Guangdong's 'Double Transfer' Policy - A View from the

UNCLAS SECTION 01 OF 02 GUANGZHOU 000518

SENSITIVE
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STATE FOR EAP/CM

E.O. 12958: N/A
TAGS: ECON PGOV CH
SUBJECT: Guangdong's 'Double Transfer' Policy - A View from the
Receiving End

REF: A. Guangzhou 406; B. Guangzhou 456

(U) This document is sensitive but unclassified. Please protect
accordingly.


1. (U) Summary: Guangdong province will spend RMB 50 billion (USD 7
billion) to encourage labor-intensive industries and migrant labor
to move out of the Pearl River Delta under its new "double transfer"
policy (ref A). Less-developed, third and fourth tier cities in the
province like Heyuan are eager to welcome them and reach the
benefits of economic development. The municipal government claims
that it makes environmental protection a key factor in deciding
which factories are allowed to move there. For relocated
enterprises, cheaper utilities and rents sweeten the deal, and
Heyuan already has some pre-existing industrial parks to which PRD
industries can relocate. However, a lack of skilled labor, and
concerns about absorbing migrant workers and their families pose
challenges to realizing Heyuan's vision of future prosperity.

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With Open Arms: Welcoming Labor-intensive Industry
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2. (U) On a "double transfer" promotion tour, Guangdong Party
Secretary Wang Yang recently visited Heyuan to encourage local
officials to take advantage of the new policy to further economic
development efforts. Over the next five years, Guangdong province
is planning to invest an estimated RMB 50 billion (USD 7 billion) to
develop hi-tech industry in the Pearl River Delta while transferring
labor-intensive industry and migrant labor to the more remote parts
of Guangdong or other less-developed parts China (Ref A).


3. (SBU) Heyuan's government has heard Wang's call and openly
welcomes the transfer of labor-intensive industries. Heyuan's Vice
Mayor Wen Wenfei told us that the policy will help it to achieve its
goal of raising the city's per capita income level to the Guangdong
average. In 2007, Heyuan's per capita income was RMB 11,974 (USD
1,700),compared to Guangdong's average of RMB 28,000 (USD 4,000).
Wen, however, admitted that an even larger incentive was the
potential effect it could have on a local official's career
advancement. Wen said that promotions were no longer based solely
on economic growth, but increasingly on raising living standards,
citing job creation as a high priority for Heyuan.

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City-to-City Cooperation
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4. (SBU) Wen explained that most financial backing for the
'double-transfer' policy was handled on a city-to-city basis.
Heyuan has framework agreements with Shenzhen and Zhongshan, its
main transferring cities, to share the costs of subsidizing
relocated enterprises. Shenzhen and Zhongshan have also aided the
process by organizing trips for entrepreneurs to assess Heyuan's
investment climate.

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Gather Together: Heyuan's Industrial Parks
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5. (SBU) Thanks to an earlier, mostly unsuccessful effort to attract
hi-tech industry, Heyuan is slightly ahead of the curve in
constructing industrial parks for transferred factories. One of its
largest parks, Zhongshan/Heyuan Transferred Industrial Park was
originally built as Heyuan Hi-tech Development Zone. Unable to
attract large amounts of hi-tech industries, the park was
restructured to include labor-intensive enterprises, such as cell
phone manufacturers, metal, and eyewear companies. These new
factories have raised Heyuan's annual growth rate by more than 20%
over the last five years, according to Vice Mayor Wen. Today, there
are seven industrial parks in Heyuan that have been identified as
destinations for relocated factories.

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Factoring Environmental Impact
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6. (SBU) The "double transfer" policy aims not only to relocate
labor-intensive industries, but also energy-inefficient industries.
When asked about the environmental impact of factory transfers, Wen
said that the local Environmental Protection Bureau (EPB) was very
much involved in selecting which enterprises are permitted to
relocate. All industries must undergo an environmental impact

GUANGZHOU 00000518 002 OF 002


assessment. In recent years, the EPB has rejected 200 relocation
applications due to potential threats to the local environment. Wen
said that prioritizing the environment was a key factor in Heyuan's
four established criteria for selecting relocated enterprises:

-- Low-to-zero pollution;
-- All factories must be located within industrial parks;
-- New enterprises must uphold standards of social responsibility;
and
-- New project construction must not waste land resources.

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Trade-offs: Cheaper Costs vs. Less Skilled Labor
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7. (SBU) Heyuan's government offers subsidies on power and water
utilities, as well as cheaper rents to attract enterprises.
According to Human Resources and Administration Manager Tang
Xuezhang of the recently relocated garment company, Tien Sung Group,
both utilities and labor costs are considerably cheaper in Heyuan
compared to Guangzhou. In Heyuan, electricity is RMB 0.53 per
kilowatt-hour, versus RMB 0.85 in Guangzhou. Also, the cost of
Heyuan's water is RMB 0.70 per cubic meter compared to Guangzhou's
RMB 2.65. Tang's company has three factories in Guangzhou, and
opened a fourth last year in one of Heyuan's industrial parks. Tang
admitted, however, that rather than closing down an existing factory
and relocating it to Heyuan, his company saw Heyuan as an
inexpensive opportunity to expand, a common trend among relocating
businesses.


8. (SBU) However, factories are facing challenges in recruiting
workers, especially skilled labor. According to Vice Mayor Wen,
only 51% of the municipality's industrial workforce is from Heyuan,
and 30% of workers are from outside Guangdong -- primarily from
Jiangxi, Hunan, and Hebei provinces. Many of Heyuan's skilled
laborers have migrated to more developed cities with hi-tech
industries.


9. (SBU) Government and enterprises alike proactively recruit
workers to staff the new factories. The municipal government is
trying to attract what Wen called the "redundant farmers," referring
to excess laborers in the area's shrinking agricultural sector.
Heyuan provides monetary incentives to township governments to
recruit farmers and offers subsidized vocational training in the
countryside. In addition, the government sponsors job fairs and
subsidizes vocational training provided by companies and local
training schools. Tang Xuezhang told us that his garment company's
biggest challenge was recruiting skilled workers, and that the
company had started a three-week program to train unskilled hires.



10. (SBU) Wen told us that with the influx of outside labor, the
government was concerned about the potential public security impact
and social pressures that migrant workers might bring to the city.
According to Wen, for example, accommodating the children of migrant
laborers in the few local schools has become a challenge. Wen said
that migrant labor was welcome, however, the emphasis would remain
on maintaining social stability and raising local living standards.


GOLDBERG