TREASURY'S DAN WRIGHT VISITS NANJING, DISCUSSES ECONOMY,

UNCLAS SECTION 01 OF 03 SHANGHAI 000444 SIPDIS SENSITIVE SIPDIS TREASURY FOR AMB. HOLMER, WRIGHT, TSMITH, AND OASIA - DOHNER, HAARSAGER, CUSHMAN USDOC FOR ITA MAC DAS KASOFF, MELCHER, MCQUEEN NSC FOR WILDER AND TONG E.O. 12958: N/A TAGS: ECON PGOV ETRD CH SUBJECT: TREASURY'S DAN WRIGHT VISITS NANJING, DISCUSSES ECONOMY, ENERGY, AND ENVIRONMENT SHANGHAI 00000444 001.2 OF 003 This cable is Sensitive But Unclassified (SBU) and for official use only. Not for transmission outside USG channels. ¶1. (SBU) Summary. In a meeting with Treasury's Managing Director for China and the Strategic Economic Dialogue (SED) Dan Wright on June 25, Jiangsu academics and officials said the province had adopted a "One Two Three Four Five" development framework that relied on the Scientific Development Concept and had an eye toward establishing a Harmonious Society-current ideological buzzwords. Jiangsu was heavily reliant on foreign direct investment and exports from foreign invested firms to drive growth but was trying to shift to a consumer-led growth model. It was also concerned about increasing energy efficiency and reducing its dependency on coal, looking into promising developments in wind technology. Equally important, Jiangsu was trying to clean up the environment and lower polluting emissions and was one of the few provinces to actually meet nationally-mandated targets. Wright's Shanghai meetings will be reported Septel. End summary. ¶2. (SBU) During a June 25 discussion with Jiangsu academics and government officials, Wright discussed Jiangsu's economic strategy, and energy and environment situations. Attendees included: Jiangsu Academy of Social Sciences (JASS) Research Coordination Office Director Sun Keqiang; JASS's Economic Research Institute Director Ge Shoukun; Jiangsu Environmental Protection Bureau (EPB) Foreign Affairs and Foreign Economy Office Director Huang Yibin; and Jiangsu Provincial Development and Reform Commission Energy Division Director, Mr. Chen (Note: No further information is available regarding Chen's name. End note.) -------------- Countdown to Development -------------- ¶3. (SBU) Sun Keqiang told Wright that Jiangsu's economic program was summarized by a "One Two Three Four Five Six" formulation, which served as the basis for the provincial five-year plans and was seen as the overarching framework for development. Sun said that Jiangsu had "one goal" of having a wealthy people and a strong province (fumin qiangsheng). It also had "two leadings," namely taking the lead in fully developing a moderately well-off society, and taking the lead in basically realizing modernization. Somewhat redundantly, the "three developments" included: leading development; scientific development; and "harmonious" development, or ensuring that all of the people received real benefits from economic development instead of just a select few (Ref A). (Comment: In fact, science and harmony played a large role in all aspects of Jiangsu's "One Two Three Four Five Six" framework, likely reflecting the party's ideological focus on the Scientific Development Concept and Harmonious Society. End comment.) ¶4. (SBU) The "four priorities" of the province were: conservation; enriching the people; science and education; and environmental protection. The "five strategies" included: reinvigorating Jiangsu through science and education; economic globalization; regional coordinated development between southern, central, and northern Jiangsu; urbanization development; and sustainable development, meaning coordinating all aspects of economic development. All of these were meant to establish the "six Jiangsus": a peaceful Jiangsu, where there were no disturbances in the social order; a "rule of law" Jiangsu; a "green" Jiangsu; a "cultured" Jiangsu; a "credible" Jiangsu, meaning that the people could trust their leaders; and a "harmonious" Jiangsu. -------------- The Safety Dance -------------- ¶5. (SBU) Poloff asked about a propaganda sign he had read regarding "safe development" (anquan fazhan) being used to establish a Harmonious Society. Sun explained that "safe development" was a Jiangsu construct and that it referred both to safety in production and also strengthening societal safety. "Safety," Sun said, was both part of and a prerequisite for Scientific Development. Wang Yan with the Jiangsu Foreign Affairs Office, added separately that "safe development" was also a manifestation of the "putting people first" slogan of the SHANGHAI 00000444 002.2 OF 003 party. -------------- Foreign Investment and the Five Strategies -------------- ¶6. (SBU) Keying in on economic globalization--one of the "five strategies"--Ge Shoukun said that Jiangsu has relied heavily on trade and foreign investment for development. The province's top foreign investors were Taiwan followed by the United States. Foreign