CENTRAL CHINA EXPO HIGHLIGHTS ACHIEVEMENTS, DOWNPLAYS

UNCLAS SECTION 01 OF 03 SHANGHAI 000210

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STATE ALSO PASS USTR FOR WINTER, ALTBACH
STATE FOR EAP/CM, EB AND E
TREASURY FOR OASIA - HAARSAGER, WINSHIP
USDOC FOR ITA MAC DAS KASOFF, MAC/OCEA -SZYMANSKI

E.O. 12958: N/A
TAGS: ECON PGOV EINV ETRD ELTN EAIR CH
SUBJECT: CENTRAL CHINA EXPO HIGHLIGHTS ACHIEVEMENTS, DOWNPLAYS
ECONOMIC SLOWDOWN

REF: SHANGHAI 209

SHANGHAI 00000210 001.2 OF 003



1. (SBU) Summary. On April 25-26, Shanghai Deputy Principal
Officer and ConOff traveled to Hefei, Anhui, to attend the 2009
Central China Expo. This annual gathering aims to promote the
`Rise of Central China' through investment and economic
development in the six Central Chinese provinces of Hunan,
Hubei, Anhui, Shanxi, Jiangxi, and Henan. State Council
Vice-Premier Wang Qishan and other Chinese government officials
used the event as a platform to call for transparency and rule
of law in Central China. Governors from the six Central China
provinces highlighted their efforts to build more attractive
investment environments by improving infrastructure and
promoting science and technology. Investors and trade
representatives who attended the expo expressed mixed views
about the benefits of investing in Central China. Deputy
Principal Officer and ConOff's attendance at this event
continued increased Consulate outreach to officials,
organizations and events in Anhui; Consul General's early April
meetings with provincial and Hefei municipal officials was
reported reftel. End Summary.



Spotlight on Central China

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2. (SBU) Hotels in Hefei were filled to capacity on April 25-28
as the provincial capital struggled to accommodate the 16,000
visitors expected to attend the fourth annual Central China
Expo. The expo, this year entitled `Innovation, Cooperation,
Win-Win Rising,' was the largest-scale gathering ever to take
place in Hefei. Besides investors and business representatives,
the expo also attracted cultural associations, sister city
representatives, and foreign diplomats. The Anhui Foreign
Affairs Office hosted the Deputy Principal Officer and ConOff,
along with Ambassador Madibo Wagidoso of Uganda, the Consul
Generals from the Romanian, Polish and Nigerian consulates in
Shanghai, and diplomats from the UK, Russia, and Pakistan, for a
three-day visit combining the Central China Expo in Hefei and a
tour of factories in nearby Huoshan County.




3. (SBU) In addition to encouraging a shift of investment and
industry westward from China's eastern provinces, the Central
China Expo is intended to showcase the provinces' recent
economic growth and reinforce self-confidence among the six
provinces. An impressive April 25 dance and music performance
was held in the Hefei Olympic Sports Center to kick off the
expo. The April 26 opening ceremony featured China's State
Council Vice-Premier Wang Qishan, Philippines Vice President
Noli De Castro, Taiwan's New Party Chairman, the Chief
Executives of Hong Kong and Macao, and the governors of each of
the six provinces, all of whom delivered speeches at the opening
day business summit.



Calls for Increased Transparency

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




4. (SBU) State Council Vice-Premier Wang's speech outlined the
measures the six Central Chinese provinces must take in order to
maintain steady economic growth in the face of the global
economic crisis. While the six provinces' GDPs are higher than
the all-China average and the provinces' transportation
infrastructure has been steadily improving, Vice-Premier Wang
called on the Central China provincial governments to accelerate
efforts toward scientific development, urbanization, and
industrialization. At the same time, he emphasized the
importance of stimulating rural markets and developing the food,
energy, raw material, equipment manufacturing, and
transportation sectors. He stressed the need for accelerated
institutional reform and an open, uniform market system that
serves as a stable environment for domestic and foreign
investors. Finally, he pointed to the importance of rule of law

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and coordination between provincial and sub-provincial
governments in order to create a more pro-business environment
in Central China.




5. (SBU) The theme of openness and transparency reemerged in
speeches by Hong Kong SAR Chief Executive Donald Tsang and two
of the provincial governors. Chief Executive Tsang said that,
while Hong Kong companies plan to continue investing in the six
provinces of Central China, their greatest concern remains the
local governments' ability to provide proper regulatory
conditions. Jiangxi Province Governor Wu Xinxiong cited his
government's efforts to increase honesty and efficiency in order
to create a better business environment, and Hunan Province
Governor Zhou Qiang mentioned that his provincial government had
`scaled up efforts to deepen reforms and open wider.'



