SOME ECONOMIC OPTIMISM PERSISTS IN YIWU

UNCLAS SECTION 01 OF 04 SHANGHAI 000023

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: CH ECON EFIN ETRD PGOV SOCI
SUBJECT: SOME ECONOMIC OPTIMISM PERSISTS IN YIWU

REF: 08 SHANGHAI 467


1. (SBU) Summary: City officials and businesspersons in the
Zhejiang Province manufacturing and trading city of Yiwu in
mid-December continued to express optimism that Yiwu and its
businesses will fare comparatively better than other parts of
Zhejiang and other parts of China during this economic downturn.
Despite slowing exports, officials predicted another year of
double-digit economic growth rate for 2008. These interlocutors
stressed that Yiwu's nimble private sector has adjusted quickly
and well to past economic changes and challenges, and that many
of the goods produced or traded in Yiwu are everyday necessities
of modest expense that many persons will need to buy in bad
times as well as good. Two Yiwu villages visited are themselves
home to one hundred or more migrant farmers and home factory
workers. Agriculture and rural development officials say they
have not seen signs of social instability. End summary.


2. (U) Pol/Econ Chief, Pol-coned ELO currently serving in the
Consular Section, and Pol Assistant visited Yiwu December 15-17
to meet with local government and Party School officials and
examine the city's economic performance in the face of the
global financial crisis. Government meetings included a Vice
Mayor, Foreign Affairs Office (FAO) officials, and officials
from Yiwu's Employment Management and Service Bureau,
Development and Reform Bureau, Agricultural Bureau and
Agricultural Affairs Office. In addition to visits to two
relatively affluent nearby villages, we also visited two of
Yiwu's larger manufacturers (villages and factories selected by
the Yiwu FAO),both of whom reported production order backlogs
but admitted they were deferring additional hiring or expansion
plans at least until after the Lunar New Year period several
weeks away.

Attracting Migrants; Growth Slowing but Still Strong
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3. (SBU) Vice Mayor Li Xuhang, on an eighteen-month to two-year
secondment to the Yiwu Municipal People's Government from the
Ministry of Foreign Affairs, highlighted that Yiwu remains a
magnet for migrant workers: the city's total administrative
region is home to 700,000 native residents and over 1.1 million
migrants on long term stay (population figure for Yiwu's total
administrative area, not just the urban area of Yiwu). Relevant
officials are considering abolishing the "hukou" household
registration system that makes it difficult for long term
migrants to receive certain social services in their place of
residence. Vice Mayor Li said Yiwu is in a strong position to
weather the financial downturn because its products are for
daily use, and the city's well-established private sector is
accustomed to market economics. Li noted that some Yiwu
factories continue to hire new workers. (Consulate visitors saw
help-wanted signs at many retail stores, restaurants and hotels
near their Yiwu hotel.) He said the city's GDP growth had
slowed to 13.5 percent in the January-October 2008 period from
year-earlier growth rates in the high teens. Yiwu is a diverse
community, attracting immigrants or long-term visitors from
other parts of Asia, the Middle East and Africa. Li said South
Koreans are the largest registered expatriate community in Yiwu
but registered long-term residents hailing from such countries
as Afghanistan, Iran, Iraq, Syria and Lebanon are as a group
more numerous than the South Koreans.


4. (SBU) Zhu Leming, Deputy Director of the Yiwu Development and
Reform Bureau, said that Yiwu's full-year 2008 GDP growth rate
will be less than the full-year 2007 growth rate of 15.7
percent, but most assuredly remain in double digits for 2008.
Zhu underscored that Yiwu has a record of growth and achievement
and economic betterment for those who live and work there,
citing resident disposable income in 2007: Yiwu urban resident
disposable income increased 15.9 percent in 2007 to 25,000 RMB
(almost USD 3700) with rural residents' disposable income
growing faster at 16.4% to 10,255 RMB (more than USD 1500).
Local officials have enacted a number of measures to help local
businesses throughout 2008. In the face of a credit squeeze
dating back to the first half of 2008, Zhu said, the local
government has adopted measures to help resolve property deed
problems more expeditiously so that companies can use their
properties as collateral for low-cost loans. Furthermore,
merchants at the city's enormous and famous commodities fair
year-round exhibition halls may now use their usage rights at
the exhibition halls as collateral for loans; those with prime
locations can borrow more against their leases than others
tucked away on upper floors and back corners of the exhibition
halls. New insurance products have been developed for Yiwu
exporters to manage trade and currency risks. The city aims to

