Cablegate: Officials Say Yangtze River Delta Plays "Vital Role" In

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RUEHUL/AMEMBASSY SEOUL 0646
RUEHKO/AMEMBASSY TOKYO 0857
RUEHHI/AMEMBASSY HANOI 0052
RUEHGH/AMCONSUL SHANGHAI 9150

UNCLAS SECTION 01 OF 04 SHANGHAI 000019

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV PGOV CH
SUBJECT: OFFICIALS SAY YANGTZE RIVER DELTA PLAYS "VITAL ROLE" IN
ECONOMIC TRANSFORMATION, BUT POOR GOVERNANCE HINDERS COOPERATION
BETWEEN CITIES

REF: A. (A) 09 SHANGHAI 492
B. (B) 09 SHANGHAI 190

(U) Sensitive but unclassified. Not for dissemination outside
USG channels; not for Internet distribution.

Summary

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1. (SBU) Participants in a conference organized by the Communist
Party's Organization Department and the National Development and
Reform Commission on economic and social development in the
Yangtze River Delta (YRD) region observed that the
administrative division of the region among Shanghai and its
adjoining provinces, combined with the political imperative for
officials to show ever increasing levels of economic output and
fiscal revenue, undermines efforts toward market-based regional
integration. They also highlighted the importance of attracting
new "talent" to the region through improvements in the YRD's
economic and social infrastructure. Several conference
participants said they hope the Shanghai 2010 World Expo will
help advance YRD integration. Although the candor in pointing
out the political obstacles to greater economic integration in
the YRD impressed us, the conference's clear focus on raising
the region's international competitiveness signaled ongoing
adherence to an export-oriented economic strategy among the
conference participants despite Central and local government
pronouncements about economic transformation to reorient the
Chinese economy toward domestic demand. End Summary.

The YRD's "Vital Role" in China's Transformation

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2. (SBU) The National Development and Reform Commission (NDRC)
and the China Executive Leadership Academy Pudong (CELAP) -- the
Shanghai-based training institute under the Communist Party's
Central Organization Department -- co-hosted a January 16
conference on "The Future of the YRD Region: Opportunities and
Challenges" at CELAP's new branch campus in city of Kunshan,
located in Jiangsu Province just outside Shanghai. In addition
to government and Party officials from around the region,
members of Shanghai's consular foreign business community were
invited to attend the conference.

3. (SBU) In her keynote remarks, Shanghai Communist Party
Municipal Committee Vice Secretary Yin Yicui characterized the
YRD as China's "economic engine," adding that YRD integration is
an "important priority for the Central Government." Improving
the region's international competitiveness in order to
contribute to China overcoming the global financial crisis and
simultaneously transforming the country's economic growth model
is a "daunting task," Yin said. (Note: Yin ranks third in
Shanghai's political hierarchy after Party Secretary Yu
Zhengsheng and Mayor Han Zheng. She is the only woman among the
municipality's top leaders and oversees propaganda and united
front work. End note.) NDRC Economy Department Director
General Fan Hengshan said in his remarks that from the Central
Government's perspective, the YRD plays a "vital role" in
China's economic growth and transforming the "growth model" is a
"historic mission" (Ref A). Fan said the YRD contributed to 23
percent of China's GDP and 36.7 percent of total trade volume in
2009. He rehashed the laundry list of 11th Five Year Plan
(2006-2010) goals on narrowing the rural-urban gap, achieving
regional balances, protecting the environment, and supporting
innovation, stating that the YRD's growth contributes to each of

SHANGHAI 00000019 002 OF 004

these objectives.

"Talent" Wanted (Foreigners [Basically] Welcome)

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

4. (SBU) Shanghai needs to develop an economic and social
environment more attractive to "talent" (rencai) -- in effect,
individuals with professional or technical credentials -- in
order to maintain its competitive edge, stated Shanghai CPC
Municipal Propaganda Department Deputy Director General Zong
Ming. Elaborating on this theme, Shanghai Academy of Social
Sciences Human Resource Research Center Director Wang Zhen
described Pudong's efforts to become a "special zone" for the
attraction of foreign talent and stressed the ongoing lack of
adequate incentives and "national treatment" for expatriates,
such as a permanent residency system like the U.S. "green card";
guarantees of fair tax treatment, foreign currency conversion,
and health insurance coverage; world-class academic and research
"platforms"; and suitable social infrastructure (schools,
hospitals, housing, cultural facilities and events, and natural
environment). Nicholas Morris of Australian firm IPA Economics
reviewed Dubai's experience in attracting foreign talent --
notably the absence of income tax and the development of
expatriate-friendly infrastructure -- had contributed to the
principality's growth and stressed the risks of basing an
economic strategy almost totally on external demand.
Discussants highlighted the importance of having a strategic
approach to human resource attraction and development and of
creating a suitable environment, including "appropriate"
mobility for professionals.

