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UNCLAS SECTION 01 OF 04 GUANGZHOU 013385 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB, R, EAP/CM, EAP/PD 
STATE PASS USTR - STRATFORD, CELICO 
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV CH
SUBJECT: The Long March: From Fossils to Feathers: Heyuan's 
Bid to Take Flight 
 
 
(U) This document is sensitive but unclassified.  Please 
Protect accordingly.  Not for release outside U.S. 
Government channels.  Not for internet publication. 
 
¶1. (SBU) Summary: As part of the Long March, a series of 
road journeys through the Guangzhou consular district 
(septel), we traveled to Heyuan, an impoverished prefecture 
largely untouched by the recent rapid development in South 
China.  Heyuan is bidding to draw further investment away 
from more developed regional competitors by leveraging its 
relatively unspoiled environment and abundant resources to 
offer a new, cleaner, more sustainable model for industrial 
development.  End Summary. 
 
Reading the Fossil Record as a Symbol of the Future 
--------------------------------------------- ------ 
 
¶2. (U) Heyuan, in South China's Guangdong Province, boasts 
the world's largest collection of dinosaur eggs. In a low, 
dusty building off a side road, double-sided racks stacked 
eight high and running the length of a long room contain 
more than ten thousand specimens unearthed nearby.  A 
display case in one corner holds the museum's prize 
exhibit: a fossil the curator claims is the long-sought 
missing link that proves the dinosaurs of yesteryear took 
flight and became the birds of today. 
 
¶3. (U) Perhaps. Certainly it is a compelling story, one 
city fathers hope to mimic as they usher their largely 
undeveloped prefecture into a bright future.  Their vision 
is as clear as the pristine lake upon whose shores the town 
rests: entice clean, light industry and skilled labor to a 
strategically situated region blessed with clear air, cheap 
and abundant power, and almost unlimited water - a precious 
resource in modern China.  They even have a slogan: "More 
money, less hassle, better health." 
 
Some Damming Problems Prevent Full Economic Development 
--------------------------------------------- ---------- 
 
¶4. (SBU) The path to achieving that vision is less clear. 
The lake that supplies the water and the dam that supplies 
the power are both controlled at the provincial level; 
while Heyuan's leaders are tasked with protecting these 
resources, they have no say in their sale, and receive 
little of the proceeds.  Industrial infrastructure remains 
in many respects rudimentary, and until now the region has 
experienced a brain drain as talented, educated inhabitants 
move away in search of economic opportunity. 
 
Rising from the Mud - Heyuan's Humble Beginnings 
--------------------------------------------- --- 
 
¶5. (SBU) Heyuan - a prefecture whose own vice mayor, Wu 
Youbi, describes as "backward" and "hilly" - clearly has 
some way to go to achieve prosperity.  Formed in 1988 from 
northwestern Guangdong's five poorest counties, it is a net 
importer of rice and pork even though 76 percent of the 
population live in rural areas.  The wealth of urban 
dwellers is four times that of the countryside, whereas 
nationwide that ratio is 3 to 1.  Some 20% of Heyuan's 
population have been forced to go elsewhere to find work. 
 
¶6. (U) Despite relative poverty and lack of development, 
Heyuan does have some things going for it. It is 
strategically located a short distance from two of the 
mostly highly developed and economically active cities in 
China: Shenzhen, on the border with Hong Kong, and 
Guangzhou.  Despite that proximity, Heyuan's own lack of 
development has left it with plenty of room for expansion 
and abundant natural resources, including what the city's 
vice mayor calls "the last drop of clean water in Guangdong 
province." 
 
¶7. (U) Heyuan's Evergreen Lake (Wan Lu Hu), formed in 1958 
when the East River (Dong Jiang) was dammed just below its 
source, covers 350 square kilometers, is up to 118 meters 
deep, and provides the largest portion of Hong Kong's 
drinking water.  When we visited the lake, it was clearly 
showing some strain from the past three years of drought. 
 
GUANGZHOU 00013385  002 OF 004 
 
 
The lake also supplies Shenzhen, Dongguan, Zhuhai and many 
other fast-developing Pearl River Delta (PRD) cities. 
Local leaders claim the water is clean enough to drink 
untreated. 
 
¶8. (U) In the heady early days of China's rush to 
development, the charge of protecting the lake was seen as 
an unwelcome burden that often tied local leaders' hands 
and stymied their efforts to keep up with the pace of 
development around them.  Now, as neighbors like Shenzhen 
and Guangzhou struggle to provide enough clean water and 
reliable power for their burgeoning populations and 
industries, it has come to be seen as an asset that can 
help lure light industry away from those areas with the 
promise of more sustainable, ecologically viable 
development. 
 
