Identifier
Created
Classification
Origin
08BEIJING895
2008-03-11 23:03:00
CONFIDENTIAL
Embassy Beijing
Cable title:  

GANSU ECONOMY GROWING, BUT MORE INVESTMENT NEEDED:

Tags:  CH ECON EFIN EIND ENIV ENRG PGOV SENV SOCI 
pdf how-to read a cable
VZCZCXRO2085
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0895/01 0712303
ZNY CCCCC ZZH
R 112303Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 5650
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000895 

SIPDIS

SIPDIS

STATE PASS FOR USTR

E.O. 12958: DECL: 03/11/2028
TAGS: CH ECON EFIN EIND ENIV ENRG PGOV SENV SOCI
TBIO
SUBJECT: GANSU ECONOMY GROWING, BUT MORE INVESTMENT NEEDED:
AMBASSADOR'S MARCH 10 DINNER WITH GANSU PARTY SECRETARY


Classified By: Ambassador Clark T. Randt, Jr. for reasons 1.4 (b) and (
d).


SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000895

SIPDIS

SIPDIS

STATE PASS FOR USTR

E.O. 12958: DECL: 03/11/2028
TAGS: CH ECON EFIN EIND ENIV ENRG PGOV SENV SOCI
TBIO
SUBJECT: GANSU ECONOMY GROWING, BUT MORE INVESTMENT NEEDED:
AMBASSADOR'S MARCH 10 DINNER WITH GANSU PARTY SECRETARY


Classified By: Ambassador Clark T. Randt, Jr. for reasons 1.4 (b) and (
d).


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


1. (C) Gansu Province has benefited from Central Government
initiatives to balance development by boosting spending in
western China, but it continues to face major challenges,
including water and power shortages, low rates of foreign
investment, lagging employment opportunities, and a decrease
in Central Government funding, said Provincial Party
Secretary Lu Hao during a March 10 dinner hosted by the

SIPDIS
Ambassador. Lu expressed concern about inflation and the
effects of tightening monetary policy on investment in the
province. He underscored the important role of the private
sector in transforming Gansu's state-owned enterprises (SOEs)
and encouraged U.S. businesses to invest in Gansu. Lu
welcomed the establishment of Virtual Presence Post Lanzhou
and urged the expansion of people-to-people exchanges between
the United States and Gansu. END SUMMARY.

ECONOMY GROWING BUT INCOME GAP REMAINS
--------------


2. (C) The Ambassador hosted a March 10 dinner for Gansu
Party Secretary Lu Hao, who was in Beijing to attend the
National People's Congress (NPC). Party Secretary Lu told
the Ambassador that Gansu's GDP grew 12.1 percent in 2007,
slightly above the national GDP growth rate of 11.4 percent.
This marked the eleventh year in a row that Gansu Province
GDP growth topped 11 percent. He said he remains concerned,
however, that despite Gansu's gains, the income gap between
western China and coastal provinces continues to widen as

Central Government funding under the Great Western
Development Program is gradually decreasing. Lu said that
during the NPC, he urged Premier Wen Jiabao and other leaders
to offer more assistance, particularly in the form of fiscal
transfer payments and increased Central Government spending
on rural health care, education and infrastructure. Premier
Wen participated as a member of the Gansu delegation in this
year's NPC, which gave Gansu an advantage in advocating its
proposals, Lu added.

INFLATION, MONETARY POLICY REMAIN TOP CONCERNS
-------------- -


3. (C) Lu said he was encouraged by Premier Wen's strong
commitment to balanced development in the Government Work
Report but expressed concern about the effects of the
People's Bank of China's (PBOC's) tight monetary policy on
loan growth in 2008. For western China, crucial investment
is affected when loans become less readily available, he
said. On inflation, Lu remarked that food prices remain high
but real estate prices in Gansu are low relative to other
parts of the country, making it somewhat easier for Gansu's
middle-class urban residents to absorb higher prices.
Nonetheless, Lu said he remains concerned that rising global
energy and commodities prices could contribute to longer-term
inflation. He argued that China should keep inflation below
4.8 percent in order to maintain a healthy economy.

