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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0622/01 1520058
ZNR UUUUU ZZH
R 010058Z JUN 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6101
INFO RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RUEHGV/USMISSION GENEVA 0448
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 000622 
 
SIPDIS 
 
SIPDIS 
 
USPACOM FOR FPA 
STATE FOR EAP/CM, EA/CIP, AND EB/CBA 
STATE PASS USTR FOR STRATFORD, WINTER 
USDOC FOR 4420/ITA/MAC/MCQUEEN 
 
E.O. 12958: N/A 
TAGS: BTIO ECON EINV ETRD CH
SUBJECT:  SOUTH CHINA OUTWARD INVESTMENT IN 2006 
 
 
¶1. (U) Summary:  In 2006, Chinese overseas investment surged by 32 
percent and reached USD 16 billion, according to China's Ministry of 
Commerce.  Last year Guangdong Province, which accounted for USD 600 
million in total overseas investment, was first in the country 
again.  The number of Guangdong-based enterprises with investments 
outside of mainland China increased to 1,600, while Guangzhou 
Municipality registered 20 new enterprises with investments 
overseas.  Vietnam has recently emerged as a particularly desirable 
- and lucrative - destination for South China firms.  Established 
companies here continue to look at, but are not necessarily 
investing in older, more established companies in the U.S., even as 
many U.S. states, among them California, Washington, Hawaii, 
Virginia, and Illinois, send commercial delegations here.  Guangzhou 
Municipality has a reward system in place for local companies, with 
outstanding overseas investment performance, to encourage their 
continued investment.  End Summary. 
 
Guangdong and Guangzhou's Outward Investment 
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¶2.  (U)   According to Fu Haikun, Director of the Foreign Economic 
Cooperation Division of the Guangdong Province Department of Foreign 
Trade and Economic Cooperation, Guangdong, by year end 2006, had 
registered more than 1,600 enterprises with foreign investments. 
The total overseas investment for the province this past year 
equaled USD 600 million.  The primary destinations for Guangdong's 
outward investment were Hong Kong, Macau and developing countries in 
Southeast Asia such as Vietnam and Cambodia.  Among these 
destinations, Hong Kong accounted for over 50 percent of the total. 
Guangdong Province approved investment applications for 60 
enterprises to invest in the USA, but only 20 enterprises actually 
invested there.  In recent years, Guangdong has seen an increase of 
new overseas investment in manufacturing industry, but a decrease in 
civil engineering projects.  Among the 20 new enterprises approved 
by Guangzhou Municipality that made outward investment in 2006, most 
were small and medium enterprises (SMEs), with less than USD 15 
million in export value per year.  These enterprises included 
private companies as well as State-Owned Enterprises (SOEs). 
 
¶3. (U) Since 2005, multi-national companies based in Guangdong in 
the manufacturing and telecommunications sectors have been 
increasingly investing overseas.  These companies include 
telecommunications equipment makers Huawei and ZTE; electronics 
manufacturers Gree, Midea, TCL; audio equipment maker Guangzhou 
Guoguang Electric Company and Guangzhou Pearl River Piano Group 
Ltd., which date back to 1951 and 1956, respectively. 
Guangzhou-based outward investment favors Hong Kong, Macau, as well 
as Australia, Brazil, India, and Vietnam, with Hong Kong and Macao 
accounting for half.  The outward investment mainly goes to the 
development of sales networks and service agents, with the exception 
of a plastic sealing tape plant set up in Sao Paolo, Brazil.  As has 
been the case for many years, Hong Kong - with its proximity and 
cultural affinities - has been the first choice for Guangdong 
outward investment.  As a global center of information, logistics 
and finance, Hong Kong enjoys a well developed capital market and 
has an established set of laws and regulations.  Director Fu stated 
that a company originally from South China can best expand its 
business by becoming listed in Hong Kong. 
 
Guangdong Province Invests in Southeast Asia 
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¶4. (U) Due to its close proximity, its relatively stable political 
and sound investment environment, Southeast Asia is also very 
attractive to Guangdong enterprises.  TCL (based in Huizhou) has 
established a color TV plant in Vietnam; Midea (Shunde) is building 
an industrial park tehre for the purpose of manufacturing small 
electronic appliances; and Guangzhou Cigarette Plant is expanding in 
Cambodia. 
 
