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C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000019 
 
SIPDIS 
 
SIPDIS 
 
MOSCOW PASS VLADIVOSTOK 
 
E.O. 12958: DECL: 02/13/2028 
TAGS: PGOV PINR PREL ECON EIND ETRD CH KN RS
SUBJECT: SENIOR HEILONGJIANG OFFICIALS ON STABILITY-RELATED 
 ISSUES: INFLATION, SOE WAGE ARREARS, LAND DISPUTES AND 
"MINSHENG" 
 
REF: A. (A) SHENYANG 14 
     ¶B. (B) 2007 SHENYANG 252 
 
Classified By: Consul General Stephen Wickman; reasons 1.4 (b)/(d). 
 
¶1. (C) SUMMARY: Inflation is a pressing concern for senior 
Heilongjiang officials, who are implementing a full range 
of countermeasures not always made public in order to avoid 
a panic.  Along with new export taxes, the policy of 
supplying grain and coal nationwide to cover excess 
domestic demand is likely to shrink Heilongjiang's exports 
to Russia, North Korea and elsewhere.  In a bid to 
stimulate growth and stem potential social discontent, 
Heilongjiang will be a major beneficiary of a massive 
repayment of back wages to employees of the province's many 
state-owned enterprises.  Senior officials privately 
acknowledged recent events in Fujin--where a land-rights 
dispute late last year attracted international media 
attention--but dismissed the farmers involved as 
"unreasonable."  Officials gripe that Heilongjiang's 
disproportionately large contribution of revenue to Beijing 
has constrained development.  The province is still 
struggling with economic restructuring, and U.S. firms may 
have a role to play.  END SUMMARY. 
 
¶2. (SBU) CG and Congenoffs traveled January 30-31 to 
Heilongjiang Province, a national agricultural powerhouse 
still home to a substantial portion of the PRC's heavy 
state-owned industry, for meetings with senior officials, 
including the province's newly-appointed governor, Harbin's 
mayor, and scholars at the Heilongjiang Academy of Social 
Sciences (HASS). 
 
INFLATION CONCERNS; GRAIN, COAL EXPORT PULLBACK LIKELY 
--------------------------------------------- --------- 
¶3. (C) Inflation remains one of the key concerns among 
senior Heilongjiang officials right now, a point 
consistently echoed in ConGen's meetings throughout 
northeast China of late.  New Governor LI Zhanshu cited 
rising commodity prices as a major worry, while Harbin 
Mayor ZHANG Xiaolian told the CG that Heilongjiang 
officials are purposely not "publicizing" the full range of 
countermeasures they are taking, lest the publicity 
encourage a panic among the public.  But despite concerns 
about the impact that domestic inflation and new export 
controls will have on the province's exports--particularly 
in the agricultural sector--officials seemed to suggest the 
province was better positioned to weather the proverbial 
storm than others elsewhere in China. 
 
¶4. (SBU) Heilongjiang's agricultural sector has remained 
"fundamentally stable" over the past year, according to 
HASS President QU Wei.  Qu noted that Heilongjiang's ample 
grain production (39.5 billion kilograms in 2007) continues 
to grow, bolstering the country's national strategic 
reserve (to which Heilongjiang's contribution is unclear). 
Heilongjiang this year will "export" most of its surplus 
domestically; Qu reasoned new Chinese export tariffs would 
likely shrink grain exports abroad, including to neighbors 
like Russia and North Korea (refs A and B).  Governor Li 
agreed that the Heilongjiang crop was currently sufficient 
to fill shortfalls in other provinces, but he worried that 
prices in Heilongjiang might be forced up if too many sales 
outside the province are made at once.  Coal, of which 
Heilongjiang is also a major national producer, seems to be 
headed in the same direction.  The Governor claimed "some" 
exports abroad will continue this year (e.g., to Japan) but 
that most of this year's production is slated for domestic 
use.  Qu Wei noted that the rising price of oil has been a 
boon to Heilongjiang's mostly state-owned coal companies, 
which after years of sustaining losses of "several billion" 
renminbi (RMB) per year, are now turning a profit. 
 
SOE WAGE REPAYMENT AND LOW-COST HOUSING FOR "MINSHENG" 
--------------------------------------------- --------- 
¶5. (SBU) "Minsheng" (the people's livelihood), a key 
concern of President Hu and Premier Wen, tinged with 
stability-related undertones, is also weighing heavily on 
Heilongjiang officials.  They are looking to two major 
initiatives to stimulate demand in response to a rate of 
development that Governor Li admitted privately is "too 
slow."  The first is the massive repayment of back wages to 
current and former employees of state-owned enterprises 
 
SHENYANG 00000019  002 OF 003 
 
 
(SOEs).  Heilongjiang is home to roughly one-third of the 
PRC's SOEs, which owe "several billion" RMB in back wages 
to workers throughout the province, according to Harbin 
Mayor Zhang.  Starting this year, Beijing and Heilongjiang 
will together repay all the back wages in the province.  In 
Harbin alone, roughly 180,000 former SOE workers are still 
owed over RMB 1 billion (USD 138 million).  The central 
government in Beijing, matched to a lesser extent by 
Heilongjiang, will repay sixty percent of the arrearages by 
April, and the remainder by the end of 2008, according to 
Zhang. 
 
