POST-QUAKE SICHUAN: A MANUFACTURER LEAVES FOR THE COAST?

C O N F I D E N T I A L CHENGDU 000122 SIPDIS DEPT FOR EAP/CM AND EEB E.O. 12958: DECL: 6/4/2018 TAGS: ECON EIND PGOV CH SUBJECT: POST-QUAKE SICHUAN: A MANUFACTURER LEAVES FOR THE COAST? REF: FBS20080602358625 CLASSIFIED BY: James A. Boughner, Consul General, U.S. Consulate General, Chengdu. REASON: 1.4 (d) ¶1. (C) Summary: According to a well-connected local businessman, the famed Dongfang Electric Machinery Company based in Deyang, Sichuan Province, which sells billions of dollars in power generation equipment worldwide including to Iran and Pakistan, may move its hydroelectric power operations to either Shandong or Guangdong Province. Although any such a move could be the result of earthquake damage to facilities in Sichuan, underlying economic realities might also be at work. End Summary. Headed East? -------------- ¶2. (C) A Chengdu businessman (protect),who used to be counsel to the Deyang Dongfang Electrical Machinery Company (Dongfang Dianqi),told us the company is considering a post-earthquake transfer of its hydroelectric power manufacturing facilities from Sichuan to the coast. The contact said that both Guangdong and Shandong Provinces are very interested in hosting the new plant. ¶3. (C) Although no final decision has been made, according to the contact, Dongfang Dianqi has wanted for some time to begin producing its very large and heavy hydroelectric power generating equipment near the coast in order to reduce the costs of exporting products abroad. (Note: Dongfang Dianqi manufactures a full range of power generation products, including wind, hydroelectric, and nuclear power generating equipment. It built large turbines for the Three Gorges Dam and exports to many countries including Iran and Pakistan). ¶4. (C) The contact remarked that a "dozen" of Dongfang Dianqi's top hydroelectric power engineers were trapped when a building in Deyang collapsed during the May 12 earthquake. The rescue of the engineers was a high priority for search teams and all were rescued unharmed. ¶5. (SBU) Local press reports have also speculated that Dongfang Dianqi fossil fuel generating equipment plants, largely destroyed at Mianzhu and Hanwang (just down the road from Deyang),could be moved to either Tianjin or Guangzhou on the east coast. Other press reports note, however, Dongfang Dianqi is already in serious discussions with the Deyang City government to rebuild on a 500-acre site in Deyang (ref). Taking a Look -------------- ¶6. (C) On June 3, Congen officers drove past the mammoth Dongfang Dianqi headquarters complex in downtown Deyang during a visit to quake-affected areas. From outside the plant there was very little visible damage. There appeared, however, to be almost no activity inside and traffic in and out of the plant was minimal. The plant was festooned with numerous slogans exhorting workers and passersby to unite in earthquake relief and reconstruction efforts. Security roadblocks prevented us from traveling to Hanwang where damage to another Dongfang Dianqi plant is said to be more extensive. Comment: Politics vs. Business -------------- ¶7. (C) Deyang, like Mianyang and other Sichuan cities, industrialized during the 1960s when Mao Zedong relocated China's defense industries inland well away from the perceived Soviet threat. As a result, many large Sichuan companies still engage in the production of defense sector goods, or are descended from defense sector companies -- a prominent example being Mianyang television manufacturer Changhong. Like many other Sichuan cities, Deyang is a company town, dominated by Dongfang Dianqi. While a move to the coast might make good business sense for a heavy equipment manufacturer in an export-oriented economy, Deyang could ill afford the loss of such an important economic pillar. BOUGHNER