VZCZCXRO5680
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1210/01 0540844
ZNR UUUUU ZZH
P 230844Z FEB 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 4973
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 001210 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/ISA CUSHMAN 
USDOL FOR ILAB 
 
E.O. 12958:  N/A 
TAGS: ECON EINV ELAB ETRD PGOV SOCI CH
SUBJECT: CENTRAL CHINA'S JIANGXI PROVINCE SEEKING TO REPLICATE 
COAST'S DEVELOPMENT MODEL 
 
REF: (A) 06 BEIJING 23787 
(B) 06 BEIJING 22299 
(C) 06 BEIJING 10969 
 
SUMMARY 
------- 
 
¶1. (SBU) Jiangxi Province aims to replicate Coastal China's model of 
attracting investment in export-oriented manufacturing and 
processing industries as the basis for rapid economic development. 
Receiving renewed attention from the Central Government under the 
Central China Rising strategy, Jiangxi is looking to investors from 
Hong Kong, Macao, Taiwan, and Coastal China to fuel sustained 
double-digit GDP growth.  Provincial- and Municipal-level officials 
believe that excessive dependence on State-owned enterprises to 
generate economic activity will in the longer run limit Jiangxi's 
growth potential.  They insist that Beijing's concerns about 
macroeconomic overheating do not apply to Jiangxi because its 
economic structure is different from that of other provinces that 
have been the source of concerns about excessive property investment 
and sector-based overcapacity.  END SUMMARY. 
 
TRAVEL TO JIANGXI 
----------------- 
 
¶2. (SBU) Econoff and Econ Assistant traveled to Nanchang and 
Jiujiang in Jiangxi Province February 5-7.  Emboffs met with 
Provincial Government officials at Jiangxi's Development and Reform 
Commission, Agriculture Bureau, Foreign Affairs Office, Statistics 
Bureau, Rural Credit Cooperative, Poverty Alleviation Bureau, and 
Academy of Social Sciences on February 5-6.  In Jiujiang on February 
6-7, they met with Municipal officials from the Development and 
Reform Commission, Agriculture Bureau, Economic and Trade Committee, 
and Statistics Bureau. 
 
CENTRAL CHINA RISING:  JIANGXI'S RAPID GROWTH 
--------------------------------------------- 
 
¶3. (U) Jiangxi Province's GDP growth exceeded 12 percent for the 
fourth consecutive year in 2006, boosting per capita GDP to more 
than RMB 10,000 (USD 1,250).  Officials in Jiangxi, one of Central 
China's six provinces, credit the Central Government's Central China 
Rising policy for helping the province to attract investment (see 
reftels).  Like Coastal China 20 years before, Jiangxi Province in 
2007 depends on incoming investment in export-oriented manufacturing 
and processing industries to fuel its economy.  Jiangxi's Provincial 
Government refers to its development strategy as "Three Bases and 
One Garden," as the province serves as a base for agricultural 
production, industrial product transit, and labor for Coastal China, 
while also attracting coastal residents to Jiangxi's tourist 
destinations. 
 
HONG KONG, TAIWAN, COAST ALL FUELING BOOM 
----------------------------------------- 
 
¶4. (SBU) Like other provinces in Central China, Jiangxi relies 
heavily on investment from Hong Kong, Macao, Taiwan and coastal 
provinces (see reftels).  According to an official at the Jiangxi 
Provincial Development Reform Commission (JDRC), Jiangsu Province, 
Shanghai, and Fujian Province account for 60 percent of domestic 
investment in Jiangxi, and Hong Kong, Macao, and Taiwan are the 
primary sources of Foreign Direct Investment (FDI).  To date, 
Jiangxi's imports and exports have remained relatively low, the 
official said, but Jiangxi's Provincial Government is encouraging 
Fixed Asset Investment (FAI) in manufacturing and processing 
industries to promote exports to other provinces and overseas 
markets. 
 
¶5. (SBU) Xiao Bing, Deputy Director of the Jiujiang Municipal 
Foreign Trade and Economic Committee, said that in Jiujiang, a city 
of 4.6 million in northern Jiangxi on the banks of the Yangtze 
River, the dependence on investors from Hong Kong, Macao, Taiwan, 
and coastal provinces is readily apparent.  Of Jiujiang's 1,100 
foreign invested companies, Xiao said most are from Hong Kong, 
Macao, and Taiwan, with FDI in the city focusing primarily on 
textiles, processing, pharmaceuticals, food products, and real 
estate.  Investment from coastal provinces, Zhejiang and Guangdong 
in particular, actually has a greater dollar-value contribution than 
FDI, he said.  Hong Kong Chief Executive Donald Tsang's visit with 
100 Hong Kong entrepreneurs to Nanchang and Jiujiang in January 
focused on investing in export-oriented manufacturing industries, 
Xiao said.  (Note:  Donald Tsang also participated in the first 
 
BEIJING 00001210  002 OF 002 
 
 
Central China Expo in Changsha in September 2006.  See Ref B.  End 
Note.) 
 
STATE-OWNED ENTERPRISES A DRAG ON THE ECONOMY 
--------------------------------------------- 
 
¶6. (SBU) Jiangxi officials, although increasingly optimistic about 
the economy, commented that State-owned Enterprises (SOEs) make up 
for an excessively high proportion of economic activity in the 
province, which potentially could inhibit economic development in 
the long-run (see also Ref B).  An official at the JDRC pointed out 
that private enterprises now account for more than 50 percent of 
companies in the province for the first time.  A researcher at the 
Jiangxi Academy of Social Sciences told Econoff he is concerned that 
with a continuing overdependence on SOEs, and with shrinking energy 
resources, Jiangxi may have a small window of opportunity for 
growth. 
 
MACROECONOMIC CONTROL MEASURES:  IS JIANGXI EXEMPT? 
--------------------------------------------- ------ 
 
¶7. (SBU) Provincial- and Municipal-level officials insisted that 
Jiangxi's sustained double-digit GDP growth should not concern 
Beijing when it comes to macroeconomic overheating.  The JDRC 
official said that even though FAI has increased by 20 percent or 
more every year since 2001, with highs of 40 percent in 2002 and 
2003, the province's FAI base is low, and per capita FAI remains 20 
percent below the national average.  He said that FAI in Jiangxi 
amounts to only a fraction of FAI in coastal provinces: with 
one-third of Guangdong's annual volume of FAI, one-fourth of 
Jiangsu's, and one-fifth of Shandong's.  Even in Central China, 
Jiangxi ranks fifth of the six provinces in FAI with only half as 
much as Henan Province.  Jiangxi's overall investment increase of 
approximately 25 percent per year ranks only 14th in China among 
provinces and municipalities, the JDRC official added. 
 
¶8. (SBU) Officials in Jiujiang Municipality agreed that investment 
figures placed in the context of a low base, rather than GDP growth, 
should be the focus of anyone concerned about macroeconomic 
overheating in the province.  Reiterating a position that is often 
stated in Central and Western China, the Deputy Director of the 
Jiujiang Municipal Development and Reform Commission said that since 
Jiangxi is relatively poor, it can continue to develop at a faster 
rate than the national average.  National overheating concerns are 
limited to the real estate sector and specific industrial sectors, 
neither of which are concerns for Jiangxi Province, according to 
Xiao Bing at the Municipal Foreign Trae and Economic Committee. 
 
SEDNEY