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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #6903/01 2260823
ZNR UUUUU ZZH
R 140823Z AUG 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0132
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 0905
RUEATRS/DEPT OF TREASURY WASHDC
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RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 026903 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM 
USDOC FOR 4420/ITA/MAC/MCQUEEN 
STATE PASS USTR 
USPACOM FOR FPA 
TREASURY FOR OASIA/INA-CRANE 
USDA FOR FAS/ITP AND FAS/FAA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EAGR ELAB CH
SUBJECT:  THE HEAT IS ON: GUANGDONG PROVINCE H1 ECONOMIC 
REPORT 
 
REF: Guangzhou 18102 
 
¶1. (U) SUMMARY.  This report offers an overview of the 
economic performance in the first half of 2006 for Guangdong 
Province.  The province continues to be an economic hot spot 
despite government control measures, murky bookkeeping, and 
natural disasters.  The strong industrial and export sectors 
fueled a rapidly ascending provincial gross domestic product 
(GDP).  Electronic equipment manufacturers and the real 
estate sector recorded particularly robust growth.  It was 
apparent that the Provincial Statistics Bureau attempted to 
paint a rosy picture of the provincial economic situation, 
but hoped it was not so rosy as to attract criticism for 
contributing to an overheating economy.  END SUMMARY. 
 
Guangdong Fast Facts (U) 
------------------------ 
 
GDP, billion USD                             142.19 (14.4%) 
GDP, percentage of national GDP               12.49% 
FDI, actual use, billion USD                   6.83 (21.4%) 
Imports, billion USD                         101.7  (20.0%) 
Exports, billion USD                         131.3  (28.3%) 
Fixed-asset investment, billion USD           40.24 (20.5%) 
Retail sales, billion USD                     55.22 (15.6%) 
Consumer Price Index                           1.7 
Disposable income per capita (urban), USD   1062.50  (9.0%) 
Disposable income per capita (rural), USD    361.06  (7.9%) 
 
¶2. (U) NOTE:  Percentages in parenthesis represent growth 
compared to the same period in 2005 (according to the 
Guangdong Statistics Bureau).  All currency conversions in 
this report are made at the average exchange rate of USD 1 = 
RMB 8.0292. 
 
¶3. (U) Led by a strong export sector, Guangdong maintained 
a "steadily fast economic development," according to the 
Guangdong Statistics Bureau.  The province's gross domestic 
product (GDP) reached RMB 1141.68 billion (USD 142.19 
billion), an increase of 14.4%.  The income of the primary 
sector was RMB 48.06 billion (USD 5.99 billion), up 3.9%. 
For its part, the income of the secondary sector grew 16.8% 
to RMB 602.08 billion (USD 74.99 billion).  The tertiary 
sector posted income of RMB 491.54 billion (USD 61.22 
billion), up 12.6%. 
 
¶4. (U) When compared to Provincial Government-reported 2005 
numbers, some growth rates are actually much higher than 
those claimed in this year's H1 report.  For example, the H1 
GDP for 2006 is USD 142.19 billion, which appears to 
represent a 32% growth rate over the 2005 H1 GDP of USD 
107.71 billion.  Even when inflation and exchange rate 
differences are considered, the 14.4% 2006 H1 GDP growth 
rate appears to be substantially under-reported, likely in 
an effort to not have the economy appear to be overheating. 
 
Note on Statistics 
------------------ 
 
¶5. (U) Unless otherwise noted, percentage growth figures are 
over the same period of 2005.  Readers should bear in mind 
that the majority of statistics provided in this report are 
from Chinese government sources.  As such, they should be 
taken with the proverbial grain of salt.  They are of 
limited reliability, and are best used in comparison to 
other time periods.  Even then, the statistics may be of 
limited accuracy, since the methodologies used to calculate 
the statistics often change without notice.  In the past, 
authorities have been loath to explain any irregularities or 
changes. 
 
Industrial Engine Firing On All Cylinders 
------------------------------------------ 
 
¶6. (U) Industrial production continued to grow at a brisk 
pace during 2006's first half.  The income of industrial 
enterprises with annual sales revenue of RMB 5 million (USD 
623,000) or more (enterprises "above designated size," in 
 
GUANGZHOU 00026903  002 OF 003 
 
 
the parlance of the Statistics Bureau) was RMB 486.78 
billion (USD 60.63 billion), up 18.5%.  Meanwhile, 
Guangdong's "nine major industries" (electronic equipment, 
household appliances, petroleum refining, textile garments, 
food and beverage, logging and papermaking, medicine, and 
automobile manufacturing) grew even faster, posting income 
of RMB 352.99 billion (USD 43.96 billion), up 22.1%. 
Electronic equipment manufacturers recorded particularly 
robust growth of 31.7%. 
 
Fixed-Asset Investment 
---------------------- 
 
¶7. (U) Fixed-asset investment rose by 20.5% to RMB 323.09 
billion (USD 40.24 billion).  Investment in real estate 
registered a remarkable upturn, growing by 23.3% to RMB 
75.78 billion (USD 9.44 billion). 
 