SEEKING MORE U.S. INVESTMENT
--------------


4. (C) Lu welcomed closer economic ties between the United
States and China, noting that globalization has brought about
growing interdependence between the two countries.
U.S.-invested projects in Gansu have been very successful,
and Gansu wants to attract more U.S. investors, he explained.
In 2007, Gansu had 232 U.S.-invested projects in progress,
primarily in power generation, real estate development,
chemicals, oil drilling and the export of seeds. Lu said
that although trade between the United States and Gansu
Province has grown by a large margin over the past five
years, total bilateral trade volume remains low relative to
U.S. trade with China's coastal provinces.

MOVING BEYOND A STATE-CONTROLLED ECONOMY
--------------


5. (C) Gansu's economy remains dominated by SOEs, with an
emphasis on heavy industry, Lu said. Currently, private
firms account for only 40 percent of Gansu's total registered
companies. Private investment is rising, particularly in the

BEIJING 00000895 002 OF 003


services sector, but the contribution of SOEs remains much
higher in Gansu than in wealthier provinces. Lu explained
that Gansu is making broad efforts to upgrade primary
industries. Foreign investors could play a valuable role in
these efforts. Lu remarked that the operations of National
Oilwell Varco, an American company with a factory in the
province that produces oil industry equipment, provide a good
example of cooperation between a private foreign investor and
a Gansu SOE. Other potential areas for cooperation include
the development of wind power generation facilities in
western Gansu.

SOME PROGRESS MADE IN ADDRESSING WATER SHORTAGES
-------------- ---


6. (C) The primary impediment to Gansu's development remains
resource shortages, especially the lack of water. Lu said
the province has been investing increasing amounts of money
in water transfer to provide residents of dry areas with
access to clean drinking water over the long term. Lu
reported that the Central Government has been instrumental in
addressing this problem and noted that some 2 million Gansu
residents now have safe drinking water as a result.
Desertification in the Hexi corridor remains a top concern.
Lu stated that in 2007 the Central Government invested RMB
4.75 billion (USD 670 million) in efforts to relocate
farmers, return farmland to forest and improve irrigation to
combat desertification in the province.

WIND-POWERED SCIENTIFIC DEVELOPMENT
--------------


7. (C) In support of President Hu's concept of scientific
development, Lu said, Gansu aims to increase its economic
growth without harming the environment. Currently, Gansu
derives over 70 percent of its power from coal-fired plants,
but it has plans to change the mix of energy sources in the
near future. Lu said that with the support of the Central
Government, Gansu is developing what officials hope will
become the world's largest wind power facility. He explained
that when completed, the facility, located in western Gansu,
will deliver power to major cities in central and western
China. Lu projected that by 2015, the facility will be
capable of producing more than 10 gigawatts at full capacity.
(Comment: A typical mid-sized U.S. power plant produces
300-400 megawatts at full capacity. Producing 10 gigawatts as
early as 2015 using alternative energy sources such as wind
appears quite ambitious and could be considered an
unrealistic goal. End Comment.) Major challenges also remain
in connecting the power generated to the national grid. Lu
pointed out that although it is relatively easy to harness
wind power, it is difficult to transport the electricity from
a remote part of the province to populated areas.

BUILDING A HARMONIOUS SOCIETY THROUGH MIGRATION
-------------- --


8. (C) Lu explained that years of economic reform have
brought great benefits to the country but they have also
resulted in unbalanced growth. To build a harmonious
society, Lu said, the government must find ways to help
people who have been left behind, including rural residents
and those laid off as a result of SOE reform. The gap
between rich and poor in Gansu is also continuing to widen.
Gansu currently has a labor surplus, and approximately 5
million of its residents work in China's more developed
coastal cities. This outward migration has led to an
increase in remittances, which benefit family members who
stay behind in Gansu. Lu noted that over 7,000 young Gansu
women work as nannies in Beijing, while an additional 400
Gansu residents are employed by a Beijing-based Panasonic
plant.

LANZHOU VIRTUAL PRESENCE POST WELCOME
--------------


9. (C) The Ambassador highlighted Embassy efforts to
establish a Virtual Presence Post (VPP) in Lanzhou. Lu
welcomed the VPP and assured the Ambassador that Gansu
Provincial Foreign Affairs and Commercial Affairs offices,
both of which were represented at the dinner, would be
pleased to assist VPP officers. Lu remarked that
people-to-people exchanges between Gansu and its U.S. sister
state, Oklahoma, have proliferated in recent years.
Programs, including educational exchanges and medical
training opportunities in the United States for Gansu

BEIJING 00000895 003 OF 003


physicians, have been well-received. He urged further
expansion of such programs, which he said have benefited the
people of Gansu.
RANDT