VZCZCXRO7281
RR RUEHCN RUEHGH
DE RUEHGH #0117/01 0710921
ZNR UUUUU ZZH
R 120921Z MAR 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7716
INFO RUEHBJ/AMEMBASSY BEIJING 2590
RUEHGZ/AMCONSUL GUANGZHOU 0266
RUEHSH/AMCONSUL SHENYANG 1801
RUEHCN/AMCONSUL CHENGDU 1810
RUEHHK/AMCONSUL HONG KONG 1977
RUEHIN/AIT TAIPEI 1598
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8351

UNCLAS SECTION 01 OF 02 SHANGHAI 000117 
 
SENSITIVE 
SIPDIS 
 
STATE ALSO FOR EAP/CM, EEB/TRA 
STATE PASS USTR FOR CHINA OFFICE 
USTR FOR STRATFORD, WINTER, WINELAND 
TRANSPORTATION FOR DAS JOEL SZABAT 
USDOC FOR ITA DAS KASOFF, MAC/OCEA - SZYMANSKI 
 
E.O. 12958: N/A 
TAGS: EWWT EIND EFIN ETRD ECON PGOV CH
SUBJECT: COSCO LIANYUNGANG SHIPYARD DETERMINED TO EXPAND DESPITE 
SHIPPING INDUSTRY WOES 
 
REF: BEIJING 443 
 
(U) This message is sensitive but unclassified. 
 
 
 
¶1. (SBU) Summary:  COSCO (Lianyungang) Shipyard Co., Ltd. 
(hereinafter CLYGS) has benefitted from Lianyungang's 
ocean-front location and central and local government support. 
Due to the economic downturn, business has not kept up with 
expectations, leaving unused service capacity.  In spite of the 
disappointing numbers, CLYGS plans to move forward beyond 
original repair and conversion operations and expand to 
shipbuilding operations.  End summary. 
 
 
 
¶2. (SBU) As part of a March 2-4 reporting trip to Lianyungang in 
the north of Jiangsu Province, Consulate Econoffs met with 
managers and toured operations at COSCO (Lianyungang) Shipyard 
Co., Ltd. (CLYGS)CLYGS.  CLYGS managers said they have 
consistently received cooperation and support from local 
officials.  They were pleased to reciprocate that support by 
assembling their senior managers to meet their U.S. Consulate 
visitors in response to a same-day request from the Lianyungang 
Foreign Affairs Office.  (A previously confirmed visit to a 
different Lianyungang shipyard was hastily cancelled at mid-day 
due a major traffic accident which had blocked an access road.) 
 
 
 
¶3. (U) CLYGS is a subsidiary to COSCO Shipyard Group, the second 
largest shipyard group in the world, which is also a state-owned 
enterprise.  Located on prime Lianyungang harbor-front property, 
the CLYGS subsidiary mainly repairs and offers conversion design 
and execution services to vessels for bulk or offshore oil 
industry use.  Senior management included a team of well-trained 
staff transferred from other major COSCO shipyards in China 
including Dalian, Nantong, Shanghai, and Guangzhou.  According 
to Tian Jun, CLYGS Executive Deputy General Manager and Party 
Committee Secretary, the firm' leaders have multi-lingual 
fluency due to their frequent interactions with their 
internationally-sourced customer base.  Ships home-ported in 
India, Norway, and Taiwan were berthed for CLYGS services at the 
time of our visit. 
 
 
 
A Large Presence on the Lianyungang Waterfront 
--------------------------------------------- - 
¶4. (U) Operations at CLYGS only commenced in March 2008.  With a 
production site measuring 220,000 square meters, one floating 
dock, and three berths, CLYGS is capable of annually serving 60 
vessels of various types.  The company is situated on prime 
deep-waterfront property which allows easy berth and launching 
access from ocean-going vessels.  Ship conversions, such as 
making oil tankers double-hulled to comply with International 
Maritime Organization requirements or converting tankers to bulk 
carriers, is the largest revenue-generating part of CLYGS 
operations.  At full capacity, CLYGS can service up to nine 
vessels at a time.  One year after its opening, CLYGS currently 
employs approximately 3,000 workers, servicing 24-hour 
operations. 
 
 
 
Environmental Considerations 
---------------------------- 
¶5. (SBU) When asked to describe the environmental impact 
awareness programs CLYGS employs, Tian asserted that CLYGS puts 
high importance on control of environmental degradation.  CLYGS 
is located close to the Lianyungang city center and particular 
attention has been placed on the company's impact on the local 
population concentrated nearby, he said. (Comment:  Even so, 
during the tour of CLYGS facilities, employees were seen 
sandblasting hull paint into the water off a large bulk vessel 
berthed on the floating dock, and shortly after, while driving 
 
SHANGHAI 00000117  002 OF 002 
 
 
near the perimeter of CLYGS operations, Econoff noticed deposits 
of paint-laced sludge collecting along the shoreline.  End 
comment.) 
 
 
 
Good Local and Central Government Relations 
------------------------------------------- 
¶6. (SBU) Central government leaders have encouraged expansion of 
port activity in Lianyungang, and General Secretary Hu Jintao 
specifically addressed development of Lianyungang during the 
17th CPC meetings at the end of 2007, Tian explained.  He said 
that the local government has been very supportive of CLYGS in 
the past, and CLYGS expects a continuation of support from the 
local and central governments.  The Lianyungang Municipal 
Government has offered free training on port and shipping 
operations for CLYGS workers, who hail from all over China, for 
example.  Although CLYGS will not receive funds from China's 
economic stimulus plan directly until CLYGS begins shipbuilding 
operations sometime in the future, Tian said, stimulus funds 
will benefit COSCO operations and will in turn help CLYGS 
indirectly.  The CLYGS managers, as well as Lianyungang 
Municipal Government officials with whom we met, expect that 
Chinese economic stimulus funds will include expenditures on 
Lianyungang harbor dredging and expansion of container 
terminals.  Any initiatives that increase ship traffic to 
Lianyungang benefits CLYGS, Tian and his colleagues said, by 
bringing more potential customers to CLYGS's waterfront. 
 
 
 
Expansion Plans Not Hindered by Economic Downturn 
--------------------------------------------- ---- 
¶7. (SBU) Pending government approvals which CLYGS expects in 
June 2009, CLYGS will expand its waterfront presence and vessel 
services despite the economic downturn.  Expansion plans will 
double service facilities with the addition of two new floating 
docks and two adjoining berths.  Tian claims that the 
expansions, once approved, will double CLYGS's repair and 
conversion capacity in six to eight months time.  After the 
expansion, CLYGS will also diversify its business operations 
beyond repair and conversion by adding construction of jack-up 
rigs and specialty vessels that require complex engineering and 
fabrication and are likely to have higher profit margins than 
building of more common ocean-going commercial vessels.  CLYGS 
remains confident about its future business development in 
Lianyungang, planning expansion step-by-step as economic 
conditions warrant. 
 
 
 
Impact of Economic Crisis 
------------------------- 
¶8. (SBU) CLYGS management noted that business volume has been 
affected by the world-wide economic downturn.  Many clients have 
rescheduled maintenance orders, and at the time of the March 3 
visit, only four ships were berthed for CLYGS services, below 
company projections of servicing up to nine vessels at any given 
time.  Tian said payments from customers have become more 
difficult than normal to obtain.  He also allowed that winter 
press reports indicating dozens of cancelled orders for new 
ships in Chinese shipyards could be true, but stressed that 
CLYGS has had no outright cancellations of any of its repair and 
conversion work during its first year of operations. 
CAMP