VZCZCXRO2085
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0895/01 0712303
ZNY CCCCC ZZH
R 112303Z MAR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 5650
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 000895 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS FOR USTR 
 
E.O. 12958: DECL: 03/11/2028 
TAGS: CH ECON EFIN EIND ENIV ENRG PGOV SENV SOCI
TBIO 
SUBJECT: GANSU ECONOMY GROWING, BUT MORE INVESTMENT NEEDED: 
 AMBASSADOR'S MARCH 10 DINNER WITH GANSU PARTY SECRETARY 
 
 
Classified By: Ambassador Clark T. Randt, Jr. for reasons 1.4 (b) and ( 
d). 
 
 
  SUMMARY 
------- 
 
¶1. (C) Gansu Province has benefited from Central Government 
initiatives to balance development by boosting spending in 
western China, but it continues to face major challenges, 
including water and power shortages, low rates of foreign 
investment, lagging employment opportunities, and a decrease 
in Central Government funding, said Provincial Party 
Secretary Lu Hao during a March 10 dinner hosted by the 
 
SIPDIS 
Ambassador.  Lu expressed concern about inflation and the 
effects of tightening monetary policy on investment in the 
province.  He underscored the important role of the private 
sector in transforming Gansu's state-owned enterprises (SOEs) 
and encouraged U.S. businesses to invest in Gansu.  Lu 
welcomed the establishment of Virtual Presence Post Lanzhou 
and urged the expansion of people-to-people exchanges between 
the United States and Gansu.  END SUMMARY. 
 
ECONOMY GROWING BUT INCOME GAP REMAINS 
-------------------------------------- 
 
¶2. (C) The Ambassador hosted a March 10 dinner for Gansu 
Party Secretary Lu Hao, who was in Beijing to attend the 
National People's Congress (NPC).  Party Secretary Lu told 
the Ambassador that Gansu's GDP grew 12.1 percent in 2007, 
slightly above the national GDP growth rate of 11.4 percent. 
This marked the eleventh year in a row that Gansu Province 
GDP growth topped 11 percent.  He said he remains concerned, 
however, that despite Gansu's gains, the income gap between 
western China and coastal provinces continues to widen as 
Central Government funding under the Great Western 
Development Program is gradually decreasing.  Lu said that 
during the NPC, he urged Premier Wen Jiabao and other leaders 
to offer more assistance, particularly in the form of fiscal 
transfer payments and increased Central Government spending 
on rural health care, education and infrastructure.  Premier 
Wen participated as a member of the Gansu delegation in this 
year's NPC, which gave Gansu an advantage in advocating its 
proposals, Lu added. 
 
INFLATION, MONETARY POLICY REMAIN TOP CONCERNS 
--------------------------------------------- - 
 
¶3. (C) Lu said he was encouraged by Premier Wen's strong 
commitment to balanced development in the Government Work 
Report but expressed concern about the effects of the 
People's Bank of China's (PBOC's) tight monetary policy on 
loan growth in 2008.  For western China, crucial investment 
is affected when loans become less readily available, he 
said.  On inflation, Lu remarked that food prices remain high 
but real estate prices in Gansu are low relative to other 
parts of the country, making it somewhat easier for Gansu's 
middle-class urban residents to absorb higher prices. 
Nonetheless, Lu said he remains concerned that rising global 
energy and commodities prices could contribute to longer-term 
inflation.  He argued that China should keep inflation below 
4.8 percent in order to maintain a healthy economy. 
 
SEEKING MORE U.S. INVESTMENT 
---------------------------- 
 
¶4. (C) Lu welcomed closer economic ties between the United 
States and China, noting that globalization has brought about 
growing interdependence between the two countries. 
U.S.-invested projects in Gansu have been very successful, 
and Gansu wants to attract more U.S. investors, he explained. 
 In 2007, Gansu had 232 U.S.-invested projects in progress, 
primarily in power generation, real estate development, 
chemicals, oil drilling and the export of seeds.  Lu said 
that although trade between the United States and Gansu 
Province has grown by a large margin over the past five 
years, total bilateral trade volume remains low relative to 
U.S. trade with China's coastal provinces. 
 
