SPEAKING OUT AT THE CPPCC: NINE DRAGONS CEO ZHANG YAN URGES

UNCLAS SECTION 01 OF 02 GUANGZHOU 000168 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM STATE PASS USTR E.O. 12958: N/A TAGS: ELAB EINV ECON SENV PGOV CH SUBJECT: SPEAKING OUT AT THE CPPCC: NINE DRAGONS CEO ZHANG YAN URGES REVISION OF LABOR CONTRACT LAW (U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE POSTED ON THE INTERNET. ¶1. (SBU) Summary: In a May 19 conversation with the Consul General, Nine Dragons dynamic CEO Zhang Yan said that she had been moved to offer suggestions to the government on the Labor Contract Law, taxes on the well-to-do and import incentives for energy efficient/environmentally friendly machinery to help promote and sustain national economic growth rather than enrich those who are increasingly well-off as a result of China's reforms. She observed that while the government may deny that firms are leaving the PRD for greener pastures elsewhere, the fact is that firms (not just Hong Kong and Taiwan, but Korean and Japanese as well) are looking at the potential for moving their base of operations to southeast Asia; without incentives, companies, including large Chinese ones, would not use China as a platform to create better (and to some extent "greener") products that would appeal to a global consumer market. End Summary. ¶2. (SBU) Nine Dragons' CEO Zhang Yan, at one time China's richest woman ("richer than Oprah"),has recently been in the news for comments she made at the early March Chinese People's Political Consultative Conference (CPPCC) on revising the Labor Contract Law, lowering taxes on individuals who earn RMB 100,000 and above, and reducing/eliminating the high import tax on energy efficient, environmentally friendly equipment. She told the Consul General over dinner March 19 that while the press may have reported that she had been heatedly criticized by her CPPCC colleagues, she felt she'd gotten good support from the majority of delegates and was confident that the leadership would act positively to address the concerns she had brought to the fore. Otherwise, she added, foreign-invested companies (and perhaps even larger Chinese companies) would start to move out of the Pearl River Delta (PRD) and individuals the government wanted to attract to live and work in China, including those who were looking forward to returning home, would remain overseas. The result: more jobless people, poorer management, less creativity and cutting-edge intellectual property originating in China, an increased burden on the government to provide services to people who can no longer afford them, and a decline in quality of life for migrant workers - all with a real and negative impact on the social order. ¶3. (SBU) Zhang pointed out that she could hardly be criticized for her first proposal, i.e., an amendment to the Labor Contract Law to exempt labor-intensive companies from the new requirement that they sign permanent contracts with employees who have served for more than ten years. Nine Dragons, she noted, is a capital-intensive company, which seeks to retain its employees, many of whom it supports as they attend university in exchange for coming to work at the company for 3-5 years. Frankly, she acknowledged, keeping the kind of employee Nine Dragons attracts for up to ten years, however desirable, is impossible. It is the other more vulnerable PRD companies that she was seeking to assist, many of which are already planning their exit strategies. So while the Chinese government may deny that firms are leaving the PRD for greener pastures elsewhere, the fact is that firms (not just Hong Kong and Taiwan, but Korean and Japanese as well) are looking at the potential for moving their base of operations to southeast Asia. Unless the Chinese government counters with incentives, this would kill the its hope that many of these same firms would simply move inland, where Zhang Yan said, they would confront problems of moving product to market. ¶4. (SBU) With regard to her proposal for reducing/even eliminating import taxes on energy efficient/environmentally friendly machinery, she said that she had been tempted to go even further and was considering advising the government to use its reserves to provide subsidies to companies to purchase the machinery from abroad. In fact, if much of the machinery were American in origin, the government could be credited with "killing four birds with one stone:" improving air and water quality, helping companies (especially in energy poor Guangdong province) better utilize fuels, getting firms to retool and redesign products to make them more competitive in a global economy that increasingly values "green" production, and reducing the deficit with the United States. ¶5. (SBU) Zhang noted that this year's CPPCC was more democratic than in years past: she didn't come with a specific agenda but was encouraged to speak out and tried to encourage others - those who sit and rest at times when they should be advising the government on better ways of doing them - to be similarly proactive. The CPPCC can show the way forward, she said, in ways that NPC delegates cannot; the latter are constrained by virtue of their ties to a GUANGZHOU 00000168 002 OF 002 political system that, when it comes to opening up, moves glacially if at all. ¶6. (SBU) Comment: For someone who seemed under fire just a week ago, and whose company stock had declined March 17 by a bit over 40 percent before meeting with the CG, Madame Zhang was in remarkably good spirits and good humor. She and her husband, Liu Mingchung (Taiwan by birth, Brazilian by upbringing, possessor of HK residency and fluent in four or five languages) were preparing for a roadshow to Europe and America as well as a visit to their new plant in Ho Chi Minh City (part of their diversification planning for the future). She has been reassured that her proposals will not cause any problems for Nine Dragons business operations in the future. If that were the case, she said, how likely would it be that the government could attract similarly outspoken executives to the CPPCC and to sit on government advisory boards? The trick was to couch your advice as a "suggestion" and not a criticism, which she felt she had done. GOLDBERG