Cablegate: Big Plans for Hainan -- Officials and Business Leaders

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RR RUEHCN RUEHGH
DE RUEHGZ #0587/01 2870908
ZNR UUUUU ZZH
R 140908Z OCT 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0984
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0285
RUEHBJ/AMEMBASSY BEIJING 0772
RUEHGH/AMCONSUL SHANGHAI 0220
RUEHCN/AMCONSUL CHENGDU 0221
RUEHSH/AMCONSUL SHENYANG 0230
RUEHHK/AMCONSUL HONG KONG 0290
RUEHIN/AIT TAIPEI 0208
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0153
RHMFISS/DEPT OF ENERGY WASHINGTON DC 0025
RUEAIIA/CIA WASHDC 0269
RUEKJCS/DIA WASHDC 0265

UNCLAS SECTION 01 OF 03 GUANGZHOU 000587

SENSITIVE
SIPDIS

State for EAP/CM, EB/ESC, OES/ENV, INR/EAP;
USTR for China Office
Beijing for FCS, ESTH and DOE

E.O. 12958: N/A
TAGS: ENRG SENV ETRD PREL EINV PGOV TW CH
SUBJECT: Big Plans for Hainan -- Officials and Business Leaders
Discuss Development and Cooperation During CG's Visit

1. (SBU) Summary: Key components of China's economic development
strategy will be pilot tested in Hainan Province, according to
provincial officials and researchers. Officials claimed central
government proposals set to be approved soon would position the
island province as a duty free zone, fully open the province's
service sector to foreign investment, transform the island into an
international tourism destination, and establish the province as the
first special zone for environmental protection. During recent
meetings with the Consul General, Hainan officials and business
leaders expressed optimism regarding development prospects, and
pointed to tourism management, environmental protection and
renewable energy as three potential areas for U.S. business
involvement and broader cooperation. End Summary.

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KEEPING DENG XIAOPING'S VISION ALIVE
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2. (SBU) Deng Xiaoping's strategic vision for Hainan when he made it
China's largest Special Economic Zone (SEZ) in the 1980s was that it
would become another Hong Kong, according to Chi Fulin, president of
the China Institute for Reform and Development (CIRD). In a
September 24 meeting with the Consul General, Chi acknowledged that
Hainan had fallen short of Deng's vision but stated that development
prospects for the island remain promising. CIRD is a highly
regarded Hainan-based think tank formed jointly by the Chinese
central and Hainan provincial governments. Chi told the CG that the
central government would soon approve a comprehensive development
program designed by CIRD that would make Hainan a duty free zone,
fully open the service sector to foreign investment in support of
tourism industry development, strengthen urban and rural economic
and social integration, and grant the island status as China's first
special zone for environmental protection. Assuming the program is
approved, Chi believes these measures will not only accelerate
Hainan's economic growth but also serve as a development model for
the rest of the country.

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TOURISM HARDWARE IN PLACE, SOFTWARE STILL LACKING
--------------------------------------------- ----

3. (SBU) Facilitating Hainan's efforts to become a first-tier
international tourism destination in the next 15 to 20 years is a
key priority for the Central Government, according to Vice Governor
Li Guoliang. Sanya, dubbed the "Hawaii of the Orient" and Hainan's
top beach city, already boasts the greatest concentration of
five-star hotels in China. In addition to high levels of investment
in its tourism infrastructure, the island also benefits from a
favorable visa policy. According to the provincial government's
website, tourist groups of at least five people from 21 countries
including the United States can visit without obtaining a Chinese
visa. Transportation to/from the island province is also
facilitated by the quickly expanding Hainan Airlines, China's
largest privately-owned airline and the fourth largest overall in
terms of market share. (Note: Half of the 215 aircraft in Hainan
Airlines' fleet are Boeing and according to the Chairman and CEO,
Chen Feng, the airline has plans to add 60 aircraft every year for
the next five years. Septel on south China aviation to follow. End
Note.)

4. (SBU) While officials proudly noted the rapid growth of Hainan's
tourism industry, they also pointed out that continued growth would
largely depend on improvements in tourism management practices.
According to Chi of CIRD, the quality of services currently provided
at Hainan's five-star hotels is relatively low; he added that it
would take Hainan 10-20 years to catch up with Hawaii in quality of
service. Both Vice Governor Li and Sanya Vice Mayor, Rong Liping,
affirmed Chi's assessment regarding service quality. Li also said
that Hainan could learn from the vast experience the United States
had in tourism sector planning, while Rong agreed with the CG's view
that opportunities existed for U.S. businesses to provide training
in hotel management and service provision as well as cruise boat
handling.

