VZCZCXRO6275
OO RUEHCN RUEHGH
DE RUEHGZ #1192/01 1930914
ZNR UUUUU ZZH
O 120914Z JUL 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4536
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 021192 
 
SIPDIS 
 
STATE FOR EAP/CM AND DRL 
USDA FOR FAS/ITP AND FAS/FAA 
USDOC FOR 4420/ITA/MAC/MCQUEEN 
USPACOM FOR FPA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PHUM PGOV SOCI EAGR EINV CH
SUBJECT: From Rural to Urban, Part 1: Industry Finds a New 
Home in Qingyuan 
 
REFERENCE: A) Guangzhou 18102; B) Guangzhou 93 
 
(U) This document is sensitive but unclassified.  Please 
protect accordingly. 
 
¶1. (U) Summary.  Qingyuan, Guangdong Province's largest and 
fastest-growing prefecture, is in the middle of an 
industrialization boom that will have far-reaching 
consequences for its urban and rural populations.  The Pearl 
River Delta (PRD) is no longer as cost-competitive as it 
once was due to a lack of land, energy and water shortages, 
and rapidly rising wages.  Consequently, factories are 
packing up and moving out.  Qingyuan, which lies outside of 
the PRD, has been successful in courting these factories. 
Many of the industries that are calling Qingyuan home are 
notorious polluters, however, including chemical and 
ceramics companies.  These companies also operate on a low 
margin and will likely leave Qingyuan once its wages rise 
too high -- a trend that is already starting to happen. 
Only with a long-term development strategy, perhaps hinging 
on its bourgeoning eco-tourism industry, can Qingyuan avoid 
a painful hangover down the road.  End summary. 
 
¶2. (U) Econoff and EconPolAsst recently visited Qingyuan 
prefecture, a predominantly rural area stretching from 
central to north Guangdong Province.  The southern reaches 
of Qingyuan, home to the majority of the population and 
industry, are only two hours from Guangzhou by bus. 
Qingcheng City, the largest city in Qingyuan with half a 
million people, served as our base as we visited nearby 
factories and more distant villages in southern Qingyuan. 
This cable explores the nature of Qingyuan's rapid 
industrialization and its long-term impact.  Septel will 
discuss the concerns of the rural population as they face 
this incoming tide of industry and urbanization. 
 
Feeding Off the Pearl River Delta 
--------------------------------- 
 
¶3. (U) The sidewalks of Qingcheng's business district at 
night are overflowing with young and old residents browsing 
retail stores that sell the latest clothing styles and 
electronics.  Though the per-capita GDP of Qingyuan is only 
about 40 percent of the Guangdong average, the urban 
residents of Qingcheng are doing well and are spending their 
money.  This prosperity is relatively new, however -- only 
in the last few years has Qingyuan changed from being a 
backwater to the fastest growing prefecture in Guangdong 
(Qingyuan's GDP grew at 23.3 percent in 2005).  Qingyuan 
also has the province's fastest growing industrial output, 
fixed asset investment, retail sales volume, utilization of 
FDI, gross industrial output, and foreign trade volume. 
 
¶4. (U) The reasons for this growth are largely geographic: 
Qingyuan lies just north of the Pearl River Delta (PRD), the 
center of South China's manufacturing industry that sweeps 
from Hong Kong to Guangzhou to Macau.  Despite continued 
strong economic growth, the PRD is facing energy and water 
shortages, rising wage levels, and a land crunch (Reftel B). 
Factories -- especially low-margin, labor-intensive ones -- 
are finding that their operations are no longer cost 
competitive and are looking to relocate.  Indeed, during the 
two years after the Beijing-Zhuhai highway opened, 170 
Guangdong factories moved to southern Hunan Province, which 
borders Guangdong to the north.  Twenty percent of new 
investment in Jiangxi Province, another bordering province, 
has come from Guangdong. 
 
¶5. (U) Qingyuan has made attracting these migrating 
companies its mission.  It pitches its low land prices, 
offers tax incentives, waives water and administrative fees, 
and offers generous awards to agents that bring investment. 
An agent can earn up to RMB 100,000 (USD 12,500) by bringing 
in a large investor.  An industrial park representative we 
spoke with said Qingyuan has attracted 1,600 industrial 
projects in the last three years, most of which came from 
the PRD.  With a salesman's self-assuredness, he touted the 
geographic and financial advantages of his park and listed 
its many satisfied customers.  Provincial authorities have 
helped bring investment to Qingyuan as well, as they are 
 
GUANGZHOU 00021192  002 OF 003 
 
 
eager to keep investment within Guangdong.  In the case of a 
30,000-employee electronics factory owned by Yi Li Group, 
which recently moved from Dongguan to Qingyuan, Guangdong 
authorities facilitated the move by negotiating a deal 
wherein Dongguan and Qingyuan equally share the new 
factory's tax revenue. 
 
¶6. (SBU) As an example of how busy Qingyuan officials are in 
their efforts to attract investment, Post has on two 
separate occasions in 2006 been denied in our requests for a 
series of meetings with Qingyuan offices, apparently because 
they were accommodating visiting investors.  A group of 
Australian investors were visiting when we last made a 
request. 
 
