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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1094/01 2710838
ZNR UUUUU ZZH
R 280838Z SEP 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6499
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUCPDOC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 02 GUANGZHOU 001094 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, EB 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND ENV PGOV CH
SUBJECT: USITC Studies the Benefits of Doing Business in South 
China 
 
 
¶1. (U) SUMMARY: Access to credit, tax benefits, historical and 
cultural ties, and the presence of a well-developed transportation 
system were among the reasons cited by executives from enterprises 
in Guangdong for doing business in South China during conversations 
with a visiting U.S. International Trade Commission (USITC) 
delegation. END SUMMARY. 
 
¶2. (U) As part of a country-wide examination of trade policies, 
economic specialists from the USITC visited a variety of enterprises 
in Guangdong Province to determine what effect Chinese government 
policies had on business development and trade.  During the early 
September visit, the USITC delegation interviewed managers and 
owners of collectively-owned enterprises (COEs), wholly-owned 
foreign enterprises (WOFEs), and a state-owned enterprise (SOE). 
 
From Collectivism to IPO 
------------------------ 
 
¶3. (U) Foshan-based Midea Company began as a collectively-owned 
enterprise in 1968. With an initial investment of RMB 5,000, He 
Xiangjian (who is now the president of Midea Group) and 23 fellow 
villagers grew a small operation producing plastic bottle caps into 
a home-appliance giant boasting RMB 31.3 billion (about US$4.1 
billion) in assets and RMB 57 billion (US$7 billion) in sales 
revenues in 2006. Though much of the company remains privately 
owned, Midea publicly listed its air-conditioner, compressor, 
refrigerator, and washing-machine units in 1993. Midea maintains 
controlling shares in all of these affiliates. 
 
¶4. (SBU) Midea maintains its operations in Foshan because of 
logistics and history, according to International Strategic and 
Market Development Department Manager Ms. Xin. Not only was the 
company founded there, but proximity to port facilities and a 
well-developed supply chain are also major factors.  In addition, 
Xin noted that, with its record of success, the firm had no 
difficulty getting loans from local banks. 
 
WOFE -- Agility and Contingency Planning is Necessary 
--------------------------------------------- -------- 
 
¶5. (SBU) Hong Kong-based Kam Ying Wong Garment Factory has been 
family-owned for more than 20 years. President Tommy Wong told the 
delegation that the wholly-owned foreign enterprise had to think 
creatively to stay competitive. To cope with U.S. textile import 
quotas, the company first expanded to Macao, then to Zhongshan in 
Guangdong, and finally to Canada, shifting production to different 
factories based on the quota allowed for each location. 
 
¶6. (SBU) When asked why his company favored investment in south 
China instead of other Asian countries, Wong noted China's stable 
political situation, a language and culture similar to Hong Kong's 
and convenient ports for easy transportation.  However, Wong 
lamented that frequent power shortages -- especially during the 
summer -- sometimes made production unpredictable and difficult. 
 
SOE Government Connections Lead to Consulting Contracts 
--------------------------------------------- ---------- 
 
¶7. (SBU) A state-owned enterprise founded in 1983, Huizhou-based 
Desay Company is one of China's top 500 enterprises and is ranked 
19th in China's top 100 electronic enterprises. According to Zhang 
Rentian, General Manager of Desay's International Marketing 
Department, certain privileges generally available only to SOEs, 
such as free land and government-guaranteed loans from local banks, 
were factors in the company's development in the 1980s. However, the 
firm does not appear to receive such benefits today.  Nevertheless, 
Zhang told the delegation that, because of Desay's expertise in 
dealing with Chinese government agencies, companies such as Sony 
employ Desay as a consultant to facilitate their own government 
interactions. 
 
¶8. (U) Zhang believes that tax incentives have been an important 
factor in luring foreign investment to Huizhou.  According to Zhang, 
China's corporate income tax is normally 30 percent, but regions 
keen to attract foreign investment may have rates as low as 24 
percent.  He also pointed out that Huizhou has two industrial parks 
created by the central government -- the Zhongkai Industrial Park 
and the Daya Bay Industrial Park -- where the tax rate dips to 15 
percent. 
 
Conveniently Collective 
----------------------- 
 
¶9. (SBU) Baolihua Garment Company General Manager Ye Mengrong told 
the delegation that, although his Shenzhen-based company began more 
 
GUANGZHOU 00001094  002 OF 002 
 
 
than 20 years ago as a township-level collectively-owned enterprise, 
from the beginning it was actually a privately-owned company under 
full control of his family. Ye's suggested that "collectively-owned" 
was a widely-used euphemism for private ownership during the early 
days of enterprise reform. Ye noted that, in his experience, 
companies with close government contacts had an edge over those that 
do not.  However, Ye denied that Baolihua currently maintained any 
special relationship with the government.  COMMENT: Baolihua's 
investment in important national infrastructure projects -- such as 
power stations and highways -- cast some doubt on Ye's denial of a 
special relationship. END COMMENT. 
 
¶10. (U) The USITC delegation reviewed this cable before 
transmission. 
 
GOLDBERG