CONSUL GENERAL'S MEETINGS WITH JIANGSU PARTY SECRETARY LIANG

C O N F I D E N T I A L SECTION 01 OF 02 SHANGHAI 000309

SIPDIS

DEPT FOR EAP/CM

E.O. 12958: DECL: 8/6/2018
TAGS: PGOV PREL ECON EINV KIPR CH
SUBJECT: CONSUL GENERAL'S MEETINGS WITH JIANGSU PARTY SECRETARY LIANG
BAOHUA AND GOVERNOR LUO ZHIJUN

CLASSIFIED BY: Kenneth Jarrett, Consul General, U.S. Consulate
Shanghai, Department of State.
REASON: 1.4 (b),(d)




1. (C) Summary: In separate meetings with the Consul General
(CG) on July 30, Jiangsu Party Secretary Liang Baohua and
Governor Luo Zhijun expressed their appreciation for the CG's
efforts to increase ties between Jiangsu Province and the United
States. Like Nanjing municipal officials (see reftel),they
noted that the U.S. economic slowdown is having a negative
impact on Jiangsu's economy. Although Jiangsu's exports have
slowed down, it is not suffering as much as other provinces
because it produces higher value goods. According to Party
Secretary Liang, the final collapse of the proposed
Carlyle-Xugong deal will not affect how foreigners perceive the
investment climate in Jiangsu. Party Secretary Liang also noted
that the establishment of high-speed rails between Nanjing,
Hangzhou and Shanghai will further Yangtze River Delta (YRD)
integration. Both Party Secretary Liang and Governor Luo voiced
their commitment to protecting IPR. End Summary.

Party Secretary Liang Welcomes More Cooperation
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2. (SBU) During the CG's July 30-31 trip to Nanjing, Party
Secretary Liang Baohua hosted a dinner in CG's honor. Liang
expressed appreciation for the CG's efforts to increase ties
between Jiangsu and the United States. Liang welcomed more
exchanges and cooperation in the future between Jiangsu and the
United States, and he expressed strong support for the provinces
ties with New York State.

Jiangsu's Economy: Doing Better Than Zhejiang
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3. (SBU) Echoing Nanjing Municipal authorities in their
meetings with CG (see reftel),Party Secretary Liang said that
the U.S. economic slowdown is having a negative impact on
Jiangsu. In particular the appreciation of the RMB against the
dollar is moving too quickly and the rise in labor costs are
making it very difficult for Jiangsu companies, especially SOEs,
to make a profit. However, Jiangsu is doing better than other
provinces such as Zhejiang. Factories in Jiangsu produce
high-value products which are not as impacted as much by the
U.S. economic slowdown. In fact, Jiangsu's exports to the
United States are still growing, but just at a slower rate.

Investment Climate Not Affected by Carlyle-Xugong Deal
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4. (SBU) When asked about the final collapse of the
Carlyle-Xugong deal, Liang said that the incident should not
have an impact on how foreigners perceive the investment climate
in Jiangsu. (Note: In October 2005, Carlyle had signed
agreements with Xugong, the largest construction company in
China, that would enable it to acquire 85 percent of the
company. The deal sparked strong criticism from some quarters
within China that a foreign company would have control of a
Chinese company in a key industry. After protracted
negotiations, including Carlyle's agreement to lower their
ownership share, both Carlyle and Xugong abandoned the deal on
July 23. End Note.) Xugong is now trying to raise money on its
own said Liang. At the same time, Carlyle is still actively
trying to invest in Chinese companies in Jiangsu and is
interested in a company in Yangzhou. He praised Carlyle for
being very smart and having an uncanny ability to identify good
companies with a high likelihood to grow.


5. (SBU) Liang added that the United States also places limits
on foreign investment. He recalled then Jiangsu Party Secretary
Li Yuanchao's failed effort to purchase helicopters from the
United States. Liang complained about the U.S.'s excessively
strict export controls, which he said contributed to the
bilateral trade deficit. The CG said that all countries have
national security considerations that require the use of export
controls. The U.S. export controls are routinely reviewed and
prevent only a small percentage of goods from being sold. The
amount of trade subject to export controls is very small and has
little impact on the trade deficit.


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IPR Protection: Good For Jiangsu
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6. (SBU) Liang assured CG that the Jiangsu Government is
committed to IPR protection. Jiangsu not only has programs with
the United States, but also held a program with the Japanese
government last year. He added that the Jiangsu Government
knows that IPR protection is an important aspect of development.
It is taking measures in this area not just because of foreign
pressure.

Yangtze River Delta Integration
--------------


7. (SBU) Liang spoke positively about YRD integration, noting
efforts to connect Shanghai, Nanjing, and Hangzhou by high-speed
rail. In the future, it will only take an hour to travel by
rail between the three cities. Liang said there should not be
any competition between the three provinces and claimed that the
three provinces will just divide their responsibilities.
Shanghai will develop its "four centers" (international
economic, financial, trade and logistics),while Jiangsu and
Zhejiang will concentrate in other areas.

Governor Luo Zhijun: Exports, IPR, and Education
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8. (SBU) At an earlier meeting, Luo Zhijun also thanked CG for
his efforts to foster ties between the United States and
Jiangsu. Like Liang, he noted the negative impact of the U.S.
economic slowdown on Jiangsu province. He also said that
although Jiangsu's exports had decreased, the decrease was minor
because Jiangsu produced higher value goods. He added that
trade between the United States and Jiangsu is now in balance
and there was no longer a trade deficit. (Note: During a
separate meeting at Jiangsu CIQ, CIQ officials said that the
current provincial rate of growth of both exports and imports to
the United States is 5.2 percent. It is likely that this is
what Luo was referring to when he said that the U.S.-Jiangsu
economy is now balanced. End Note.)


9. (SBU) Like Liang, Luo also expressed his commitment to IPR
protection. He promised that Jiangsu would do its best in this
area. Using Microsoft as an example, he said Jiangsu must
protect IPR to maintain and attract foreign investment.


10. (SBU) According to Luo, the Provincial Government is paying
a great deal of attention to the structure of the economy as
part of an effort to promote continued growth. One area for
attention is university education. Jiangsu wants to further
develop and internationalize its universities. To this end, it
welcomes the University of Arizona's plans to open an
American-style university in Jiangsu. The Hopkins-Nanjing
Center is another positive example and demonstrates Jiangsu's
early commitment to innovation in education. Luo said that the
Provincial Government is also urging universities and private
enterprises to have more cooperation. He noted that in many
countries universities and private enterprises have very deep
and extensive cooperation. He believes that more of this
cooperation will be helpful in Jiangsu's development.
JARRETT