VZCZCXYZ0000
RR RUEHWEB
DE RUEHGZ #0723/01 3510628
ZNR UUUUU ZZH
R 160628Z DEC 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0065
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0025
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0018
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0022
RUEAIIA/CIA WASHDC 0025
RUEKJCS/DIA WASHDC 0025
UNCLAS GUANGZHOU 000723
SENSITIVE
SIPDIS
STATE FOR EAP/CM
STATE PASS USTR CHINA OFFICE
E.O. 12958: N/A
TAGS: ECON EINV PGOV ETRD
SUBJECT: Thirty Years of Reform and Opening: Shantou - The SEZ That
Was Left Behind (Part 1 of 2)
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE
POSTED ON THE INTERNET.
1. (U) Summary: Despite its special economic zone (SEZ) status and
natural advantages such as a seaport and a large overseas Chinese
population, Shantou's economic performance over the last 30 years
has lagged behind that of Guangdong Province as a whole. Shantou
officials and academics say their city of five million people faces
unique challenges: geographic isolation from the locus of provincial
economic growth (the Pearl River Delta), cultural insularity, and a
history of intellectual property rights (IPR) violations that have
made some investors wary of committing resources there. They also
concede that the development process, especially the tolerance of
using counterfeit goods as an engine of growth, over the last few
decades has at times been mismanaged. Still, they are cautiously
optimistic about the region's future prospects. (Septel will
examine some of the advantages Shantou has in moving forward.) End
summary.
Potential Unrealized
--------------------
2. (U) At the start of reform and opening thirty years ago, the city
of Shantou in eastern Guangdong Province held significant promise.
It was named one of the first five SEZs along with Shenzhen, Zhuhai,
Xiamen and the island of Hainan. But Shantou has not lived up to
the promise. It remains a third-tier city at best and its economic
growth has lagged behind Guangdong Province as a whole. Over the
last decade, Shantou's GDP growth rate has averaged just over nine
percent, compared to Guangdong's 14 percent. Per capita income in
Guangdong grew from 370 RMB (US$54) in 1978 to 28,332 RMB (US$4,166)
in 2006. In contrast, during the same period, Shantou's per capita
income went from 366 RMB (US$53) to 14,872 RMB (US$2,187), growing
at half the speed as that of the Province.
Geographic Isolation - Planning for Failure?
--------------------------------------------
3. (SBU) Shantou was chosen to be an SEZ in part because of its
relatively isolated location and the presumed willingness of
Chaoshan (Chaozhou-Shantou) people living abroad to provide
investment funding (see para 6). However, the geographical distance
from the Pearl River Delta has contributed to its lack of success
compared to the other SEZs. "If the reform failed, it would not
lead to any significant impact on the wider province", according to
Wu Nansheng, former Guangdong (GD) Party Secretary. Liu Wenhua,
Assistant Director of Shantou Bureau of Foreign Trade and Economic
Cooperation (BOFTEC) told us that, situated more than 300 miles away
from the PRD, Shantou's economy is virtually "cut off" from the
influences of major local economic centers, such as Guangzhou and
Shenzhen. She called the city an "isolated economic island".
4. (SBU) In addition, Shenzhen, Zhuhai and Xiamen were chosen among
the first SEZs, in part because of their proximity to Hong Kong,
Macau and the Taiwan-controlled island of Jinmen, respectively.
Shantou lacks this kind of geographic advantage. Still, Liu hopes
that recent agreements, which open new channels for travel and
commerce between the mainland and Taiwan, will provide opportunities
for Shantou to establish itself as a major conduit for cross-Strait
trade and investment. Comment: Liu did not provide specifics and
it's unclear how Shantou would compete with other cities such as
Xiamen, which already has well-developed ties to Taiwan. End
Comment.
Cultural Ties: A Mixed Bag
--------------------------
5. (SBU) Shantou's unique Chaoshan culture makes it difficult for
outsiders to integrate and has in some ways been an impediment to
economic development, said Liao Xiaoping, Deputy Director of Shantou
DRC. The region has its own cuisine, music and a dialect that is
unintelligible to the Pearl River Delta's Cantonese speakers. He
told us that very few talented workers are willing to come to
Shantou for this reason. Other SEZ cities, such as Shenzhen, were
able to create their own progressive business cultures from a "clean
slate," while Shantou is pushing against generations of local
tradition, according to Liao.
6. (U) On the other hand, an academic contact said overseas Chinese
with cultural ties to eastern Guangdong play an important role in
the development process. This was one of the reasons the city was
initially selected as an SEZ. Shantou claims that almost ten
percent (3.35 million) of overseas Chinese come from their city,
providing a substantial pool of investment capital and remittances
to the local economy. Shantou native, now Hong Kong tycoon and
richest man in China, Li Ka Shing, donates and invests heavily in
the city. He funds the prominent Shantou University (China's only
privately-funded public university), which serves as the education
center, with a thriving journalism school, for eastern Guangdong.
Learning from Past Mistakes
---------------------------
7. (SBU) Lack of leadership, poor oversight, and lax enforcement of
IPR helped stifle the city's innovation and economic growth,
government and business contacts agree. BOFTEC Assistant Director
Liu pointed out that the government did not aggressively expand
Shantou's small SEZ (initially less than one square kilometer) to
cover the city's entire urban area until 1991, ten years after the
initial status was granted. In contrast, Shenzhen, Zhuhai and
Xiamen all finished their geographic expansions within two years of
establishment. In addition, she highlighted lax enforcement of tax,
IPR and other economic regulations during the 1990s as factors that
held back Shantou's development. Liu pointed out that a major
government crackdown on these violations contributed to several
years of relatively slow and even negative growth from 1999 to 2002.
The owner of a major glass factory in the city echoed Liu's
comments, noting that manufacture of counterfeit goods and other
economic crimes put the city on the wrong development track
throughout the 1990s.
8. (SBU) Despite these setbacks, officials remain cautiously
optimistic. During the past four years Shantou's economic growth
has nearly kept pace with the province's, and for the first time in
10 years, officials proudly pointed out the city's 2008 growth rate
of 10.8% is on track to outpace that of both the country and the
province. Of course, it is unclear whether city fathers have given
much consideration to the impact of the financial crisis on this
optimistic scenario. (Septel will further examine the advantages
Shantou officials and business leaders see moving forward.)
Comment - The Uneven Results of Reform and Opening
--------------------------------------------- -----
9. (SBU) The city of Shantou has certainly fared better economically
than many parts of China. But this rough-edged third-tier city
shows that there are even parts of coastal Guangdong province with
economic advantages like an SEZ and strong connections to overseas
Chinese that still have not realized all the benefits of 30 years of
reform and opening. It's illustrative of the uneven distribution of
prosperity that will continue to be a challenge for China's
leaders.
GOLDBERG