Cablegate: Uk Cg's Views On Chongqing Economy, Market Access, Climate

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RR RUEHAST RUEHDH RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHSL
RUEHTM RUEHTRO RUEHVC
DE RUEHCN #0163/01 2361142
ZNR UUUUU ZZH
R 241142Z AUG 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 3357
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAEPA/EPA WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 4033

UNCLAS SECTION 01 OF 03 CHENGDU 000163

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/CM, OES

E.O. 12958: N/A
TAGS: EINV ETRD SENV TBIO PREL CH
SUBJECT: UK CG'S VIEWS ON CHONGQING ECONOMY, MARKET ACCESS, CLIMATE
CHANGE POLICIES

REF: A. A) CHENGDU 071
B. B) CHENGDU 081

CHENGDU 00000163 001.2 OF 003

1. (SBU) Summary. The impact of the global financial crisis on
domestically focused Chongqing has been relatively small, with
China's stimulus package and auto-sector incentives boosting GDP
by 12.1 percent in the first half of 2009, the UK's
Chongqing-based Consul General told us. Chongqing's Party
Secretary has ambitions of turning his municipality into the
most open inland economy in China, boosting its inland port
through a new bonded zone, promoting a growing electronics
industry, and advocating Chongqing as the financial center of
southwest China. UK firms have faced unequal access to public
tenders in Chongqing, and localized interpretations of China's
WTO commitments have impaired market access. The UK has been
active in raising local government and public awareness of
climate change, and hopes to get low-carbon language inserted
into Chongqing's next five-year plan. End Summary.

Impact of Global Financial Crisis on Chongqing Relatively Small,
Delayed

--------------------------------------------- -------------------

2. (SBU) The global financial crisis has had relatively little
impact on Chongqing because its economy is "inward-looking" and
focused on China's domestic market, UK CG Whittingham told
visiting Chengdu CG on August 10. There were impacts, however,
as some workers laid off in coastal provinces such as Guangzhou
returned to Chongqing (leading to a drop in remittances of
salaries, and in higher local unemployment). At first,
Chongqing's key car industry was also impacted by a slowing
domestic economy, but because of China's stimulus package
(including tax reductions to spur car sales) it has recovered
strongly. (See septel on Ford's joint venture in Chongqing.)
Overall, Chongqing's GDP growth was up 12.1 percent in the first
half of 2009, beating the national average.

3. (SBU) More generally, Chongqing Municipal Party Secretary Bo
Xilai has ambitions to turn Chongqing into the most open inland
economy in China, Whittingham said. Chongqing has an excellent
river port, from which smaller container ships move goods to
Shanghai, where they can be transferred to larger ships for
transshipment abroad or to other coastal ports in China.
Chongqing, although inland, also has a surprisingly strong
shipbuilding industry. Note: China's central government
approved the establishment of Chongqing's Cuntan Port Bonded
Zone, the biggest bonded zone in inland China, in December 2008.
End Note.

4. (SBU) Chongqing also has ambitions of creating a vibrant
electronics industry, Whittingham noted. Taiwan-based Foxconn's
recent decision to invest in a Chongqing laptop factory
(reportedly a USD 3 billion investment to supply Hewlett
Packard) is a step in this direction, but Chongqing remains far
behind Chengdu (where US firms Intel and Cisco, for example,
have factories), he felt. (Comment: The information
technology industry's proportion of Chongqing's GDP increased
from 2.9 percent in 2002, to 6.0 percent in 2007, per the
Chongqing Foreign Trade and Economic Commission (COFTEC),
suggesting that the municipality is having some success in
building an electronics industry. End Comment.)

"Three Hoops" to Market Access in Chongqing

-------------------------------------------

5. (SBU) British firms have encountered three kinds of market
access problems in Chongqing, Whittingham explained:

A) Inadequate hard and soft infrastructure. Chongqing is making
progress in addressing this by, for example, constructing

CHENGDU 00000163 002.2 OF 003

international hospitals and schools, and by opening new air
routes.

B) Unequal access to local business opportunities. Chongqing
and other local governments in southwest China will often tell
foreign companies about a tender one week before, while giving
local firms two months notice. This favoritism is because
local governments prefer to award contracts to home-town firms,
believing this is more likely to boost the local economy;
corruption also gives local firms a leg up.

C) Regulatory impediments. Although the central government has
made commitments to the WTO, local governments have the
flexibility to interpret these rules in ways that can impair
real market access. One UK firm wanted to provide high-value
architectural and safety design in Chongqing, for example, but
is being compelled to do years of basic construction work before
it will be allowed to do so. Moreover, the firm is being
compelled to link up with local design firms in the interim.
On the other hand, local flexibility might also work to the
favor of foreign firms: the UK Consulate is also trying to
convince Chongqing, working through the Banking Regulatory
Commission, to expand the scope of existing licenses held by UK
financial firms.

6. (SBU) Note: Bo Xilai has advocated a strategy to convert
Chongqing into the financial and transportation center of
southwest China, and the "Chicago" of China by 2020. Consul
General toured the river area at night where cranes are just
starting to build what city leaders hope will become a future
financial center in the image of Shanghai's Pudong district.
End note.

Climate Change is Core Strategic Goal for UK in Chongqing; Rural
Development Also Emphasized

--------------------------------------------- -------------------

7. (SBU) Reflecting one of the UK's foreign policy priorities,
the UK Consulate General in Chongqing has a team of three
employees (one UK national and two local employees) working on
climate change, versus only one employee working full time on
political/economic issues. This three-person team has spent
about 65 percent of its time on Chongqing and 20 percent of its
time in Sichuan promoting awareness of the importance of climate
change via websites, blogs and public events. (The Consulate
also covers Yunnan and Guizhou.) The Consulate recently entered
the second phase of its public diplomacy work on climate change
by including messages to business audiences on the economic
benefits of a low-carbon economy.

8. (SBU) The UK Consulate has been working with London-based
Chatham House (aka the Royal Institute of International
Affairs), UK firm ERM, and Chongqing's local Development and
Reform Commission (CDRC) on a variety of climate change and
rural development projects. It has a "sustainable cities" MOU
with Chongqing that fits well with the municipality's "Five
Chongqings" sustainable development plans ("green," "healthy,"
"safe," "transport", and "livable" Chongqing). It hopes to get
low-carbon language inserted into Chongqing's next five-year
plan. The UK's Foreign Minister signed an agreement in 2008
with the CDRC regarding 35 projects related to urban-rural
cooperation and development. One recently completed project was
on local land reform; the UK Consulate General is seeking local
support for a rural health care project, possibly in cooperation
with the World Bank and the National Health Service of Wales.

9. (SBU) One promising area for public-private partnership in
rural development is the push of UK banks into rural finance.
UK banking giant HSBC has received a rural banking license in
the city of Dazu. Fellow UK banking giant Standard Chartered is

CHENGDU 00000163 003.2 OF 003

already doing rural finance elsewhere in China, and is also
interested in a license to do so in Chongqing.
BROWN

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