1. SUMMARY: The global economic crisis will make it difficult for
Guangzhou to achieve its goal of 10 percent GDP growth this year,
according to Mayor Zhang Guangming in a May 26 meeting with
Congressman Larsen. The municipal government hopes that growth in
the services sector will offset slowed growth in manufacturing. The
Guangzhou Government officially boasts of low unemployment rates,
but the statistics likely do not account for significant job losses
among migrant workers. END SUMMARY.

Front Row and Front Lines


--------------------------





2. Guangzhou Mayor Zhang Guangming told Congressman Larsen that he
had had a front row view of the spreading subprime crisis in
September 2008 while attending training at Stanford University.
Zhang claimed to have predicted the negative impact of the subprime
crisis on Guangzhou's economy, saying that he subsequently called
for local government agencies to take measures to prepare for the
economic recession as soon as he returned to Guangzhou. He proudly
stated that Guangzhou had taken action earlier than both the Central
Government and the Guangdong Provincial Government.



3. Guangzhou adopted measures to deal with the recession in
November 2008, Zhang told Larsen. This included an economic
stimulus package focusing on infrastructure development investment
such as the construction of highways, harbors, airports, and subway
lines. Local government also took the initiative to provide small
grants to small and medium-sized enterprises (SMEs) and to reduce
local taxes and fees to ease the financial burden for enterprises.
Mayor Zhang claimed that these measures had significantly helped
enterprises continue operation without large-scale layoffs. In
addition, the Guangzhou Government streamlined administrative
procedures to improve essential services to enterprises. Zhang
also said he viewed the 2010 Asian Games, to be hosted in Guangzhou,
as an opportunity to further develop the economy and expand
Guangzhou's influence in Asia.

Services Key to Hitting Short-term Targets


--------------------------





4. Although many cities would be delighted with Guangzhou's 8.1
percent GDP growth in the first four months of 2009, it was
nonetheless the city's lowest in 30 years. The municipal government
is now gambling that service industry development can mitigate the
losses in manufacturing (which Zhang referred to as "secondary
industries"). Mayor Zhang said the service industry normally
contributes 60 percent of GDP, and from January through April 2009,
Guangzhou's service industry realized 11.7 percent growth in output.
If that continues and the output of manufacturing achieves 6
percent growth, Guangzhou should be able to top 10 percent GDP
growth this year, said Zhang.



5. To ensure 6 percent growth in manufacturing, the Guangzhou
Government will focus on the automobile, information technology and
petrochemical industries. According to Zhang, these three
industries contribute approximately 39 percent of the city's GDP.
Zhang said that Guangzhou's automobile manufacturing industry showed
positive signs with 9.4 percent growth during the first four months
of 2009. Meanwhile, the government will also encourage local
export-oriented enterprises to explore new markets, such as
Southeast Asia and Africa as well as the Chinese domestic market
(this sounds very much like Party Secretary Wang Yang's vision for
Guangdong's growth reported septel). Zhang said that Guangzhou's
Bureau of Foreign Trade and Economic Cooperation had recently
organized several seminars to assist local enterprises in this
regard.

Unemployment not a Problem (Officially)


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6. Mayor Zhang said the unemployment problem was under control,
claiming that municipal government policies had reduced the April
2009 unemployment rate to only 2.28 percent -- down from the
previous month. (Comment: Zhang's unemployment numbers almost
certainly include only Guangzhou's officially registered population,
and do not account for the millions of migrant workers -- a
considerable number still searching for jobs -- within Guangzhou's
city boundaries. End comment.) Using his methodology, Zhang said

GUANGZHOU 00000354 002 OF 002


the Guangzhou Municipal Government was confident that it could limit
Guangzhou's 2009 unemployment rate to 3.6 percent.



7. In his extensive briefing on the city and its economy, Zhang
pointed out that its GDP of RMB 821 billion (approximately USD 12
billion) accounted for 23 percent of the province's GDP in 2008.
With a population of 11.2 million as well, Guangzhou bills itself as
the core city in the Pearl River Delta.



8. The delegation did not have an opportunity to review this cable
before transmission.

GOLDBERG