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RR RUEHCN RUEHGH
DE RUEHGH #0046/01 0230824
ZNR UUUUU ZZH
R 230824Z JAN 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 5460
INFO RUEHBJ/AMEMBASSY BEIJING 0761
RUEHSH/AMCONSUL SHENYANG 0410
RUEHIN/AIT TAIPEI 0344
RUEHHK/AMCONSUL HONG KONG 0501
RUEHCN/AMCONSUL CHENGDU 0405
RUEHGZ/AMCONSUL GUANGZHOU 0387
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 5810

UNCLAS SECTION 01 OF 05 SHANGHAI 000046 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM AND INR/EAP - CLARKE 
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, ALTBACH 
 
E.O. 12958: N/A 
TAGS: PGOV EINV PINR KIPR ELAB CH
SUBJECT: WENZHOU - AN ENTREPRENEURS TOWN 
 
 
(U) Sensitive but unclassified.  Not for dissemination 
outside USG channels; not for Internet distribution. 
 
¶1. (SBU) Summary:  Sitting far from Beijing on the East coast of 
China, Wenzhou, Zhejiang Province is known for both its vibrant, 
fast-growing economy and its many Christian churches.  Many 
people with whom Congenoffs spoke during a recent visit to the 
city attribute Wenzhou's economic growth to the Wenzhou people's 
entrepreneurial spirit.  Local government officials said that 
they maintained a "light touch" over the economy in support of 
entrepreneurs.  Labor and Social Security Bureau officials 
reported that migrant laborers made up 62 percent of all 
employees in the city.  The city went to great efforts to 
protect migrant laborers including enforcing minimum wages and 
allowing them to join the pension system.  Reports on Wenzhou's 
religious situation and the CHINT company will be reported 
septels. End Summary. 
 
 
¶2. (U)  Congenoffs visited the mid-sized coastal city of Wenzhou 
on December 14-15 to discuss its economic development, migrant 
labor and pension policies, and religious situation.  Wenzhou is 
the third largest city in Zhejiang Province and had a GDP of 20 
billion USD last year.  Its economy has grown at a rate of over 
12 percent per year since 1997.  Wenzhou's manufacturers 
specialized in light industries; its factories mainly produced 
lighters, garments, and shoes.  In a meeting with Congenoffs on 
December 14, Vice Mayor Chen Hongfeng described Wenzhou as one 
of Zhejiang Province's three key cities and said it was one of 
the first coastal cities to open itself to the outside world for 
investment.  He said Wenzhou occupied 1,700 square kilometers 
and was divided into three administrative districts and two 
county level cities.  It has a population of 7.7 million people, 
500,000 of which live overseas and 1.8 million of which live 
elsewhere in China.  It also had nearly 3 million migrant 
laborers living in the city. 
 
 
The Wenzhou Model 
----------------- 
 
¶3.  (SBU) According to Chen, Wenzhou was the birthplace of 
private enterprises in China and these enterprises had made the 
Wenzhou's economy flexible and dynamic.  Ninety-nine percent of 
all enterprises in Wenzhou were privately owned.  There were 
200,000 individual household factories in Wenzhou and 
approximately 130,000 private enterprises.  Wenzhou Bureau of 
Foreign Trade and Economic Cooperation Deputy Director Pan 
Pingping, in a separate meeting, said that entrepreneurs played 
a central role in Wenzhou's development model, which was 
currently being studied by cities in Western and Central China. 
Pan said there were basically three economic development models 
in China: the Wenzhou model, Northern Jiangsu model and the 
Pearl River Delta model.  Under the Wenzhou model, the economy 
was dominated by private enterprises and the government 
maintained a "light touch."  The Jiangsu model emphasized the 
role of township enterprises in economic development and the 
Pearl River Delta model was dependent on strong relations with 
Hong Kong and Macau for economic growth. 
 
 
¶4.  (SBU) Pan said Wenzhou produced a large number of 
entrepreneurs because of the nature of its people.  Both Chen 
and Pan described the people of Wenzhou as hard-working and 
committed to their businesses.  Pan said Wenzhou people were 
willing to travel anywhere and undergo any hardship to sell 
their products.  They were creative and could find solutions to 
problems.  For example, he claimed, when a Wenzhou person 
travels on a train and, if there was no space on the train, he 
would sleep in the corridor of the train.  There were 135 
Wenzhou Chambers of Commerce throughout China and there were 
Wenzhou businessmen in remote places including Xinjiang, Inner 
Mongolia and Tibet.  There were also approximately 500,000 
Wenzhou people living in 82 countries around the world. 
 
