ANHUI OPTIMISTIC IT WILL WEATHER ECONOMIC STORM

UNCLAS SECTION 01 OF 03 SHANGHAI 000449 SENSITIVE SIPDIS TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP DEPT FOR EAP/CM E.O. 12958: N/A TAGS: ECON PGOV ELAB ETRD EIND EINV CH SUBJECT: ANHUI OPTIMISTIC IT WILL WEATHER ECONOMIC STORM REF: A. (A) SHANGHAI 436 ¶B. (B) SHANGHAI 320 ¶C. (C) SHANGHAI 313 ¶D. (D) SHANGHAI 309 ¶E. (E) BEIJING 1760 ¶F. (F) GUANGZHOU 518 ¶G. (G) SHANGHAI 351 (U) This cable is sensitive but unclassified and for official use only. Not for distribution outside of USG channels or via the internet. Summary -------------- ¶1. (SBU) Anhui Provincial officials told visiting Congenoffs on October 14-15 that the global economic slowdown has affected the province but not as severely as in coastal provinces. The most significant impact of the economic situation is likely to be felt by Anhui's rural-to-urban migrants working on the coast. Some migrants may be returning home, however, as they see more opportunities to start their own companies or work for new investors in Anhui. The provincial government is seeking to attract more investors from the Pearl River Delta (PRD) and is emphasizing integration with the Yantze River Delta (YRD). End Summary. Visit to Hefei -------------- ¶2. (SBU) Poloff and Pol Assistant visited Hefei, Anhui Province's Provincial capital, on October 14-15. They met with officials from the Provincial Development and Reform Commission, Bureau of Labor and Social Security, and Foreign Affairs Office, as well as with an Anhui University law professor to discuss labor issues. Impact of Global Crisis on Central China's Anhui -------------- --- ¶3. (SBU) Anhui Province has been affected by the global financial crisis and U.S. economic slowdown, said Wu Jinsong, Vice Director of the Anhui Provincial Development and Reform Commission (APDRC),but the impact has been less acute than on the coast due to structural differences in Anhui's economy (see Refs A, B, C, and D for reporting on the economic slowdown in coastal provinces). Certainly, some export sectors have been hit hard by the economic slowdown, Wu said, citing Anhui's auto sector as an example of an industry feeling the pinch. For the most part, however, Anhui has been unaffected since only 15 percent of the provincial GDP is derived from exports. ¶4. (SBU) Wu stated that slowing exports from East China are more closely related to renminbi (RMB) appreciation than global 
factors. Peng Jiahai, Director of the Policy and Law Division at Anhui's Bureau of Labor and Social Security, agreed that global problems are not having a significant impact on Anhui's economy and RMB appreciation is the main domestic culprit, further adding that criticism of the new Labor Contract Law (LCL) for raising employers' costs and slowing the province's economy is misplaced. The LCL should not be the scapegoat for East China's economic problems, Peng said. The Slowing Economy and Migrant Workers -------------- ¶5. (SBU) Anhui contacts all said the most significant impact of the slowing economy would be on the province's migrant workers. Anhui remains a major source of migrant workers with as many as 12 million of the province's 51 million registered rural residents working in coastal areas, said Chen Xiaoling, Vice Director of the Anhui Provincial Bureau of Labor and Social Security. Wu Jinsong at the APDRC agreed that China's economic situation would affect Anhui's rural-to-urban migrants but said his organization has not yet conducted any surveys to determine the potential economic impact on migrants. Back to Hefei: Are Migrants Returning Home? -------------- ¶6. (SBU) Chen said she is not concerned that the slowing economy SHANGHAI 00000449 002 OF 003 will make it harder for migrants to find jobs, stating that there "are always jobs" with low-cost laborers remaining in high demand. In fact, Chen said many migrants are returning home to Anhui either to start their own companies or work for factories managed by investors from the Pearl River Delta (PRD) (see also Ref E on migrants reportedly returning to Hunan Province). Chen estimated that at least 700,000 migrants (and possibly as many as one million) have returned to Anhui in the last two to three years. As a result, the Provincial Bureau of Labor and Social Security has increased the number of loans available to start small businesses and ramped up worker trainings to satisfy investors' demand. Because of the increasing number of job options, many migrants elected to stay in Anhui and remain close to family after they returned home during the Lunar New Year holiday this year, she said. ¶7. (SBU) Li Kunkang, a law professor at Anhui University, said he does not believe the estimated number of returning migrants is as high as Chen claims, but it is clear that factories are closing on the coast and relocating to Central China in search of lower costs, opening up more job opportunities for workers in Anhui. Li said there is a generational difference, however, between older and younger migrant workers with the older generation more willing to return to Anhui than their younger counterparts who want to continue working in urban areas on the coast. Shoe on the Other Foot: Coastal Investors in Anhui -------------- -------------- ¶8. (SBU) Chen said Anhui Province is actively working to attract investors from Guangdong and other coastal provinces. In particular, Chen said the province has successfully attracted investors from Dongguan to build a new development zone near Hefei. With coastal companies setting up development zones in Anhui, there is even more of a reason for rural-to-urban migrants to return home, Chen said. According to Chen, some Dongguan-based companies started looking into investing in Anhui after Guangdong Party Secretary Wang Yang began promoting the "double transfer" policy to move labor-intensive industries outside the PRD (Ref F). Once they explored their options for moving inland, the companies found that costs were lower in Anhui than in other parts of Guangdong, Chen said. Wu Jinsong at APDRC said attracting more investment from the coast would be a major focus of the 4th Central China Expo in Hefei in April ¶2009. ¶9. (SBU) Officials at the Anhui Bureau of Labor and Social Security acknowledged, however, that there is a downside to attracting new investment from the PRD, as the provincial government copes with importing Guangdong's old problems. For example, Wang Jie, Director of the Bureau's Legal Compliance Division, said his office needs to do more inspections of factories to ensure that the new investors are abiding by labor laws, including the LCL. There also has been an increase in the number of workers complaining that their salaries have not been paid by their employers. Li Kungang said Anhui's arrears problem is not too significant because the LCL requires local governments to pressure employers to pay wages promptly. There is an inherent conflict for local governments, however, between encouraging employers to obey labor laws and attracting new investment, he said. Wooing Shanghai: Officials Stress YRD Integration -------------- -------------- ¶10. (SBU) As part of the province's strategy to strengthen cooperation with the Yangtze River Delta (YRD),Anhui Provincial Party Secretary Wang Jinshan visited Shanghai in late August as the head of a delegation to discuss regional integration and further developing the YRD economy. Wang met with Shanghai Municipal Party Secretary Yu Zhengsheng and visited sites in Pudong, including the Zhangjiang Hi-Tech Industrial Park and Maglev Rail on August 28. Wu Jinsong at APDRC said the trip was short but signified the importance of YRD integration to Anhui's leaders. (Note: Party Secretary Wang also stressed the importance of YRD integration during his August 13 meeting with the Consul General (Ref G). End Note.) Comment: Anhui Optimistic on Economic Prospects SHANGHAI 00000449 003 OF 003 -------------- --- ¶11. (SBU) The reaction of officials in Anhui to the global economic slowdown differed markedly with the relatively gloomy assessments in Jiangsu and Zhejiang Provinces (Refs A, B, C, and D). Anhui's positive spin on the slowdown -- that it would attract more investment to the province from businesses seeking lower costs -- gives the impression that provincial officials believe Coastal China's loss is Central China's gain. Anhui's economy remains weak when compared to neighboring Jiangsu and Zhejiang, however, and Anhui will need to manage difficult labor and environmental issues as it grows, particularly as the province undergoes rapid urbanization. CAMP