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work with Yiwu manufacturers and regulatory bodies to develop
standards for many commodities so that Yiwu manufacturers can be
national leaders. City officials are also working assiduously
on fire prevention and workplace safety measures, Zhu said,
arguing that such costs are far less than those that might be
incurred in a workplace tragedy. Public works construction of
new medical facilities in Yiwu already planned through 2010, and
potential enlargement of the Yiwu Commodity Market site and
contemplated establishment of a furniture commodity market in
Yiwu may also provide some degree of protection from external
economic impacts, Zhu added.

Official Unemployment Remains Low
--------------

5. (SBU) Huang Yunlong of the Yiwu Employment Management and
Service Bureau said the global financial crisis has not had a
large impact on Yiwu's employment rate. Huang said Yiwu's
current official unemployment rate is 2.7 percent, well below
the Zhejiang provincial target of 4 percent. He said the bureau
had already started checking at train stations on whether many
migrants are returning home and to gauge whether Yiwu needs to
launch programs for returnees. As of our mid-December meeting,
Huang said, Yiwu has seen very few jobless migrants returning to
Yiwu from elsewhere.

Rural Development Progressing Around Yiwu
--------------

6. (SBU) Lou Liping of the Yiwu Agriculture Bureau said the
local government encourages rural residents to transfer land
usage rights and that so far the process is running smoothly.
Lou said initial results have been beneficial, showing an
increase in the scale of production, and in increased farmer
income and increased land usage efficiency.


7. (SBU) Bao Xiaolong, Yiwu People's Government Agricultural
Affairs Office (the city office responsible for agricultural
development policy and rural infrastructure construction),said
Yiwu has made progress in rural development. Established in
April 2002, the office now has 13 staff covering 800 villages in
the city's administrative district. With a budget of over 100
million RMB (almost USD 15 million),Bao and his colleagues
focus on infrastructure construction, public transport, potable
water supply and sewage treatment systems. Currently the
drinking water system covers 88.5 percent of the rural areas
surrounding Yiwu and is expected to reach 100 percent coverage
by 2010. Lou, Bao and accompanying FAO officials all stressed
that Yiwu remains in a relatively strong economic situation,
including in its rural areas, and that as of mid-December, the
global financial crisis' impact on Yiwu's villages and rural
conditions and employment had not been significant.


8. (SBU) The Yiwu FAO arranged a visit to two Yiwu villages near
the Yiwu Airport, Yannan Cun and Lizu Cun. The former is home
to about 800 persons and the latter to nearly 600 - with 100 or
more migrant workers, primarily hailing from Henan, Jiangxi or
Sichuan, additionally residing in each of those villages.
Village chiefs and Party secretaries (several of whom admitted
they themselves spend most of the week living and working in
Yiwu's urban area) noted that many young adults native to the
two villages commute to manufacturing and service jobs in the
urban area of Yiwu, while the migrant workers tend village farm
fields (vegetables for the city, some fruit orchards, too) or
work in village enterprises which supply larger companies and
merchants in the city. Officials in Yannan Cun said a very few
migrant workers had recently departed for their home provinces,
with most remaining very busy in farming. Yiwu's rapid economic
growth clearly has brought money to these two villages. Yannan
Cun consists almost entirely of recently constructed apartment
buildings and recreational facilities, with remaining original
dilapidated housing scheduled for replacement soon. While
Yannan Cun has been largely rebuilt, Lizu Cun has taken the
course of preserving and refurbishing older buildings, giving
the village a more historical feel potentially suitable for
tourism. Village leaders said several neighboring villages send
their school children to a nearby new school. Officials and
residents in both villages were pleased that the major tasks of
providing paved roads, potable water supplies, electrification,
garbage pickup and public health facilities and parks have been
accomplished in recent years; roads were only paved in one of
these villages in 2006.

