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Cablegate: Party Chief Touts Shanghai's Economic "Transformation"

VZCZCXRO0006
RR RUEHCN RUEHGH
DE RUEHGH #0492/01 3520919
ZNR UUUUU ZZH
R 180919Z DEC 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8438
INFO RUEHBJ/AMEMBASSY BEIJING 3211
RUEHCN/AMCONSUL CHENGDU 2314
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0771
RUEHHK/AMCONSUL HONG KONG 2483
RUEHML/AMEMBASSY MANILA 0138
RHEHAAA/NSC WASHINGTON DC
RUEHUL/AMEMBASSY SEOUL 0626
RUEHSH/AMCONSUL SHENYANG 2305
RUEHIN/AIT TAIPEI 2104
RUEHKO/AMEMBASSY TOKYO 0837
RUCPDOC/USDOC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 9102

UNCLAS SECTION 01 OF 03 SHANGHAI 000492

SENSITIVE
SIPDIS

TREASURY FOR OASIA/INA DOHNER/HAARSAGER/WINSHIP
DEPT FOR EAP/CM, INR
USDOC PASS BUREAU OF ECONOMIC ANALYSIS
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA
STATE PASS USTR FOR STRATFORD, WINTER, KATZ
NSC FOR LOI
MANILA FOR USADB

E.O. 12958: N/A
TAGS: ECON PGOV EFIN SENV PHUM SOCI CH
SUBJECT: PARTY CHIEF TOUTS SHANGHAI'S ECONOMIC "TRANSFORMATION"
DESPITE HOUSING, EMPLOYMENT WORRIES

REF: A. (A) SHANGHAI 25
B. (B) SHANGHAI 148
C. (C) SHANGHAI 267

(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.

SUMMARY

-------

1. (SBU) Shanghai Communist Party Secretary Yu Zhengsheng
announced to a December 5-6 meeting of senior municipal
officials that Shanghai would "lead the transformation of
China's economic development model" in the coming year. Yu's
statements appear to reassure local officials of Central
Government support for Shanghai's development agenda in advance
of the municipality's upcoming annual People's Congress and
Political Consultative Conference sessions in January (Ref A),
at which rapidly rising housing prices -- a strongly felt side
effect of the city's growth -- and chronic concerns over
employment for young people entering the workforce will likely
feature prominently on the agenda. End Summary.

PARTY SECRETARY: SHANGHAI TO LEAD CHINA'S CHARGE

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

2. (SBU) During a two-day meeting held by the Communist Party of
China Shanghai Standing Committee on December 5-6, Municipal
Party Secretary Yu Zhengsheng said Shanghai would "lead the
transformation of China's economic development model."
According to Yu, changing Shanghai's development model is an
"important historical task" assigned by the Central Government.
Rapid economic development, however, should not sacrifice the
city's environment and resources, he added. Yu urged government
officials to consider the development model change as a
strategic task and to alter their mindsets and work styles
accordingly to achieve the goal of sustainable development.

3. (SBU) Yu said Shanghai can only achieve sustainable
development through further reform and opening-up, improving
people's livelihoods, and innovation. Key areas for reform and
innovation include: 1) building an evaluation system for
economic development; 2) deepening SOE reform and promoting
property rights reform; 3) deepening housing reform and
establishing a comprehensive housing security system; 4) doing
further research on and developing methods to support the
development of private enterprises and small and medium size
enterprises; 5) further promoting science and technology
innovation and high-tech industrialization; 6) promoting new
countryside building; 7) paying attention to the "floating
population" of rural migrant working in Shanghai and improving
public services; and 8) promoting reform of government
administration.

