ZHEJIANG VICE GOVERNOR PROMOTED TO COMMERCE VICE MINISTER

UNCLAS SECTION 01 OF 02 SHANGHAI 000033

SENSITIVE
SIPDIS

STATE FOR EAP/CM, INR/B
STATE PASS USTR FOR STRATFORD, WINTER, KATZ
USDOC FOR ITA DAS KASOFF, MAC/OCEA - SZYMANSKI
TREASURY FOR OASIA - HAARSAGER, WINSHIP
NSC FOR LOI

E.O. 12958: N/A
TAGS: ETRD PGOV PREL EINV ECON PINR CH
SUBJECT: ZHEJIANG VICE GOVERNOR PROMOTED TO COMMERCE VICE MINISTER

(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.

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


1. (SBU) China's State Council recently appointed Zhejiang Vice
Governor Zhong Shan to move to the Ministry of Commerce (MOFCOM)
as Vice Minister. Zhong has served in Zhejiang's provincial
government since 2003 during a period of rapid economic growth
and the expansion of trade and investment ties. The United
States remains one of the province's top investors, but U.S.
cooperation with Zhejiang has been hindered in recent years by
poor intellectual property rights enforcement and lingering
trade disputes. Although in charge of the province's foreign
affairs portfolio during his tenure as Vice Governor, Zhong has
not historically had much contact with the Consulate. End
Summary.

Moving To MOFCOM
--------------


2. (SBU) China's State Council recently tapped Zhejiang Vice
Governor Zhong Shan to replace MOFCOM Vice Minister Yu
Guangzhou. Zhong's appointment was one of nine personnel moves
announced on December 10. Zhong is expected to take over Yu's
portfolio, which according to the MOFCOM website had included
the Department of General Economic Affairs, Department of
European Affairs, Department of Foreign Affairs, MOFCOM Party
Committee, Department of Retired Cadres' Affairs, the China
Foreign Trade Center, and China-Europe Association.

Zhejiang's Economy
--------------


3. (SBU) Named Vice Governor of Zhejiang in 2003, Zhong served
in the provincial government during a period of rapid economic
growth. Zhejiang is known for its broad-based, entrepreneurial
capitalism, and large number of private enterprises. Per capita
GDP in 2007 reached USD 4883, well above the national average of
USD 2226, and the province's GDP accounted for 9 percent of the
nation's total in 2007. Despite reports that there are an
increasing number of factory closures in the province,
especially in the export sector, Zhejiang's GDP continued to
grow through the first three quarters of 2008, increasing by
10.6 percent over the same period in 2007 to USD 224 billion.

Zhejiang's Cooperation with the Consulate
--------------


4. (SBU) In recent years, the Consulate's cooperation with
Zhejiang Province has been good, although not as active and deep
as our cooperation with Jiangsu. Notable visits include
Treasury Secretary Paulson to Hangzhou in September 2006 and SED
Ambassador Holmer to Ningbo in May 2008. Ambassador Randt's
visits to Zhejiang most recently included his participation in
the November 2008 re-interment ceremony for the ashes of
Ambassador Leighton, an event in which Zhejiang officials were
among those making important preparatory contributions. The
United States remains among Zhejiang's top investors, accounting
for over 4,700 U.S.-invested projects by 2007. Prominent U.S.
investors include General Motors, Merck, Motorola, and General
Mills.

IPR Problems and Trade Disputes Hinder Ties
--------------


5. (SBU) Poor intellectual property rights (IPR) enforcement and
lingering trade disputes, however, have hindered fuller
development of ties and cooperation between the USG and Zhejiang
Province. Since the United States filed an IPR-related case in
the WTO, Zhejiang largely refused - up until a January 12, 2009
meeting (forthcoming septel) - to cooperate with the Consulate
on IP-related issues. FCS Shanghai has dealt with a growing
number of business disputes related to American investors in
Zhejiang, mostly in Hangzhou, the provincial capital. Some of

SHANGHAI 00000033 002 OF 002


these cases appear to involve meddling by senior provincial
officials or harmful actions by provincial state-owned
enterprises (SOEs).

Zhong Shan's Role
--------------


6. (SBU) Although in charge of the province's foreign affairs
portfolio during his tenure as Vice Governor, Zhong has not
historically had much contact with the Consulate. Previous
Consul Generals have written letters to Zhong regarding
investment disputes or political issues, but Vice Governor Zhong
did not normally reply. Zhong regularly attended international
trade and investment fairs in the province

Zhejiang Cadres' Views
--------------


7. (SBU) According to Zhejiang Province Foreign Affairs
Officials (FAO) speaking on January 12, 2009, Zhong is of course
acquainted with Vice President Xi Jinping from their shared time
of service in Zhejiang, including participation at some major
business events, such as ceremonies to announce new investments
in Zhejiang. However, the FAO officials point to former Vice
Premier Wu Yi as having identified Zhong as a successful foreign
trade and foreign investment bureaucrat and think it most likely
that she had laid groundwork for Zhong's elevation to the
Central Government, rather than something Xi Jinping had done.
The FAO officials spoke highly of Zhong's pro-active approach to
reach out to foreign businesses in Zhejiang and to ensure that
provincial government departments addressed concerns raised by
foreign-invested enterprises. He warned about slowing foreign
trade in the first half of 2008 and instructed provincial
departments to try to prevent that.

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


8. (SBU) The Consulate has had little direct contact with Zhong,
and Zhejiang's record on economic and commercial issues is mixed
-- the province strongly promotes private enterprise and at
least through much of 2008 continued to grow rapidly, but the
provincial government has failed to protect adequately IPR or
sometimes failed to protect the interests of foreign investors.

Bio Note: Zhong Shan
--------------


9. (SBU) Zhong Shan is a native of Zhejiang Province, born in
1955 in Shangyu. He joined the Chinese Communist Party (CCP) in
1974 and earned a PhD in economics from Zhejiang University.
Zhong has a business background, having served as CEO of the
Zhejiang Provincial International Ad Company, and CEO and Party
Secretary of both the Zhejiang Apparel Import and Export Company
and Zhejiang Zhongda Company. He later became Director General
and Party Secretary of the Zhejiang Provincial Economic and
Trade Cooperation Bureau. He was named Vice Governor of
Zhejiang Province in 2003 and appointed to his new post as Vice
Minister of Commerce on December 10, 2008.


10. (SBU) According to Zhejiang FAO officials, Zhong's portfolio
in Zhejiang Province included foreign trade and investment,
tourism, and religious affairs. Zhong has a daughter now
studying at Tsinghua University in Beijing. One of the FAO
speakers on January 12 recounted that Zhong had been listed in a
Taiwan publication in a recent year which identified up and
coming Fifth Generation leaders in China. (The FAO official
also said the current Party Secretary in Ningbo and a Party
Central Organization Department (zhongyang zuzhibu) official
surnamed Chen were other predicted future leaders in that same
Taiwan publication.)
CAMP