5. (SBU) Zhejiang Provincial Organization Department Deputy
Director Yao Zhiwen acknowledged Zhejiang lags Shanghai and
Jiangsu in efforts to attract professional and skilled workers
and indicated Zhejiang is looking to propose a cooperative
agreement with its neighbors on human resource development.
Zhejiang Provincial Communist Party Secretary Zhao Hongzhu has
made developing human resources a priority, Yao noted. In
particular, Zhejiang has stressed improving talent employed by
private enterprises.

6. (SBU) Observers also commented on the contributions of
rural-to-urban migrants in the YRD. East China Normal
University Professor Gao Xiangdong presented data that showed
migrants in the Yangtze River Delta are clustered in a Z-shaped
area bounded by the major municipalities of Nanjing, Shanghai,
Hangzhou, and Ningbo, with most living in the suburban areas of
these metropolises. He believed the migrant population would
likely increase significantly in the next 5-10 years. Professor
Yin Qinjian of Shanghai University of Finance and Economics
analyzed the age structure of inhabitants in the Yangtze River
Delta and noted the much higher social security burden on
Shanghai than on the other jurisdictions in the region. East
China Normal University's Zhang added, however, despite
Shanghai's rapidly aging population, the real social security
problem was in the rural areas where no institutions exist to
care for the elderly. Discussants agreed migration to the
region has benefitted the local economy but debated the extent
to which administrative controls over migration needed to be
maintained in order to avoid excessive strain on public
resources and services.

Political System Stymies Regional Cooperation

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

SHANGHAI 00000019 003 OF 004

7. (SBU) However, several commentators pointed out that
institutional deficiencies in the Communist Party's cadre
evaluation system and competition among localities hampers the
YRD's growth. Jiangsu Academy of Social Sciences Vice President
Zhang Haohan pointedly argued the current administrative
division of the region among Shanghai, Zhejiang, and Jiangsu
combined with the present benchmarks by which leading officials
are evaluated -- notably GDP and fiscal revenue growth within
their own jurisdictions -- discourages cooperation among the
different jurisdictions that make up the YRD. The most
significant challenge, Zhang said, is to synthesize the various
local political objectives into a market-based regional economic
strategy. The cadre performance evaluation system should be
adjusted to encourage cooperation rather than competition and a
mechanism should be implemented so that YRD localities could
share the benefits of regional development, he recommended.
Shanghai Academy of Social Sciences Urbanization Development
Center Director Yu Hongsheng concurred with Zhang, stating that
the 16 cities of the YRD need to improve their institutional
cooperation. Yu cited environmental protection as a policy area
that demands region-wide efforts.

8. (SBU) Agreeing with the observations by Zhang and Yu, East
China Normal University professor Shen Yufang advocated regional
planning to complement existing municipal development plans.
The lack of coordination is particularly acute with regard to
transportation networks and land use planning. CELAP Foreign
Affairs Director Jiang Haishan wryly noted in one session that
"Every city in the YRD is building big ring roads, but they are
never connected." Fudan University Yangtze River Delta Research
Institute Vice Director Zhang Huiming pointed out that the
desire on the part of the authorities in Shanghai's Pudong New
District to continue to expand industrial capacity, even as
Shanghai moves further toward becoming a service-based economy,
led to the recent municipal government decision to merge
adjoining Nanhui District with Pudong.

Shanghai World Expo a Mechanism for YRD Cooperation

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9. (SBU) Several conference participants said they hope the
Shanghai 2010 World Expo will help advance YRD integration.
Shanghai Communist Party Vice Secretary Yin Yicui expressed the
hope the Shanghai 2010 World Expo will be a positive example of
closer cooperation within the region (Ref B). Xinhua News
Agency's Jiangsu Branch Head Tian Shubin called 2010 the "Year
of YRD Integration" because of the Expo. Shanghai University of
Finance and Economics professor Zhang Xueliang said the 2010
World Expo will play an important role improving services and
infrastructure in the YRD. Shanghai also needs support from
other YRD cities, Zhang noted, later adding to PolOff that
"Shanghai can't pull off the Expo on its own -- it needs help
from the region." The World Expo hopefully will help local
governments overcome their inward focus, Zhang stated.

Comment

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10. (SBU) We heard good news and bad news at the Kunshan
conference. First, the candid acknowledgement by several
conference participants from government and Communist Party

SHANGHAI 00000019 004 OF 004

institutions -- with a substantial number of foreign observers
in the room -- that elements of China's political system are
inhibiting regional economic growth was a refreshing bit of
openness about a sensitive issue. The bad news, however, was
that discussion of optimal economic strategy for the YRD
centered on making the region more internationally competitive
with little attention to ways in which local firms could better
tap China's domestic market and rely less on external demand.
Despite all the calls from central and local leaders for
economic transformation aimed at tapping domestic demand, the
officials and scholars we encountered seemed uninterested in how
to serve better Chinese consumers and very interested in making
new inroads into markets abroad.
CAMP

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