But How Long Will the Good Times Last? 
-------------------------------------- 
 
¶7. (SBU) Qingyuan is booming, but if recent history is any 
guide, its time at the top will be fleeting.  Shoetown -- 
Nike's first OEM manufacturer in China -- recently moved 
from Guangzhou to Qingyuan because it ran out of room to 
expand and was facing rapidly rising wages.  Indeed, the 
Guangzhou minimum wage has risen from RMB 450 (USD 56) per 
month in 2003 to RMB 684 (USD 86) in 2006.  And PRD cities 
are reportedly considering wage hikes of 17-42 percent in 
2006, which would bring Guangzhou's minimum wage to RMB 800 
(USD 100).  In the Qingyuan Shoetown factory, the starting 
take-home pay is RMB 650 (USD 81) per month.  (Company 
payments, which include insurance and pension contributions, 
bring the total to RMB 1220 [USD 153].)  With the rush of 
new factories to Qingyuan, however, this wage will not stay 
competitive for long.  Most of the laborers and factory 
workers that we spoke with in the area earn RMB 700-900 (USD 
88-113).  A large banner outside what appeared to be a 
textile factory in Qingyuan offered RMB 900 (USD 113) as a 
starting salary. 
 
¶8. (U) A reliable supply of labor is not assured either, as 
many of the workers in Qingyuan's factories are migrants. 
The Shoetown manager said the majority of his employees come 
from inland provinces, such as Hunan, and only 30 percent 
are locals.  These migrant laborers have more options than 
in the past, when Guangdong was the only place in China for 
factory jobs.  Better wages and working conditions have 
convinced large numbers of laborers to travel to the Yangzi 
Delta and other industrializing regions instead.  Indeed, 
Qingyuan's Yi Li electronics factory has reportedly only 
been able to find enough workers to fill half of its 30,000 
openings, and a large banner outside the factory gate 
announces job opportunities. 
 
¶9. (SBU) So how long before these new factories, faced with 
the same problems that forced them to leave the PRD -- 
including rising wages and energy shortages -- decide to 
move to new and cheaper locales?  Five years at the most, 
according to the Shoetown manager.  By that time, he said, 
his factory will likely relocate further inland, or possibly 
outside of China, to India, Vietnam, or Indonesia. 
 
The Down Side: Pollution 
------------------------ 
 
¶10. (U) With a new emphasis on sustainable development and 
innovation in China's 11th Five-Year Plan, PRD officials are 
more willing to see polluting factories depart in order to 
make room for clean and high-tech companies.  For example, 
approximately 1,000 PRD factories (including those involved 
in electroplating, dyeing, and paper-making) will reportedly 
need to comply with stringent new safety and environmental 
requirements by the end of 2006 or be forced to leave. 
Investors, including many from Hong Kong, are resigned to 
the fact that PRD officials are serious this time, and are 
looking to places outside of the PRD to invest -- Qingyuan 
being one. 
 
¶11. (U) Qingyuan has seen a large number of ceramics 
factories open in the last couple of years.  These factories 
emit high levels of pollutants into the air and use clay 
stripped from nearby hills -- both of which we witnessed 
 
GUANGZHOU 00021192  003 OF 003 
 
 
during our stay.  A recent Hong Kong study identified 
ceramics factories and automobiles are the two largest 
contributors to pollution in the Guangzhou area. 
 
¶12. (U) In addition, local environmental authorities in 
Qingyuan and other less developed areas in South China, who 
are mindful of the importance of this new investment, have a 
reputation as being lax in their enforcement.  In December 
2005, a smelting factory in northern Guangdong's Shaoguan 
discharged 1,000-tons of cadmium-carrying waste into the 
Beijiang River during facility maintenance, forcing Qingyuan 
cities to use back-up water supplies (Reftel A).  Officials 
took five days to notify the public about the incident, and 
the owner of the offending smelter told the press that any 
number of factories along the river could have been 
responsible. 
 
Eco-Tourism Firms Find a Foothold 
--------------------------------- 
 
¶13. (U) Qingyuan is scenic area, blessed with forested 
mountains and abundant rivers.  It is also home to a small 
but successful eco-tourism industry.  Prefecture maps and 
hotel pamphlets tout the area's white-water rafting, and a 
mountain not far from Qingcheng has an "adventure" hiking 
trail, complete with chain bridges and pulley swings. 
Workers were clearing a road through a bamboo forest on a 
mountain north of Qingyuan that will provide access to a 
nearby river for rafting.  Another successful venture is a 
3,000 mu (494 acre) farm outside of Qingcheng, run by an 
overseas Chinese from Malaysia, which charges visitors RMB 
25 (USD 3.13) to pick a variety of native and exotic fruits 
and vegetables. 
 
¶14. (U) Eco-tourism is a dependable long-term industry for 
Qingyuan, and tourists will continue to grow as the PRD and 
other areas of South China become more interconnected. 
Nevertheless, industrial development and pollution threaten 
to extinguish eco-tourism in its infancy, at least in the 
south where the majority of development is taking place. 
The mountainous north, which has less appeal to industry and 
more pristine land, stands to benefit greatly if these types 
of enterprises can attract enough customers. 
 
Comment: A Hard Bargain 
----------------------- 
 
¶15. (SBU) Qingyuan's breakneck industrialization is bringing 
prosperity to a formerly poor, agricultural prefecture. 
Jobs are now abundant, and wages are rising.  For companies, 
Qingyuan is a good compromise: it is located within two 
hours of Guangzhou and offers numerous investment 
incentives.  Qingyuan's good times may be short-lived, 
however, as these factories are by no means wedded to it -- 
as the Nike manager said, within five years some of them 
will move again, taking their jobs with them and leaving 
behind abandoned buildings and polluted air and water. 
Migrant laborers from the interior will follow the factories 
elsewhere.  Those who stay behind will need to figure out a 
more sustainable model for economic growth. 
 
MARTIN