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Cablegate: Shanghai Focuses On Expo After Year of "Unprecedented"

VZCZCXRO9125
RR RUEHCN RUEHGH
DE RUEHGH #0028/01 0271027
ZNR UUUUU ZZH
R 271027Z JAN 10
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8510
INFO RUEHBJ/AMEMBASSY BEIJING 3274
RUEHCN/AMCONSUL CHENGDU 2366
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0823
RUEHHK/AMCONSUL HONG KONG 2538
RUEHML/AMEMBASSY MANILA 0161
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHUL/AMEMBASSY SEOUL 0663
RUEHSH/AMCONSUL SHENYANG 2357
RUEHGP/AMEMBASSY SINGAPORE 0322
RUEHIN/AIT TAIPEI 2158
RUEHKO/AMEMBASSY TOKYO 0874
RUEHBS/USEU BRUSSELS 0039
RUEHPS/USMISSION OEDC PARIS FR
RUEHGH/AMCONSUL SHANGHAI 9177

UNCLAS SECTION 01 OF 05 SHANGHAI 000028

SENSITIVE
SIPDIS

DEPT FOR EAP/CM
DEPT ALSO FOR EAP/PD -JGALT
NSC FOR MEDEIROS, LOI, SHRIER
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ/MAIN
USDOC FOR ITA DAS KASOFF, MELCHER, SZYMANSKI, MAC/OCEA
TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP
TREASURY FOR IMFP -- SOBEL/CUSHMAN
STATE PASS CEA FOR BLOCK
STATE PASS CFTC FOR OIA/GORLICK
MANILA FOR ADB USED

E.O. 12958: N/A
TAGS: PGOV ECON SOCI CH
SUBJECT: SHANGHAI FOCUSES ON EXPO AFTER YEAR OF "UNPRECEDENTED"
ECONOMIC CHALLENGES

REF: 09 SHANGHAI 25

1. (SBU) Summary: Managing the upcoming World Expo -- with
particular attention to security -- formed the centerpiece of
Shanghai Mayor Han Zheng's work report to the January 26 opening
of the annual session of the Municipal People's Congress. Han
did his best to stress Shanghai's 2009 achievements despite the
fact the municipality posted its lowest rate of economic growth
in nearly two decades. Somewhat surprisingly, both Han's speech
and the report delivered the previous day by the vice chairman
of Shanghai's People's Political Consultative Congress largely
avoided discussion of high housing and real estate prices, the
issue of main concern to Shanghai residents. Despite the
reiteration of support for various economic and administrative
reforms, Han's remarks, combined with the municipal leadership's
understandable preoccupation with the Expo, suggests Shanghai's
leaders will opt for caution with respect to any policy
initiatives, at least over the coming year. End summary.

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

Review of 2009: Accentuate the Positive (Forget About the
Negative...)

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

2. (SBU) In his work report to the January 26 opening of the
Municipal People's Congress, Mayor Han Zheng put a positive spin
on the achievements of 2009, a year in which the local economy
faced problems "unprecedented" over the past two decades.
According to Han, Shanghai posted a GDP growth rate of 8.2
percent in 2009 -- a figure below the municipality's nine
percent growth target and the lowest result since 1991.
Nevertheless, fiscal revenue increased 7.7 percent, exceeding
the target of six percent by nearly two percentage points
despite the slowdown in GDP growth. Fixed asset investment rose
9.2 percent, and retail sales increased 14 percent over the 2008
total. In contrast, the consumer price index for the year
declined 0.4 percent. Urban and rural income both grew about
eight percent, still quite positive but substantially slower
than the double digit increases realized in 2008.

3. (SBU) Although Han observed that exports and imports
passing through the Shanghai customs area continued to account
for about a quarter of China's total trade in 2009, he avoided
noting that the overall trade volume had fallen by 15 percent in
comparison to 2008. Utilized foreign investment in 2009 totaled
USD 10.54 billion, a relatively small increase of 4.5 percent of
the previous year. Han acknowledged Central Government approval
of the plan to build a Disney theme park in Shanghai among the
municipality's achievements in 2009.

4. (SBU) Surprisingly, Han made only brief reference to some
high-profile economic issues of the past year. The official
unemployment rate for 2009 was 4.3 percent -- below the targeted
ceiling of 4.5 percent -- although the contribution of non-state
firms to municipal GDP showed only a marginal increase, rising
from 46 percent in 2008 to 47 percent in 2009. Efforts to move

SHANGHAI 00000028 002 OF 005


Shanghai from an industrial to a service-based economy were more
successful as the proportion of services in municipal GDP
expanded to 59 percent from 53 percent a year earlier.
According to Han, employment of university graduates, a
prominent element in the 2009 work report, "was not lower than
in past years." Similarly, problems in housing, product safety,
religious, minority affairs, and foreign affairs work received
only cursory attention in the Mayor's work report.

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

Ensuring "Safe and Orderly" Expo Tops 2010 Goals

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

5. (SBU) As expected, the upcoming World Expo was the
centerpiece of the municipal government's work program for 2010,
with "safe and orderly" (anquan youxu) as the main adjectives.
(Discussion of the Expo and the various projects tied to it
accounted for about five pages of Han's 40-page report.) The
mayor outlined measures such as increased food and product
quality monitoring, strengthened traffic control, and periodic
safety inspections of areas frequented by large numbers of
visitors. He also announced the establishment of a "safety and
stability responsibility system" for Shanghai's residential
districts indicating lower level leaders will be held
accountable for problems in their jurisdictions that could
disrupt the smooth operation of the Expo.

