WUHAN RIPE FOR GROWTH, SAY U.S. BUSINESS

UNCLAS SECTION 01 OF 02 BEIJING 023797

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 4420
STATE PASS USTR FOR STRATFORD, WINTER, ALTBACH
STATE PASS CEA FOR BLOCK
TREASURY FOR OASIA/CUSHMAN
USDA/ERS FOR LOHMAR, TUAN, SYLVANA LI
USDOL FOR ILAB

E.O. 12958: N/A
TAGS: ECON EINV ETRD ELAB PGOV SOCI CH
SUBJECT: WUHAN RIPE FOR GROWTH, SAY U.S. BUSINESS
REPRESENTATIVES IN CENTRAL CHINA

SUMMARY
--------------


1. (SBU) Wuhan's economy continues to grow rapidly,
and the city's investment climate is increasingly
attractive to foreign enterprises, according to Wuhan-
based U.S. business representatives. Extensive
infrastructure, a strong industrial base, low labor
costs, and a helpful local government spur Wuhan's
macroeconomic growth, they said. U.S. businesses
currently face little competition in the sectors where
they compete. They added that establishing a
permanent USG presence in the city would help expand
economic influence in Central China. END SUMMARY.

TRAVEL TO HUBEI
--------------


2. (SBU) Econ Macroeconomic Unit Chief, Econoff, Econ
Assistant, and Conoff traveled to Wuhan, Hubei
Province, from October 31 to November 2. FCS
Commercial Assistant arranged a briefing with American
businessmen and site visits to Budweiser's China
headquarters and the Cummins East Asia Research and
Development Center for Emboffs on November 2.

WUHAN'S MACROECONOMIC ADVANTAGES
--------------


3. (SBU) American business representatives said that
Wuhan, located in Central China's Hubei Province on
the banks of the Yangtze River, has experienced rapid
economic change in the past three to four years. They
cited Wuhan's extensive transportation infrastructure
(which includes barge, rail, and road netowkrs),
strong industrial base, rich human capital resources
drawn from high-quality universities, low labor costs
relative to Eastern China, and available land as
inherent advantages driving Wuhan's growth. Katherine
Bo, Deputy General Manager of Budweiser Wuhan
International Brewing Company, stated that Wuhan's
transportation network is an important asset for
distributing consumer products, allowing Budweiser to
have full national distribution from just one brewery.
Thomas Conlon, CEO of Ironman Windmills, echoed
others' sentiments, saying that Wuhan's relative low
labor costs encouraged him to establish Wuhan as his
company's headquarters in 2001.


4. (SBU) Brian Xiaobo Sun, General Manager of the
Cummins East Asia Research and Development Center,
added, however that while labor costs generally are 20
to 30 percent lower in Wuhan than in Shanghai,
companies must revise their salary scales upwards if
they want to hire and retain talented people. Sun
pays Shanghai-equivalent salaries to many of his
engineers in order to encourage them to remain at
Cummins in Wuhan.

LOCAL GOVERNMENT SUPPORTIVE...MOST OF THE TIME
-------------- -


5. (SBU) The U.S. business representatives said that
an additional economic advantage in Wuhan is the local
government's supportive attitude towards investors.
Sun noted that Wuhan's business-oriented Communist
Party Secretary, Miao Wei, previously was the
President of Dongfeng Motor Company, while Luo
Qingquan, the Governor of Hubei Province, visited the
United States in September 2006 on a trade mission.
Budweiser's Bo stated that local government officials
act quickly and proactively whenever Budweiser raises
any concerns.


6. (SBU) Cedric Alexanian, Engineering Group Leader at
SMW Automotive, stated that the local government is
generally supportive, but for smaller foreign wholly-
owned enterprises without the benefit of a joint

BEIJING 00023797 002 OF 002


venture partner, the investment process is not always
a smooth one. According to Alexanian, the local
government continues to charge SMW a 26 percent import
duty for equipment that he and his company believe
should be tax-exempt.

AMERICAN ECONOMIC INFLUENCE IN WUHAN GROWING
--------------


7. (SBU) Representatives of large companies such as
Cummins noted the absence of strong competition from
either foreign or domestic firms in their sectors, and
said they believe they serve an important role in the
market and will grow rapidly as Wuhan grows. Other
less well-known companies such as Ironman Windmills
and SMW Automotive said they are pleased by the number
of U.S. companies in Wuhan, but they registered some
concerns about competition from French and German
companies in other parts of Central China (see septel
on French trade and investment in Wuhan).


8. (SBU) Company representatives noted the expanding
reach of U.S. businesses in Wuhan. According to
Alexanian, SMW Auto currently is representing Alcoa in
a potential deal to establish an aluminum foundry in
Wuhan that would target the Asian market. Sun stated
that Cummins soon will build a new fuel systems plant
in the Wuhan Economic and Technological Development
Zone. David Wu, who previously worked at IBM in New
York City for six years and serves currently as the
Assistant Mayor of Chi Bi City outside Wuhan, said
that Arlington, Virginia-based Friedman Billings
Ramsey (FBR) Investment Bank likely will open its
China headquarters in Wuhan in the next few months.

U.S. COMPANIES GRATEFUL FOR USG SUPPORT
--------------


9. (SBU) Wuhan-based representatives of U.S. companies
said they are grateful for Embassy support in recent
years, including expedited visas through the American
Chamber of Commerce program and the opening of the
Foreign Commercial Service's International Partner
Network in Wuhan. Sun also singled out the
possibility of the establishment of a permanent USG
presence in Wuhan as a positive development that would
help American companies, in partnership with the USG,
expand U.S. economic influence in Central China.

RANDT