VZCZCXRO3983
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3719/01 1550641
ZNR UUUUU ZZH
P 040641Z JUN 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8557
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
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UNCLAS SECTION 01 OF 02 BEIJING 003719 
 
SIPDIS 
 
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SIPDIS 
 
STATE FOR EAP/CM, INR/B 
TREASURY FOR OASIA/ISA CUSHMAN 
LABOR FOR ILAB 
USDOC FOR ITA/MAC/OCEA MCQUEEN 
 
E.O. 12958:  N/A 
TAGS: ECON EINV ELAB ETRD PGOV SOCI INRB CH
SUBJECT: WESTERN CHINA'S ECONOMY CONTINUES TO LAG BEHIND COAST 
DESPITE GAINS -- SHAANXI'S STORY 
 
SUMMARY 
------- 
 
¶1. (SBU) During a May 19-23 visit, officials in Shaanxi Province 
lamented the relatively slower pace of economic development in 
Western China.  Shaanxi, considered to be China's gateway to the 
West, has enjoyed rapid growth during the past 10 years, but the 
province's economy remains far weaker than its coastal counterparts. 
 Government officials in Xian, the provincial capital, hope that a 
strong university system and a hi-tech development zone, combined 
with low labor costs, will accelerate growth in the region. 
Investors in Xian, however, find businesses that are less savvy and 
infrastructure that is less developed than in coastal cities.  END 
SUMMARY. 
 
WHITE HOUSE FELLOWS VISIT TO CHINA 
---------------------------------- 
 
¶2. (SBU) A delegation of 12 White House Fellows visited China May 
19-26 with stops in Xian and Beijing.  The visit covered a wide 
range of issues but focused primarily on economic development.  In 
Xian, the White House Fellows exchanged views on economic 
development in Western China with the Vice Governor of Shaanxi 
Province, researchers at the Shaanxi Academy of Social Sciences, and 
representatives of the Xian Hi-Tech Industries Development Zone. 
 
PROVINCIAL GOVERNMENT'S VIEWS ON ECONOMIC DEVELOPMENT 
--------------------------------------------- -------- 
 
¶3. (SBU) Zhao Zhengyong, Executive Vice Governor of Shaanxi 
Province, said on May 19 that Western China has enjoyed 10 percent 
growth per year since the launch of the Great Western Development 
Program in 1999, but economic development remains slow for 
historical and geographic reasons.  Zhao said that average urban 
income in Western China amounts to only 70 percent of the national 
average and rural incomes are at 65 percent of per capita rural 
income in China.  Zhao said he is confident that Shaanxi Province -- 
the gateway to Western China -- can accelerate development and 
improve living standards, but he repeated the oft-heard refrain that 
it will be difficult for the province to catch up to the coast. 
(Note:  See Bio Note on Zhao Zhengyong in para 8.  End Note.) 
 
WESTERN CHINA LAGGING BEHIND THE COAST 
-------------------------------------- 
 
¶4. (SBU) Zhang Haoting, a researcher in the Economics Department at 
the Shaanxi Provincial Academy of Social Sciences, outlined Western 
China's problems in terms of the region's lack of resources and slow 
pace of urbanization and industrialization relative to Coastal 
China.  Zhang said Western China has 71.5 percent of total area but 
only 28 percent of the populatio and 16.9 percent of the GDP. 
Western China poduces only 14.8 percent of the nation's industial 
output, 13.8 percent of its services, and25.8 percent of 
agriculture's contribution tothe GDP.  According to Zhang, the 
Central Government's emphasis on rural reform with the lanch of the 
New Socialist Countryside initiative in 2005 is important for 
Western China as the region aims to raise incomes and improve 
livelihoods through improved infrastructure and increasing incomes, 
as well as improved social services. 
 
HI-TECH ZONE HOPES TO ACCELERATE DEVELOPMENT IN REGION 
--------------------------------------------- --------- 
 
¶5. (SBU) Given these challenges, XQn's Municipal Government 
established China's first hi-tech development zone (there now are 
53) on three square kilometers of land southwest of the city in 
¶1991.  Located within a 12-hour transportation circle of 10 
provincial capitals and approximately 600 million potential 
consumers, the zone hopes to accelerate economic development by 
attracting outside investors.  The Xian Hi-Tech Industries 
Development Zone (XHTZ) now has expanded to 35 square kilometers and 
includes more than 8,000 companies and 672 research and development 
institutes.  The XHTZ's annual growth rate exceeds 30 percent per 
year, and there are more than 40 MNCs operating in the zone, 
including NEC, ABB, Emerson, Micron, Daikin, Intel, Siemens, 
Honeywell, Robert Bosch, Brother, and Infineon. 
 
¶6. (SBU) Investors are attracted to the XHTZ primarily by low labor 
costs.  With more than 900,000 college students in Xian, companies 
can draw from a constant stream of graduates for all of their human 
 
BEIJING 00003719  002 OF 002 
 
 
resource needs.  Even managers and PhDs make less than USD 10,000 
per year, and average university graduates earn only USD 3,000 to 
USD 5,000.  Employers take advantage of Xian residents' preference 
for staying close to home after graduating from university, and as 
the XHTZ is a government entity, companies rely completely on the 
Municipal Government to address labor, intellectual property and 
other concerns, XHTZ-based business leaders said.  Reflective of the 
gap between companies in Western China and their counterparts on the 
coast, business representatives at the XHTZ said they need a much 
better understanding of consumers and the market in the region, and 
they also need to improve standards to meet international accounting 
practices and to provide better customer service. 
 
COMMENT:  LONG WAY TO GO 
------------------------ 
 
¶7. (SBU) Discussing economic development with interlocutors in 
Western China and visiting business sites such as the XHTZ provides 
visitors to China with a much better understanding of the country's 
challenges than they would have if they only visited Beijing and 
Shanghai.  Despite gains in recent years, Western China remains 
economically backward when compared to the Coast.  Investors may 
chase lower labor costs further inland, but they will find business 
representatives who are less savvy than their coastal counterparts 
and an infrastructure that is less developed.  The region's economy 
still has a long way to go.  END COMMENT. 
 
BIO NOTE:  ZHAO ZHENGYONG, EXECUTIVE VICE GOVERNOR 
--------------------------------------------- ----- 
 
¶8. (SBU) Zhao Zhengyong was born in 1951 and is a native of Anhui 
Province where he previously served as Deputy Secretary of the 
Huangshan City CPC Committee and Director of Anhui's Public Security 
Bureau.  He was named Vice Governor of Shaanxi Province in 2005, and 
the Central Government will sponsor him to attend Harvard 
University's John F. Kennedy School of Government for a short-term 
course later this year.  Zhao said his view on leadership is that 
Chinese leaders need to pay attention to the people's needs.  If 
leaders study hard and understand the local situation, their work 
will benefit local people, he said.  Zhao said he grew up in a 
worker's home but had an opportunity to go to school (he later 
attended the Central Party School), and he experienced first-hand 
that knowledge can change a person's life.  Like many of China's 
current generation of leaders, Zhao majored in engineering and 
worked in a factory before becoming a government official in the 
1980s.  Zhao previously studied in Germany for a short period.  END 
BIO NOTE. 
 
PICCUTA