invested companies also accounted for a large percentage of exporters in the province. For instance, in Suzhou, 93 percent of the municipality's exports were produced by foreign-invested companies, compared to the national average of 57-58 percent. Jiangsu planned to utilize more foreign investment in the future in, especially in the areas of energy and environment. Ge noted that the province's overall trade surplus was declining. ¶7. (SBU) Ge said that Jiangsu needed to stimulate consumer spending in order to shift from an export-led economic growth model to a consumer-led model. To do that, Ge said, Jiangsu needed to increase people's income. It would then be natural for people to spend more. Ge explained that increased incomes needed to be coupled with social safety guarantees, to prevent people for saving their extra income for a rainy day. He specifically mentioned education and health care as two major issues that were traditionally major causes of concern and that the central government was tackling. He noted that credit consumption was new to most Chinese and was just starting to catch on. Having a good social safety net would also help people feel comfortable to engage in credit consumption, Ge opined. -------------- Finding the Energy Needed to Develop -------------- ¶8. (SBU) Director Chen noted that Jiangsu's energy development had two challenges: supply and the environment. The 11th Five Year Plan (FYP) had several goals to meet both challenges. Chen said that Jiangsu currently consumed 160 million tons of standard coal per year, much of which came from other provinces. Chen said that currently, coal accounted for 68 percent of Jiangsu's primary energy consumption. The goal within the 11th FYP was to reduce coal as a percentage of energy consumption to 65 percent and then to 60 percent by the year 2020. Chen noted that under the WTO framework, China and the United States had agreed to discuss trade in clean coal technology and was interested in integrated gasification combined cycle technology (which turns coal into gas to generate power) to help improve energy efficiency. ¶9. (SBU) Under the 11th FYP, Jiangsu was also seeking to develop new, cleaner energy sources, such as nuclear, natural gas, biomass (including agricultural residuals and garbage),and wind. In addition, the FYP dictated energy conservation and energy structure adjustment measures to reduce overall energy consumption. Nationwide the goal was to close small power plants totaling 10 gigawatts worth of power. Jiangsu's goal was to close plants totaling 1.5-2 gigawatts of power. ¶10. (SBU) Focusing on wind, Chen said that Jiangsu would develop 1.5 gigawatts of wind power capacity during the 11th FYP. The province had a large area of shoals, perfect for constructing wind turbines. Chen estimated that the wind harnessed there could eventually produce up to 10 gigawatts of power per year-the equivalent of the power produced by the Three Gorges Dam. However, this would require a lot of work both to construct the power grid and to protect the eco-system. Technology was currently still the major bottleneck. ¶11. (SBU) In terms of energy efficiency, Chen said Jiangsu was doing well in reaching its targets. Jiangsu's energy efficiency was only 60 percent of the national average and it was only one of two provinces to reach the 4 percent reduction target mandated by Beijing. Chen noted that Jiangsu had new strict energy efficiency requirements for new projects. -------------- The Sweet Stench of Success SHANGHAI 00000444 003.2 OF 003 -------------- ¶12. (SBU) According to the EPB's Huang Yibin, strides were not only being made in energy efficiency and emissions reductions, but in environmental protection as well. Over the past two decades, Jiangsu increased its sewage treatment capacity from 700,000 tons in 1990 to 4.3 million tons in 2005. Jiangsu had received loans from the World Bank to increase its sewage treatment capacity and had begun raising prices on sewage producers to pay back the loans. Fees had increased from 0.10 RMB per cubic meter in 1998 to 1.05-1.15 RMB for southern Jiangsu and 0.80 RMB for central and northern Jiangsu today. Huang said that as sewage treatment became more profitable, it would encourage the building of more plants. -------------- Green Gas is Good Gas -------------- ¶13. (SBU) Huang said that Jiangsu had invested 3.5 billion RMB in improving emission standards compliance. Major power plants were required to install desulphurization units and provided subsidies for so doing. They were charged penalties for failing to comply. According to the PDRC's Chen, Jiangsu was one of only four provinces to reach the nation-wide emission reduction goal in 2006. Chen said that Jiangsu's sulfur dioxide emissions have dropped 30 percent over the past five years and that they would drop a further 15 percent during the current FYP. KJARRETT