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
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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