VZCZCXRO8876
RR RUEHCN RUEHGH
DE RUEHGH #0104/01 0630926
ZNR UUUUU ZZH
R 040926Z MAR 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7693
INFO RUEHBJ/AMEMBASSY BEIJING 2567
RUEHCN/AMCONSUL CHENGDU 1789
RUEHGZ/AMCONSUL GUANGZHOU 0245
RUEHHK/AMCONSUL HONG KONG 1956
RHEHAAA/NSC WASHINGTON DC
RUEHSH/AMCONSUL SHENYANG 1780
RUEHIN/AIT TAIPEI 1577
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8327

UNCLAS SECTION 01 OF 05 SHANGHAI 000104 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA/HAARSAGER AND 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, KUTCHA-HELBLING 
HHS FOR OGHA/KULIKOWSKI, ABDOO, CUMMINGS AND PASS TO FDA/LUMPKIN 
EMBASSY BEIJING FOR HHS/FDA 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EFIN ETRD ELAB PREL CH
SUBJECT: ANHUI FACING SOBERING ECONOMIC REALITY 
 
REF: A. (A) SHANGHAI 96 
     ¶B. (B) 08 SHANGHAI 449 
     ¶C. (C) SHANGHAI 103 
 
(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) During the Deputy Principal Officer's February 24-27 
visit to Anhui Province, provincial and local government 
officials said that despite initial optimism in the 4th quarter 
of 2008 that Anhui might avoid the worst of the economic 
downturn, conventional wisdom now holds that the province will 
face serious economic challenges in 2009.  The Provincial 
Government continues to emphasize the importance of rural health 
but is beset by a lack of trained medical personnel, according 
to officials.  The DPO discussed village elections and rural 
finance with scholars in Hefei, the provincial capital, and also 
visited a village in northern Anhui.  Local officials in Fuyang 
expressed concern about the impact of the economic downturn at 
home and directed some of the blame at the United States.  End 
Summary. 
 
The View from an Economic Planner 
--------------------------------- 
 
¶2. (SBU) Guo Hao, Director of the National Comprehensive Economy 
Division at the Anhui Development and Reform Commission, said on 
February 25 that there are signs Anhui's economy is slowing. 
The economic crisis has had a bigger impact on coastal 
export-oriented industries than on Anhui, but the province is 
starting to feel the adverse effects of the slowdown, 
particularly in core manufacturing industries such as steel and 
autos, which rely in part on exports.  Anhui is the home of 
Ma'anshan Steel and Chery Automobiles, both of which are 
affected by slowing trade (see Ref A).  According to Guo, 
Anhui's total trade volume decreased by 20 percent year-on-year 
in January 2009.  Investment also has declined recently, and the 
real estate sector is struggling, Guo said. 
 
¶3. (SBU) The Provincial Government hopes that hosting the 4th 
Central China Expo in Hefei in April 2009 will help attract 
investment to the province.  Anhui's GDP growth slowed from 12 
percent in 2007 to just over 10 percent in 2008, so the 
province's goal of maintaining 8 percent growth will be more 
difficult in 2009, Guo stated, as the economic slowdown is 
likely to continue into the second half of the year.  (Comment: 
Guo's sobering assessment was more pessimistic than the upbeat 
analysis offered by Anhui officials in October 2008, who at that 
time were confident the economic slowdown would have little 
impact on the province. See Ref B.  End Comment.) 
 
¶4. (SBU) The Provincial Government is paying close attention to 
conditions for Anhui's migrant workers, many of whom were laid 
off by factories on the coast and returned to the province early 
to celebrate Lunar New Year and may not yet have found new jobs, 
Guo said (see Ref C).  The most significant problem is in the 
northern part of the province where population density is the 
highest.  Guo pointed out that several counties in northern 
Anhui have populations of close to 1 million while counties in 
the southern and eastern areas have only 300-400,000 people. 
Local governments have been tasked to help migrant workers find 
work, by providing both labor information and short-term 
training.  University student employment also is receiving much 
attention from local governments, he said. 
 
