DASH FOR THE CASH: LOCAL PARTY SECRETARY GETS HIS

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 001318

SIPDIS

E.O. 12958: DECL: 05/15/2034
TAGS: PGOV ECON KPAO CH
SUBJECT: DASH FOR THE CASH: LOCAL PARTY SECRETARY GETS HIS
PIECE OF THE STIMULUS PIE

Classified By: Acting Political Section Chief
Dan Kritenbrink. Reasons 1.4 (b) and (d).

SUMMARY
--------------


1. (C) Providing a window on the thinking of local
officials in China, the Party Secretary of
Hulunbeier City in Inner Mongolia on May 12
described to PolOff his successful campaign to
obtain a large chunk of PRC stimulus package funding
for his city, as well as his efforts to maintain the
municipality's GDP growth rate at an ambitious 18
percent, despite the global financial crisis. The
Party Secretary traveled to Beijing in November,
immediately after the central government announced
its stimulus package, to personally secure RMB 800
million (USD 118 million) in funding for new local
infrastructure projects. Hulunbeier's own permanent
representative office in Beijing -- separate from
the larger provincial liaison office -- was a key
factor in the city's ability to lobby successfully
for such funds. The Party Secretary's approach to
the global slowdown was to simply "ignore it" and
urge his subordinates to "charge ahead" with
development plans as if nothing had changed. End
Summary.

DINNER WITH THE PARTY SECRETARY
--------------


2. (C) Over dinner with PolOff May 12, Cao Zhenghai
(protect),the Party Secretary of Hulunbeier City,
Inner Mongolia, boasted of his success securing
funding from the central government's economic
stimulus package and maintaining high economic
growth. Hulunbeier is a municipality of 2.7 million
people in the far northeast corner of the Inner
Mongolia Autonomous Region (IMAR). The city's
economy -- based on coal mining, resource extraction
and electricity generation -- has one of the fastest
growth rates in China.

WHAT GLOBAL ECONOMIC CRISIS?
--------------


3. (C) Party Secretary Cao described his
subordinates in Hulunbeier as being overcome with
pessimism following the outbreak of the global
financial crisis last year and reflexively wanting
to scale back growth targets for 2009. Such gloom,
he argued, was mainly "psychological" and not based
on the city's real economic situation. In an
internal meeting in late 2008, Cao told city leaders
that given the lack of export-oriented industries in
Hulunbeier, "there is no reason why the financial
crisis should affect us." Cao said his approach to
the financial crisis has essentially been to "ignore
it" and charge ahead with ambitious 2009 goals of 18
percent GDP growth and 20 percent government revenue
growth. (Note: Provincial and sub-provincial GDP
statistics in China are notoriously inaccurate.
Some central government officials have proposed
abolishing the use of these figures altogether due
the tendency of local officials to inflate these
figures as well as concerns that they focus local
officials' attention on achieving growth at the cost
of the environment and other efforts to raise
overall living standards.)


4. (C) Hulunbeier, Cao asserted, was on course to
meet or exceed its ambitious growth targets, and
government revenue had grown at an annual rate of
just over 30 percent in the first quarter of 2009.
Cao attributed Hulunbeier's performance to new
investment in the energy and chemical sectors.
Though he admitted total energy demand in China had
fallen, Hulunbeier sells most of its coal and
electricity to China's northeast provinces, an area
where the economy is dominated by state-owned
enterprises and that has been largely insulated from
the global economic slowdown.

FACE TIME IN BEIJING
--------------


5. (C) Infrastructure spending, including money from
the central government's stimulus package, was an
important component of Cao's plan to maintain
Hulunbeier's 18 percent GDP growth. Cao bragged
that he had personally secured RMB 800 million (USD
118 million) in direct stimulus funding for his city

BEIJING 00001318 002 OF 002


from the central government, which he claimed was
nearly three times the average amount for similar
sized cities. "I was in Beijing the second day
after they announced the stimulus (in November),"
Cao said, adding that he personally visited the
National Development and Reform Commission with a
list of "ready-to-go" local infrastructure projects.
Cao repeatedly emphasized the importance of
Hulunbeier maintaining its own representative office
in Beijing (separate from the larger IMAR provincial
liason office) to lobby for such resources. (Note:
At this point, Cao's son, a senior in finance at
Beijing's Renmin University who also attended the
dinner, challenged his father on the wisdom of such
infrastructure spending. The return on such
investment, the son argued, would likely be very
low. Cao dismissed this argument, saying that the
return on capital was irrelevant next to the boost
such projects provide to GDP growth.)

SUPPORT FOR VIRTUAL PRESENCE POST (VPP) CONCEPT
-------------- --


6. (SBU) Cao voiced strong support for Mission
China's Virtual Presence Post (VPP) Program and
invited the Inner Mongolia VPP team to visit his
city in 2009. Hulunbeier, Cao said, did not yet
have a sister city in the United States, and he
hoped to enlist the VPP team's assistance in
identifying a suitable match.

MEETING AND GREETING
--------------


7. (C) Asked how he spent most days on the job, Cao
said his life as Party Secretary was dominated by
official meetings, inspection tours, and greeting
visiting IMAR and central-level officials. Cao said
the summer months bring a steady stream of high-
level visitors to Hulunbeier who come for both
business and pleasure (the lakes and grassland
around Hulunbeier are considered among IMAR's most
scenic areas). Cao said he must personally greet
and entertain any visiting leader at or above the
rank of vice minister. Social drinking, Cao joked,
was an "essential skill" for IMAR Party cadres.

RAISING KIDS THE CADRE WAY
--------------


8. (C) In the presence of his son, Cao spoke at
length about the difficulties high-level CCP leaders
have in raising children. "The children of leaders
tend to go to one of two extremes, either they are
very talented or completely useless," Cao declared,
making clear his son fell into the former category.
Cao gave his son only RMB 1,000 (USD 147) per month
in spending money, which he noted was modest for a
university student in Beijing. "I want my son to be
somewhere between the richest kids and the poorest."
Cao said he also lent his son RMB 10,000 (USD 1,470)
to use to play the stock market and learn about
investing, though Cao stressed he expected his son
to pay the money back. Cao commented that the
children of elites enjoy greater opportunities
because of their parents' status, yet they
ultimately must prove themselves through their own
hard work. He noted that while most college
graduates were having great difficulty finding jobs,
his son would face no such pressures. "I can pick
up the phone and get him a job anywhere he wants to
work," Cao asserted.

BACKGROUND ON CAO
--------------


9. (C) Cao Zhenghai was born and raised in Hohhot,
the capital of the IMAR. He has spent his political
career climbing the rungs of the IMAR Communist
Party hierarchy. He was appointed Party Secretary
of Hulunbeier in 2006. He previously served as
Mayor of Hulunbeier and as Deputy Party Secretary of
Baotou City. He studied at the CCP Central Party
School in Beijing from March to July 2008. Cao told
PolOff that he expected to eventually be transferred
to Hohhot, IMAR's capital, and promoted to IMAR vice
chairman (the equivalent of a deputy provincial
governor).
PICCUTA