¶6. (SBU) The second initiative, also clearly a beneficiary 
of generous funding from Beijing, is a rapid expansion in 
the construction of low-income, urban housing, a program 
that has generated important goodwill for responsible 
officials elsewhere in northeast China (e.g., Li Keqiang's 
successful slum-renovation program in Liaoning Province). 
Harbin is one major locus.  Mayor Zhang Xiaolian said the 
city's program started seven years ago--rather early 
compared to others nationwide--and initially functioned via 
a lottery of sorts.  Under the new program, the neediest 
families immediately qualify, and "many" in the city are 
already beneficiaries of new housing.  More residents will 
join their ranks as additional regulations phase in by 2011 
to "capture" the slightly less needy.  In 2007, Harbin 
moved 3000 families into new low-income housing, which 
residents have an option to purchase after five years. 
Mayor Zhang concluded with a "conservative" estimate that 
envisions the addition of one million square meters of new 
low-income housing space in 2008, followed by an additional 
16 million square meters within five years.  HASS' Qu Wei 
claimed Beijing would assume between one-quarter and one- 
third of the total tab. 
 
LAND-RIGHTS DISPUTES: FUJIN AND BEYOND 
-------------------------------------- 
¶7. (C) Senior officials privately acknowledged but offered 
an incomplete "take" on recent events in Fujin--a city near 
Jiamusi where a land-rights dispute that had attracted 
international media attention came to an abrupt end in 
December/January after authorities incarcerated the two 
farmers-turned-land-rights-activists leading the charge. 
GUO Xiaohua, the new Secretary General of the Heilongjiang 
provincial government following several years as Party 
Secretary of Jiamusi (which administratively supervises 
 
SIPDIS 
Fujin), said the government had dispatched investigation 
teams "several times" to look into the Fujin conflict, 
which media reports say erupted in late 2007 when local 
farmers started redistributing collective farmland among 
themselves, demanding private ownership.  Guo, selectively 
omitting unfavorable details documented in media reports, 
claimed that rights to use the land had been ceded to a 
South Korean land developer pursuant to a contract signed 
by the farmers many years ago. Guo criticized the Fujin 
farmers' demands as "unreasonable," alleging that they were 
simply seeking to rewrite a contract with which they were 
no longer satisfied. (NOTE: According to media reports, 
local officials actually reclaimed the land in the 1990s 
after the ROK firm walked away and the farmers had already 
made improvements of their own.  END NOTE.) 
 
¶8. (C) HASS President Qu Wei, who said he has researched 
land-rights issues for the provincial Party Committee, 
claimed Heilongjiang has not seen "too many" problems on 
this front, in part because of the province's vast size and 
relatively low population density--one-thirty-fifth of the 
PRC's population on one-tenth of its land mass.  Qu, like 
other scholars and several journalists we encountered, 
claimed not to have heard of the Fujin dispute, but he did 
acknowledge that land-use abuses occur and are not helped 
by the "underdeveloped" legal system.  Heilongjiang, he 
said, is starting to pay increasing attention to land-use 
regulations, as well as various models for 
relocation/compensation when residents must be moved for 
new development. 
 
OFFICIAL CARPING ON REVENUE-SHARING 
----------------------------------- 
¶9. (C) A surprisingly critical refrain we heard on a number 
of occasions concerned Heilongjiang's disproportionately 
large contribution of revenue to Beijing, something 
Governor Li suggested had constrained the speed of 
 
SHENYANG 00000019  003 OF 003 
 
 
provincial development.  Heilongjiang, for instance, is 
contributing RMB 6 billion (USD 833 million) in national 
taxes every year, not including RMB 10 billion (USD 1.4 
billion) in proceeds from the Daqing oil fields, which are 
used outside Heilongjiang to fund western China's and 
overseas oil exploration/development projects, according to 
Qu and Governor Li. 
 
COMMENT 
------- 
¶10. (SBU) With its new SOE wage-arrears scheme, Beijing 
seems to be redirecting the "northeastern revitalization" 
drive, which was launched in 2003 and which thus far has 
disproportionately benefited Liaoning Province.  Harbin in 
particular looks set to benefit.  The city is already 
humming along, with a per capita income of RMB 12,700 (USD 
1760)--some 25 percent higher than in the rest of the 
province.  The provincial capital now comprises 36 percent 
of Heilongjiang's total production, 40 percent of its 
fixed-asset investment, half of its service sector, and 
more than one-quarter of its grain production, according to 
Mayor Zhang. 
 
¶11. (C) Even in Harbin, however, one is still struck by the 
weight of the past.  Over one million of Heilongjiang's 
laid-off SOE workers are now seeking higher wages elsewhere 
in China (or in Russia).  Industrial restructuring is slow, 
and manifold difficulties remain.  Although officials 
pepper their talking points with pleas for U.S. firms to 
invest, happily reporting that the United States is 
Heilongjiang's second largest trading partner and a source 
of investment from over 300 firms, there are few examples 
of successful joint ventures involving SOE partners. 
Gleason Cutting Tools, for example, is seeking to dissolve 
a venture it set up only a few years ago with Harbin Number 
One Machine Tool Company, a city-owned SOE that owns a 
less-than-controlling, 30-percent stake in the joint 
venture.  The SOE partner is using every means at its 
disposal--including mobilizing laid off workers to threaten 
the U.S. partner--to keep its retail arm from having to pay 
out millions of dollars in arrears and possibly to seize 
Gleason's equipment and technology.  The U.S. company is 
seeking to save its equipment and form a wholly-owned 
venture.  Harbin is not out of the question, the 
beleaguered U.S. managers say, but the tactics of the 
Harbin partner have caused Gleason to think long and hard 
about investing here even though many important clients are 
nearby. 
WICKMAN