¶5. (SBU) Anhui welcomes the State Council's announcement in its 
Number One Policy Document that rural policy would be the 
Central Government's top priority for the sixth year in a row. 
Rural issues are very important in Anhui, Guo said, who added 
that the Provincial Government aims to increase rural 
 
SHANGHAI 00000104  002 OF 005 
 
 
consumption in line with Central Government objectives.  Guo 
said the impact of this year's drought on the province's wheat 
harvest is not yet clear, but it is likely to hurt Anhui's total 
production for 2009.  (Note: Zhang Deyuan at Anhui University's 
San Nong Institute told DPO on February 25 that he is optimistic 
the drought's impact will be limited. End Note.) 
 
Facing Rural Health Challenges 
------------------------------ 
 
¶6. (U) Rural health remains very important in Anhui where 70 
percent of the population lives in the countryside.  According 
to Xu Hengqiu, Deputy Director of the Anhui Provincial Health 
Bureau, since 2007, Anhui has placed greater emphasis on 
resolving rural residents' difficulties seeing a doctor and 
affording medical care.  The Health Bureau's 2007 plan calls for 
strengthening the province's rural health infrastructure, and 
aims to build new medical facilities so that within three to 
five years there will be 1,233 township hospitals and 10,000 
village clinics in the province. 
 
¶7. (U) Constructing new facilities is a small problem, however, 
compared to the shortage of trained medical personnel in Anhui's 
countryside, Xu said.  The Health Bureau's strategy to improve 
the quality of the province's rural health professionals focuses 
on four areas: (1) providing short-term training in Hefei, the 
provincial capital, as well as county seats, (2) improving 
on-the-job training, (3) encouraging university graduates with 
medical specialties to work in the countryside with support from 
subsidies from rural county governments, and (4) requiring urban 
doctors to volunteer at least six months for an assignment in 
the countryside in order to be promoted. 
 
¶8. (U) Since the launch of the Rural Cooperative Medical 
Insurance Scheme (RCMS) in 2003, Anhui Province has expanded the 
coverage of the program to 90.12 percent of rural residents in 
all of the province's counties.  The funding for the program in 
Anhui has grown to RMB 100 (USD 15) per person with RMB 20 paid 
by the farmer, RMB 40 by the provincial and local governments, 
and RMB 40 by the Central Government.  A reimbursement-based 
program, the Anhui Health Bureau also has steadily increased the 
level of repayment.  Xu claimed that because the RCMS system is 
organized according to hukou resident registration, migrant 
workers from Anhui who are living outside the province still can 
be covered by the RCMS if they continue to pay into the program. 
 They can be reimbursed for medical care received outside Anhui 
if they can produce receipts and proof of care, Xu stated. 
 
¶9. (U) Because northern Anhui is a poor region, rural residents 
there receive subsidized medical care, paying lower rates for 
basic care and to pay into the RCMS program.  The Health Bureau 
is monitoring the return of migrant workers to Northern Anhui. 
Xu said she does not foresee new health policy-related problems 
as a result of the workers' return, but all Provincial 
Government bureaus are following returning migrants and their 
impact on social stability. 
 
¶10. (U) According to Xu, Anhui's health reforms are in line with 
the State Council's January 2009 reform plan, which focuses on a 
more community-based approach. The State Council's plan has been 
in the works for three years, Xu said, so the final document had 
no surprises, and there are no conflicts or contradictions 
between the Central Government's strategy and Anhui's plan.  Xu 
said Anhui has not had any reports of human cases of Avian 
Influenza (AI), but the Provincial Government is paying close 
attention to the problem. 
 
Promoting Democracy in the Countryside 
-------------------------------------- 
 
¶11. (SBU) DPO also discussed Anhui's rural situation with Zhang 
Deyuan, Deputy Director of Anhui University's San Nong Institute 
(see also Ref C).  Zhang assured the DPO that the funding the 
 
SHANGHAI 00000104  003 OF 005 
 
 
institute had received from the China Mission's small grants 
program would be put to good use in 2009-10, as the San Nong 
Institute works towards spreading and strengthening the 
"combined election system" in Anhui's countryside.  Under this 
system, villagers are able to nominate and freely vote for 
candidates for village committee positions.  The experiments 
have increased villagers understanding of democracy as well as 
governmental accountability in these villages, and Zhang hopes 
the small grant funding can help to pinpoint areas of 
improvement and to also conduct seminars and media campaigns to 
encourage other villages to adopt the system.  Zhang said the 
project would help strengthen grassroots democracy efforts in 
Anhui.  He believes the economic downturn will not have a 
significant impact on rural political reform, but he 
acknowledged that process on village elections remains slow. 
 
