CENTRAL CHINA RISING: HENAN PLEASED WITH PROGRESS

UNCLAS SECTION 01 OF 02 BEIJING 005801

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR PGOV SOCI KPAO KIIP CH
SUBJECT: CENTRAL CHINA RISING: HENAN PLEASED WITH PROGRESS

REF: (A) BEIJING 3578

(B) BEIJING 3085
(C) BEIJING 4808
(D) BEIJING 5578
(E) BEIJING 5797

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


1. (SBU) In a series of meetings with EconMinCouns, Henan Provincial
Government officials painted a picture of a province whose strategy
of economic opening has resulted in three years of GDP growth above
14 percent as well as growing participation of foreign companies in
local industry. The Central Government's Central China Rising
strategy is paying off for Henan and helping the province transition
from a state-directed to market economy. A large agricultural
province, Henan has been affected by national food safety and food
price concerns, but local officials believe those problems are now
under ontrol. END SUMMARY.

TRAVEL TO HENAN
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. (SBU) EconMinCouns, Econoff an Econ Assistant Conoff traveled to
Zhengzhou, Henan Province August 26-28. Econ Min Couns met with
Henan's Vice Governor and delivered a speech on bilateral economic
relations to more than 200 students at Zhengzhou University.
Econoffs also met with the Provincial Development and Reform
Commission and Provincial Foreign Affairs Office as well as visited
the Zhengzhou Commodities Exchange. Zhengzhou is the site of the
Embassy's first Virtual Presence Post (VPP) in China, and pictures
from the visit can be found at http://zhengzhou.usvpp.gov (see also
Ref A).

VICE GOVERNOR: HENAN OPEN FOR BUSINESS
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3. (SBU) Vice Governor Li Ke said on August 27 that Henan's rapid
economic growth provides many opportunities for foreign investment.
Li reiterated that Henan is China's most populous province with 98
million people, has the fifth largest GDP, and produces more than
one quarter of the country's wheat output. GDP increased by 14.1
percent in 2006, exceeding 14 percent for the third year in a row.
The province also serves as a transportation hub for rail and air
links, Li said, and Henan now has more than 4,000 km of highways.


4. (SBU) The province's opening (kai fang) strategy already has
borne fruit, according to Li, with many prominent foreign companies
investing in Henan's state-owned enterprises (SOEs). Li pointed out
that American companies, including Goldman Sachs and Budweiser,
recently have sought out opportunities in the Province. A Goldman
Sachs subsidiary purchased a share of Henan's Shuanghui Investment
and Development Company in January 2007, and Budweiser recently
purchased a share of Jinxing Beer. (Note: Another American
company, Amsted Rail, will hold the opening ceremony for its joint
venture cast steel wheel manufacturing plant, the Xinyang Amsted
Tonghe Wheel Company, in Henan in September. End Note.)

HENAN'S PDRC ON THE PROVINCE'S TRANSITION
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5. (SBU) Wei Zhiyong, Head of the Foreign Economy Department at the
Provincial Development and Reform Commission, said the Central
Government's Central China Rising strategy (Ref B and previous) has
helped the province attract more foreign investment, albeit it at a
lower level than the coast. Wei said the province matched its total
FDI volume for 2006 in the first eight months of 2007, most of it
(60 percent) in the manufacturing sector. Henan's location in the
central part of the country and an economic structure skewed towards
the agricultural sector remain the two largest obstacles to
attracting investment, Wei said.


6. (SBU) Despite Henan's rapid economic growth, Wei said Central
Government macroeconomic cooling measures do not need to be applied
in Henan. Central China needs rapid growth to close the gap with
more developed coastal China, he said, and Henan will need to take
additional steps to transition from a largely state-owned to market
economy. Overall, however, the province's existing infrastructure
and transportation network, as well as additional support from the
Central Government, give Henan a good foundation for future
development, he said.

FOOD INDUSTRY WEATHERING RECENT STORMS
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7. (SBU) As a large agricultural province, Henan recently has faced
challenges on food safety (Ref C) and price increases (Ref D),but
local officials believe the situation is improving. On food safety,
an official at the Foreign Affairs Office said the provincial

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government is taking the problem very seriously and has taken steps
to improve food quality, including establishing an interdepartmental
working group. According to these officials, the problem appears
manageable (see Ref E for more on the food safety discussion). With
regard to food prices, Wei Zhiyong stated that prices are declining
again after the provincial government took steps to increase the
pork supply.

PICCUTA