HARD TIMES, HOT PROPERTY IN HUNAN

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 013476

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/23/2031
TAGS: PGOV ECON SOCI EAGR CH
SUBJECT: HARD TIMES, HOT PROPERTY IN HUNAN

REF: A. BEIJING 10890


B. BEIJING 10969

C. 05 BEIJING 17604

Classified By: Classified by Acting Political Internal Unit Chief Susan

A.
Thornton. Reasons 1.4 (b/d).

Summary
--------------


1. (C) During a June 9 visit to Changsha, the capital of
Hunan Province, poloff discussed development trends with a
broad range of local professionals (protect all),all of
whom agreed that Hunan's economy has grown rapidly over the
past 3-4 years. Investments from the major coastal cities
have led to rapid growth in Hunan real estate development.
Similar to the rest of China, local Communist Party members
are largely promoted based upon their ability to deliver
economic growth. There are concerns that rural education
policies promulgated in Beijing that eliminated school fees
through grade 9 have yet to reach Hunan's rural communities.
The children left behind due t the urban-rural migration
caused by China's apid growth are suffering the most. End
Summary.

Development in Middle China
--------------


2. (C) The emphasis of the government's push for rural
development relies primarily on infrastructure investment
and attracting outside investment, Hunan Ligong University
Professor Ou Yangpei said during a recent visit by Poloff
to the capital of Hunan Province in China's south-central
region. The development of roads, electric power and
communications in the rural countryside are crucial if the
government hopes to address the urban rural divide, Ou
said. The central government's new policy of developing
central China (reftel) has had some positive effect in this
area, he noted, mostly in the form of increased funding for
expressways and electrification projects. (Note: During
the March session of the NPC, Hunan delegates focused much
of their attention on attaining funds for rural road
infrastructure. Endnote.)


3. (C) In 2005, Hunan's economy grew one percentage point
faster than the national average, Ou said. Cities like
Changsha, Hunan's capital, have benefited greatly from the
spillover effects from the rapidly growing coastal cities.
The development of the real estate sector, in particular,
has boomed over the last three years, more than doubling.
The majority of investment in Changsha's real estate market
comes from Shenzhen and Shanghai, Changsha Yihai Ltd Vice
President Liu Hai said. Changsha Yihai Ltd is nearing
completion of a 75,000 square-meter mixed-use development
in the city center. All 220 apartments have been pre-sold.
Starting at $200,000, Liu acknowledged that many of the
apartments have been purchased by outside investors for
speculative purposes.

Economic Development Still The Road To Promotion
-------------- ---


4. (C) Local government officials continue to be promoted
based upon economic, rather than social metrics, private
lawyer and Communist Party member sitting on the Hunan
Discipline and Inspection Committee Jiang Hailiang said.
While local cadres often cite environmental protection as
being near the top of their official duties, it has yet to
translate into a meaningful criterion for career
advancement, Ou said. Boosting profit remissions from
state-owned enterprises to provincial and central
government coffers is another path to promotion for local
officials. Many SOEs invest profits in high-end apartments
and enterprise-owned vehicles in order reduce the amount of
revenue returned to the Government. Jiang admitted that
this "bordered on corruption," but insisted that it was not
technically illegal as long as the assets remained with the
SOE. Some local SOE directors will turn down promotions to
the Provincial or Central Government because they do not
want to leave their lucrative jobs, Jiang noted. Those
that eschew such schemes and remit most of their profits to
higher authorities are generally those most interested in
promotion, he added.

Hard Times in the Village
--------------


5. (C) Hunan is one of the largest contributors to coastal
China's growing pool of over 100 million migrant workers,
Professor Ou said. Many poorer villages in Hunan are
almost devoid of young adults. Young parents, in
particular, feel pressure to find work in the cities to

BEIJING 00013476 002 OF 002


support their children's education, Hunan Daily reporter
Chen Rong said. In spite of pro-rural development policies
like the New Socialist Countryside, which promised to
eliminate agricultural taxes and school fees for the first
nine years of education, many rural families still face
high tuition fees for their young children. Most rural
families are charged in excess of 800 RMB in tuition fees
for children in grades 6-8, which amounts to 40-50 percent
of many families' annual disposable income, Chen stated.
These fees continue to increase through high school to the
point that only farmers on the most productive land can
afford to pay the school fees beyond Grade 5. Many parents
are willing to do whatever it takes to provide their
children with an education and a chance to succeed in
modern China, Chen added, including finding work in urban
areas.

Migrant Labor Orphans
--------------


6. (C) Urban-rural migration induced by the economic
realities in the villages has created a whole generation of
urban-rural migration orphans. In some villages as many as
40 percent of the children do not have either parent living
with them, Chen Rong said. Most of them live with their
grandparents, many of whom are very old, which view their
main responsibility as providing food and shelter not love
and guidance, Chen asserted. She said that both of her
parents are junior high school teachers in rural Hunan and
they have noticed a major increase in the number of
children that have grown up without either parent. The
full force of the phenomenon is just now being felt, as
large numbers of these children get into their teenage
years. In both of her parents' classes these children now
make up over 30 percent of the student body, up from almost
none a few years back, Chen added. Many of these children
suffer psychological disorders ranging from depression,
feelings of abandonment and violent antisocial behavior,
Chen observed.

A Few Bright Spots
--------------


7. (C) Villages and townships near booming cities like
Changsha and along the border with Guangdong province have
flourished in the last few years, Chen said. Several
factors underlie their success, she noted. Viable township
enterprises that can provide supplemental income to local
farmers help induce productive young adults to stay,
creating "healthy" village economies, Chen added. Others
have relied on new development models borrowed from abroad
(Ref C),such as organic farming learned from Canadian and
American NGO's, Chen said. In another case, the village
built a small meat processing facility to process locally
raised ducks into small vacuum sealed snack packs of roast
duck, which is very popular in Guangdong Province, Chen
said.
RANDT