 
¶5.  (SBU) In a conversation with Congenoffs on November 24, 
Wenzhou Entrepreneur and CHINT Chairman Nan Cunhui shared the 
same views as Chen and Pan.  According to Nan, there was a long 
history of Wenzhou people going overseas and becoming 
entrepreneurs.  He pointed to Wenzhou's geography as a 
contributing factor.  To the west of Wenzhou were mountains and 
to the east was the sea.  If someone wanted to make money, they 
 
SHANGHAI 00000046  002 OF 005 
 
 
needed to go abroad.  In addition, Wenzhou was far from Beijing 
and because of the mountains, it was difficult for anyone from 
Beijing to travel to Wenzhou.  Wenzhou people could not rely on 
Beijing for assistance and learned how to take care of 
themselves.  This led to the creation of an entrepreneurial 
culture and entrepreneurs became Wenzhou's main product. 
 
 
¶6.  (SBU) Nan explained that relationships played an important 
role in Wenzhou.  Many entrepreneurs were able to start their 
businesses by borrowing money from friends and family members. 
Issues of trust and reputation were therefore very important. 
In his case, Nan got money from his parents and siblings to 
start CHINT and his family now owns over fifty percent of his 
company.  He added that it was normal for Wenzhou people to 
invest their money in the enterprises of their friends and 
relatives.  During a dinner on December 14 with Nan and local 
government officials, CHINT Vice President Lin Kefu said 
although it was now easier for companies such as CHINT to get 
financing from banks, CHINT did not need such financing since 
the company was flush with cash and also was able to get 
financing from its suppliers.  Because of CHINT's high credit 
and large purchasing quantity, suppliers often were willing to 
provide raw materials to CHINT first, and allowed CHINT to repay 
them after a few months. 
 
 
The Government's Role 
--------------------- 
 
¶7.  (SBU) According to Pan, the Wenzhou municipal government 
implemented several programs to support economic growth and 
improve the investment climate in Wenzhou.  In the late 
eighties, the government implemented a program called "8 to 8" 
that constructed 28 infrastructure facilities in eight years. 
Pan added that the government was still trying to strengthen the 
city's infrastructure and open up more traffic links to Wenzhou. 
 The city was working on attracting international carriers to 
its airport.  It would also add more wharfs to its port and was 
constructing a railway that would connect Fuzhou and Ningbo to 
Wenzhou.  In addition, the construction of the Hangzhou Bay 
Bridge would decrease the drive time from Wenzhou to Shanghai to 
only three to four hours. 
 
 
¶8.  (SBU) Pan said the government was also trying to upgrade the 
quality of Wenzhou products and increase the number of brand 
name goods produced in Wenzhou.  The government wanted to change 
the impression that Wenzhou goods were of low quality and was 
implementing a program called "3,5,8" which would increase the 
number of Wenzhou brand name goods in the next eight years. 
Wenzhou already manufactured 42 Chinese brand name goods and six 
international recognized brand name goods.  Pan added that the 
government also had preferential policies to encourage the 
development of enterprises, but did not provide any details on 
the policies. 
 
 
Foreign Investment 
------------------ 
 
¶9.  (SBU) Pan and Chen were interested in attracting more 
foreign investment in order to upgrade Wenzhou products. 
According to Pan, Wenzhou had 2,400 enterprises that received 
foreign investment.  Hong Kong and Taiwan were the largest 
investors and invested in over 700 companies.  Europe was the 
third largest investor followed by the United States and Japan. 
While the United States was not one of the top three investors, 
Wenzhou's biggest joint venture project was the Te Lu Lai power 
plant built by Zhejiang Power Development Company and Sithe Asia 
(a U.S. company) in 1998.  The power generated by the plant 
accounted for thirty percent of all the power used by Wenzhou 
city.  Pan added that Wenzhou was particularly interested in 
attracting more high technology investors and had plans to build 
a 400 square kilometer industrial park along the coast that 
would be open to investors.  Chen noted that Wenzhou had a 
sister city relationship with Union, New Jersey and was working 
with Kean University to establish a satellite campus in Wenzhou. 
 