Real Estate 
----------- 
 
¶8. (U) According to the Guangdong Statistics Bureau, the 
"weighted average price" (different from "average price" 
which was used by the Bureau last year) for commercial 
housing for the first 6 months of 2006 in Guangdong is RMB 
5160 per square meter (roughly USD 643), up a fiery 38% 
compared with RMB 3735.5 (USD 465) per square meter for the 
same period of last year.  Sales of commercial building 
space were also brisk.  While the total floor space sold 
only increased 14.5% to 21.99 million square meters, the 
sales value increased 25.1% to RMB 109.61 billion (USD 13.65 
billion).  The central and provincial governments have taken 
steps to cool down the property markets, though many 
regional analysts do not expect these measures to be very 
successful (reftel). 
 
Retail Sales 
------------ 
 
¶9. (U) The volume of retail sales continued to climb. 
Retail sales of consumer goods reached RMB 443.39 billion 
(USD 55.22 billion), up 15.6%.  The consumer price index 
(CPI) rose by 1.7%.  The food price index rose 1.3%, the 
transportation and communication index rose only 0.3%, 
clothing rose 1.8%, and the residence index rose by 5.3%. 
 
Income 
------ 
 
¶10. (U) Urban and rural incomes both rose in Guangdong 
during the first half of 2006, but the disparity between the 
two widened slightly.  The average per capita income in 
urban areas reached RMB 8531 (USD 1062.50), up 9.0%.  For 
their part, rural areas saw their income rise to RMB 2899 
(USD 361.06), up only 7.9%. 
 
Foreign Trade 
------------- 
 
¶11. (U) Guangdong's foreign trade saw rapid growth.  The 
volume of foreign trade grew 24.5% to USD 232.9 billion. 
Of that total, exports accounted for USD 131.3 billion, up 
28.3%, helping feed a trade surplus of USD 29.5 billion, 
according to the Guangdong Statistics Bureau.  Exports 
constituted 56.4% of total foreign trade in the province, up 
from 54.7% during the same period in 2005.  Imports, which 
stood at USD 101.7 billion, grew 20.0%.  Mechanical and 
electrical product exports reached USD 89.22 billion, a rise 
of 28.2%.  High-tech products netted USD 44.35 billion, a 
rise of 28.5%. 
 
Foreign Direct Investment 
------------------------- 
 
¶12. (U) The contracted value of Guangdong's foreign direct 
investment (FDI) totaled USD 11.48 billion, representing 
growth of 13.5%.  The actual use of FDI reached USD 6.83 
billion, up 21.4%. 
 
GUANGZHOU 00026903  003 OF 003 
 
 
 
Problems Identified by the Guangdong Government: 
Oil Prices, Typhoons, and Foreign Pressure 
--------------------------------------------- --- 
 
¶13. (U) The statistical report identified five main problems 
affecting the province's economic performance-- high crude 
oil prices on the international market, growing costs in 
means of production shrinking company profits, agricultural 
losses from Typhoons Bilis and Zhenzhu as well as 
"inadequate input in agricultural production," rising real 
estate prices, and "growing conflicts in foreign trade" 
putting pressure on the province's high export growth. 
 
Q and A Session: Turning Up the Heat 
------------------------------------ 
 
¶14. (U) During the question and answer session following the 
presentation, several newspaper and television media 
representatives repeatedly asked the Director General of the 
Guangdong Bureau of Statistics, Mr. Pu Xin Min, concerning 
the overheating provincial economy.  On no less than four 
occasions during the press conference, Pu stated 
unequivocally (and at times, testily) that "there is no 
overheating," citing a low consumer price index as evidence 
of "reasonable" growth.  Pu explained that the government's 
control measures would take time to become apparent in the 
statistics, and that the growth in the real estate sector is 
actually a "recovery growth rate."  Two of the control 
measures Pu mentioned were 1) increasing interest rates, and 
2) policy changes in export tax returns. 
 
¶15. (U) Pu characterized the province's economy as being in 
the mid- to final stage of industrialization and in the 
beginning stage of "scientific development"-- a euphemistic 
term used by government officials to describe sustainable 
development and a comprehensive development of the whole 
society. 
 
¶16. (U) The Director General also stated that Guangdong 
Province's unemployment rate is 2.6%.  This figure is vastly 
underestimated.  Provincial statistics almost certainly do 
not take into account the migrant population from poorer 
provinces. 
 
 
COMMENT: Unstoppable Juggernaut For Now? 
---------------------------------------- 
 
¶17. (U) It was apparent that the Statistics Bureau attempted 
to paint a rosy picture of the provincial economic 
situation, but not so rosy as to attract criticism for 
contributing to an overheating economy.  The statistical 
discrepancies will likely prevent the Bureau from succeeding 
in their attempt.  Guangdong Province continues to be an 
economic hot spot despite government control measures, murky 
bookkeeping, and natural disasters.  Guangdong economic 
officials repeatedly tell Congenoffs that a growth rate 
above 9 percent is too rapid for healthy growth, yet the 
economy has only surged ahead.  With concerns about the 
property market, land compensation, rural/urban income gaps, 
and fuel and electricity shortages, we will continue to 
monitor for these and other signs of stress as the economy 
continues its rapid growth. 
 
MARTIN