WUXI: YANGTZE RIVER CITY REMAINS OPTIMISTIC IN FACE OF

UNCLAS SECTION 01 OF 02 SHANGHAI 000189

SENSITIVE
SIPDIS

DEPT FOR EAP/CM
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, ALTBACH
DOC FOR ITA/MAC - DAS KASOFF, MELCHER, SZYMANSKI, COUCH, LEHRMAN
TREASURY FOR OASIA - DOHNER/HAARSAGER/CUSHMAN

E.O. 12958: N/A
TAGS: ECON EINV ETRD ELAB CH
SUBJECT: WUXI: YANGTZE RIVER CITY REMAINS OPTIMISTIC IN FACE OF
ECONOMIC SLOWDOWN

REF: A. (A) 08 SHANGHAI 522

B. (B) SHANGHAI 156

C. (C) SHANGHAI 149

D. (D) SHANGHAI 118

E. (E) SHANGHAI 74

F. (F) SHANGHAI 28

(U) Sensitive but unclassified. Not for dissemination outside
USG channels; not for Internet distribution.

Summary
--------------


1. (SBU) Local government officials in Wuxi, a major exporting
city in East China, told PolOff on April 20 that while the
global financial crisis and China's economic downturn have hurt
exporters, Wuxi is optimistic it will weather the economic
downturn, particularly given its 10 percent growth during the
first quarter of 2009. One official claimed that as a result of
government intervention, small- and medium-sized enterprise
development, and foreign investment, there have been no factory
closures in Wuxi. Professors at Wuxi's top university said they
are optimistic about the YRD's economic recovery, but they
argued that China still has significant economic structural
problems to address. End Summary.

Travel to Wuxi
--------------


2. (SBU) PolOff and LES Political Assistant traveled to Wuxi (45
minutes west of Shanghai by train) on April 20. They discussed
the global financial crisis and China's economic slowdown with
local government officials and business professors at the
Southern Yangtze (Jiangnan) University. Wuxi, located on the
northern bank of Lake Tai, is a major manufacturing center in
East China and exporter of textiles and electronic goods. In
recent years, Wuxi has taken steps to move up the value chain to
develop its software and solar energy industries. Illustrating
Wuxi's importance to the Central Government, Premier Wen Jiabao
visited the city in January 2009 for the second time in less
than six months to assess Wuxi's economic prospects.

Local Officials: Big Impact on Exporters...
--------------


3. (SBU) Wuxi's exporters have been hit hard by the economic
downturn, local officials said. Cui Jianmin, Vice Director of
the Wuxi Municipal Economic and Trade Commission, said that
exports began to decline in September 2008. In February 2009,
Wuxi's exports fell by 7.9 percent year-on-year. The city's
electronics manufacturers have been particularly affected by the
economic slowdown in the United States, Cui said, as U.S.
consumption of Chinese electronic goods has fallen. Wuxi's
textile industry also has felt the impact, he said, but has been
somewhat insulated because of its higher value production line.
(Note: Cui acknowledged that low-end textile producers in
neighboring Zhejiang Province have been forced to close
factories or temporarily stop production as a result of the
downturn (Ref A),but he said Wuxi's decision a few years ago to
"move up the textiles value chain" and produce machine-woven
high-end products and close down its low-end labor and dyeing
operations has helped the city's textile industry survive the
downturn. End Note.)

...But Recovery is Around the Corner
--------------


4. (SBU) Officials expressed optimism that Wuxi's economic
recovery is "right around the corner." Cui noted that after
February's export drop, statistics indicated a slight recovery
in March with exports rising by 1.4 percent year-on-year. The
Central Government's stimulus measures are starting to have the
desired effect, Cui said, and while Wuxi is not receiving
stimulus funding from the Central Government, many of the
municipality's infrastructure projects that previously were on
hold (such as Wuxi's subway line) recently were approved by the
National Development Reform Commission (NDRC) in order to
encourage fixed asset investment (FAI) growth. As a result, Cui

SHANGHAI 00000189 002 OF 002


said, Wuxi's GDP for the 1st quarter of 2009 grew by more than
10 percent -- well above the 6.1 percent national average --
spurred by a 27 percent year-on-year increase in FAI.

Gauging the Social Impact of the Economic Slide
-------------- --


5. (SBU) Wuxi factories have been told by the municipal
government to be "socially responsible" and not layoff workers,
Cui said, and many companies have elected to offer training or
rest days to compensate for the falling workload. Cui claimed
there have been no factory closures in Wuxi; the city's
transformation in recent years towards the high-tech sector has
been a major reason for keeping companies open, as high-tech
investments require a significant commitment of funding, and
investors are reluctant to give up on their investments. Cui
also credited the contributions of private small- and
medium-sized enterprises (SMEs) for helping to absorb excess
laborers, as well as foreign companies (which he said make up 70
percent of Wuxi's investors) for helping "keep Wuxi stable."
Caterpillar is the latest foreign company to open a new facility
in Wuxi, he said.

Academics: The Trend is our Friend...We Think
--------------


6. (SBU) Professors at the Southern Yangtze (Jiangnan)
University on the outskirts of Wuxi were upbeat on Wuxi's
economic direction. Yang Xianzu, Vice Dean of the School of
Foreign Studies, told PolOff that the Chinese economy is on the
road to recovery, and university officials are optimistic they
will be able to find good jobs for graduates because of Wuxi's
plethora of foreign-invested enterprises (FIEs). Professor Xu
Liqing, Vice Dean of the Business School, however, was realistic
about the economic challenges facing China in the long-term.
"China already had structural economic problems that we need to
address," Xu stated. "The global financial crisis just made
those problems worse."

Wuxi's Views on the "G-2"
--------------


7. (SBU) While optimistic about Wuxi's economic recovery, the
professors strongly insisted that the "G-2" (U.S.-China)
concept, which they said arose from the early April London G-20
meetings and President Obama's meeting with President Hu, is
seriously flawed. China still has "a long way to go to compete"
with the United States, Xu said, throwing out a laundry list of
China's domestic economic ailments, including migrant worker and
university graduate unemployment, a weak social safety net,
overdependence on exports, low consumption, and inadequate
access to credit. Lu Feng, one of the business school's younger
professors, later emailed PolOff to sum up China's problems as
"the nation is rich but the people are poor" (guofu minqiong),
writing that China's domestic economic problems make the G-2
concept "unworkable."
CAMP