VZCZCXRO0001
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #2171/01 3100331
ZNR UUUUU ZZH
R 060331Z NOV 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5345
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 032171 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR 
USDOC FOR 4420/ITA/MAC/MCQUEEN 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ETRD CH
SUBJECT: Guangdong Real Faith Enterprises Group: Exporting 
in Bad Faith? 
 
 
(U) This message is Sensitive But Unclassified.  Please 
handle accordingly. 
 
¶1. (SBU) SUMMARY: Guangdong Real Faith Enterprises Group, 
like many of the large, Chinese-owned, general 
manufacturing conglomerates in the Pearl River Delta, takes 
advantage of low labor costs, domestic suppliers, proximity 
to high-volume shipping hubs, and a ready supply of capital 
from Chinese and Taiwanese investors to export inexpensive 
products to Asian, European, and U.S. markets.  Real 
Faith's real estate companies are its most profitable.  The 
chairman of Real Faith's board said that the USG is 
investigating her conglomerate for possible "dumping" in 
the U.S. market.  This cable is one of a series of profiles 
of Guangdong Province's top 100 companies.  END SUMMARY. 
 
Background 
---------- 
 
¶2. (U) Congenoffs visited Real Faith's headquarters and one 
of its factories, Pingzhou Electronics, located in Foshan 
in the heart of the Pearl River Delta.  The holding company 
has total assets of over RMB 700 million (USD 87.5 
million).  According to Real Faith Board Chairman Liang 
Fengyi and General Manager Pan Mingjian, the group's 
holdings include companies that produce shoes, electronic 
components, and toys, as well as several real estate 
companies.  The group's shoe companies are Sino-Taiwan 
joint ventures that produce Taiwan brand shoes for export 
to U.S., European, and Japanese markets.  Its real estate 
companies deal almost exclusively with residential 
properties.  Real Faith's 16 companies employ 15,000 people 
and have over 200,000 square meters of factory floor space. 
Real Faith exports its products to the United States, 
Canada, Europe, Japan, Hong Kong, and Taiwan. 
 
¶3. (U) Real Faith first entered the international market in 
¶1979. Real Faith now produces 70 percent of its products 
for the overseas market.  Company officials would not tell 
us which country is their main market; however, they said 
they are very interested in expanding their operations in 
the United States and Canada. 
 
Real Estate Will Stay Profitable 
-------------------------------- 
 
¶4. (SBU) While Real Faith executives eagerly informed us that 
all their businesses are profitable, the highest returns 
are from real estate holdings.  When asked if the proposed 
government "cool down" measures in the real estate sector 
would affect business, Liang stated that she thought the 
measures would have little effect, especially in Guangdong 
where the real estate market is a matter of supply and 
demand.  Liang does not believe that the government can 
cool down the market as long as the demand for housing is 
strong. 
 
A USG Dumping Investigation 
--------------------------- 
 
¶5. (SBU) When asked about Real Faith's biggest challenges 
doing business abroad, Liang said the company's furniture 
factory (Guanqiu Furniture Co., Ltd.) is currently under 
investigation by the USG for "dumping" its goods in the 
U.S. market.  Liang believes the charges are unfounded and 
said Real Faith aroused suspicion simply because of the low 
prices of its goods, which are simply the result of low 
labor costs and relatively cheap raw materials.  According 
to Liang, the company is caught in a no-win situation; 
consumers want their goods as inexpensively priced as 
possible.  However in Real Faith's case, Liang continued, 
when the company sells their goods inexpensively, the USG 
gets suspicious.  Nevertheless, Liang is optimistic about 
the outcome of this investigation.  (Note: During the 
meeting, Liang spoke with someone named Mr. Zhang on her 
cell phone.  Liang spoke quickly in Cantonese and asked if 
she needed to "be careful" in what she said to Congenoffs 
about the anti-dumping issue.  Liang appeared to believe 
Congenoffs were there as part of the USG investigation. 
End Note.) 
 
GUANGZHOU 00032171  002 OF 002 
 
 
 
Other Challenges: Human Resources and Supply Costs 
--------------------------------------------- ----- 
 
¶6. (U) Both Liang and Pan acknowledged that the company 
lacks employees with experience in international business. 
It mainly recruits domestically, but might look into hiring 
employees from overseas in the near future.  While it is 
eager to expand its overseas base, Real Faith has no 
headquarters or major offices overseas. 
 
¶7. (U) In the past, Real Faith purchased as much as 80 
percent of its supplies from the United States.  However, 
rising prices have forced the company to switch to domestic 
suppliers.  Liang estimates that Real Faith now imports 
only 20 percent of its materials from the United States and 
the remaining 80 percent from domestic suppliers.  Real 
Faith previously imported 80 percent of its oak wood for 
its furniture factories from the United States, but has cut 
such imports by 60 percent and is beginning to purchase 
lumber from mainland China.  Real Faith also imports metal 
ware from Korea and Taiwan for its light fixture factory. 
 
¶8. (U) The holding company sells electronic components to 
Toshiba and Sanyo, as well as numerous smaller companies. 
It sells medical equipment and furniture to small- and 
medium-sized enterprises in the United States, but not to 
major retailers. 
 
Environmental Issues 
-------------------- 
 
¶9. (U) Real Faith was recently recognized by the Chinese 
government for its environmental protection efforts.  When 
asked what measures the company had implemented, Liang 
merely stated that it abided by national standards and 
environmental protection laws.  One of the managers of Real 
Faith's electronics factories, Pingzhou Electronics, 
informed Congenoffs that it had successfully passed the ISO 
14000 environmental protection system certification. 
 
Pingzhou Electronics Factory 
---------------------------- 
 
¶10. (U) Pingzhou Electronics' annual production capacity is 
valued at RMB 1.4 billion (USD 175 million) per year.  Its 
electronic components are used in computers, cell phones, 
and digital cameras.  It supplies companies such as 
Motorola, Ericcson, Nokia, and TDK.  The company recently 
started manufacturing electronic components for Toyota as 
well. 
 
¶11. (SBU) The Pingzhou Electronics factory itself appeared 
clean and well-organized.  It employs 6,000 workers, of 
whom 30 percent are from the Guangzhou area and 70 percent 
from rural areas.  The employees Congenoffs saw were almost 
all young and female.  When Congenoffs asked about the 
gender imbalance, the manager told us that young women are 
hired because "they are more careful then men" and better 
able to handle the tiny electronic components.  The manager 
said the workers make approximately RMB 1,100 (USD 138) per 
month, working 8 hours a day.  According to Liang, they get 
a 15-minute break every two hours and one hour for lunch. 
Some of the workers appeared to be minors, but the manager 
told Congenoffs that the factory did not hire anyone under 
18, and that the average worker was 20 years old.  She 
estimated that the turnover rate for the workers was only 4 
percent.  Real Faith provides dormitories for its employees 
who come from outside the Guangzhou area.  According to 
Liang, the 15,000 employees at Real Faith have had unions 
for more than twenty years. 
 
GOLDBERG