VZCZCXRO8495
RR RUEHCN RUEHGH
DE RUEHGH #0042/01 0390322
ZNR UUUUU ZZH
R 080322Z FEB 10
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 8538
INFO RUEHBJ/AMEMBASSY BEIJING 3302
RUEHCN/AMCONSUL CHENGDU 2392
RUEHGZ/AMCONSUL GUANGZHOU 0849
RUEHHK/AMCONSUL HONG KONG 2564
RUEHSH/AMCONSUL SHENYANG 2383
RUEHIN/AIT TAIPEI 2184
RUEHML/AMEMBASSY MANILA 0173
RUEHUL/AMEMBASSY SEOUL 0677
RUEHKO/AMEMBASSY TOKYO 0888
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGV/USMISSION GENEVA 0127
RHEHAAA/NSC WASHINGTON DC
RUEHPS/USMISSION OEDC PARIS FR
RUEHGH/AMCONSUL SHANGHAI 9205
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