HENAN IS OPEN FOR BUSINESS: AMBASSADOR'S MARCH 5

C O N F I D E N T I A L BEIJING 000808 SIPDIS SIPDIS E.O. 12958: DECL: 03/05/2028 TAGS: PGOV PREL ECON EINV CH SUBJECT: HENAN IS OPEN FOR BUSINESS: AMBASSADOR'S MARCH 5 LUNCH WITH HENAN PARTY SECRETARY XU GUANGCHUN Classified By: Ambassador Clark T. Randt, Reasons 1.4 (b) and (d). Summary -------------- ¶1. (C) Henan Party Secretary Xu Guangchun stressed his desire to attract more American companies to Henan in the logistics, food processing and electricity generation sectors during a March 5 lunch hosted by the Ambassador. While Henan ranks fifth among China's provinces in terms of total GDP, Xu noted that, given Henan's population of 100 million, its per capita income remains stubbornly low (ranking just seventeenth). In addition to luring more foreign investors, Xu is also making development of Henan's tourism industry a priority. Xu, who was in Beijing as head of Henan's delegation to the first session of the 11th National People's Congress (NPC),said his priorities at the Congress are to win approval for additional power generation projects and more Central Government support for grain production. Xu offered extensive praise of Premier Wen Jiabao's Government Work Report, which Wen had delivered just prior to the lunch. The report, according to Xu, reflects the central leadership's focus on improving health, education and social welfare in addition to making the Government more "service oriented." In Henan, Xu explained, the Provincial Government conducts an annual opinion poll to gauge public satisfaction with various agencies. Poorly performing offices must reform themselves, Xu asserted. Xu also commented on the recent snow storms, maintained that Henan's HIV/AIDS problem is under control and denied a rumor that China's State Administration of Radio, Film, and Television will be merged with the Ministry of Information Industry. End summary. Henan: China's Heartland -------------- ¶2. (C) The Ambassador hosted a March 5 lunch for Henan Party Secretary Xu Guangchun, who was in Beijing to attend the first session of the 11th National People's Congress (NPC). The lunch took place immediately after Premier Wen Jiabao had delivered his Government Work REPORT to the NPC. Xu described Henan's advantages as its central location, abundant labor (with 100 million residents, Henan is China's largest province by population) and high grain and coal production. Henan provides a quarter of China's grain, Xu noted, and the province is China's third- largest coal producer. Henan is already a major transport and logistics hub in China, with a highway network larger than that of the United Kingdom. Zhengzhou is also home to China's largest commodities exchange, which, Xu asserted, maintains a close relationship with the Chicago Mercantile Exchange. Raising Living Standards Biggest Challenge -------------- ¶3. (C) Xu said his greatest challenge as Henan Party Secretary is raising the living standards of the SIPDIS province's 100 million people. In terms of aggregate output, Henan ranks fifth among China's provinces after Guangdong, Shandong, Jiangsu and Zhejiang. Because of its large population, however, Henan only ranks seventeenth in terms of per capita GDP and average income. Raising per capita income to a level close to the national average is proving difficult, Xu offered. Unlike Guangdong, Henan does not suffer from big regional disparities in wealth. Wealth is well distributed in Henan, Xu said, it is just too low overall. We Want U.S. Logistics and Financial Firms... -------------- ¶4. (C) Xu repeatedly expressed his desire to attract more American companies to Henan. Xu named Caterpillar, Wal-Mart and Motorola as the most prominent U.S. firms already on the ground in Henan. In addition, the city of Luohe is home to a highly profitable U.S.-China meat processing joint venture, the third largest such facility in the world. Xu noted three specific sectors where U.S. investment is particularly welcome: logistics, food processing and electricity generation. With its central location within China, Henan is an ideal logistics hub. Xu said he places high priority on attracting big American shipping and logistics firms. Logistics hubs, Xu observed, also require a strong financial services industry. Xu claimed to have "many friends" in the U.S. financial sector, including contacts at companies such as Goldman Sachs, Merrill Lynch and Citibank. Xu reportedly made these contacts in 2000- 2004 while he was head of the State Administration for Radio, Film, and Television (SARFT). At that time, Xu explained, these companies were eager to invest in China's broadcasting industry. Now that he is Party Secretary of Henan, Xu said he hopes he could use SIPDIS these connections to attract large U.S. financial firms to his province. .. Agro-Business... -------------- ¶5. (C) Although Henan is striving to develop its high- tech sector, agriculture remains the backbone of the provincial economy, Xu explained. Rather than export raw agricultural products, Henan needs to move up the value chain and thus hopes to attract more U.S. food processing companies. Henan's abundance of wheat, peanuts and sesame seeds makes it an ideal place for food processing industries and Henan is already a large producer of dumplings, rice balls and other processed foods. Henan also has a great potential in dairy industries like ice cream, Xu stated. ...And Electricity Companies -------------- ¶6. (C) Asked by the Ambassador what his priorities were for the current NPC session, Xu responded that he hoped to secure two things for Henan: approval of more power generation projects and additional Central Government support for grain production. As with agriculture, Henan wants to provide more value added in the energy sector. Given that Henan already produces so much coal, it makes sense to generate more electricity within the province. Henan's exports of coal, both abroad and to the rest of China, severely strain China's transport infrastructure. "It's better that we export electricity rather than coal," Xu said. A Korean company is already active in Henan's power sector, and Xu said he would welcome more participation by American energy firms. On