that have driven much
of its growth over the last 30 years to develop hi-tech industries
to take their place; hi-tech industrial zones are an important part
of its development strategy and have proliferated throughout the
Pearl River Delta (PRD). Smaller zones in the less developed areas
of the PRD's western bank struggle to compete with larger zones in
Guangzhou and Shenzhen, attempting to distinguish themselves by
offering special incentives, targeting particular industries and
using more flexible management structures among other means. End
Summary.

Competing With the Big Boys
---------------------------

2. (SBU) Developing hi-tech industries in the Pearl River Delta
(PRD) is one of the top economic priorities of the Guangdong
provincial government under Party Secretary Wang Yang's "double
transfer" policy, and hi-tech industrial zones are an important part
of that effort. According to the provincial government, the output
of Guangdong's hi-tech industry totaled RMB 2.2 trillion (US$320
billion) in 2008. Two of Guangdong's 21 municipalities, Guangzhou
and Shenzhen, accounted for much of the output with an industrial
output of RMB 294 billion and RMB 225 billion (US$43 billion and
US$33 billion), respectively, in 2008. However, the share from
smaller hi-tech zones in the less developed western PRD were
nonetheless consequential and growing. The industrial output of the
Foshan Hi-Tech Zone reached RMB 120 billion (US$18 billion) in 2008.
The Zhuhai Hi-tech Zone and Zhongshan Torch Development Zone had
output of RMB 113 billion and RMB 81 billion (US$17 billion and
US$12 billion), respectively. Administrators of these smaller zones
acknowledge that they are at a disadvantage in competing with the
larger zones in Guangzhou and Shenzhen, but they have found ways to
distinguish themselves and attract investors.

Incentives - Building on Existing Benefits
------------------------------------------

3. (SBU) The incentives afforded to enterprises operating in the
west PRD hi-tech zones are similar to those available to firms the
government labels as hi-tech enterprises elsewhere in China.
Enterprises in the zones may have a tax rate as low as 15%. Some
also receive subsidies for research and development and access to
low-cost loans. However, some of west PRD zones have been able to
offer additional incentives to enterprises willing to invest there.
Qiu Shi, director of the Zhuhai Economic Development Bureau (EDB),
explained to us that the Zhuhai Hi-tech Zone also provided an
incubator base for small enterprises, setting them up with
facilities, advice and up to RMB 20 million in development funds per
year. Incentives are not only monetary in nature, but include
access to prime land at little or no-cost, priority access to power
during a shortage and intangible assets, such as titles and awards
that can raise the profile of a company. The government through the
zone management streamlines bureaucratic procedures and even some
judicial matters. Qiu noted that Zhuhai is planning to build an
intellectual property rights (IPR) court in the zone to make it more
attractive to firms in the information technology (IT) and software
industries.

Targeting Industries
--------------------

4. (SBU) The Zhuhai EDB's Qiu explained that because the Zhuhai zone
cannot compete with the size of the Guangzhou and Shenzhen zones, it
focuses on specific industries, especially IT and software. Other
hi-tech zones in Guangdong adopt a similar approach. According to
Huang Jian, Deputy Director of Zhongshan Torch Development Zone
Administration Committee, electronics, health technologies,
packaging and printing, specialty chemicals, and automobile
manufacturing are the Zhongshan zone's five key industries.

GUANGZHOU 00000496 002.2 OF 003

Hengquin Economic Development Zone, which is in the initial stage of
development in Zhuhai, received approval from the State Council in
June 2009 for developing a hi-tech area that focuses on research and
development (R&D), IT and software, tourism and business services.

A Higher Status
---------------

5. (SBU) According to Huang, Zhongshan Torch Hi-Tech Zone's national
status gives it a competitive advantage, allowing for more favorable
polices. Huang pointed out that the municipal government has more
control of the revenues collected by the zone and can freely
reinvest it to improve the zone's facilities and services.
Zhongshan Torch Hi-Tech Zone, established in March 1990 is one of
only four zones given the elevated status of "torch," meaning
established by the Ministry of Science and Technology (MST),
Guangdong Provincial Government and Zhongshan Municipal Government;
the other three torch zones are located Weihai in Shandong province,
Xiamen in Fujian Province and one more in Hainan Province.
Zhongshan has a management committee composed of leaders from the
municipal government and the party committee of the zone and is
supervised by the municipal government. According to Huang,
services, resources and facilities that are available to the
government are also accessible to the companies in the zone and are
provided in a timely, efficient manner.

Flexible Management
-------------------

6. (SBU) Foshan's hi-tech zone claims flexible management is one of
its advantages. According to Ye Weifeng, Deputy Director of the
Foshan Hi-tech Zone Administration Committee, the Foshan zone has
six parks that each focus on their own competitive advantages and
develop distinguishing features for their core industries. Ye said
that the Foshan zone adopts an open management style with central
coordination from the administration committee and free movement to
manage and operate for the individual parks. Ye contrasted Foshan's
management style with the closed style of Guangzhou's hi-tech zone.

Infrastructure - Increasing Connections
---------------------------------------

7. (SBU) The hi-tech zones in Guangdong capitalize on their
proximity to Hong Kong and Macau. They also benefit from access to
multiple airports; the Zhongshan Torch Development Zone is located
within 100 kilometers of six major airports. Three container ports
along the Pearl River Delta are ranked among the top 10 in China.
Zone administrators point out that several new infrastructure
projects will increase the competitiveness of the smaller hi-tech
zones on the west PRD by improving their transportation links with
Hong Kong, Guangzhou and major transportation facilities. These
include the Hong Kong-Zhuhai-Macao Bridge, the Zhongshan-Shenzhen
underwater tunnel, Guangzhou-Zhuhai rail link and the subway link
between Guangzhou-Foshan.

Environment
-----------

8. (SBU) Some hi-tech zones like Zhuhai and Hengqin have embraced
sustainable development as a selling point. In Zhuhai, pollution
emission serves as a criterion for acceptance into the zone.
Henqgin prides itself on its natural environment and has
incorporated sustainable development in its master plan to maintain
tourism and promote industry. Hengquin also has 21 large wind
turbines making it the second largest island wind power project in
China.

Surviving the Downturn
----------------------

9. (SBU) The global economic downturn has not lead to a widespread

GUANGZHOU 00000496 003.2 OF 003

decline in the zones, which include many companies that are focused
on China's domestic market. Luo Mingzhao, board chairman and senior
engineer of Foshan Henglitai Machinery Co., a ceramic tile equipment
maker, noticed a drop in sales during the worst of the crisis, but
said the central government's stimulus package in May 2009 has
helped the real estate industry rebound, improving the demand for
tiles. Foshan Nationstar Optoelectronics General Manager Wang Sen
told us that the downturn had affected the company to some extent in
the first half of 2009. But since the company is mainly doing
business domestically, sales have recovered to 80% the previous
level, he said.

GOLDBECK

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