Spreading Their Wings - Light Industry Takes the Lead 
--------------------------------------------- -------- 
 
¶9. (U) Heyuan's leaders laid out the details of the 11th 
five-year plan in a series of meetings.  Not surprisingly, 
the focus was on economic growth and industrial 
development, driven by a new High Tech Development Zone 
(HTDZ).  Project Director Li Yannan explained the rationale 
and planning for the Zone, which is nearing completion of 
the first phase of construction.  According to Li, Heyuan 
must sustain 15% growth over the next five years to meet 
its targets.  While part of this will come from developing 
mining, agriculture and tourism, the primary driver will be 
industrialization, stimulated and guided by the creation of 
the High Tech Development Zone. 
 
¶10. (U) Planning for the HTDZ - which might more aptly be 
termed a "Light Industry Zone" - began in 2002.  The 
Chinese national government invested RMB 500 million (about 
USD 6.25 million), attracting additional investors from the 
mainland, Hong Kong, Taiwan, Korea, Japan, Europe and the 
United States.  Organizers claim a total of 93 companies 
have entered into contracts to invest USD 750 million.  Of 
these, 58 currently have facilities under construction in 
the zone; 38 are due to be operational by the end of this 
year, the rest in early 2007.  Hong Kong-based Long Kee, a 
maker of machine molds that employs some 10,000 people, is 
currently the zone's largest operation.  Makers of 
electronics, toys, carpets and stationary are also present. 
 
¶11. (U) Roads, power, water and other infrastructure are 
nearing completion in a 6.5 sq km area of the Zone. 
Ultimately, the HTDZ is meant to cover some 40 sq km, with 
an 18.3 sq km "center."  The developers envision a mixed 
urban area of industry, housing, shopping and community 
services that will eventually support some 300,000 workers 
and contribute RMB two billion (USD 250 million) per year 
to the economy. 
 
Staying Green: Protecting the Water Supply Comes First 
--------------------------------------------- --------- 
 
¶12. (U) The Zone is meant to address not only the benefits 
but also the unique environmental concerns raised by the 
proximity of Evergreen Lake.  Companies are held 
responsible for primary waste water treatment, but the HTDZ 
also boasts China's most advanced secondary waste water 
treatment facilities.  The provincial Environmental 
Protection Bureau (EPB) has established a 24-hour a day 
water monitoring station on site, and the zone will be 
required to maintain downstream water quality standards. 
Certain high-polluting industries, such as electroplating, 
chemical coatings, cement, ceramics and wood processing, 
will be banned entirely. 
 
¶13. (U) The zone's developers believe it has a number of 
highly attractive benefits to offer industries wishing to 
expand in South China.  First is the location, on the Hong 
Kong/Beijing rail line and with highway links to major 
regional population centers.  Second is the support 
infrastructure, said to comprise waste processing, an 
extensive road network, power supplies and government 
services.  Third is a stable power supply; power from the 
 
GUANGZHOU 00013385  003 OF 004 
 
 
dam keeps Heyuan from exceeding national and provincial 
power grid quotas, as happens often in nearby Dongguan and 
other developing cities.  Fourth is a commitment to serving 
business on the part of the local government; new companies 
can register in less than a week, with a local 
administrator assigned to each and graded on the service he 
provides.  Lastly, developers point to a series of factors 
they say result in significantly reduced production costs: 
land is cheaper than in more developed areas, with the 
maximum price for land in Heyuan set at just 1/8th of the 
minimum price in Shenzhen; water is cheap and plentiful 
thanks to the lake; license fees are kept low; and labor 
costs are also low.  The Zone's developers say these 
factors together represent a 20-25% reduction in production 
costs relative to nearby prefectures. 
 
¶14. (U) Finding qualified workers to staff these new, more 
technology-driven facilities is an issue.  Some 70% of 
workers in the HTDZ come from outside Heyuan.  While 
efforts are underway to develop a homegrown work force - 
the local technical institute recently received 
reclassification as a university, and provincial job fairs 
are being extended to the municipal level - that trend is 
likely to continue.  The Zone's developers have formed 
cooperative agreements with outside educational 
institutions; in February, they claim to have successfully 
recruited more than 23,000 workers. 
 
Into the Clear Blue Sky - Environment as Economic Driver 
--------------------------------------------- ----------- 
 
¶15. (U) Throughout meetings with Congenoffs, Heyuan's 
leaders were quick to point to their prefecture's 
relatively unspoiled environment and resources as a major 
selling point, one that sets Heyuan apart and makes it more 
attractive to light industry.  Their desire to protect the 
quality of the local water and air arises from both a 
provincial requirement to do so and a recognition that 
these resources, properly managed, can serve as an economic 
driver. 
 
¶16. (U) Heyuan EPB Deputy Director Lai Zhi Gang reminds 
visitors that the prefecture contains within its borders 
87% of the East River basin, and almost half the river's 
total length.  His bureau allows only minimal tourist 
activity on Evergreen Lake, the river's headwater, and has 
banned all development along its shores.  Visitors stay in 
hotels in town, and all waste generated at the lake is 
shipped out of the area.  EPB officials have implemented 
educational programs to raise local awareness of 
environmental issues. 
 