Rural Finance and Start-up Businesses 
------------------------------------- 
 
¶12. (SBU) Lack of access to finance remains an impediment for 
farmers as well as for returning migrant workers who want to set 
up new businesses.  According to Xie Peixiu, the Deputy Director 
of the Agricultural Institute at the Anhui Academy of Social 
Sciences (AASS), rural financial institutions still are not well 
developed in the countryside, and local governments in Anhui 
have replicated efforts in other parts of China to develop rural 
cooperative banks.  Pilot rural financial cooperative programs 
in Huailin and Heshan Counties already have been launched under 
the supervision of the China Banking Regulatory Commission, Xie 
said.  Without reliable collateral or a developed insurance 
industry, however, progress on rural finance remains limited, he 
said. 
 
¶13. (SBU) The Provincial Government would like to encourage 
returning migrants to set up businesses in rural areas, but the 
poorly developed financial sector is an even greater obstacle in 
this case, researchers told the DPO.  According to Sun Ziduo, a 
researcher at AASS and an Advisor to the Provincial Government, 
migrant workers may be able to utilize their savings to set up 
small businesses in development zones, but it is next to 
impossible to apply successfully for business loans because 
migrant workers do not have collateral.  Some banks are 
exploring ways to solve this problem, but it remains a major 
challenge, Sun said. 
 
On the Road to Fuyang: Omiao Village 
------------------------------------ 
 
¶14. (SBU) Heading northwest by road from Hefei, the DPO Visited 
Omiao Village, Yinzhou District in Fuyang near the Anhui-Henan 
border.  DPO met with villagers who are beneficiaries of 
U.S.-based NGO Heifer International project, which was launched 
in March 2006 and has received USD 221,000 in support in the 
past three years.  Heifer International plans for 600 families 
in the area to receive assistance over the course of the 
project, and 310 families already have participated, including 
more than 100 in Omiao.  With the funding provided by Heifer 
International, farmers in the area have purchased more than 200 
pigs, 80 goats, and 5650 geese to supplement their income 
through raising livestock, and they also have treceived training 
in aquaculture technology, production management, and health. 
 
¶15. (SBU) Visiting the homes of several villagers, DPO noted the 
contradictions in a place with numerous cell phone towers but no 
paved roads and DVD players in houses which until recently had 
no running water.  Farmers acknowledged that most of their 
disposable income is derived from their children who work as 
migrant laborers in Shanghai and other coastal areas (Ref C). 
 
Fuyang Officials Have Local Concerns... 
--------------------------------------- 
 
¶16. (SBU) Wang Bin, Director of Fuyang's Development and Reform 
 
SHANGHAI 00000104  004 OF 005 
 
 
Commission said Fuyang has a population of 9.78 million and 
remains an agricultural base in northern Anhui, producing wheat, 
beans, and sweet potatoes.  Fuyang's agricultural policy seeks 
to continue to increase the quantity of production and improve 
the quality, he said.  Northern Anhui is more backward than 
Hefei or Wuhu, so Fuyang also aims to promote industrial 
development, building on the region's petrochemical industry and 
coal resources.  The most significant contribution to Fuyang's 
economy, Wang acknowledged, is made by migrant workers. 
Approximately 2 million of Fuyang's workers go outside the city 
to work in factories and the service sector in Guangdong, 
Shanghai, Jiangsu, Zhejiang, and Beijing.  Migrant worker 
remittances boost rural incomes in Fuyang, and the majority of 
migrant workers retain Fuyang hukou resident registrations, so 
they remain tied to the area.  In order to promote Fuyang's 
urbanization and industrialization, Fuyang has eliminated the 
urban-rural distinction in the local hukou policy. 
 
¶17. (SBU) Fuyang's government is placing a greater emphasis on 
social welfare programs, Wang said, including elder care 
(yanglao baoxian), health insurance (yiliao baoxian), and basic 
welfare (dibao), but he did not provide statistics on 
expenditures.  He said that migrant workers who have Fuyang 
hukous can "take the insurance with them" according to the 
city's insurance reform policy (liudong baoxian gaige).  Wang 
said Fuyang also boasts a strong transportation infrastructure, 
which he hopes will help attract new investment. Fuyang has four 
rail lines, is located at the intersection of 3 major highways, 
ships goods on the Huai River, and now has an airport with 
flights to Shanghai. 
 
