SOUTHWEST CHINA: DONGFANG ELECTRIC RECOVERS FROM EARTHQUAKE

C O N F I D E N T I A L SECTION 01 OF 02 CHENGDU 000062

SIPDIS

DEPT FOR EAP/CM AND EB
USDOE FOR INTERNATIONAL AFFAIRS

E.O. 12958: DECL: 4/13/2019
TAGS: ECON ETRD ENGR TRGY ETTC PGOV CH
SUBJECT: SOUTHWEST CHINA: DONGFANG ELECTRIC RECOVERS FROM EARTHQUAKE
AND SEEKS GROWTH IN GREEN ENERGY

REF: 08 CHENGDU 122

CHENGDU 00000062 001.2 OF 002


CLASSIFIED BY: James A. Boughner, Consul General, U.S. Consulate
General, Chengdu.
REASON: 1.4 (b),(d)




1. (SBU) Summary: Dongfang Electric Corporation, a company
based in Sichuan province that produces and sells billions of
dollars in power generation equipment worldwide, told us its
production of electric power generating turbines is increasing.
Despite the economic impact of the May 2008 earthquake, and the
resulting deaths of more than 200 employees, Dongfang's turbine
division has no plans to move its base of operations to coastal
areas. Dongfang is seeking to increase its production of wind
and nuclear power equipment before 2020, and is also conducting
research on high-efficiency solar cells. Company officials
acknowledged government plans to build a nuclear power plant in
Sichuan, but declined to say if the plant would be based on an
Areva or Westinghouse design. End Summary.

Recovering after the Earthquake, and Staying in Sichuan
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2. (SBU) Zhang Wenfeng, Deputy Secretary of the Party Committee
and Executive Deputy General Manager, of Dongfang Electric
Corporation's turbine division recently told Congenoff his
company is recovering quickly from last year's earthquake.
Zhang remarked operations in Hanwang, a city just northwest of
the company's headquarters in Deyang, was severely damaged
during the quake and that more than 200 employees died. Almost
one year after the quake, the company has returned to 80 percent
capacity, according to Zhang. He also noted that many of the
company's operations in Deyang were at least partially back up
and running only five days after the earthquake, although the
company suffered about 1.6 billion RMB (USD 234 million) in
direct losses as a result of the quake. Comment: The 80
percent recovery probably refers to reconstruction of all
facilities and not just manufacturing capacity. An article in
the Economic Daily this month cited the same 80 percent figure,
but then claimed Dongfang's revenue increased in 2008 following
a 12.3 percent increase in capacity.


3. (C) Despite the earthquake damage, the company has no plans
to move. In response to a question about transportation of
equipment from Sichuan to coastal areas where the equipment
would be used, Zhang told Congenoff that Dongfang had received
offers from Chongqing, Jiangsu Province, and other provinces to
move the company east. Although Dongfang has been offered land
and tax incentives to relocate, Zhang asserted the company has
no intention of moving its operations. On the contrary, the
company is noticeably expanding its facilities in Deyang. Note:
A very large new facility, easily visible from the expressway,
is under construction in the south end of Deyang. Signs for
Dongfang's turbine division hang at the construction site,
suggesting it is part of the companies plan to expand capacity
in coming years. Zhang made no reference to internal company
discussions last year (reftel) to relocate, but he did
emphasize, in line with our previous assessment, that Dongfang's
role as a major employer in Deyang was one reason not to move
east.

Coping with the Economic Downturn and Hoping for a Nuclear Deal
-------------- --------------
--------------


4. (SBU) Zhang noted the global economic crisis is having a
negative impact on Dongfang's turbine business. While he did
not quantify the financial impact of the downturn, Zhang did say
that some customers in Guangdong Province were delaying orders
as a result of the slowdown. Construction of additional power
generation capacity has slackened pace. Zhang said his company
would produce four natural gas turbines this year. Looking out
to 2020, he noted that business is focused on increasing orders
for both wind and nuclear power. Note: According to a local
press report from late 2008, roughly half of the orders already
placed for Dongfang turbines were for thermal power plants,
almost certainly referring to coal-fired power generation


5. (SBU) Zhang confirmed recent newspaper reports that Sichuan's
Nanchong city is the planned site of the first nuclear power
plant in western China. Dongfang already has a cooperative
agreement with Areva, a French nuclear power firm. Zhang
sidestepped Congenoff's question as to whether that partnership
would make it more likely that the nuclear power plant is built
in Sichuan would be based on the Areva's European Pressurized
Water Reactor. He said only that the nuclear power side of the
business was a targeted area for growth.

CHENGDU 00000062 002.2 OF 002



Emphasis on Wind Power Production and Solar Research
-------------- --------------


6. (SBU) Zhang estimated that his company would produce 1,200
wind turbines in 2009, a roughly 50 percent increase from the
previous year. These turbines would include
indigenously-produced 1 and 2.5 megawatt (MW) turbines as well
as 1.5 MW turbines produced in cooperation with an Austrian
company. Note: A local news article from December 2008
suggested that as Dongfang expands its wind turbine production
capacity, the company will aim to manufacture four times more
1.5 MW turbines than 1 MW and 2.5 MW turbines combined. Zhang
said that Dongfang's turbines are currently not being used in
any offshore wind power projects. He said that government
authorities want to use larger 3 MW turbines offshore, but
Dongfang does not yet have a product for this application.


7. (SBU) Zhang described how Dongfang is also doing research on
solar energy. He said that although many parts or Sichuan have
frequent cloud cover, two areas had been selected by the
government for the deployment of solar panels for electric power
generation. Zhang identified Aba Prefecture, a Tibetan
Autonomous Prefecture north of Chengdu, and Xichang, a city
south of Chengdu, as the two target areas. When Congenoff noted
that both of these areas are mountainous and it might be
difficult to construct large fields of solar panels, Zhang
responded that there are also grasslands in both locations that
will provide the area needed for the development of the solar
fields. He also mentioned that solar cells could be placed on
taller buildings, but did not't elaborate further.


8. (SBU) Zhang observed that the cost of solar energy remained
an obstacle to more widespread use but said that the central
government is providing a 20 RMB (USD 3) per watt subsidy for
the operation of solar power. The Ministry of Finance issued a
circular last month that outlined the standard 20 RMB per watt
subsidy and encouraged local governments to provide additional
subsidies and economic incentives. Zhang also said that
Dongfang was doing research on multiple-junction photovoltaics-a
layered solar cell that may be able to achieve relatively high
efficiency levels-and nanoparticle-based photovoltaic films.


9. (C) Comment: Per reftel discussion with a local attorney,
immediately following the earthquake that devastated Dongfang's
Hanwang operations and resulted in casualties at the plant far
greater than were originally reported, there had at the time
been serious internal discussions within the company about
moving at least some operations eastward. Given the significant
role it plays in the local economy, however, it is quite
possible that Sichuan authorities stepped in and made the
company a deal it could not refuse.
BOUGHNER