Making Guangxi a Harmonious Society

UNCLAS SECTION 01 OF 04 GUANGZHOU 000197

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SUBJECT: Making Guangxi a Harmonious Society


1. (U) Summary: Guangxi leaders vow to create a harmonious society
in 5 to 10 years through careful implementation of the 11th, and
possibly the 12th, Five Year Plans. Leaders emphasized the need to
increase urbanization and industrialization, improve rural
conditions, and raise the standard of living in order to meet this
ambitious goal. Septel reports on the Consul General/American
Chamber of Commerce-South China trip to Guangxi, January 23-26. End
Summary.

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PROVINCIAL EXPECTATIONS HIGH
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2. (U) Guangxi Development and Reform Commission (DRC) Deputy
Director General Wu told the Consul General January 24 that his goal
is to achieve a "rich, harmonious, civilized" society in the next
5-to-10 years. The DRC will implement the 11th 5-Year Plan (2006 to
2010) via expanding industrialization, developing the Socialist New
Countryside, and raising the standard of living for both rural and
urban inhabitants. The Deputy Director described Guangxi's
industrialization as an "axis with 2 wings." The "Axis" is the
industrial corridor of Nanning, Liuzhou, and Guilin; the "West Wing"
is comprised of the Beibu Gulf (Tonkin) cities of Beihai, Qinzhou,
and Fanchengang; and the "East Wing" consists of the inland
transport hubs of Hezhou, Yulin, and Guigang that connect to
Guangdong. (Note: The poorest areas of Guangxi, the prefectures of
Hechi and Baise, are nowhere in this development plan. End Note).
By 2010 the DRC intends to increase the urbanization rates of
Nanning, Liuzhou, and Guilin to 40% (currently, 33% of Guangxi's
total area is urbanized, about 10% below the national average).
Through industrialization and urbanization, the Deputy Director
General expects Guangxi's 2010 GDP to reach RMB 650 billion (USD
83.9 billion),and per capita GDP to increase from USD 1,600 to USD
1,800. In 2015, the DRC projects the GDP to reach RMB 1 trillion
(USD 129 billion),with a per capita GDP of USD 2,500. Finally, in
2020, the DRC expects the GDP to reach RMB 1.5 trillion (USD 194
billion),with a per capita GDP of USD 3,000, which meets China's
definition of a "moderately well-off" society.


3. (U) The Deputy Director said Guangxi would achieve these lofty
goals specifically through:
-- improving rural village construction;
-- raising industrial value added from 33% of the GDP to 40% by 2010
by focusing on new industries (metallurgy, automobile manufacturing,
and petro-chemicals);
-- developing a logistics and finance service industry, with Nanning
as an expo center;
-- promoting regional cooperation though ASEAN and the Beibu Gulf
Area (especially in Guangxi's West Wing port cities);
-- building infrastructure by developing ports, railways, roads
(highways from Nanning to both Beihai and Pingxiang at the Vietnam
border are already complete),energy sources (specifically nuclear,
wind, and hydro-electric power) and irrigation and flood prevention;

-- cultural enhancement through education, science, and technology
while preserving the heritage of Guangxi's ethnic minorities;
-- increasing farmers' income (part of the Socialist New Countryside
program). The Deputy Director said that by 2010, the urban
population will have a minimum per capita income of 12,000 RMB
(1,548 USD) while farmers will have a per capita income of 3180 RMB
(492 USD).


4. (U) He further told consulate officers that government officials
are concerned about the environment. Officials are now evaluated on
the basis of reducing environmental pollution and energy consumption
per unit of GDP, while increasing total GDP. The Deputy Director
pointed out that Guangxi achieved a 2% reduction in pollutant
discharge in 2006, despite nearly 4% of GDP growth.


5. (U) When asked about fair land compensation to farmers, whose
land may be taken due to industrial or infrastructural development,
the Deputy Director said any problems were likely the result of a
misunderstanding and could be resolved with better communication.
The difference between the land purchase price and the compensation
to farmers is either put toward past or future road and water
infrastructure improvements or paid directly to village associations
rather than to individual farmers. The DRC claims that government
is improving laws to ensure fair compensation to farmers.

