VZCZCXRO9275
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0614/01 0260855
ZNR UUUUU ZZH
P 260855Z JAN 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 4180
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 000614 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, EB, AND INR 
TREASURY FOR OASIA/ISA CUSHMAN 
LABOR FOR ILAB 
USDOC FOR ITA/MAC/OCEA - MCQUEEN 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EINV EFIN PGOV SOCI CH
SUBJECT: FIRST THE PRD, THEN THE YRD... NOW THE BOHAI RIM? 
 
 
SUMMARY 
------- 
 
¶1. (SBU) China's Central Government has backed the Bohai Rim 
Economic Circle (BREC) in Northern China as a key region for 
economic development in a manner often compared to the Pearl River 
Delta (PRD), emanating from Shenzhen-Guangzhou, and the Yangtze 
River Delta (YRD), anchored by Shanghai.  The 11th Five-Year Plan 
focuses on the Beijing-Tianjin corridor as the center of the Bohai 
region, and State Council support has led some people to predict the 
Tianjin Binhai New Area will be China's next Pudong (location of 
Shanghai's dramatic new skyline).  Despite the economic challenges 
facing Bohai, government officials and business representatives in 
Tianjin are increasingly optimistic that the port city is emerging 
as an engine for growth in the region.  Bohai may not yet be a truly 
regional economy, however, as governments in Tianjin, Beijing, and 
Hebei Province struggle to coordinate their policies across 
different levels of income and diverse mixes of economic activities. 
 End Summary. 
 
VISIT TO TIANJIN 
---------------- 
 
¶2. (SBU) Econoffs visited Tianjin January 9-11 and met with 
officials at the Tianjin Development and Reform Commission, Tianjin 
Sub-Council of the China Council for the Promotion of International 
Trade, Binhai New Area Administration, and the Tianjin 
Economic-Technological Development Area.  They also met with 
economists at Nankai University in Tianjin and the Chinese Academy 
of Sciences in Beijing as well as business representatives in both 
cities. 
 
BOHAI WANTS TO JOIN THE PRD AND YRD... 
-------------------------------------- 
 
¶3. (SBU) The Bohai Rim Economic Circle (BREC), which encompasses 
Beijing, Tianjin, Hebei Province, and the Liaoning and Shandong 
Peninsulas in Northern China, remains a Central Government 
development priority under the 11th Five-Year Plan, as the region 
aims to become China's third major economic zone behind the Pearl 
River Delta (PRD) and Yangtze River Delta (YRD).  The region's 
population of 215 million accounts for 20 percent of China's total, 
and the BREC's GDP and trade figures for 2005 amounted to 25 percent 
of the national total.  The Bohai Rim's 3,600-mile coastline 
includes more than 60 ports, which account for 40 percent of China's 
total cargo business.  The BREC's primary sectors are energy, 
chemicals, metallurgy, automobile manufacturing, textiles, and 
agricultural products, and trade and investment ties between the 
BREC and close neighbors Japan and South Korea are growing. 
 
¶4. (SBU) Rapid development in the PRD around Shenzhen in the 1980s 
and Shanghai's boom in the YRD in the 1990s provide both a backdrop 
and an impetus for the BREC's drive to develop the economy in the 
Beijing-Tianjin corridor, but observers note that the BREC's 
development model does not enjoy the same advantages as the PRD and 
YRD.  While the PRD and YRD emphasized labor-intensive, 
export-oriented production industries such as textiles and 
electronics, the BREC, apart from recent efforts to develop its 
high-tech and financial sectors, remains largely dependent on 
traditional heavy industries.  Observers in Beijing and Tianjin 
agree that for many reasons, the BREC may be hard-pressed to 
duplicate the PRD's and YRD's successes. 
 
...BUT OBVIOUS CHALLENGES LIE AHEAD 
----------------------------------- 
 
¶5. (SBU) Fan Jie, Director of the Center for Sustainable Development 
and Research at the Chinese Academy of Sciences (CAS), said that the 
BREC faces many challenges to becoming China's next major economic 
development bloc, including: 
 
--the lack of coordination between government entities spread across 
a large geographic area; 
 
--the slow pace of reforms and the reliance on state-owned 
enterprises (SOEs) in the heavy industrial sector; and 
 
--the dependence on Tianjin to serve the same leading role in the 
BREC as Shenzhen-Guangzhou did for the PRD in the 1980s and Shanghai 
did for the YRD in the 1990s. 
 
