FIRST THE PRD, THEN THE YRD... NOW THE BOHAI RIM?

UNCLAS SECTION 01 OF 02 BEIJING 000614 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM, EB, AND INR TREASURY FOR OASIA/ISA CUSHMAN LABOR FOR ILAB USDOC FOR ITA/MAC/OCEA - MCQUEEN E.O. 12958: N/A TAGS: ECON ETRD EINV EFIN PGOV SOCI CH SUBJECT: FIRST THE PRD, THEN THE YRD... NOW THE BOHAI RIM? SUMMARY -------------- ¶1. (SBU) China's Central Government has backed the Bohai Rim Economic Circle (BREC) in Northern China as a key region for economic development in a manner often compared to the Pearl River Delta (PRD),emanating from Shenzhen-Guangzhou, and the Yangtze River Delta (YRD),anchored by Shanghai. The 11th Five-Year Plan focuses on the Beijing-Tianjin corridor as the center of the Bohai region, and State Council support has led some people to predict the Tianjin Binhai New Area will be China's next Pudong (location of Shanghai's dramatic new skyline). Despite the economic challenges facing Bohai, government officials and business representatives in Tianjin are increasingly optimistic that the port city is emerging as an engine for growth in the region. Bohai may not yet be a truly regional economy, however, as governments in Tianjin, Beijing, and Hebei Province struggle to coordinate their policies across different levels of income and diverse mixes of economic activities. End Summary. VISIT TO TIANJIN -------------- ¶2. (SBU) Econoffs visited Tianjin January 9-11 and met with officials at the Tianjin Development and Reform Commission, Tianjin Sub-Council of the China Council for the Promotion of International Trade, Binhai New Area Administration, and the Tianjin Economic-Technological Development Area. They also met with economists at Nankai University in Tianjin and the Chinese Academy of Sciences in Beijing as well as business representatives in both cities. BOHAI WANTS TO JOIN THE PRD AND YRD... -------------- ¶3. (SBU) The Bohai Rim Economic Circle (BREC),which encompasses Beijing, Tianjin, Hebei Province, and the Liaoning and Shandong Peninsulas in Northern China, remains a Central Government development priority under the 11th Five-Year Plan, as the region aims to become China's third major economic zone behind the Pearl River Delta (PRD) and Yangtze River Delta (YRD). The region's population of 215 million accounts for 20 percent of China's total, and the BREC's GDP and trade figures for 2005 amounted to 25 percent of the national total. The Bohai Rim's 3,600-mile coastline includes more than 60 ports, which account for 40 percent of China's total cargo business. The BREC's primary sectors are energy, chemicals, metallurgy, automobile manufacturing, textiles, and agricultural products, and trade and investment ties between the BREC and close neighbors Japan and South Korea are growing. ¶4. (SBU) Rapid development in the PRD around Shenzhen in the 1980s and Shanghai's boom in the YRD in the 1990s provide both a backdrop and an impetus for the BREC's drive to develop the economy in the Beijing-Tianjin corridor, but observers note that the BREC's development model does not enjoy the same advantages as the PRD and YRD. While the PRD and YRD emphasized labor-intensive, export-oriented production industries such as textiles and electronics, the BREC, apart from recent efforts to develop its high-tech and financial sectors, remains largely dependent on traditional heavy industries. Observers in Beijing and Tianjin agree that for many reasons, the BREC may be hard-pressed to duplicate the PRD's and YRD's successes. ...BUT OBVIOUS CHALLENGES LIE AHEAD -------------- ¶5. (SBU) Fan Jie, Director of the Center for Sustainable Development and Research at the Chinese Academy of Sciences (CAS),said that the BREC faces many challenges to becoming China's next major economic development bloc, including: --the lack of coordination between government entities spread across a large geographic area; --the slow pace of reforms and the reliance on state-owned enterprises (SOEs) in the heavy industrial sector; and --the dependence on Tianjin to serve the same leading role in the BREC as Shenzhen-Guangzhou did for the PRD in the 1980s and Shanghai did for the YRD in the 1990s. ¶6. (SBU) Dai Jinping, Director of the Institute of International Economics at Nankai University in Tianjin said that it is more difficult now for China to pick a new area like the BREC and spur BEIJING 00000614 002 OF 002 its