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GUILIN

GUANGZHOU 00000197 002 OF 004


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6. (U) Guilin DRC Deputy Director General Liu pointed out that the
environment is Guilin's key attraction as a tourist city and, as a
consequence, industrial development is below average for Guangxi.
Guilin's pillar industries (in addition to the tourist industry)
are: machinery, bio-pharmaceutical, food and drinks, car parts and
rubber. In the 10th 5-Year Plan period (2001-2005),Guilin's GDP
averaged annual growth of 10%. By 2005, Guilin's GDP reached RMB 50
billion (USD 6.5 billion),while government tax revenues were RMB
5.1 billion (USD 658 million). Spending on fixed asset investments
was RMB 19.8 billion (USD 2.6 billion). The Deputy Director added
that during the next five years (2006-2010),Guilin aimed to achieve
annual GDP growth of 10%, annual tax revenue growth of 12% and fixed
assest investment growth of 12%. Guilin's GDP growth in 2006 was
13.7%, but the Deputy Director claimed, this was not due to
overheating of the economy. In fact, such growth was average for
Guangxi, and perhaps not high enough.

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BUILDING THE SOCIALIST NEW COUNTRYSIDE IS NOT SO EASY
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7. (U) In response to specific questions from the Consul General,
the Deputy Director said that Guilin values IPR, and that IPR
violations do not exist in Guilin. There was a significant
urban-rural wealth gap, however, and the Deputy Director said that
in 2005, the per capita income of rural residents had reached RMB
3,000 (USD 387),while urban residents' per capita income reached
RMB 10,000 (USD 1,290). The Deputy Director said the urban-rural
income gap had existed since the founding of New China, but that the
wealth gap was being narrowed and urbanization was speeding up in
impoverished counties such as Longsheng (a national-level
impoverished county),Gongcheng, Ziyuan and Guanyang (3
provincial-level impoverished counties). The Deputy Director said
the government had set up an Agricultural Technology Promotion
Office to educate farmers about modern agricultural techniques,
established a Poverty Relief Office to coordinate these kinds of
efforts, and was now providing modest, no-interest loans to farmers.
Guilin's Foreign Affairs Office (FAO) representative added that
each government agency was assigned to head a poverty-relief project
in an impoverished county. Regarding the most difficult aspects of
poverty relief, the Deputy Director said stable funding was
problematic and projects including road construction, drinking water
supplies, and free education initiatives were all under-funded. The
Deputy Director also said that changing the mindset of the rural
residents was difficult, as rural farmers often prefer the old ways
of doing things and were unwilling to adopt new technologies.

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LIUZHOU
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8. (U) In Liuzhou, Agricultural Bureau Deputy Director Li told us
that the city's agricultural industry added RMB 10.5 billion (USD
1.4 billion) to Liuzhou's economy in 2006. The Deputy Director
noted that while this figure is lower than Liuzhou's neighbor,
Guilin, Guilin's rural population is 6 million, while Liuzhou's
rural population is only 2 million. Primary crops in Liuzhou are:
rice, sugarcane, sub-tropical fruit, silk, tea, vegetables, and
Chinese herbal medicines. The two most important crops are rice
(the staple crop) and sugarcane (the primary economic crop). The
Deputy Director explained there are 2 rice crops each year, and
Liuzhou produces 2 million mu (329,400 acres) or approximately
800,000 tons of rice per year (Note: One mu, the Chinese standard
measure for land area, is equal to 0.1647 acre or 7176 square feet.
End Note). Liuzhou produces 1.3 million mu (214,110 acres),or 6
million tons of sugarcane per year; Liuzhou's 11 sugar refineries
process 700,000 tons of sugar annually, 2/3 of China's total sugar
output. Liuzhou wants to increase its sugarcane output to further
support countryside development; the Agriculture Bureau is
interested in obtaining higher producing species from the United
States.