MESSAGE TO THE WEST

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

SHANGHAI 00000492 002 OF 003

4. (SBU) Party Secretary Yu reportedly told visiting Canadian
Prime Minister Stephen Harper December 5 that Shanghai is making
efforts to change its economic development model in the face of
growing environmental and resource pressures. According to an
article in the Wenhui Bao, a local Communist Party-controlled
newspaper, Yu told Harper that Shanghai should open up further
and learn from countries like Canada through cooperation and
communication in order to realize Shanghai's "sound and fast"
(you hao you kuai) development. Yu said he appreciated Canada's
participation in the Shanghai 2010 World Expo, which he said
would showcase sustainable development through its "Better City,
Better Life" slogan (Refs B and C).

FEARS OVER HOUSING COSTS ACCOMPANYING "TRANSFORMATION"

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

5. (SBU) District-level officials in Shanghai say their policies
are in line with Party Secretary Yu's emphasis on sustainable
development. An official of the Jiading District Foreign
Economic Commission told PolOff December 17 Jiading is focused
on economic transformation and environmental protection and has
stopped allowing high-pollution industries from establishing
factories in the district, which is located in northwestern
Shanghai on the border with Jiangsu Province. Jiading will
benefit from the opening of a new subway line which will connect
the center of the district to downtown Shanghai. The Jiading
subway stop will be at the center of a "new city" where 800,000
to one million people will live and work in an energy efficient
environment, Liu said.

6. (SBU) Shanghai, however, faces a significant challenge with
rising housing prices, highlighting housing as a major issue to
address in 2010. In Jiading, the district official raised
concerns that attractive new developments, more convenient mass
transit, and additional investments will force housing prices
upward in the coming year even when apartment costs "already are
high." Municipal Party Secretary Yu's pledge to address worries
about housing foreshadowed subsequent moves from the Central
Government to tamp down property speculation and increase the
supply of affordable housing. In the days following Yu's
remarks, the Central Government announced an end to a
preferential business tax on property sales and a building
program for low- and middle-income housing. Several local media
outlets have highlighted Yu's "deepening housing reform"
message, as well as a briefing by Premier Wen Jiabao on the
national property market following the announcement of measures
to deal with galloping real estate prices.

7. (SBU) In some ways, the spotlight is on Shanghai as a prime
example of real estate developers pricing housing out of the
reach of ordinary families. The setting of the popular, but now
banned, TV series, "Snail House" (Wo Ju, which also has the
English name "Dwelling Narrowness") is modeled on Shanghai --
the series depicts "house slaves" struggling to pay surging
mortgage costs. The Shanghai Audit Bureau reported in August
that Shanghai had at that time fulfilled less than 25 percent of
its affordable housing construction goals for the year. In
response, the Shanghai Municipal Government is starting to roll
out measures, including a December 10 announcement of a trial

SHANGHAI 00000492 003 OF 003


project to construct "economic" or "subsidized" housing.

EMPLOYMENT STILL A TOP CONCERN, TOO

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

8. (SBU) Housing will not be the only socioeconomic concern at
the "Two Meetings" as the hot topic of the 2009 legislative
session (Ref A) -- employment for graduates -- remains a serious
problem. A December 18 front page story in the Wenhui Bao
reported on the employment problem, noting that Shanghai would
graduate 10,000 more high school and university students in 2010
than a year ago, adding pressure to the tight job market.

COMMENT

-------

9. (SBU) As Shanghai prepares for the coming year and the
Shanghai 2010 World Expo, municipal government leaders are
emphasizing the importance of economic "transformation." Yu's
fairly assertive comments about Shanghai's leading role, which
were covered widely in local Chinese media but not in the
English language press -- seem designed to reassure local
officials that the Central leadership -- to which Yu, a
Politburo member, technically belongs -- will support the
municipality's development plans. The annual "Two Meetings" of
the Shanghai Municipal People's Congress and Shanghai Committee
of the Chinese People's Political Consultative Conference
(CPPCC) in January will most likely endorse an ambitious
development agenda that, while more oriented toward
environmental sustainability, could exacerbate existing
challenges such as rising housing prices and youth employment.
CAMP

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