 
 
IPR: Very Important to Wenzhou 
------------------------------ 
 
SHANGHAI 00000046  003 OF 005 
 
 
 
¶10.  (SBU) According to Pan, the Wenzhou government understood 
the importance of protecting intellectual property rights (IPR). 
 Wenzhou Bureau of Foreign Trade and Economic Cooperation Fair 
Trade Department Director Zhou Xiaoping said Wenzhou had passed 
a complete set of laws and regulations on IPR, but there were 
problems in implementation.  Many Wenzhou companies were 
small-or medium-sized and could not afford to invest in research 
and development and sometimes infringed on the IPR rights of 
others.  On the other hand, small companies also did not have 
the ability or financial resources to go after people who 
violated their IPR rights.  He assured Congenoffs that when his 
office received any information that indicated there has been an 
IPR infringement, it immediately contacted relevant government 
offices and investigated the incident. 
 
 
¶11.  (SBU) Zhang added that IPR cases often concerned trademark 
issues and were difficult to resolve.  Many cases involved 
multinational companies (MNCs) and Chinese domestic companies. 
Some MNCs had overused the patent system, he complained.  These 
companies obtained a patent for their products many years ago. 
When these patents expired, these companies often took the key 
points of the old patent and applied for a new patent. 
Therefore, it was difficult to determine whether the patent 
still applied.  If companies were sued, they should hire IPR 
experts and lawyers to carefully look at the patent.  Most 
Wenzhou enterprises were small and often stopped producing a 
product when faced with a lawsuit.  However, he knew of two 
cases in which the Wenzhou company was able to prove that it had 
not infringed on the MNC's IPR.  In the first case, Phillips 
sued a Wenzhou company for copying their razors.  The Wenzhou 
company's lawyers and IPR experts were able to find weaknesses 
in Phillips' case and persuaded a Chinese court to rule in their 
favor.  In the second case, a U.S. company sued the U.S. trading 
partner of a Wenzhou company for copying its products.  The U.S. 
court has not ruled yet on the case but it appeared that there 
was no patent infringement. 
 
 
¶12.  (SBU) It appeared that at least one Wenzhou enterprise 
understood the importance of IPR.  During discussions with 
Congenoffs on December 15, CHINT Vice President Lin said that 
IPR was very important to CHINT.  CHINT produced electrical 
equipment and was building a 60 million RMB high technology 
plant in Shanghai.  CHINT also had an in-house research and 
development unit and sponsored telecommunications research in 
Beijing, Shanghai and Silicon Valley.  Lin said CHINT initially 
did not understand the importance of IPR and copied products. 
As the company grew, it began to understand the importance of 
protecting their products and got its own patents.  It now had 
40 to 50 patents, some of which were recognized internationally. 
 It also had a counterfeit unit at its Wenzhou headquarters, 
which investigated IPR cases.  CHINT also required their 
engineers to sign confidential agreements, stating that they 
would not share the company's designs with competitors. 
 
 
Migrants and Pensions 
--------------------- 
 
¶13.  (SBU) Vice Mayor Chen said in his meeting that because 
migrants were needed to support the Wenzhou economy, the local 
government paid great attention to migrants' living and work 
conditions.  Government officials considered this type of work 
as part of their duty to establish a harmonious society in 
Wenzhou.  Labor and Social Security Director Yang Ridong in a 
separate meeting provided a detailed briefing on Wenzhou's 
migrant laborers.  He said the Wenzhou economy had attracted a 
large number of migrant workers and there were 2.7 million 
migrants living in Wenzhou in 2005.  62 percent of all employees 
in the city were migrant workers and they worked primarily in 
the garment, shoes, pens, and restaurant industries.  Migrant 
workers came primarily from Hubei, Guzhou, Henan, Anhui and 
Jiangxi and 92.6 percent had a junior high or below education. 
 
