Cablegate: The Heat Is On: Guangdong Province H1 Economic

VZCZCXRO9438
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #6903/01 2260823
ZNR UUUUU ZZH
R 140823Z AUG 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0132
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 0905
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 026903

SIPDIS

SIPDIS

STATE FOR EAP/CM
USDOC FOR 4420/ITA/MAC/MCQUEEN
STATE PASS USTR
USPACOM FOR FPA
TREASURY FOR OASIA/INA-CRANE
USDA FOR FAS/ITP AND FAS/FAA

E.O. 12958: N/A
TAGS: ECON ETRD EINV EAGR ELAB CH
SUBJECT: THE HEAT IS ON: GUANGDONG PROVINCE H1 ECONOMIC
REPORT

REF: Guangzhou 18102

1. (U) SUMMARY. This report offers an overview of the
economic performance in the first half of 2006 for Guangdong
Province. The province continues to be an economic hot spot
despite government control measures, murky bookkeeping, and
natural disasters. The strong industrial and export sectors
fueled a rapidly ascending provincial gross domestic product
(GDP). Electronic equipment manufacturers and the real
estate sector recorded particularly robust growth. It was
apparent that the Provincial Statistics Bureau attempted to
paint a rosy picture of the provincial economic situation,
but hoped it was not so rosy as to attract criticism for
contributing to an overheating economy. END SUMMARY.

Guangdong Fast Facts (U)
------------------------

GDP, billion USD 142.19 (14.4%)
GDP, percentage of national GDP 12.49%
FDI, actual use, billion USD 6.83 (21.4%)
Imports, billion USD 101.7 (20.0%)
Exports, billion USD 131.3 (28.3%)
Fixed-asset investment, billion USD 40.24 (20.5%)
Retail sales, billion USD 55.22 (15.6%)
Consumer Price Index 1.7
Disposable income per capita (urban), USD 1062.50 (9.0%)
Disposable income per capita (rural), USD 361.06 (7.9%)

2. (U) NOTE: Percentages in parenthesis represent growth
compared to the same period in 2005 (according to the
Guangdong Statistics Bureau). All currency conversions in
this report are made at the average exchange rate of USD 1 =
RMB 8.0292.

3. (U) Led by a strong export sector, Guangdong maintained
a "steadily fast economic development," according to the
Guangdong Statistics Bureau. The province's gross domestic
product (GDP) reached RMB 1141.68 billion (USD 142.19
billion), an increase of 14.4%. The income of the primary
sector was RMB 48.06 billion (USD 5.99 billion), up 3.9%.
For its part, the income of the secondary sector grew 16.8%
to RMB 602.08 billion (USD 74.99 billion). The tertiary
sector posted income of RMB 491.54 billion (USD 61.22
billion), up 12.6%.

4. (U) When compared to Provincial Government-reported 2005
numbers, some growth rates are actually much higher than
those claimed in this year's H1 report. For example, the H1
GDP for 2006 is USD 142.19 billion, which appears to
represent a 32% growth rate over the 2005 H1 GDP of USD
107.71 billion. Even when inflation and exchange rate
differences are considered, the 14.4% 2006 H1 GDP growth
rate appears to be substantially under-reported, likely in
an effort to not have the economy appear to be overheating.

Note on Statistics
------------------

5. (U) Unless otherwise noted, percentage growth figures are
over the same period of 2005. Readers should bear in mind
that the majority of statistics provided in this report are
from Chinese government sources. As such, they should be
taken with the proverbial grain of salt. They are of
limited reliability, and are best used in comparison to
other time periods. Even then, the statistics may be of
limited accuracy, since the methodologies used to calculate
the statistics often change without notice. In the past,
authorities have been loath to explain any irregularities or
changes.

Industrial Engine Firing On All Cylinders
------------------------------------------

6. (U) Industrial production continued to grow at a brisk
pace during 2006's first half. The income of industrial
enterprises with annual sales revenue of RMB 5 million (USD
623,000) or more (enterprises "above designated size," in

GUANGZHOU 00026903 002 OF 003

the parlance of the Statistics Bureau) was RMB 486.78
billion (USD 60.63 billion), up 18.5%. Meanwhile,
Guangdong's "nine major industries" (electronic equipment,
household appliances, petroleum refining, textile garments,
food and beverage, logging and papermaking, medicine, and
automobile manufacturing) grew even faster, posting income
of RMB 352.99 billion (USD 43.96 billion), up 22.1%.
Electronic equipment manufacturers recorded particularly
robust growth of 31.7%.

Fixed-Asset Investment
----------------------

7. (U) Fixed-asset investment rose by 20.5% to RMB 323.09
billion (USD 40.24 billion). Investment in real estate
registered a remarkable upturn, growing by 23.3% to RMB
75.78 billion (USD 9.44 billion).

