Guangdong Province Q3 Economic Report

UNCLAS SECTION 01 OF 03 GUANGZHOU 032394

SIPDIS

SIPDIS

STATE FOR EAP/CM
USDOC FOR 4420/ITA/MAC/MCQUEEN
STATE PASS USTR
USPACOM FOR FPA
TREASURY FOR OASIA/INA-CRANE
USDA FOR FAS/ITP AND FAS/FAA

E.O. 12958: N/A
TAGS: ECON ETRD EINV EAGR ELAB CH
SUBJECT: Guangdong Province Q3 Economic Report

REF: A) Guangzhou 18102

B) Guangzhou 26903
C) Guangzhou 29114


1. (U) SUMMARY: Guangdong Province registered double-digit
gross domestic product (GDP) growth in the third quarter
(Q3) of 2006 despite government control measures and an
emphasis on increasing domestic consumption. Fixed asset
investment did not grow as rapidly compared to the same
period in 2005, and investment in certain industries
(cement and metallurgy) and new construction projects
declined. Real estate prices and sales volume rose
significantly. Exports of mechanical, electrical, and
high-tech products were particularly strong. The gap
between urban and rural incomes widened. Guangdong's
energy consumption remained high, but there was a greater
emphasis on energy efficiency; energy consumption per unit
of GDP decreased slightly. Guangdong's GDP and other key
economic indicators will continue to rise in the fourth
quarter. END SUMMARY.

(U) GUANGDONG FAST FACTS
--------------

GDP, billion USD 226.7 (up 14.1%)
GDP, percentage of national GDP 12.83%
FDI, actual use, billion USD 108.1 (up 16.7%)
Imports, billion USD 162.6 (up 20.2%)
Exports, billion USD 213.3 (up 28.8%)
Fixed-asset investment, billion USD 64.4 (up 15.6%)
Retail sales, billion USD 836.3 (up 15.8%)
Consumer Price Index 101.8 (up 1.8%)
Disposable income per capita (urban),USD 1,525.8 (up 8.4%)
Disposable income per capita (rural),USD 538 (up 7.7%)


2. (U) All currency conversions in this report are made at
the average exchange rate of USD 1 = RMB 8.0071.
Percentages in parentheses represent growth compared to the
same period in 2005 (according to the Guangdong Statistics
Bureau).


3. (U) Led by a strong industrial production and export
sector, Guangdong maintained a "steady economic
development," according to the Guangdong Statistics Bureau.
The Province's GDP reached RMB 1,815.36 billion (USD 226.7
billion),an increase of 14.1%. The value-added of the
following sectors in the third quarter was:

Primary sector RMB 90.57 billion (USD 11.3 billion)
Secondary sector RMB 962.53 billion (USD 120.2 billion)
Tertiary sector RMB 762.26 billion (USD 95.2 billion)

This represents an increase of 3.2%, 16.9% and 12.1%,
respectively.

NINE MAJOR INDUSTRIES CONTINUE TO PLAY LEADING ROLE
-------------- --------------


4. (U) Growth in industrial production accelerated. In the
first three quarters, the value-added of industrial
enterprises with annual sales revenue of RMB 5 million (USD
624,000) or more (enterprises "above designated size,"
according to the Statistics Bureau) was RMB 772.34 billion
(USD 96.5 billion),up 18.3%. Guangdong's nine major
industries (electronics and IT, machinery and home
appliances, petrochemical, textile and apparel, food
processing, building materials, wood products and paper,
pharmaceuticals, and automobile manufacturing) continued to
play a leading role in this growth, with an income of RMB
557.01 billion (USD 68.8 billion),up 22.1%. Hi-tech
manufacturers recorded particularly robust growth of 30.1%.

FIXED ASSET INVESTMENT
--------------


5. (U) According to the Guangdong Statistics Bureau, the
volume of fixed-asset investment is under control, and the
investment structure is "optimized." Fixed-asset
investment rose by 15.6% to RMB 515.29 billion (USD 64.4

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billion).

-- Investments in agriculture reached RMB 100.78 billion
(USD 12.6 billion),up 40.7%.
-- Industrial investments reached RMB 206.07 billion (USD
25.7 billion),up 21.5%.
-- Investments in real estate reached RMB 117.53 billion
(USD 14.7 billion),up 19.6%.

The government sought to limit investments in energy-
intense and highly-polluting industries, such as cement,
steel, aluminum, and copper.

-- Investment in the cement industry was RMB 3.04 billion
(USD 0.4 billion),down 21.9%.
-- Investment in metallurgical industries was RMB 5.35
billion (USD 0.7 billion),down 9.1%.
-- Investment in new construction projects totaled RMB
340.6 billion (USD 42.5 billion),down 25.2%.