¶18. (SBU) Wang said the local government is taking steps to 
assist migrant workers who were laid off from their jobs in 
coastal regions and returned early to celebrate Lunar New Year 
in Fuyang.  (Note: Fuyang identified as a major problem area for 
early returners by Wall Street Journal Article in December 2008. 
 End Note.)  Fuyang's government is promoting industrial 
development in the city so that the estimated 20,000 migrant 
workers who have not yet found new jobs outside Fuyang can work 
at home.  There is a new development zone with several new 
factories in the city, and Wang claimed 40 food products, 
pharmaceuticals, and clothing companies have opened new 
facilities in Fuyang.  The city's GDP increased by 12 percent in 
2008, so Wang is hopeful Fuyang can maintain at least 8 percent 
growth (bao ba) per the Central Government's exhortation.  In 
fact, Wang asserted, given Fuyang's industrial development 
efforts, he hopes the city can maintain GDP growth of at least 
10 percent.  He acknowledged, however, that the agricultural 
sector's GDP would be hurt in 2009 by the recent drought in 
Anhui.  Fuyang hopes to encourage domestic consumption, 
including increasing auto sales.  (Note: The first floor of the 
hotel where our meeting took place was packed with Midea (a 
Guangdong-based company) refrigerators, which according to Wang 
would be sold to farmers at discount prices.  End Note.) 
 
¶19. (SBU) When asked about Anhui's recently announced "Buy 
Local" guidelines, Wang strongly denied that the guidelines were 
government policy, rather, they must come from a trade 
association.  The Central Government opposes local protectionist 
measures, and while a local official "might talk about it in a 
meeting," the government "never would issue a document like this 
one."  If provincial and local governments succumb to 
protectionist tendencies, it will "divide the whole country" and 
"China will be finished."  That said, however, the local police 
forces in Anhui purchase Wuhu-based Chery automobiles in bulk. 
Local government officials, he said, still prefer driving "more 
prestigious" foreign brand automobiles.  (Note: Guo Hao at 
Anhui's Provincial Development and Reform Commission also said 
on February 25 that he does not know of any new "Buy Local" 
policies in Anhui, and he insisted that companies in the 
province make business decisions strictly on the basis of price. 
 End Note.) 
 
 
SHANGHAI 00000104  005 OF 005 
 
 
...And a Global View 
-------------------- 
 
¶20. (SBU) Fuyang's Vice Mayor, Hu Mingying, told the DPO during 
dinner on February 26 that the city maintains a global view.  On 
the economic crisis, Fuyang does not rely very much on exports 
(although some Fuyang-based companies do export to the U.S.) so 
external factors do not directly affect Fuyang's economy, he 
asserted.  However, there are two major indirect effects of the 
global economic crisis on Fuyang: (1) the "market" has changed 
as a result of the crisis in many unforeseen ways, and (2) the 
Central Government will have to adjust its macroeconomic control 
policies, which will affect Fuyang. 
 
¶21. (SBU) Hu expressed disappointment that there is no U.S. 
Investment in Fuyang, and he hopes the upcoming Central China 
Expo will be a good opportunity for Fuyang and other Anhui 
cities to attract more foreign investment, exchange information 
with other Central China provinces, and improve coordination 
with the Central Government. 
 
¶22. (SBU) On President Obama's stimulus plan, Hu was dismissive 
of the United States own economic problems, said the United 
States "just better hurry up its economic recovery" for China's 
sake, and said we had better stop protecting American 
automakers.  Fu was puzzled by U.S. policy decisions to bail out 
some American banks but not others (Lehman), saying some of 
those decisions were misguided.  (Comment: It sounded a lot like 
Fu was blaming the United States for all of China's economic 
problems, almost desperately suggesting that the US "better 
start consuming again."  Although not pointing specifically to 
Anhui's "buy local" policy, Fu did say China would act in its 
own economic self-interest and do whatever it takes to protect 
China's economy.  End Comment.)  DPO emphasized that the United 
States and China have a long history of cooperation on many 
issues, and U.S.-China cooperation would be critical to solve 
current global problems, including the financial crisis. 
CAMP