ANHUI'S 2009 ECONOMIC ROLLER COASTER RIDE

UNCLAS SECTION 01 OF 03 SHANGHAI 000436

SENSITIVE
SIPDIS

TREASURY FOR OASIA/INA DOHNER/HAARSAGER/WINSHIP
DEPT FOR EAP/CM, INR
USDOC PASS BUREAU OF ECONOMIC ANALYSIS
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA
STATE PASS USTR FOR STRATFORD, WINTER, KATZ
NSC FOR LOI
MANILA FOR USADB

E.O. 12958: N/A
TAGS: ECON PGOV EFIN ETRD ELAB PREL CH
SUBJECT: ANHUI'S 2009 ECONOMIC ROLLER COASTER RIDE

REF: A. (A) 08 SHANGHAI 449

B. (B) SHANGHAI 104

C. (C) SHANGHAI 96

D. (D) SHANGHAI 210

E. (E) SHANGHAI 209

F. (F) SHANGHAI 211

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



SUMMARY

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1. (SBU) Anhui Province boasted robust economic growth through
the first three quarters of 2009 despite concern earlier in the
year of a slowdown. Much of the province's growth is due to the
Central Government's economic stimulus measures, including
investment in infrastructure. Most of Anhui's migrant workers
have been able to find jobs in coastal China during the year,
while others have launched new businesses at home. End Summary.



TRAVEL TO ANHUI

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2. (SBU) Deputy Principal Officer (DPO),PolOff, and Pol
Assistant visited Hefei, Anhui's provincial capital, on October

22. They met with officials from the Provincial Development and
Reform Commission and Provincial Foreign Affairs Office, as well
as professors at Anhui University's Economic Institute.



GROWTH REBOUNDS IN FIRST HALF

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3. (SBU) Anhui's provincial GDP increased 11.8 percent in the
first half of 2009 and 12.9 percent through the first three
quarters of the year. Anhui's rapid GDP growth through the
first half of the year was the seventh fastest pace among
China's provinces, said Anhui Provincial Development and Reform
Commission Deputy Director General Wu Jinsong. The province's
industrial growth has rebounded, and Wu boasted that Anhui's
year-on-year industrial growth rate for the month of September
ranked first in China. The current rate of economic growth is
"better than expected," Wu stated.




4. (SBU) Anhui's resurgence follows a period of uncertainty
during the winter of 2009-10. Wu admitted the provincial
government was in a "panic mode" between October 2008 and March
2009 when it was not yet clear if the province would emerge
unscathed from the global financial crisis and China's own
economic downturn, especially after the price of coal and steel
(both produced in Anhui) dropped dramatically in November 2008.
Although officials (including Wu) initially had expressed
optimism in October 2008 that Anhui's low level of dependence on
exports would help the province deal with the crisis (Ref A),
there was considerable concern in late February that Anhui would

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face significant economic challenges in 2009 due to secondary
effects on the steel and auto sectors resulting from declining
exports (Refs B, C).




5. (SBU) By April, high-level provincial officials had begun to
express cautious optimism about Anhui's prospects. At the 4th
Central China Expo in Hefei on April 25-26, Anhui provincial
government officials said they believed the province was
recovering, and Anhui would focus on improving infrastructure to
build a more attractive investment environment (Ref D). In
addition, Governor Wang Sanyun told the Consul General during an
early April visit the Central Government's economic stimulus
measures would provide employment and expand the transportation
network in the province (Ref E).



ECONOMIC STIMULUS IN ANHUI

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6. (SBU) Anhui's recent provincial investment statistics reflect
the success of the Central Government's economic stimulus
measures. Anhui relied heavily on fixed asset investment (FAI)
to spark its recent growth, as FAI grew by 32.7 percent
year-on-year during the first half of 2009. Wu credited the
Central Government's economic stimulus policy for Anhui's
resurgence. For the first nine months of 2009, the growth rate
for bank loans in Anhui was 34.7 percent year-on-year under the
Central Government's less restrictive monetary policy. Of that
increase, Wu said, 60 percent of the loans supported
infrastructure and investment projects in the province.




7. (SBU) Rail infrastructure has been a key component of Anhui's
FAI. Wu pointed out that the Beijing-Shanghai high-speed
railway soon will pass through eastern Anhui, and the province
also is building a high-speed rail from Hefei to Bengbu. A new
Liu'an-Fuyang rail line will facilitate coal transportation.
The provincial government plans to build an inter-city railway
to connect Ma'anshan, Wuhu, and Tongling with Nanjing and
Shanghai. The Beijing-Fujian high-speed railway also will cross
Anhui, Wu stated. At the same time, Hefei is constructing a new
international airport on the western side of the city, which is
due to be completed in 2012. The province continues to expand
its highway network, Wu said.



CONTRIBUTIONS BY MIGRANT WORKERS

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8. (SBU) Previous concerns about Anhui's migrant workers finding
new jobs in coastal areas during the economic downturn appear to
have lessened in recent months. With close to one-sixth of
Anhui's population of 66 million working outside the province
(many in the Yangtze River Delta region),the provincial
government was relieved to discover most workers had found jobs
since the late January Lunar New Year holiday, Wu said,
reporting 98 percent of Anhui migrant workers successfully found
employment in YRD cities. Zhang Deyuan, a professor
specializing in rural issues at Anhui University Economic
Institute, acknowledged that Anhui's migrant worker situation is
"better than expected," as nearly all of Anhui's workers below

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the age of 40 had found new jobs while some older than 40 had
chosen to remain in the countryside. Zhang noted that the older
migrants who had stayed behind had had experience as farmers
while young, while the younger migrants often had not worked the
fields as children and had no tolerance for that possibility now.




9. (SBU) Wu and Zhang both also claimed an increasing number of
migrant workers are returning to Anhui to use technical
knowledge gained in the YRD to establish new businesses in their
home province. Wu said 150 new industrial parks have been set
up in the province to assist migrant workers who want to set up
new businesses. (Note: See Ref B for information on one
development zone outside Fuyang in northwestern Anhui. End
Note.) An October 22 People's Daily (Renmin Ribao) featured
Hefei's industrial innovation efforts on the front page,
crediting municipal government investments in new businesses for
fueling Hefei's 16 percent GDP growth through the first half of
the year.



COMMENT: AROUND THE NEXT BEND?

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10. (SBU) CongenOffs have traveled frequently to Anhui in the
past year and heard a different story each time about the
economic situation. From outright optimism about weathering the
storm in October 2008 to serious concerns in February 2009 to
cautious optimism in April 2009 to a current sense of
confidence, Anhui's economy has experienced a roller coaster
ride of ups and downs. Despite the recovery, Anhui still faces
a significant challenge in moving towards a more
consumption-driven economy. With an emphasis on fixed asset
investment and a weak social safety net, the province may be
able to produce eye-popping GDP growth statistics but may not be
adequately addressing long-term concerns. Nevertheless, Anhui's
ability to maintain economic growth (and social stability)
through a difficult period likely is a positive sign for the
Central Government, which implemented the economic stimulus
package to pave the way in Anhui.
CAMP