¶6. (SBU) Dai Jinping, Director of the Institute of International 
Economics at Nankai University in Tianjin said that it is more 
difficult now for China to pick a new area like the BREC and spur 
 
BEIJING 00000614  002 OF 002 
 
 
its development.  China at the time of the Shenzhen-led PRD and 
Shanghai-led YRD booms was much less developed overall and economic 
reforms had not yet taken hold throughout the country.  Therefore, 
it was relatively easy for these areas be made to stand out through 
preferential government policies.  There was also a willing pool of 
investors from Hong Kong and Taiwan who were ready to spur the 
growth of these regions through investment in the processing (export 
assembly) trade.  Dai predicted that the BREC, despite its 
importance in the 11th Five-Year Plan, will not benefit so 
dramatically from government backing or foreign direct investment 
because the conditions that boosted the PRD and YRD have to a great 
degree played out.  She believes the BREC will ultimately receive 
little direct assistance from the Central Government, and any public 
or private sector support will focus primarily on Tianjin's Binhai 
New Area (TBNA). 
 
TIANJIN:  PROGRESS IN PORT CITY GIVES HOPE TO LOCALS 
--------------------------------------------- ------- 
 
¶7. (SBU) Officials at the Tianjin Development and Reform Commission 
(TDRC) said on January 10 that they are optimistic that the city and 
the region are on an upward swing.  Hou Yimin, Director of the 
Environment and Regional Economic Development Bureau at TDRC, said 
that recent developments, including the decision by Airbus to build 
a final assembly line in Tianjin and the State Council's Document 
Number 20 promoting financial reforms in the TBNA, demonstrate that 
Tianjin is headed in the right direction (septels to follow).  Hou 
added that Tianjin's port facilities are rapidly improving. 
 
¶8. (SBU) Li Guangda, Chairman and Senior Economist of the Tianjin 
Sub-Council of the China Council for the Promotion of International 
Trade (CCPIT), added that improving transport links between Beijing 
and Tianjin, including high-speed train service, also will benefit 
the region.  Several of our interlocutors in Tianjin pointed to the 
positive influence of Mayor Dai Xianglong, the former Governor of 
the People's Bank of China (PBOC), stating that Dai has leveraged 
his financial clout with the Central Government to obtain permission 
for pilot financial projects in the area and also put enormous 
effort into attracting new investment and more diversified industry 
to Tianjin. 
 
¶9. (SBU) The rapid growth of the Tianjin Economic Technological 
Development Area (TEDA), one of the key components of the TBNA, 
exemplifies the city's growing economic clout.  Adjacent to Tianjin 
Port, TEDA'S GDP exceeded USD 8 billion in 2005, up by 25.2 percent 
over the previous year and amounting to 17.5 percent of Tianjin's 
total GDP during the year.  TEDA's total exports exceeded USD 13.9 
billion in 2005, an increase of 25 percent and a 51 percent share of 
Tianjin's total.  Mei Zhihong, Deputy Director of TEDA, said on 
January 11 that TEDA wants to attract more foreign investment, and 
she singled out Motorola as a success story.  Mei said that 
Motorola's investments in TEDA now amount to USD 3 billion, noting 
that Motorola produces one out of every four mobile phones that are 
used in China. (Note: Motorola is also invested in other electronics 
production as well as semiconductors.  End Note.) 
 
COMMENT:  WILL OPTIMISM OVERCOME OBSTACLES? 
-------------------------------------------- 
 
¶10. (SBU) Officials in Tianjin, especially those in the Binhai New 
Area and TEDA, are confident about the city's economic rise and the 
positive impact it will have on the Bohai Region.  Their enthusiasm 
may well be warranted given the increasing foreign investment in 
Tianjin's Binhai New District, of which the extensive Motorola 
presence is just one example.  American business representatives we 
met in Tianjin also appear optimistic that Tianjin will be able to 
move out of Beijing's shadow. 
 
¶11. (SBU) The question for Bohai, however, will be the region's 
ability to strike an economic balance between two large 
municipalities (Beijing and Tianjin) and Hebei Province, which 
remains poor, rural, and features state-owned enterprises.  Drawing 
from our discussions with a range of contacts, it seems fair to ask 
whether the different levels of government involved will be able to 
coordinate development policies in such a manner that brings the 
region forward as an integrated economic unit, especially given that 
Central Government backing for Bohai may be less able to distinguish 
the region in the manner that support in previous decades did for 
the development of the PRD and YRD. 
 
SEDNEY