Vietnam:  A Major Destination for South Chinese Investment 
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¶5. (U)  In light of its low labor costs, large potential market, 
rapid growth (more than 8% annually in recent years), and the 
relatively stable political environment, countries like Vietnam 
offer companies in South China a suitable location for investment. 
In Vietnam, the average labor cost is about USD 40 per month, lower 
than China's USD 100.  After WTO ascension, the Vietnamese 
government added initiatives/incentives to attract Chinese 
 
GUANGZHOU 00000622  002 OF 003 
 
 
investment, which include establishing industrial parks and sending 
trade missions to China to promote Vietnam.  In November 2006, 
Vietnam's commerce minister led a delegation to China and 
participated in an event held in Guangzhou that attracted over 500 
enterprises.  In the first quarter of 2007, Guangzhou registered two 
more enterprises that applied to build factories in Ho Chi Minh 
City. 
 
South China Eyes the Rest of the World 
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¶6. (U) Eastern Europe and Africa are also new destinations for 
Guangdong's outward investment.  Huawei and ZTE have projects 
underway in Africa, the Middle East, Russia and South America.  Gree 
Electric Appliance Inc. has built an air conditioner manufacturing 
plant in Brazil. 
 
A Lack of New Guangzhou Investment in the U.S. 
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¶7. (U) According to Zhang Liping, Director of Foreign Economic 
Cooperation Division of the Guangzhou Municipal Bureau of Foreign 
Trade, Guangzhou enterprises have been investing in the U.S. as far 
back as 1987.  Enterprises based in Guangzhou have focused on Los 
Angeles and New York service and R&D sectors.  However since 2004, 
no other companies with plans to invest in the U.S. have been 
registered with Guangzhou Municipality.  Zhang pointed to the 
overall lack of contact with the U.S. business community and to 
strict U.S. visa policies, which have had an impact on local 
businessmen and official travel, even though more than 1,000 
officials and businessmen visited the U.S. in October 2005 as part 
of delegation to promote investment and trade.  In 2005, two 
delegations from Virginia and Illinois traveled to Guangzhou to 
promote investment opportunities, but both visits were unsuccessful. 
 California, Hawaii, and Washington have all sent trade missions 
headed by their respective governors or vice-governors. 
 
Encouraging Outward Investment 
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¶8. (U) Guangdong has generally encouraged enterprises to make 
outward investment and become more involved with economic 
globalization, according to Director Fu.  By helping implement the 
policies issued by the Central Government and by providing services, 
the provincial government is building a platform for local 
enterprises to share information and promote cooperation.  On the 
other hand, the Guangzhou Municipal government does play an active 
role and acts as an information resource for local enterprises 
contemplating outward investment.  The Economic Cooperation Division 
collects overseas commercial information, makes information 
available on its official website, arranges overseas visits for 
local businessmen to meet foreign counterparts, hosts investment 
promotion programs for visiting foreign business delegations, and 
distributes brochures on the overseas investment environment to 
Chinese businesspersons.  An investment delegation, spearheaded by 
Guangzhou Municipality, which visited Australia in 2006, resulted 
from an earlier visit led by Guangdong Party Secretary Zhang 
Dejiang. 
 
Rewarding Companies with Outstanding Outward Investment 
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¶9. (U) Since making outward investment is the "decision" of 
individual enterprises, the provincial and municipal governments do 
not provide funding or subsidies to Chinese multinationals, 
according to local officials.  To recognize outstanding the foreign 
investment performance by individual Chinese companies, the 
municipal government conducts annual evaluations, and awards the 
outstanding company a small amount of cash.  Among those recognized 
have been Guangzhou GuoGuang Electric Company, with customer service 
offices set up in Europe and the U.S., and the Guangzhou Pearl River 
Piano Group Ltd., a Chinese piano manufacturer with sales networks 
in the U.S. that increased its market share there from 5 percent to 
more than 10 percent in recent years. 
 
Improving How Guangzhou Promotes Outward Investment 
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¶10. (U) Guangdong provincial and municipal officials said they would 
continue encouraging local enterprises to invest overseas and become 
 
GUANGZHOU 00000622  003 OF 003 
 
 
strong players in the world market.  Director Zhang suggested that 
the municipal government might streamline the approval procedures 
for companies seeking to invest overseas, improve the information 
services provided by the government to local enterprises, and 
increase the support from Chinese financial institutions.  However 
he cautioned that these changes would only be possible with the 
guidance and support from the central government. 
 
GOLDBERG