grain production, Xu said the Central Government should offer more financial assistance to Henan's struggling grain farmers. The Central Government is willing to spend a great deal to promote industry across China, Xu argued, but it should also be willing to give more support for grain production, which is still Henan's key industry. More Tourists at Shaolin Temple -------------- ¶7. (C) Finally, Xu also made a pitch for increasing levels of American tourists to Henan Province. Henan's main tourist attractions include the Shaolin Temple, the scenic area of Kaifeng City and the Longmen Grottos. Xu said 500 Americans studied martial arts at the Shaolin Temple in 2007. Xu described his efforts to develop Henan's tourism industry as consistent with Premier Wen Jiabao's calls for China to boost its service industry. Wen Jiabao's Work Report: Emphasis on Common People -------------- -------------- ¶8. (C) The Ambassador asked Xu to provide his analysis of Premier Wen Jiabao's Government Work Report, which Wen had just delivered that morning. Xu said he was struck by Wen's emphasis on strengthening macro- economic control over China's economy and his references to China's overheated housing market. In addition, Xu commented that the REPORT contained numerous references to boosting energy efficiency and lowering pollution, which reflects the central leadership's increasing use of environmental metrics, rather than blind economic growth, to judge the performance of local leaders. Unlike past work reports, Xu continued, the latest work REPORT placed more emphasis on people's welfare (minsheng wenti), including improving health, education and social welfare. Finally, Xu observed that Government reform featured prominently in this latest work report. General Secretary Hu Jintao and Premier Wen Jiabao are pushing a "people first" (yi ren wei ben) philosophy, and both leaders emphasize that China's Government must become more service oriented. This emphasis on improving Government services was more prominent than in previous years, Xu asserted. Asked by the Ambassador whether Henan Government organs conduct public polling to gauge their effectiveness, Xu said the Henan Provincial Government conducts a large poll every year to judge public satisfaction with the government. Provincial Government departments are ranked based on the approval ratings they receive in the annual poll. Agencies that score low must initiate reforms. This is in keeping with Hu Jintao and Wen Jiabao's conviction that the Party and Government must be judged primarily on the basis of public satisfaction. Snow "Worst In 50 Years" -------------- ¶9. (C) The Ambassador expressed USG concern with the severe snowstorms that had plagued China during the Lunar New Year holiday. Xu said the snow was the worst China has seen since the founding of the People's Republic in 1949. Parts of Henan were hit hard by the snow, but Xu said his government took "measures" to ensure Henan did not experience the same level of disruption as other areas. Xu added that the situation in Zhejiang Province, where Xu was born, was extremely bad. Merger of SARFT and Information Ministry "Unlikely" -------------- -------------- ¶10. (C) Responding to a question about a rumored Government restructuring plan that would merge SARFT with the Ministry of Information Industry, Xu said that such a move was unlikely. Television is such an important medium in China that such a merger would have a negative impact on the Government's oversight of the industry, Xu said. "Henan Wants Close Ties with United States" -------------- ¶11. (C) The Ambassador, responding to an inquiry from Xu, observed that the NPC Government Work REPORT favorably mentioned the "steady development" of U.S.- China relations and that the United States was mentioned first in the section on foreign policy. Xu said this reflects the fact that China continues to place great importance on ties to the United States. Henan Province, Xu said, is very eager to expand economic and cultural ties with the United States. Chinese provinces now enjoy greater freedom to pursue links with other countries, Xu explained, and Henan enjoys a very fruitful sister-state relationship with Kansas. HIV/AIDS "Under Control" -------------- ¶12. (C) The Ambassador raised the HIV/AIDS problem in Henan and Xu responded that the situation (caused by tainted blood transfusions) was now under control. Mission Focus on Henan -------------- ¶13. (C) Xu commented favorably on the opening of the new United States Consulate General in Wuhan (note: Henan now falls within Wuhan's consular district) as well as the January visit to Henan by Wuhan Consul General Wendy Lyle. The Embassy also established its first Virtual Presence Post in Zhengzhou in April 2007, and the Ambassador expressed his strong interest in increasing engagement with Henan. Xu invited the Ambassador to visit. Bio Notes -------------- ¶14. (C) Xu professed to have extensive knowledge of the United States gained through frequent visits. He also claimed to have a wide network of American friends, including former Disney CEO Michael Eisner and former USTR Charlene Barshefsky. During the lunch, Xu expressed great interest in the United States presidential election. ¶15. (C) Xu noted that, unlike many Chinese provincial leaders, he comes from a media and journalism background. In addition to his tenure as head of SARFT, Xu was editor-in-chief of Guangming Daily, a Central Committee newspaper, from 1993 to 1995. Previously, beginning in 1979, Xu held numerous positions at China's official Xinhua News Agency. In response to a question from the Ambassador, Xu asserted that journalists are required to have a broad grasp of issues and understand the problems of average people. This background and understanding of the common man, Xu continued, has helped him in his job as Henan Party Secretary. ¶16. (C) Xu also offered some insights into his hobbies. In his youth he was very athletic and was captain of his university basketball team (according to his official bio, Xu attended People's University the late 1960s). Now, Xu lamented, he has little time to exercise except for playing tennis once a week. Xu described golf as a "waste of time." RANDT