|09GUANGZHOU346||2009-06-04 06:13:00||UNCLASSIFIED||Consulate Guangzhou|
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UNCLAS SECTION 01 OF 02 GUANGZHOU 000346
1. (U) SUMMARY: Guangdong remains highly dependent on exports, so
higher savings rates in the United States could adversely affect the
province's economy, Guangdong Party Secretary Wang Yang told
Congressman Rick Larsen in a May 26 meeting. His plan for surviving
the current economic downturn: continued emphasis on traditional
export markets and the search for new ones, improved product
quality, expansion into China's domestic market and a shift from
manufacturing to more high-tech industries. Congressman Larsen
reviewed for Wang measures taken by Congress to stimulate the U.S.
economy. Wang also pointed out that Guangdong provides migrant
workers left unemployed by the downturn free transportation to their
hometown; there they are expected to farm or rely on savings and the
largess of family to weather the economic storm. END SUMMARY.
Americans' Savings Rate Could Still Hurt Guangdong
2. (U) Guangdong Province's economy remains very much
export-oriented, Guangdong Party Secretary and Politburo Member Wang
Yang told Congressman Rick Larsen at their meeting on May 26. Wang
expressed concern about economic conditions in the United States,
noting -- as Nobel Prize-winning economist Paul Krugman had told him
during a visit to Guangzhou just two weeks earlier -- that American
consumers might alter their economic strategies and prefer saving
rather than spending in the future. Wang worried that this would
lead to further complications in Guangdong's export economy.
According to Wang, 2008 trade with the United States accounted for
40 percent of the province's total. Due to the global financial
crisis, Guangdong saw a 21.7 percent decline in foreign trade in the
first four months of 2009, with trade between the province and the
United States falling by 17 percent.
3. (U) Congressman Larsen told Wang that the economic stimulus deal
of USD 787 billion passed by Congress was aimed at rescuing the U.S.
economy. He also said that some of America's consumer habits had
already begun to change, noting that the current savings rate in
America was 4.2 percent, which was very high for Americans and
indicated a shift from spending to saving.
Five Steps to a Better Economy
4. (U) Though Wang acknowledged that the current economic downturn
had a negative effect on Guangdong's economy, he also pointed out
that the recession was a good opportunity for local enterprises to
confront pre-existing problems and make needed changes. In the long
term, said Wang, this would be a turning point for the development
of Guangdong's economic structure; the province could transition
from labor-intensive to high-value-added industries. Larsen
commented on the difficult decisions Guangdong had to make in order
to realign its economy, comparing this short-term pain/long-term
gain to removing an adhesive bandage: the quicker, the better.
5. (U) Wang enumerated five measures taken by Guangdong in response
to changing world economic conditions, claiming that they had helped
Guangdong suffer less of a drop in its foreign trade than the
-- Guangdong is taking steps to maintain its competitive edge in its
traditional export markets, including the United States and Europe.
Wang was confident that China's textile products, garments, shoes
and suitcases -- to name a few -- were still competitive in
-- Guangdong is exploring new markets such as the Middle East,
Russia, Southeast Asia, and Central Asia. In the first four months
of 2009, trade between Guangdong and Southeast Asia showed minor
growth, which Wang called "encouraging."
-- Guangdong is making every effort to improve the quality of its
-- Guangdong seeks to increase its presence in China's domestic
market. Wang recounted how, several days prior to his meeting with
Congressman Larsen, he and Guangdong Governor Huang Huahua led a
delegation to neighboring Guangxi and Hunan Provinces to promote
GUANGZHOU 00000346 002 OF 002
-- Guangdong must accelerate the upgrade of its industrial
structure. Wang said the provincial government now encouraged local
enterprises to improve innovation and expand research and
development and logistics and services. In addition, attracting
high-tech, new energy, biotech and bio-pharmaceutical industries was
a high priority.
If They're Out of Work, We Give Them a Free Ride Home
6. (U) Central to Guangdong's strategy to weather the rise in
unemployment is the return of out-of-work migrants to their
villages. In response to Congressman Larsen's interest in the
impact of the recession on labor, Wang said that many migrant
workers still had land in their hometown and could return home to
farm; workers could also live on their savings or the income of
family members while between jobs. For jobless people who could not
afford to go home, the policy was for local governments to provide
free shelter and food for ten days and then to arrange free
7. (U) Wang appeared confident that Guangdong's approach to the
unemployment issue would minimize any serious unrest, saying that,
even with the closure of many factories, "Guangdong will be able to
maintain social stability despite the higher unemployment rate
caused by the economic recession."
8. (U) Representative Larsen's delegation has cleared this cable.