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DE RUEHCN #0143/01 1560749
ZNY CCCCC ZZH
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FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2524
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 3052

C O N F I D E N T I A L SECTION 01 OF 03 CHENGDU 000143 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB 
 
E.O. 12958: DECL:  6/5/2017 
TAGS: ECON PGOV CH
SUBJECT: SICHUAN RESEARCHER ON CHALLENGES TO ECONOMIC DEVELOPMENT 
 
CHENGDU 00000143  001.2 OF 003 
 
 
CLASSIFIED BY: James Boughner,  Consul General, United States 
Consulate, Chengdu. 
REASON: 1.4 (b), (d) 
 
 
 
¶1.  (C) Summary:  Sichuan Province, the third largest in China, 
ranks only tenth in terms of economic development, according to 
Wang Xiaogang (strictly protect), Deputy Director of the Sichuan 
Development Research Institute.  While the purpose of 
"Scientific Development" is to bridge the gap between East and 
West China, the quality of Sichuan's development is "not good 
enough," and minority regions of the province pale in comparison 
to non-minority regions.  Wang told us that Sichuan cannot 
compete with China's coastal regions, and that it needs to focus 
more on development of heavy equipment and power equipment 
manufacturing, natural resource development, agricultural 
products and value-added processing of food products, and 
promotion of high-tech products.  One reason for China's fast 
economic growth is competition between local governments to get 
ahead.  Wang opined the central government should enact better 
regulations in favor of the environment, energy efficiency, and 
peoples' livelihoods, including more favorable policies for 
transfer of funding from wealthy coastal areas to poorer western 
areas.  Even though the investment environment has improved, 
Sichuan is still ten years behind the coast due to its inland 
location and transportation infrastructure.  The province should 
nevertheless be able to attract new companies in light of its 
current very low investment base.   End Summary. 
 
¶2.  (C) Wang Xiaogang (strictly protect), Deputy Director of the 
Sichuan Economic Development Research Institute, an institute of 
the Sichuan Development and Reform Commission, recently met with 
Washington visitors from the Bureau of Intelligence and Research 
(INR) and Congenoff.  We had a broad-ranging discussion of 
issues affecting the development of Sichuan Province's economy. 
 
Sichuan:  Third in Population, 
Tenth in Economic Development 
------------------------------- 
 
¶3.  (C) Wang noted that Sichuan Province is the third largest in 
the country and that its population is rising. In terms of 
economic development, however, the province ranks only tenth. 
Per capita income is RMB 10,000 (USD 1,300) per year, which is 
66 percent of the national average of RMB 16,000 (USD 2,105). 
While there are a lot of natural resources in Sichuan, they are 
not so abundant when considered on a per capita basis.  Wang 
noted that environmental conditions in Sichuan are important to 
all of China because of the initial flow of the Yangtze and 
Yellow Rivers through the province. 
 
"Scientific Development" to Bridge Gap 
Between East and West 
---------------------------------------- 
 
¶4.  (C) Wang opined the quality of Sichuan's development "is not 
good enough," and the profitability is "not high enough."  He 
said the purpose of the "Scientific Development" concept was to 
coordinate different economic areas across China.   However, in 
Sichuan, the growth in individual income is not up to the 
national level, nor is the return on capital or labor, which is 
60 percent of the national level.  Wang explained the two 
indexes the government uses to assess economic development:  the 
predictive index -- what is planned/hoped for, and the 
compulsory index -- what the central government dictates for 
growth and environmental standards.  According to Wang, if the 
compulsory measures cannot be attained by provincial 
authorities, the central government will decide that either 1) 
the provincial government has not tried hard enough, or 2) there 
were objective reasons why the goals could not be met.  Wang 
added that Wen Jiabao already knows China will not meet the goal 
of equalizing development, but feels compelled to promote the 
goal. 
 
Sichuan Urban-Rural Gap Expansive 
--------------------------------- 
 
¶5.  (C) Just as there is a large gap between East and West 
China, Sichuan has an expansive rural-urban gap.  Northeast 
Sichuan is a good example.  Large reserves of natural gas have 
recently been found there, and within 10 years, there should be 
30 billion cubic meters of production.  However, the region 
lacks water, is not economically developed, and has "too many 
people." 
 
¶6.  (C) Minority regions of Sichuan pale in comparison to 
non-minority regions, Wang said.  Liangshan (an Yi nationality 
region in the southwest) and Ganze and Aba (Tibetan regions in 
the west) are all extremely poor.  The area of these regions is 
 
CHENGDU 00000143  002.2 OF 003 
 
 
two-thirds of Sichuan's territory, but only seven percent of the 
population (6 million people) lives there.  While the resource 
per capita ratio is satisfactory, the population quality is low, 
he asserted.  (Note:  When Chinese mention "low quality" 
population, they are generally referring to low education and 
"cultural" levels.  End Note).  The minority populations are 
principally farmers or herders who are not interested in trade, 
Wang stated.  These minority areas do have abundant tourism 
resources and hydropower capacity amounting to two-thirds of 
Sichuan's total.  Nationally, 20 percent of potential hydropower 
resources have been exploited, but in Sichuan, only 10 percent 
have been exploited, so there is still great potential for 
development of this resource. 
 
