ANHUI ECONOMY FLYING HIGH ON INVESTMENT-DRIVEN

UNCLAS SECTION 01 OF 03 SHANGHAI 000042 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 ELAB PGOV EFIN ETRD EINV SENV CH SUBJECT: ANHUI ECONOMY FLYING HIGH ON INVESTMENT-DRIVEN STIMULUS...FOR NOW REF: 09 SHANGHAI 436 (ANHUI'S 2009 ECONOMIC ROLLER COASTER RIDE) AND PREVIOUS (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) Anhui Province appears to have weathered China's early 2009 economic downturn and one year later is reporting labor shortages in several sectors as a result of rapid growth. Observers expressed concern, however, that the province is enjoying only a "temporary prosperity" fueled by investment in heavy industry, infrastructure, and construction. End Summary. Provincial Government Officials Optimistic on Economy -------------- -------------- ¶2. (SBU) Anhui provincial government officials expressed optimism about the local economic situation during CongenOffs' January 27-28 visit to Hefei, the provincial capital. Following a year and a half of ups and downs (reftel),officials stated that they were confident of sustained growth during 2010. Anhui Provincial Foreign Affairs Office Deputy Director General Lu Youqin and Anhui Provincial Development and Reform Commission Comprehensive Economy Department Director Guo Hao both pointed out that the province's GDP topped RMB 1 trillion (USD 147 billion) for the first time in 2009, making it the fourteenth province to reach that milestone. GDP grew by 12 percent in 2009 and is expected to increase by 10 percent in 2010, they said. ¶3. (SBU) Guo attributed Anhui's success in 2009 to the strength of the automobile, steel, and petrochemical sectors. Manufacturing and construction contributed more than 50 percent of provincial GDP. (Note: According to Governor Wang Sanyun's January 25 work report to the Provincial People's Congress, fixed asset investment in Anhui increased over 36 percent year-on-year in 2009, a rate six percentage points higher than the blistering 30 percent nationwide average figure. End note.) A greater number of migrant workers are staying closer to home to work in local factories, Guo said. He estimated that, by year's end, roughly two-thirds of Anhui's 11 million migrant workers were employed in the Yangtze River Delta (YRD: i.e., Shanghai and environs),in the Pearl River Delta (PRD) around Guangzhou, or in Beijing, with the other one-third remaining in Anhui. According to Anhui Provincial Human Resources and Social Security Bureau Policy and Legislative Division Director Peng Jiahai, local government support to new investment projects -- as well as Central Government funding for economic stimulus projects -- have provided jobs at home for many migrant workers. From Layoffs to Labor Shortages in One Year -------------- SHANGHAI 00000042 002 OF 003 ¶4. (SBU) Prior to the Lunar New Year Holiday in 2009, there were grave concerns about unemployed migrant workers in Anhui, as many lost their jobs in other provinces and returned home early for the holiday without guaranteed future prospects. With an economic recovery in the Yangtze River Delta and Pearl River Delta in the second half of 2009 as well as more job opportunities at home, however, Anhui faces a very different labor problem. Rather than worrying about finding jobs for migrant workers, employers in Anhui and parts of the YRD now are experiencing labor shortages in some sectors. According to Professor Dong Baohua of Shanghai's East China University of Political Science and Law, labor analysts are attempting to ascertain whether the shortage of low-cost labor in some sectors is permanent or whether shortages are merely a result of a highly volatile labor market over the past 18 months. ¶5. (SBU) Prof. Dong supported the view of the Anhui officials that the increasing number of migrants working "close to home" is a contributing factor to the labor shortages in the YRD. Anhui-based industries, however, also are reporting labor shortages. Anhui Academy of Social Sciences researcher Lu Liansheng said several industrial cities in southeastern Anhui -- Wuhu, Ma'anshan, and Tongling -- all are having difficulties finding workers. No Fears of Rural Instability in 2010... -------------- ¶6. (SBU) Contrary to a year ago when Anhui's leaders were concerned about social unrest in the countryside because of the poor employment prospects for migrant workers, there is little fear of rural instability in 2010, our contacts said. Anhui University San Nong Institute Deputy Director Zhang Deyuan said the Central Government's economic stimulus package and rural policies effectively alleviated pressure, especially in Anhui's poorer northern region. For example, in northwestern Anhui's Fuyang Municipality, where there were serious concerns about instability in early 2009, the situation stabilized in the second half of the year and the "worst was not realized," said Fuyang Rural Cooperative Economy Management and Administration Station Director Gao Yuzhen. According to Liu'an Municipal Communist Party Secretary Tang Linxiang, the view from his city west of Hefei is that the migrant worker unemployment problem may have been "overstated" in 2009. ...But Long-Term Socio-Economic Concerns Remain -------------- -- ¶7. (SBU) Anhui's apparent prosperity, however, may be fragile. Zhang Deyuan at Anhui University told PolOff on January 28 that although the migrant worker employment situation is "good enough for now," it is "not as good as before." While younger migrants returned to factory work shortly after the 2009 Lunar New Year, many older migrants remained at home to farm, and they are not SHANGHAI 00000042 003 OF 003 considered in unemployment figures. In addition, Anhui Provincial Academy of Social Sciences researcher Lin Fei characterized economic development in Anhui as "temporary prosperity" because consumption remains low as a share of GDP and "investment can't drive the economy forever." ¶8. (SBU) Provincial government officials also acknowledged that, in an effort to attract investment, local governments have disregarded provisions in the Labor Contract Law (LCL) on social security payments to workers. Peng Jiahai at the Bureau of Human Resources and Social Security said some workers have begun to complain about excessive overtime work -- especially at Taiwan and Hong Kong companies -- and local governments are not requiring those investors to pay social security. ¶9. (SBU) Anhui also has other long-term problems. Anhui University labor law professor Li Kungang said university graduates still are having difficulties finding good jobs in Anhui and housing prices are rising too rapidly. In addition, environmental concerns threaten the sustainability of the province's development. Local officials' focus on GDP growth has directly contributed to a deteriorating environmental situation, said "Green Anhui" (a local NGO) director Zhou Xiang, adding that Anhui now has two of China's five most polluted cities. There's Got to Be a Morning After -------------- ¶10. (SBU) Comment: Anhui benefited in 2009 from the Central Government's economic stimulus plan, as well as from the continuing trend of Taiwan and Hong Kong investors relocating to Central China in search of lower costs. It will be extremely difficult, however, to increase consumption in Anhui where rural and urban incomes remain 13 and 18 percent below the national averages, respectively. In addition, environmental concerns are key in a province that already has one of China's most polluted rivers (the Huai). Although the authorities' dramatic efforts to bolster economic growth through high rates of investment in the face of receding global demand succeeded, the costs of maintaining Anhui's "stimulus high" are likely to be unsustainable in the medium to long term. End comment. CAMP