Yiwu Commodity Market: Where "Made In China" Is
Sold To Everywhere Else
-------------- ---

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9. (SBU) We made a morning visit to the Yiwu Commodity Market,
where 62,000 or so vendors sell every conceivable household good
in an area the size of four large airport terminals. Customer
traffic was not heavy that morning, but even so we encountered
potential purchasers from China, South Asia, the Middle East,
Europe, and the United States. As many as 200 personnel help
monitor the market to protect trademarks and maintain market
order, according to an Yiwu Administration of Industry and
Commerce official. Exhibitors who violate IPR can be expelled
from the Commodity Market, and purchasers who do not pay for
their shipments as contracted may have their names and amounts
due posted on stadium-size electronic billboards throughout the
Commodity Market grounds. Yiwu FAO Director Feng Meilan noted
that Yiwu and the Yiwu Commodity Market presently fall under the
jurisdiction of the Jinhua Customs District, but the city has
lobbied the Central Government to establish of a Customs
District just for Yiwu as a time- and cost-savings measure for
traders doing business in Yiwu. Ms. Feng expressed optimism
that the Customs District request would be granted. Feng
suggested that U.S. states could arrange for up to six months of
free exhibition space in the international section of the Yiwu
Commodity Market, though not necessarily gratis if overlapping
with the annual Yiwu Commodity Fair each October.
Notwithstanding the relatively few customers we saw prowling the
huge Yiwu Commodity Market, we passed large lines of backed up
semi-trailers outside logistics and shipping facilities in the
Yiwu area. Yiwu Development and Reform Bureau's Zhu said that
the number of containers shipped from Yiwu had increased by more
than 20 percent in 2008 versus 2007.

Frame and Sock Factories Still Filling Orders
--------------

10. (SBU) Managers of Huahong (www.chinaframe.com) and Mengda,
Yiwu manufactures of frames and socks respectively, painted a
cautiously optimistic picture of their economic position and
prospects. Huahong supplies frames and artwork to U.S.
companies such as Target, CVS and Walgreens. Mr. Ding there
said the company began as a family business in 1998 and
currently employs 3,900 people. He said the company has felt
the impact of the global financial crisis in the form of
declining orders from its smaller customers. Their larger
customers are still ordering and to some extent are picking up
the loss in volume from smaller customers. Ding said Huahong
will send employees to tradeshows in Las Vegas and Bologna in
early 2009 to drum up new business, but that the company will
wait to see how many new orders are received before deciding
after the Lunar New Year holidays whether to hire additional
workers. The company is nearing completion of a new multi-story
exhibition and sales center in Yiwu that it hopes will spur new
sales with tourists and business visitors.


11. (SBU) At Mengda's sock factory in Yiwu, manager Zhou Xiaoli
explained that the company already has sufficient orders to fill
production capacity through the first half of 2009.
Nonetheless, the company is postponing a real estate project
planned for a site adjacent to the Yiwu factory until the
economic situation becomes clearer. Mengda, a large OEM, makes
socks for Puma, NBA, Goldtoe, and China's Ministry of Foreign
Affairs, among others. Mengda paid USD one million to the
National Basketball Association in the United States for the
rights to make and sell NBA-logo socks in China. Zhou said 95
percent of the company's factory workers in Yiwu are migrant
laborers. Workers with whom Poloff spoke originally hailed from
Henan, Hunan and Anhui and all had been at this factory less
than one year. Zhou highlighted that staff turnover has
recently become quite low, perhaps as low as 5 percent on an
annualized basis. The Yiwu factory has 5,600 sock knitting
machines each capable of producing one sock every three minutes.
Zhou feels that Mengda is in a strong position because socks
and underwear are not luxury goods and he expects demand for the
company's products to remain stable.

Comment
--------------

12. (SBU) Mid-December attitudes in Yiwu reflect a persistent
streak of optimism about the future and a feeling that
industries based on goods related to everyday use remain
well-positioned in the current economic environment. Even so,
signs of caution about business expansion are evident, and
worker concerns about employment stability may be inferred from
the sock company manager's comments about rapidly falling staff
turnover rates. Consulate plans to include Yiwu again in our
travels in a few months' time to look further at developments
there and to gauge anew how this city of competitively priced

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commodities is faring in the face of the global financial crisis.
CAMP