9. (U) The Deputy Director said Liuzhou has 600,000 mu (98,820
acres) of fruit orchards, producing 270,000 tons of fruit crop each
November. The annual fresh fruit crop only lasts three to four
months and, in order to increase income, the Agricultural Bureau
would like to establish more fruit processing plants in Liuzhou.
Currently, there are very few value-added agricultural processing
plants. Two additional crops without local processing facilities

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are silk and tea. In 2006, Liuzhou silk worm farmers raised 26,000
tons of silk cocoons and produced 5,000 tons of silk. However,
because there are few local garment factories to convert silk to
retail products, silk is usually sent to Jiangsu and Zhejiang. As
for the tea industry, Liuzhou produces about 100,000 mu (16,470
acres) of leaves per year; this crop is mostly sold to processors in
other provinces, including Fujian. However, vegetables are
generally produced for the local market, though some crops are sold
in Guangdong. The Deputy Director said Liuzhou harvests 1.3 million
mu (214,110 acres) of vegetables each year, which yields 1.6 million
tons of crop. Finally, the Deputy Director said herbal medicine
crops are mostly harvested wild, so there is little organized
farming of this product. Further development of these secondary
crops would add support to overall countryside development.


10. (U) In an effort to develop farmer knowledge, Liuzhou's
government subsidizes vocational training and technical training to
increase agricultural yields. Internet websites provide
agricultural product and technology information. However, few
farmers have internet access. Nonetheless, the Deputy Director
explained many farmers have televisions and telephones and can call
local television stations and request the broadcast of programs
which provide agricultural technology information.

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GUILIN: DAXIONG VILLAGE, SUCCESSFUL DEVELOPMENT IN RURAL GUANGXI
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11. (U) Deputy Director of Guilin Agricultural Bureau Lu led
Congenoff on a tour of Daxiong Village, outside of Guilin, which has
159 households with a total population of 728. Last year, the
village's per capita income was around RMB 6,000 (USD 774),though
the village head had a personal income of RMB 17,000 (USD 2,193).
The village has recently built a kindergarten, a home for the
elderly, and a clinic (which doubles as the family planning service
center). Funds for these facilities came from the villagers
themselves, the village committee and subsidies of the government.
The key to the village's economic development - a cement road - was
constructed by the Guilin and county governments in 2001. Before
that, there was only a mud path that was nearly impassable on rainy
days and villagers did not have access to outside markets or
technical assistance from the government.


12. (U) Mushroom growing, which only began two years ago, is the
village's major source of income, although the villagers also grow
vegetables (such as winter melons) and run a nonferrous metal
factory and a plastic factory. The winter melon crop and surplus
vegetables largely go by truck to Guangdong for sale. The mushrooms
are sold to Guangdong, Hunan, and are even air freighted to Russia
through a Beijing trader. Since they do not have a mushroom
processing industry, the villagers sell the mushrooms fresh once
they are picked. The shift to mushroom farming was made after the
market for Chinese chives (the previous cash crop) went down.


13. (U) A mushroom association has been set up in the village, to
help marketing and to find buyers of the mushrooms; not all
villagers are members and thus do not share in the profits. The
association personnel go on the Internet to check mushroom prices in
different places to find the most profitable sales location. The
agricultural bureau's mushroom research institute said the wholesale
price of mushrooms was around RMB 3.5 (USD 0.45) per jin (1 jin =
500 grams),while the retail price could be as high as twice that
amount. The mushroom farmers obtain the mushroom spores from the
local agricultural bureau at a low price - a RMB 2 (USD 0.26) sachet
of spores can produce 20 square meters of mushrooms - and get
technical support from the agricultural bureau's mushroom experts.
Straw and dirt beds for mushroom growth are housed in
plastic-wrapped, straw-covered structures, while villagers use
natural manure instead of chemical fertilizer for growing the
mushrooms.

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COMMENT
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12. (U) Guangxi's new infrastructure, commitment to development,
and role as ASEAN's interlocutor and gateway to western China,
combined with rising costs of doing business in Guangdong, make the
province a good time for investment - or so is the pitch we are
hearing from provincial officials. Industrialization and
infrastructure development are favorite methods to draw investment,

GUANGZHOU 00000197 004 OF 004


and involvement in developing the latter generally results in a good
economic payoff. However, the success of industrialization may
depend more on industry type, since, for example, major cities in
many provinces want to build automobiles at the same time the
central government is encouraging automobile manufacturers to slow
their expansion plans. Still, what is most needed is a significant
increase in farm income in the near future. Despite several years
of focused development to raise rural incomes, urban-rural income
rates remain at a 3:1 ratio, a ratio expected to remain static
through 2020.

GOLDBERG