MOVING BEYOND A STATE-CONTROLLED ECONOMY 
---------------------------------------- 
 
¶5. (C) Gansu's economy remains dominated by SOEs, with an 
emphasis on heavy industry, Lu said.  Currently, private 
firms account for only 40 percent of Gansu's total registered 
companies.  Private investment is rising, particularly in the 
 
BEIJING 00000895  002 OF 003 
 
 
services sector, but the contribution of SOEs remains much 
higher in Gansu than in wealthier provinces.  Lu explained 
that Gansu is making broad efforts to upgrade primary 
industries.  Foreign investors could play a valuable role in 
these efforts.  Lu remarked that the operations of National 
Oilwell Varco, an American company with a factory in the 
province that produces oil industry equipment, provide a good 
example of cooperation between a private foreign investor and 
a Gansu SOE.  Other potential areas for cooperation include 
the development of wind power generation facilities in 
western Gansu. 
 
SOME PROGRESS MADE IN ADDRESSING WATER SHORTAGES 
--------------------------------------------- --- 
 
¶6. (C) The primary impediment to Gansu's development remains 
resource shortages, especially the lack of water.  Lu said 
the province has been investing increasing amounts of money 
in water transfer to provide residents of dry areas with 
access to clean drinking water over the long term.  Lu 
reported that the Central Government has been instrumental in 
addressing this problem and noted that some 2 million Gansu 
residents now have safe drinking water as a result. 
Desertification in the Hexi corridor remains a top concern. 
Lu stated that in 2007 the Central Government invested RMB 
4.75 billion (USD 670 million) in efforts to relocate 
farmers, return farmland to forest and improve irrigation to 
combat desertification in the province. 
 
WIND-POWERED SCIENTIFIC DEVELOPMENT 
----------------------------------- 
 
¶7. (C) In support of President Hu's concept of scientific 
development, Lu said, Gansu aims to increase its economic 
growth without harming the environment.  Currently, Gansu 
derives over 70 percent of its power from coal-fired plants, 
but it has plans to change the mix of energy sources in the 
near future.  Lu said that with the support of the Central 
Government, Gansu is developing what officials hope will 
become the world's largest wind power facility.  He explained 
that when completed, the facility, located in western Gansu, 
will deliver power to major cities in central and western 
China.  Lu projected that by 2015, the facility will be 
capable of producing more than 10 gigawatts at full capacity. 
(Comment:  A typical mid-sized U.S. power plant produces 
300-400 megawatts at full capacity. Producing 10 gigawatts as 
early as 2015 using alternative energy sources such as wind 
appears quite ambitious and could be considered an 
unrealistic goal. End Comment.)  Major challenges also remain 
in connecting the power generated to the national grid.  Lu 
pointed out that although it is relatively easy to harness 
wind power, it is difficult to transport the electricity from 
a remote part of the province to populated areas. 
 
BUILDING A HARMONIOUS SOCIETY THROUGH MIGRATION 
--------------------------------------------- -- 
 
¶8. (C) Lu explained that years of economic reform have 
brought great benefits to the country but they have also 
resulted in unbalanced growth.  To build a harmonious 
society, Lu said, the government must find ways to help 
people who have been left behind, including rural residents 
and those laid off as a result of SOE reform.  The gap 
between rich and poor in Gansu is also continuing to widen. 
Gansu currently has a labor surplus, and approximately 5 
million of its residents work in China's more developed 
coastal cities.  This outward migration has led to an 
increase in remittances, which benefit family members who 
stay behind in Gansu.  Lu noted that over 7,000 young Gansu 
women work as nannies in Beijing, while an additional 400 
Gansu residents are employed by a Beijing-based Panasonic 
plant. 
 
LANZHOU VIRTUAL PRESENCE POST WELCOME 
------------------------------------- 
 
¶9. (C) The Ambassador highlighted Embassy efforts to 
establish a Virtual Presence Post (VPP) in Lanzhou.  Lu 
welcomed the VPP and assured the Ambassador that Gansu 
Provincial Foreign Affairs and Commercial Affairs offices, 
both of which were represented at the dinner, would be 
pleased to assist VPP officers.  Lu remarked that 
people-to-people exchanges between Gansu and its U.S. sister 
state, Oklahoma, have proliferated in recent years. 
Programs, including educational exchanges and medical 
training opportunities in the United States for Gansu 
 
BEIJING 00000895  003 OF 003 
 
 
physicians, have been well-received.  He urged further 
expansion of such programs, which he said have benefited the 
people of Gansu. 
RANDT