6. (SBU) Apart from security, providing "service" to visitors
occupied most of Han's Expo discussion in the report.
Acknowledging the Expo as a chance to increase Shanghai's
international influence and attractiveness, Han promised
improved public transportation, signage, public hygiene, and
overall "urban management." (Comment: The end of the section
on the Expo in the Chinese text of Han's report finished with an
exclamation point, indicating it should be an applause line.
However, the mayor read the text with no additional emphasis,
and the assembled delegates were silent as he moved on to the
next section of his report. End comment.)

7. (SBU) The economic targets for 2010 announced by Mayor Han
remain largely consistent with those of 2009. Han announced GDP
and fiscal revenue growth targets of eight percent each. The
official ceiling for unemployment remains at 4.5 percent. Han
revealed no targets, however, for fixed asset investment or
retail sales. Urban and rural incomes are set simply to
"maintain steady growth."

8. (SBU) The other main economic tasks for 2010 as listed in
Han's report centered on:

-- Following up the State Council decision to promote Shanghai's
development as an international financial and transportation
center;

SHANGHAI 00000028 003 OF 005

-- Continuing to build the municipality's capacity for
"indigenous innovation";

-- Strengthening resource-use and environmental protection;

-- Further integrating Shanghai's urban and rural areas
particularly through the development of suburban "new towns";

-- Deepening economic reform, particularly through "experiments"
underway in the enlarged Pudong New District; and

-- Expanding Shanghai's openness to trade and investment both
from overseas and from within China.

(Comment: Han spent a surprising amount of time in the report
discussing efforts to improve rural welfare in Shanghai, an odd
emphasis as the municipality's agricultural population accounts
for less than 10 percent of total residents. End comment.)

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

Employment, Not Housing, Remains Social Development Priority

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

9. (SBU) Following the same ranking as in 2009, Shanghai's
social development priorities as outlined by Han put expanding
employment in the top position, followed by health and old age
insurance, and, finally, housing. Although Han acknowledged the
problems many Shanghai residents have in finding affordable
housing and promised to continue to expand the housing supply,
he made no comment on the large jump in real estate prices
during 2009.

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

Political Reform Section Mostly Covers Old Ground

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

10. (SBU) The work report's final section, which focused on
strengthening governance, called for simplification of the
administrative approval process, greater transparency in
regulation and decision-making, more effective provision of
government services, stricter adherence by officials to the law
in their work, and stronger measures against corruption,
including through greater public supervision. The only new
content in this section of Han's report centered on simplifying
the administrative approval process, which indicated additional
authority may be devolved from the municipal government to
Shanghai's district and county authorities. All the other items
largely mirrored the content of the 2009 work report.

SHANGHAI 00000028 004 OF 005

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

Consultative Conference Session Highlights Role in Maintaining
Stability

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

11. (SBU) The annual session of the Shanghai committee of the
Chinese People's Political Consultative Conference (CPPCC),
which opened January 25, foreshadowed many of the same themes
found in Mayor Han's work report to the Municipal People's
Congress the following day. With regard to the Shanghai Expo,
Shanghai CPPCC Vice Chairman Zhou Taitong specifically focused
in his report on security and "maintaining public order" during
the six-month-long event. He expressed concern about ensuring
safe shipment of goods, protecting VIP visitors, maintaining
orderly traffic flow, and ensuring food safety during the Expo.
Organizing an event that would reflect well on Shanghai and
promote economic development in the Yangtze River Delta region
was a secondary consideration in the report.

12. (SBU) Speaking on Shanghai's 2010 economic development
objectives, Zhou offered little specificity and focused
primarily on prospects for the 12th Five-Year Plan (2011-2015),
which will be crafted during 2010. He stressed many of the same
themes as the current 11th Five-Year Plan -- economic
rebalancing, resource demands, the rich-poor gap, economic
transformation, etc. -- as continuing to be important in the
near-term. (Comment: Like Han, Zhou avoided any discussion of
rising housing prices, which have attracted a great deal of
public attention in Shanghai in recent months. End comment.)
One CPPCC member who works for a multinational corporation told
PolOff that Zhou's report included "nothing new" on the economy.
He complained that the Shanghai CPPCC Committee leadership was
not "innovative enough" in its approach to economic reform in
2010. The businessman said he plans to raise the issue in the
CPPCC's small group meetings during the week.

13. (SBU) Recapping the events of 2009, Zhou stressed the
CPPCC's role in offering policy recommendations on both the
Shanghai Expo and economic development with the latter being
especially challenging in the midst of the global financial
crisis. He also highlighted the local CPPCC's efforts to engage
Shanghai's minority community following the July 5 ethnic unrest
in Urumqi, the capital of the Xinjiang Uighur Autonomous Region,
notably through an open letter from CPPCC members representing
minority and religious groups calling for public resistance to
efforts to "split the Motherland."

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

Some Things Better Left Unsaid

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

SHANGHAI 00000028 005 OF 005

14. (SBU) Comment: Mayor Han's work report confirmed that
Shanghai turned in a respectable but historically subpar
economic performance in 2009. Although Shanghai's ambitions to
become a major international city are strong, they have been
expressed to date largely in concrete and steel. Measures
called for in the work report for a more efficient, transparent,
service-oriented, law-abiding, and honest administration are
fundamentally needed to establish Shanghai as one of the world's
leading financial and commercial centers. As Shanghai steps
into the spotlight with the biggest world's fair in history,
however, Han's primary declared mission of delivering a "safe
and orderly" Expo suggests such reforms are likely to take a
backseat to maintaining the current level of control over the
municipality's society and economy. End comment.
CAMP

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