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COOPERATION ON ENVIRONMENTAL PROTECTION AND CLEAN ENERGY
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5. (SBU) As Hainan seeks to become an international tourism
destination, cooperation on environmental protection and clean
energy will become increasingly important priorities, according to
officials and business leaders. At a meeting with several general
managers (GMs) of the top five-star hotels in Sanya, the executives
came to a consensus that even minimal deterioration of environmental
conditions would severely hamper tourism development. Sanya
reportedly enjoys the best air quality in China, but, in the words
of one GM, "Sanya without its environment is nothing, it's history."
(Comment: Hainan government officials admit Sanya's focus -- 95%
-- is on China's domestic tourist market, with barely 5% coming from
outside China. GMs note few repeat visits by Chinese clients as
most prefer to see a new venue rather than return to one previously
tried. Massive numbers of 3-star hotels already service the Chinese
market and the GMs express concern about market pressure when 5-star
hotel numbers jump from 13 to 20 by 2015. End Comment.)

6. (SBU) Hainan's need to maintain high air and water quality is
part of the motivation behind CIRD's efforts to have the province
declared a special zone for environmental protection. In response
to the CG's comment that U.S. companies have considerable expertise
and capacity in this field, Chi noted that CIRD's proposal for
Hainan to be set apart as a special zone for environmental
protection would require the province meet international
environmental standards, creating an increased need to work with
foreign businesses and import new technologies. Additionally, Chi
said that Hainan needed to make greater efforts to entice
international companies to set up demonstration projects on the
island that could serve as models for the rest of the country.

7. (SBU) Cooperation with U.S. businesses and research institutions
would also be welcome in the area of renewable energy development,
according to Fan Yimin, Secretary General of the Hainan Renewable
Energy Association. According to Fan, although the province has the
objective of scaling up renewable energy usage from less than 1% to
15% of total energy by 2020, no overall plan exists for how to
achieve this goal. Fan said that he hoped to establish cooperative
ties with U.S. businesses and organizations based on the model of
cooperation that currently exists with the British. Fan explained
that British Consulate officials arranged frequent visits by
delegations of renewable energy firms to Hainan to identify specific
projects or business opportunities. Once opportunities have been
identified, the British Consulate arranged follow-up visits for
representatives of specific firms to initiate cooperative activities
or sign agreements. (Note: Earlier, Vice Governor Li had offered a
similar assessment and suggested U.S. firms likewise needed to make
a concerted pitch with the Consulate's support. AmCham was
approached and it is now preparing a mid-December delegation visit
for interested U.S. firms. End Note.)

8. (SBU) Fan also provided the CG with a document containing
summaries of eight renewable energy research projects presently
active in Hainan. Some of the project summaries identify specific
cooperation links that the research agency seeks to establish with
foreign counterparts. For example, the summary of a project
researching the feasibility of using tapioca to produce 100,000 tons
per year of ethanol fuel specifically mentions the possibility of
joint research and introduction of cellulosic ethanol technology
from U.S. companies such as Coskata. Cooperation with the U.S.
Department of Energy and a number of U.S. energy and airline
companies is also outlined in the description of a project to
produce bio-diesel from oil-bearing microalgae. In this regard, Fan
felt a visit by Embassy's Beijing DOE rep would be well received.
The summaries of a sea-source heat pump project, an off-shore wind
farm project and a deep rock heat utilization project also mention
the need to cooperate with the United States to set up demonstration
projects in Hainan.

9. (SBU) Another potential vehicle for cooperation on environmental
protection and clean energy is the sister state and city
relationships that Hainan and Sanya currently maintain with Hawaii
and Maui, respectively. Wu Shicun, Director General of the Hainan

GUANGZHOU 00000587 003 OF 003

Foreign Affairs Office, agreed that this mechanism could be
effective in building relationships but stated his hope that Hawaii
would be a more active member of the partnership. Vice Governor Li,
who attended a clean energy conference in Hawaii last year, also
stressed the importance of the sister state relationship and shared
with the CG his idea of an annual clean energy summit that would be
hosted alternately in Hainan and Hawaii.

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THINK TANK COOPERATION
----------------------

10. (SBU) During the Consul General's meeting with CIRD President
Chi, Chi explained that CIRD had a long history of cooperation with
U.S. think tanks, including the RAND Corporation and the
International Republican Insitute (IRI). Chi noted that the Central
Government had suspended cooperation with IRI by think tanks like
CIRD two years ago. He expressed willingness to explore the
possibility of reestablishing ties but he signaled that Beijing must
first be persuaded before CIRD could re-engage IRI.

GOLDBECK

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