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, �00A;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