development. China at the time of the Shenzhen-led PRD and Shanghai-led YRD booms was much less developed overall and economic reforms had not yet taken hold throughout the country. Therefore, it was relatively easy for these areas be made to stand out through preferential government policies. There was also a willing pool of investors from Hong Kong and Taiwan who were ready to spur the growth of these regions through investment in the processing (export assembly) trade. Dai predicted that the BREC, despite its importance in the 11th Five-Year Plan, will not benefit so dramatically from government backing or foreign direct investment because the conditions that boosted the PRD and YRD have to a great degree played out. She believes the BREC will ultimately receive little direct assistance from the Central Government, and any public or private sector support will focus primarily on Tianjin's Binhai New Area (TBNA). TIANJIN: PROGRESS IN PORT CITY GIVES HOPE TO LOCALS -------------- -------------- ¶7. (SBU) Officials at the Tianjin Development and Reform Commission (TDRC) said on January 10 that they are optimistic that the city and the region are on an upward swing. Hou Yimin, Director of the Environment and Regional Economic Development Bureau at TDRC, said that recent developments, including the decision by Airbus to build a final assembly line in Tianjin and the State Council's Document Number 20 promoting financial reforms in the TBNA, demonstrate that Tianjin is headed in the right direction (septels to follow). Hou added that Tianjin's port facilities are rapidly improving. ¶8. (SBU) Li Guangda, Chairman and Senior Economist of the Tianjin Sub-Council of the China Council for the Promotion of International Trade (CCPIT),added that improving transport links between Beijing and Tianjin, including high-speed train service, also will benefit the region. Several of our interlocutors in Tianjin pointed to the positive influence of Mayor Dai Xianglong, the former Governor of the People's Bank of China (PBOC),stating that Dai has leveraged his financial clout with the Central Government to obtain permission for pilot financial projects in the area and also put enormous effort into attracting new investment and more diversified industry to Tianjin. ¶9. (SBU) The rapid growth of the Tianjin Economic Technological Development Area (TEDA),one of the key components of the TBNA, exemplifies the city's growing economic clout. Adjacent to Tianjin Port, TEDA'S GDP exceeded USD 8 billion in 2005, up by 25.2 percent over the previous year and amounting to 17.5 percent of Tianjin's total GDP during the year. TEDA's total exports exceeded USD 13.9 billion in 2005, an increase of 25 percent and a 51 percent share of Tianjin's total. Mei Zhihong, Deputy Director of TEDA, said on January 11 that TEDA wants to attract more foreign investment, and she singled out Motorola as a success story. Mei said that Motorola's investments in TEDA now amount to USD 3 billion, noting that Motorola produces one out of every four mobile phones that are used in China. (Note: Motorola is also invested in other electronics production as well as semiconductors. End Note.) COMMENT: WILL OPTIMISM OVERCOME OBSTACLES? -------------- ¶10. (SBU) Officials in Tianjin, especially those in the Binhai New Area and TEDA, are confident about the city's economic rise and the positive impact it will have on the Bohai Region. Their enthusiasm may well be warranted given the increasing foreign investment in Tianjin's Binhai New District, of which the extensive Motorola presence is just one example. American business representatives we met in Tianjin also appear optimistic that Tianjin will be able to move out of Beijing's shadow. ¶11. (SBU) The question for Bohai, however, will be the region's ability to strike an economic balance between two large municipalities (Beijing and Tianjin) and Hebei Province, which remains poor, rural, and features state-owned enterprises. Drawing from our discussions with a range of contacts, it seems fair to ask whether the different levels of government involved will be able to coordinate development policies in such a manner that brings the region forward as an integrated economic unit, especially given that Central Government backing for Bohai may be less able to distinguish the region in the manner that support in previous decades did for the development of the PRD and YRD. SEDNEY