¶17. (U) Beyond that, Lai points to a three-part strategy 
intended to create a "win/win" situation in which 
industrial development and environmental protection go 
hand-in-hand.  Step one is to clean up existing sources of 
pollution: some RMB 200 million (USD 25 million)has been 
spent to clean up more than 60 sites, including a small 
pharmaceuticals manufacturing complex and a cement plant; 
30 high-polluting businesses have been shut down entirely; 
and a new wastewater treatment plant is being built.  Step 
two involves regulating new industries.  The HDTZ is 
designed to attract low-pollution, new-technology 
industries and lessen their environmental impact by 
gathering them together in a single, well-maintained area. 
All new industries are required to obtain an environmental 
impact report assuring their run-off water achieves the 
highest level (level 1) on China's industrial emissions 
scale; the standard throughout the rest of Guangdong 
province is level 2.  The final step is effective 
enforcement of environmental regulations.  Heyuan 
authorities have shut down all restaurants and hotels 
upstream of the lake and set up 24-hour a day water quality 
monitoring.  Since the city was founded in 1988, they claim 
to have refused more than RMB 20 billion (USD 2.5 billion) 
in investments deemed incompatible with environmental 
protection. 
 
No Farmer Left Behind: 
Heyuan's Vision of the New Socialist Countryside 
 
GUANGZHOU 00013385  004.2 OF 004 
 
 
--------------------------------------------- --- 
 
¶18. (U) While the primary focus of Heyuan's 11th Five-year 
Plan is on developing light industry, the majority of the 
prefecture's inhabitants will continue to live a rural 
existence for the foreseeable future.  According to Li 
Yunhan, Deputy Director of the Heyuan Agriculture Bureau, 
the prefecture has designated 120 sites as pilot villages 
for developing the New Socialist Countryside called for by 
Chinese President Hu Jintao. 
 
¶19. (U) Li says income in rural areas rose slightly more 
than in urban areas - 37% to 35% - over the last five 
years, though from a much lower base.  The Heyuan 
Agricultural Bureau has identified four strategies for 
developing the countryside.  The first is to shift farmers' 
emphasis from growing crops to raising livestock.  The 
second is to shift cultivation from subsistence crops to 
cash crops; the ratio is currently .82 to 1, while the goal 
is a ratio of 1 to 1.  The third is a campaign to spur 
agricultural development.  The fourth strategy is 
optimization of the economic structure of villages.  This 
will be achieved by raising incomes, building homes, 
developing infrastructure, focusing on product quality and 
safety standards, protecting villages from natural 
disasters, and promoting commoditization of rural products 
by encouraging "dragonheads."  Dragonheads are leading 
enterprises, large, cooperative organizations that help 
market and distribute farmers' products.  Heyuan farmers 
currently participate in a total of 103 dragonheads: six 
are organized at the provincial level, 23 at the prefecture 
level, and the rest are municipal. 
 
¶20. (U) The ultimate goal is to improve farmer's living 
conditions, particularly in the areas of housing; drinking 
water quality and safety; domestic infrastructure, moving 
from wood ovens to gas; and waste removal, with projects to 
recycle both animal and human waste into methane that can 
be used to cook food and light and heat homes.  Health care 
is being addressed in the form of a rural insurance program 
funded 10% from participant fees, 40% from central 
government contributions, and 40% from municipal government 
contributions.  Participants will be reimbursed up to RMB 
5,000 (USD 624) for medical costs.  Prefecture leaders also 
claim to be investing some RMB 400 million (USD 50 million) 
in hospitals, renovating 41 clinics, and providing each 
village with a RMB 10,000 (USD 1,250) subsidy for a local 
medical unit. 
 
¶21. (SBU) All of this takes place against the backdrop of a 
push to further urbanize Heyuan's population.  The goal for 
the next five years is to move from the current 24.3% of 
population in urban areas to 38%.  While it is not clear 
exactly how this is meant to be achieved, it appears any 
change may come more through reclassification than actual 
physical movement of populations. 
 
Comment: Limited by Its Role as Water Source 
-------------------------------------------- 
 
¶22. (SBU) Heyuan's leaders have both a clear plan for 
developing their prefecture, and a project - the HTDZ - in 
place to do so.  In fact, theirs is still a largely rural 
prefecture, and will likely continue to be for some time. 
With little revenue generated from sales of power and water 
from the local lake and dam, funding will be an issue, 
giving greater influence to those bringing in investment, 
and less to those promoting sustainability and 
environmental protection.  Providing the education and 
support necessary to help rural dwellers become industrial 
workers will also be important.  The vision is in place, 
and it's a good one, but time, wise governance and adequate 
funding will all be required to make it a reality. 
 
DONG