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07BEIJING1210 2007-02-23 08:44:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Beijing
Cable title:  

CENTRAL CHINA'S JIANGXI PROVINCE SEEKING TO REPLICATE

Tags:   ECON EINV ELAB ETRD PGOV SOCI CH 
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VZCZCXRO5680
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1210/01 0540844
ZNR UUUUU ZZH
P 230844Z FEB 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 4973
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RHEHNSC/NSC WASHDC
					  UNCLAS SECTION 01 OF 02 BEIJING 001210 

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR OASIA/ISA CUSHMAN
USDOL FOR ILAB

E.O. 12958: N/A
TAGS: ECON EINV ELAB ETRD PGOV SOCI CH
SUBJECT: CENTRAL CHINA'S JIANGXI PROVINCE SEEKING TO REPLICATE
COAST'S DEVELOPMENT MODEL

REF: (A) 06 BEIJING 23787
(B) 06 BEIJING 22299
(C) 06 BEIJING 10969

SUMMARY
-------



1. (SBU) Jiangxi Province aims to replicate Coastal China's model of
attracting investment in export-oriented manufacturing and
processing industries as the basis for rapid economic development.
Receiving renewed attention from the Central Government under the
Central China Rising strategy, Jiangxi is looking to investors from
Hong Kong, Macao, Taiwan, and Coastal China to fuel sustained
double-digit GDP growth. Provincial- and Municipal-level officials
believe that excessive dependence on State-owned enterprises to
generate economic activity will in the longer run limit Jiangxi's
growth potential. They insist that Beijing's concerns about
macroeconomic overheating do not apply to Jiangxi because its
economic structure is different from that of other provinces that
have been the source of concerns about excessive property investment
and sector-based overcapacity. END SUMMARY.

TRAVEL TO JIANGXI


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





2. (SBU) Econoff and Econ Assistant traveled to Nanchang and
Jiujiang in Jiangxi Province February 5-7. Emboffs met with
Provincial Government officials at Jiangxi's Development and Reform
Commission, Agriculture Bureau, Foreign Affairs Office, Statistics
Bureau, Rural Credit Cooperative, Poverty Alleviation Bureau, and
Academy of Social Sciences on February 5-6. In Jiujiang on February
6-7, they met with Municipal officials from the Development and
Reform Commission, Agriculture Bureau, Economic and Trade Committee,
and Statistics Bureau.

CENTRAL CHINA RISING: JIANGXI'S RAPID GROWTH


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





3. (U) Jiangxi Province's GDP growth exceeded 12 percent for the
fourth consecutive year in 2006, boosting per capita GDP to more
than RMB 10,000 (USD 1,250). Officials in Jiangxi, one of Central
China's six provinces, credit the Central Government's Central China
Rising policy for helping the province to attract investment (see
reftels). Like Coastal China 20 years before, Jiangxi Province in
2007 depends on incoming investment in export-oriented manufacturing
and processing industries to fuel its economy. Jiangxi's Provincial
Government refers to its development strategy as "Three Bases and
One Garden," as the province serves as a base for agricultural
production, industrial product transit, and labor for Coastal China,
while also attracting coastal residents to Jiangxi's tourist
destinations.

HONG KONG, TAIWAN, COAST ALL FUELING BOOM


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





4. (SBU) Like other provinces in Central China, Jiangxi relies
heavily on investment from Hong Kong, Macao, Taiwan and coastal
provinces (see reftels). According to an official at the Jiangxi
Provincial Development Reform Commission (JDRC), Jiangsu Province,
Shanghai, and Fujian Province account for 60 percent of domestic
investment in Jiangxi, and Hong Kong, Macao, and Taiwan are the
primary sources of Foreign Direct Investment (FDI). To date,
Jiangxi's imports and exports have remained relatively low, the
official said, but Jiangxi's Provincial Government is encouraging
Fixed Asset Investment (FAI) in manufacturing and processing
industries to promote exports to other provinces and overseas
markets.



5. (SBU) Xiao Bing, Deputy Director of the Jiujiang Municipal
Foreign Trade and Economic Committee, said that in Jiujiang, a city
of 4.6 million in northern Jiangxi on the banks of the Yangtze
River, the dependence on investors from Hong Kong, Macao, Taiwan,
and coastal provinces is readily apparent. Of Jiujiang's 1,100
foreign invested companies, Xiao said most are from Hong Kong,
Macao, and Taiwan, with FDI in the city focusing primarily on
textiles, processing, pharmaceuticals, food products, and real
estate. Investment from coastal provinces, Zhejiang and Guangdong
in particular, actually has a greater dollar-value contribution than
FDI, he said. Hong Kong Chief Executive Donald Tsang's visit with
100 Hong Kong entrepreneurs to Nanchang and Jiujiang in January
focused on investing in export-oriented manufacturing industries,
Xiao said. (Note: Donald Tsang also participated in the first

BEIJING 00001210 002 OF 002


Central China Expo in Changsha in September 2006. See Ref B. End
Note.)

STATE-OWNED ENTERPRISES A DRAG ON THE ECONOMY


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





6. (SBU) Jiangxi officials, although increasingly optimistic about
the economy, commented that State-owned Enterprises (SOEs) make up
for an excessively high proportion of economic activity in the
province, which potentially could inhibit economic development in
the long-run (see also Ref B). An official at the JDRC pointed out
that private enterprises now account for more than 50 percent of
companies in the province for the first time. A researcher at the
Jiangxi Academy of Social Sciences told Econoff he is concerned that
with a continuing overdependence on SOEs, and with shrinking energy
resources, Jiangxi may have a small window of opportunity for
growth.

MACROECONOMIC CONTROL MEASURES: IS JIANGXI EXEMPT?


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



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





7. (SBU) Provincial- and Municipal-level officials insisted that
Jiangxi's sustained double-digit GDP growth should not concern
Beijing when it comes to macroeconomic overheating. The JDRC
official said that even though FAI has increased by 20 percent or
more every year since 2001, with highs of 40 percent in 2002 and
2003, the province's FAI base is low, and per capita FAI remains 20
percent below the national average. He said that FAI in Jiangxi
amounts to only a fraction of FAI in coastal provinces: with
one-third of Guangdong's annual volume of FAI, one-fourth of
Jiangsu's, and one-fifth of Shandong's. Even in Central China,
Jiangxi ranks fifth of the six provinces in FAI with only half as
much as Henan Province. Jiangxi's overall investment increase of
approximately 25 percent per year ranks only 14th in China among
provinces and municipalities, the JDRC official added.



8. (SBU) Officials in Jiujiang Municipality agreed that investment
figures placed in the context of a low base, rather than GDP growth,
should be the focus of anyone concerned about macroeconomic
overheating in the province. Reiterating a position that is often
stated in Central and Western China, the Deputy Director of the
Jiujiang Municipal Development and Reform Commission said that since
Jiangxi is relatively poor, it can continue to develop at a faster
rate than the national average. National overheating concerns are
limited to the real estate sector and specific industrial sectors,
neither of which are concerns for Jiangxi Province, according to
Xiao Bing at the Municipal Foreign Trae and Economic Committee.

SEDNEY