REAL ESTATE
--------------


6. (U) The weighted average price for commercial housing
for the first three quarters of 2006 in Guangdong was RMB
5,325 (USD 665) per square meter, up 12% year-on-year.
Sales of commercial building space were also brisk. While
the total floor space sold only increased 7.3% to 31.9
million square meters, the sales value increased 20.1% to
RMB 160.42 billion (USD 20 billion). The Central and
Provincial Governments have taken steps to cool down the
property market, yet these efforts have had little effect.
Housing prices in Shenzhen and Guangzhou soared to RMB
9,691 (USD 1,210) and RMB 6,388 (USD 798) per square meter,
up 31.9% and 19.7% respectively year-on-year.

FOREIGN TRADE
--------------


7. (U) The volume of foreign trade grew 25% to USD 375.9
billion. Of that total, exports accounted for USD 213.3
billion, up 28.8%. Imports stood at USD 162.6 billion, up
20%. The trade surplus reached USD 50.7 billion, up 67.2%.
Mechanical and electrical product exports reached USD 143.5
billion, up 27.9%; imports of these products reached USD
100.5 billion, up 26.3%. Hi-tech product exports reached
USD 71.4 billion, up 27.8%; imports of these products
reached USD 63.6 billion, up 30.5%. Rising commodity
prices slowed the rate of import growth of crude oil, fuel,
steel, and copper.

FOREIGN DIRECT INVESTMENT
--------------


8. (U) The contracted value of Guangdong's foreign direct
investment (FDI) totaled USD 17.5 billion, representing
growth of 6.7%. The actual use of FDI reached USD 10.8
billion, up 16.7%.

INCOME
--------------


9. (U) Urban and rural incomes both rose in Guangdong, but
the gap between them widened. The average per capita
income in urban areas reached RMB 12,217 (USD 1,525.8),up
8.4%. However, rural residents saw their average income
rise to RMB 4,308 (USD 538),up only 7.7%.

RETAIL SALES, CPI, SAVINGS, AND EMPLOYMENT
--------------


10. (U) Retail sales of consumer goods reached RMB 669.66
billion (USD 83.6 billion),up 15.8%. The consumer price
index (CPI) rose by 1.8%. The food price index rose 1.9%,
the transportation and communication index rose 0.5%,
clothing index rose 1.3%, and the real estate index rose by
5.1%.


11. (U) Savings deposits by residents grew steadily,

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topping RMB 2,224.17 (USD 277.8 billion),up 13.5%. By the
end of September, RMB and foreign currency deposits in all
financial institutions reached RMB 4,202.42 billion (USD
524.8 billion),up 14.6%. Loans reached RMB 2,507.95
billion (USD 313.2 billion),up 13.5%.


12. (U) The Statistics Bureau credited a decline in
unemployment to the peak industrial production season and
the "One Package Employment Policy" (a combination of job
creation incentives, loans to small businesses, and skills
training programs). The unemployment rate for registered
residents decreased from 2.72% in the second quarter to
2.67% in the third quarter. The unemployment statistics do
not take into consideration migrant workers. In the city
of Guangzhou alone, the Municipal Labor Department
estimates that there are approximately 1.5 million migrant
workers. Government and Chinese press estimates of the
number of migrant workers in Guangdong Province vary from
19-22 million (Guangdong Province Vice Governor Lei told
HHS Secretary Leavitt on December 12 that the figure was 21
million migrant workers); but international media estimate
the figure at closer to 30 million.

ENERGY SAVINGS
--------------


13. (U) Guangdong's energy consumption remained high, but
there was a greater emphasis on energy efficiency; energy
consumption per unit of GDP decreased slightly. In the
first half of 2006:

-- Energy consumption per unit of GDP decreased 2.7%.
-- Electricity consumption per unit of GDP dropped 2.2%.
-- Energy consumption per unit of industrial value-added
declined 2.7%.

PROBLEM AREAS
--------------


14. (U) The Statistics Bureau identified five main problems
affecting the Province's economic performance:

-- rising real estate prices despite the government's
control measures;
-- a slow increase in farmers' income due to natural
disasters and high production costs;
-- a net accounts receivable surge in industrial
enterprises;
-- pressure on foreign trade due to "increasing trade
friction" (i.e. trade disputes and litigation); and
-- rising prices of raw materials, and pressure to revalue
the RMB.

PREDICTIONS FOR YEAR END 2006
--------------


15. (U) The Guangdong Statistics Bureau also provided
predictions for several year end figures:

GDP growth 14%
Export growth 25%
Fixed-asset investment growth 15%
Retail sales growth 15.6%
Consumer Price Index 2%
Growth in disposable income per capita (urban) 9%
Growth in disposable income per capita (rural) 6.8%


16. (U) The Province will continue to face challenges in
balancing the need for economic development and protecting
arable land. With China's National Day holiday and Mid-
Autumn Festival, the fourth quarter is traditionally the
peak season for consumption, and growth will continue to be
robust. More emphasis will be placed on developing the
recycling industry. The provincial government will also
follow a number of national economic reform strategies,
including calls to eliminate excess capacity in energy-
intensive and highly-polluting industries.

GOLDBERG