CENTRAL CHINA'S JIANGXI PROVINCE SEEKING TO REPLICATE

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