 
 
¶14.  (SBU) Yang reported that the Wenzhou government provided 
social insurance to migrants, helped migrants to get back wages 
and standardized migrants wages and hours.  In particular, the 
government had created a group which represented different 
departments within the city government that coordinated services 
 
SHANGHAI 00000046  004 OF 005 
 
 
to migrants and looked at ways of enhancing the government's 
protection of migrants.  The government had also encouraged 
migrants to sign formal labor contracts with their employers 
that specified their rights.  It inspected factories to ensure 
that workers rights were not abused and issued strict penalties 
to companies that violated workers' rights.  The government had 
also imposed a standard wage system which had four levels of 
minimum wage that ranged from 540 RMB (70 USD) per month to 750 
RMB (100 USD) per month.  Because Wenzhou city included both 
rural and urban areas, the living standards in each area were 
different.  The different levels of minimum wage were based on 
the living standards of the area.  For part-time workers the 
minimum wage ranged from 4.6 RMB (0.60 USD) to 6.4 RMB (0.82 
USD) per hour.  According to Yang, the law specified that 
workers should only work for eight hours a day for five and a 
half days a week.  However, in reality most workers had two to 
three hours of overtime per week. 
 
 
¶15.  (SBU) The government also tried to provide training to 
migrant workers and organized meetings between migrant workers 
and factory owners to discuss training.  Yang said that the 
government was also looking to expand migrant workers' access to 
medical treatment and had set up a special fund for migrant 
workers medical expenses.  It had also reformed the household 
registration or hukuo system to make it easier for migrants to 
get a hukuo.  Yang said the government was also interested in 
expanding the cultural life of migrant workers.  It launched a 
series of cultural activities aimed at migrants and allowed 
migrants to visit museums and libraries free of charge.  Yang 
noted that the local government provided compensation to schools 
willing to accept children of migrant workers.  Currently 99 
percent of all primary schools and 90 percent of all secondary 
schools in Wenzhou were willing to accept children of migrant 
workers.  He did not have any figures, however, on how many 
migrant children attended schools. 
 
 
¶16.  (SBU) Yang added that the government had tried to expand 
social insurance coverage to include migrant workers.  All 
migrant workers had access to work-related injury insurance. 
Currently, employers bear the costs for migrants joining the 
insurance program.  They pay the same price as 
Wenzhou-registered residents and could qualify immediately for 
the insurance.  At the same time, the government was researching 
whether migrants could join the municipal social insurance 
program.  When asked about pensions, Yang said that Wenzhou had 
one pension plan which migrants could join.  Congenoff noted 
that many cities allowed migrants to move their pension accounts 
but this had made it difficult for migrants to receive their 
pensions since their new city needed to have the same system as 
their previous one.  In addition, most rural areas did not have 
pension systems making it impossible for migrants to receive 
their pensions if they moved back to their home village. 
Shanghai had a separate pension plan for migrants which allowed 
the migrant to receive a cash sum from their pensions.  Yang 
said Shanghai was a special case and Wenzhou just allowed 
migrants to move their accounts.  He said the amount of money 
migrants received depended on the living standard of the area in 
which they worked and the number of years they worked in the 
job.  There was no minimum requirement for the number of years 
one needed to work to receive a pension and women could begin to 
receive a pension at 50 years of age and men at 60 years of age. 
 For government workers, women retired at 55 and men at 65. 
 
 
¶17.  (SBU) When asked about pension fund management, Yang 
adamantly said that Wenzhou's pension fund was tightly 
controlled.  It was understood that the pension fund was for 
society's benefit and not for the fund manager's benefit.  The 
fund was jointly managed by the Treasury Bureau and the Labor 
and Social Security Bureau.  The Treasury Bureau collected the 
fees and then transferred the funds to the Labor and Social 
Security Bureau, which would then transfer the funds to 
individual accounts.  Investment was tightly controlled and 
pension funds could only be used to purchase government bonds or 
deposited in state-owned banks.  He indicated that there was no 
real pressure on the pension fund managers to get high returns 
on the funds investment as the central government would cover 
any future shortfalls.  He said it did not matter if there was 
not enough money for future payments since this was not just a 
problem for Wenzhou but for the entire country. 
 
 
SHANGHAI 00000046  005 OF 005 
 
 
 
¶18.  (SBU) Comment: The rapid economic growth of Wenzhou is one 
of the success stories of Eastern China.  While this growth has 
improved living standards in the city, it has also attracted 
large number of migrants.  For now, the local government appears 
to be serious about addressing migrant needs and understands the 
importance of migrant labor to Wenzhou's economy. End comment. 
JARRETT