Real Estate
-----------

8. (U) According to the Guangdong Statistics Bureau, the
"weighted average price" (different from "average price"
which was used by the Bureau last year) for commercial
housing for the first 6 months of 2006 in Guangdong is RMB
5160 per square meter (roughly USD 643), up a fiery 38%
compared with RMB 3735.5 (USD 465) per square meter for the
same period of last year. Sales of commercial building
space were also brisk. While the total floor space sold
only increased 14.5% to 21.99 million square meters, the
sales value increased 25.1% to RMB 109.61 billion (USD 13.65
billion). The central and provincial governments have taken
steps to cool down the property markets, though many
regional analysts do not expect these measures to be very
successful (reftel).

Retail Sales
------------

9. (U) The volume of retail sales continued to climb.
Retail sales of consumer goods reached RMB 443.39 billion
(USD 55.22 billion), up 15.6%. The consumer price index
(CPI) rose by 1.7%. The food price index rose 1.3%, the
transportation and communication index rose only 0.3%,
clothing rose 1.8%, and the residence index rose by 5.3%.

Income
------

10. (U) Urban and rural incomes both rose in Guangdong
during the first half of 2006, but the disparity between the
two widened slightly. The average per capita income in
urban areas reached RMB 8531 (USD 1062.50), up 9.0%. For
their part, rural areas saw their income rise to RMB 2899
(USD 361.06), up only 7.9%.

Foreign Trade
-------------

11. (U) Guangdong's foreign trade saw rapid growth. The
volume of foreign trade grew 24.5% to USD 232.9 billion.
Of that total, exports accounted for USD 131.3 billion, up
28.3%, helping feed a trade surplus of USD 29.5 billion,
according to the Guangdong Statistics Bureau. Exports
constituted 56.4% of total foreign trade in the province, up
from 54.7% during the same period in 2005. Imports, which
stood at USD 101.7 billion, grew 20.0%. Mechanical and
electrical product exports reached USD 89.22 billion, a rise
of 28.2%. High-tech products netted USD 44.35 billion, a
rise of 28.5%.

Foreign Direct Investment
-------------------------

12. (U) The contracted value of Guangdong's foreign direct
investment (FDI) totaled USD 11.48 billion, representing
growth of 13.5%. The actual use of FDI reached USD 6.83
billion, up 21.4%.

GUANGZHOU 00026903 003 OF 003

Problems Identified by the Guangdong Government:
Oil Prices, Typhoons, and Foreign Pressure
--------------------------------------------- ---

13. (U) The statistical report identified five main problems
affecting the province's economic performance-- high crude
oil prices on the international market, growing costs in
means of production shrinking company profits, agricultural
losses from Typhoons Bilis and Zhenzhu as well as
"inadequate input in agricultural production," rising real
estate prices, and "growing conflicts in foreign trade"
putting pressure on the province's high export growth.

Q and A Session: Turning Up the Heat
------------------------------------

14. (U) During the question and answer session following the
presentation, several newspaper and television media
representatives repeatedly asked the Director General of the
Guangdong Bureau of Statistics, Mr. Pu Xin Min, concerning
the overheating provincial economy. On no less than four
occasions during the press conference, Pu stated
unequivocally (and at times, testily) that "there is no
overheating," citing a low consumer price index as evidence
of "reasonable" growth. Pu explained that the government's
control measures would take time to become apparent in the
statistics, and that the growth in the real estate sector is
actually a "recovery growth rate." Two of the control
measures Pu mentioned were 1) increasing interest rates, and
2) policy changes in export tax returns.

15. (U) Pu characterized the province's economy as being in
the mid- to final stage of industrialization and in the
beginning stage of "scientific development"-- a euphemistic
term used by government officials to describe sustainable
development and a comprehensive development of the whole
society.

16. (U) The Director General also stated that Guangdong
Province's unemployment rate is 2.6%. This figure is vastly
underestimated. Provincial statistics almost certainly do
not take into account the migrant population from poorer
provinces.

COMMENT: Unstoppable Juggernaut For Now?
----------------------------------------

17. (U) It was apparent that the Statistics Bureau attempted
to paint a rosy picture of the provincial economic
situation, but not so rosy as to attract criticism for
contributing to an overheating economy. The statistical
discrepancies will likely prevent the Bureau from succeeding
in their attempt. Guangdong Province continues to be an
economic hot spot despite government control measures, murky
bookkeeping, and natural disasters. Guangdong economic
officials repeatedly tell Congenoffs that a growth rate
above 9 percent is too rapid for healthy growth, yet the
economy has only surged ahead. With concerns about the
property market, land compensation, rural/urban income gaps,
and fuel and electricity shortages, we will continue to
monitor for these and other signs of stress as the economy
continues its rapid growth.

MARTIN

© Scoop Media