The Path to Prosperity: Infrastructure and Science

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6. (SBU) Infrastructure development remains one of the top
priorities of the six Central China provinces, and five of the
provincial governors made reference to infrastructure in their
speeches. Anhui Province Governor boasted of the rapidly
improving express railway network connecting Anhui to Shanghai
and other regional capitals. Shanxi Province Governor Wang Jun
cited plans to invest RMB 650 billion in the construction of
6000 additional kilometers of railway and highway, as well as 6
airports, 20 million kilowatts of power plants, and 9000
kilometers of power grids.




7. (SBU) Five of the provincial governors emphasized science and
technology as the other essential component for Central China's
rise. Henan Province Governor Guo Gengmao said that scientific
development in the provinces is crucial but that Central China
must first tackle the challenges of industrial modernization,
urban modernization, and human resources. Hubei Province
Governor Li Hongzhong spoke of his province's efforts to develop
advanced manufacturing and high-tech industries as evidence of
its `scientific outlook on development.'




8. (SBU) Within the broader theme of economic development, four
governors stressed the importance of environmental protection.
According to Hunan Province Governor Zhou Qiang, his province is
making special efforts to attract investment in resource
conservation and environmental protection projects, particularly
in the Changsha-Zhuzhou-Xiangtan city cluster. Hubei Provence
Governor Li Hongzheng boasted that his provincial capital,
Wuhan, has been selected as `a pilot region for building a
resource efficient and environment friendly society.'



Still a Hard Sell

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




9. (SBU) Barry Nicholson, Consul in UK Trade and Investment at
the British Consulate in Shanghai, said that the enthusiasm for
Central China is not matched by UK investors. Although the
British retail giant Tesco has opened a store in Hefei and is
currently negotiating to open additional stores in Anhui
Province, other big UK firms have not yet made large-scale
investments in Anhui. According to Nicholson, most UK companies
prefer to concentrate their investments in large coastal cities
that have already experienced foreign investment and learned how
to accommodate foreign firms. UK firms still see ample
opportunity in eastern China and are not inclined to try to
`reinvent the wheel` in less developed and lesser-known parts of
China.



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But Some Small Fish Do Fare Better in Small Ponds

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10. (SBU) For other foreign companies, Central China offers
opportunities that are unavailable or inaccessible in East
China. Jouni Kahkonen has recently begun working as general
manager in charge of China operations at a small Finnish
renewable energy company called The Switch. In China, his
company manufactures and sells generators and convertors for
wind turbines. He expects that The Switch will capture a large
part of the Chinese wind energy market, which has already grown
quickly and is positioned for continued rapid growth thanks to
China's Renewable Energy Law (REL) and the target the Chinese
government has set to produce 15 percent of the country's energy
from renewable sources by 2020. While his company's China
headquarters are in Beijing, he has had difficulty gaining
access to officials and company executives there and often have
neither the time nor the interest to hear about the business
activities his company is trying to pursue in China. The small
size of his firm is one of the factors that he took into
consideration when deciding to place its China manufacturing
facility in Anhui rather than in Zhejiang or Jiangsu. For him,
the biggest benefits of doing business in Anhui are location and
access. Most of the parts used to build his generators and
convertors are manufactured in nearby Zhejiang and Jiangsu and
are easily transported to Anhui, and as an added bonus, he gets
preferential access to Anhui provincial and local government
officials, who are pleased that his firm has chosen Anhui as its
China manufacturing base. (Note: Kahkonen said that his company
has sought but not obtained reduced tax rates despite the
preferential tax policies Anhui advertises to attract foreign
investors. End Note.)



Comment: What about the Global Slowdown?

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11. (SBU) Chinese government officials at the Central China Expo
all noted the current global economic downturn as a factor in
their economic planning, but they all claimed to be optimistic
about prospects for continued growth. Perhaps because they were
competing for inbound investment, they did not raise social
stability issues such as unemployment or the problems of
displaced migrant laborers, although in other contexts Anhui
officials at least have been willing to discuss these issues.
It appears that money from the Chinese government's stimulus
package has relatively quickly trickled down to the provincial
level and the six Central China provinces have off-the-shelf
plans to draw on these resources, particularly through
infrastructure investment. Whether or not Central China can
gain from the global economic slowdown by attracting East China
companies looking to cut costs remains to be seen. End Comment.
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