Sichuan Cannot Compete with the Coast 
------------------------------------- 
 
¶7.  (C) Wang said Sichuan cannot compete with China's coastal 
regions.  It needs to use its own resources to develop, and it 
should develop industry.  Large state-owned companies in Sichuan 
include those in the fields of natural gas, steel production, 
and hydropower.  The National Development Reform Commission 
(NDRC) controls prices in these industries which means profits 
go to the central government. 
 
 
Five-Year Plan Targets Development of Industry 
--------------------------------------------- - 
 
¶8.  (C) Wang said the Economic Development Research Institute 
was involved in the development of Sichuan's 11th Five-Year 
Plan.  In the plan, institute scholars emphasized the 
development of heavy equipment and power equipment 
manufacturing, natural resource development including clean 
energy, agricultural products and value-added processing of food 
products, and promotion of high-tech products.  In addition, 
they recommended further development of tourism, creation of a 
modern services industry, and development of large industrial 
groups. 
 
¶9.  (C) Wang said there was also a New Socialist Countryside 
project to create a modern agricultural economy.  It sets out 
five economic regions of Sichuan that need to develop 
scientifically: 1) Chengdu, 2) southern Sichuan, 3) northeast 
Sichuan (the poorest area), 4) northwest Sichuan, 5) and 
southeast Sichuan.  The Sichuan 11th Five-Year Plan predicts a 
GDP growth rate during 2006-2010 of nine percent.  Wang noted 
that internally, however, the provincial government thinks it 
will achieve a ten percent rate. 
 
Local Governments Compete to Get Ahead 
-------------------------------------- 
 
¶10.  (C) When queried whether China has achieved fast growth 
because it has taken the market economy route, Wang responded 
negatively.  He pointed out that India also has a market economy 
and it has not achieved such fast growth, so having a market 
economy is not the only cause.  China's fast economic growth can 
be partially attributed to that fact that the central government 
gave local governments the incentive to develop, so local 
governments became competitors.  Wang stated that the central 
government now wants to strengthen its control again.  The 
problem, as he sees it, is with the environment and natural 
resources, where protection is not necessarily aligned with 
interests in local development. 
 
Central Government Funding Key to Sichuan Development 
--------------------------------------------- -------- 
 
¶11.  (C) Wang opined the central government should take an 
overall view of development in the country and enact better 
regulations in favor of the environment, energy efficiency, and 
peoples' livelihoods.  He asserted the amount of funding being 
transferred to the western areas from the coastal region of 
China is only a percentage of local funding, and he thinks it is 
far from enough.  While Wang noted that in some areas of the 
province, 80 to 90 percent of local funding comes from the 
central government, he still advocated more transfers.  To 
accomplish higher transfers, Wang believes taxes should be 
raised to increase the fiscal income of the government. 
Further, he thinks taxes in coastal areas should be increased, 
and the revenues transferred to the west.  Wang also argued for 
the adjustment of local government functions, including the 
provision of education in rural areas.  He stated that every 
citizen needs basic public services, which depend on the 
economic power of the government, and concluded by wondering 
aloud how this could be accomplished now that agricultural taxes 
have decreased. 
 
Problems Attracting Foreign Investment 
 
CHENGDU 00000143  003.2 OF 003 
 
 
-------------------------------------- 
 
¶12.  (C) Even though the investment environment has been 
"perfected" and conditions have improved, Sichuan is still ten 
years behind the coast, Wang stated.  Several problems cannot be 
easily resolved.  Due to the inland location, transportation 
infrastructure is underdeveloped.  In addition, inland Chinese 
have fewer contacts with overseas Chinese than residents of 
coastal areas.  Initially, much of the investment in China came 
from Hong Kong and Taiwan, because of close relationships with 
coastal communities on the mainland, Wang commented. 
 
¶13.  (C) In spite of the challenges, Sichuan does have the 
ability to attract enterprises from abroad and from coastal 
areas for a number of reasons: 
 
-  Labor costs are low; 
-  The transportation infrastructure has improved (air and 
roads); 
-  The technical infrastructure is strong (because of the 
"third-line" industrial base from Mao Zedong's redistribution of 
industrial and technical resources inland to survive a nuclear 
attack from the former USSR); 
-  Sichuan is a hub for the Great Western Development Strategy; 
and 
-  There is a large market here. 
 
Sichuan still needs a lot of foreign investment in order to 
develop modern management and administrative expertise, Wang 
stated.  In the end, the province will be able to attract new 
companies because the investment base is still very low. 
Economic growth will be fast, he predicted. 
 
¶13.  (C) This report has been coordinated with INR visitors. 
BOUGHNER