VZCZCXRO0081
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0168/01 0800631
ZNR UUUUU ZZH
R 200631Z MAR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6986
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000168 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ELAB EINV ECON SENV PGOV CH
SUBJECT: SPEAKING OUT AT THE CPPCC: NINE DRAGONS CEO ZHANG YAN URGES 
REVISION OF LABOR CONTRACT LAW 
 
 
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  IT SHOULD NOT BE 
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM 
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR.  IT SHOULD NOT BE 
POSTED ON THE INTERNET. 
 
¶1. (SBU) Summary: In a May 19 conversation with the Consul General, 
Nine Dragons dynamic CEO Zhang Yan said that she had been moved to 
offer suggestions to the government on the Labor Contract Law, taxes 
on the well-to-do and import incentives for energy 
efficient/environmentally friendly machinery to help promote and 
sustain national economic growth rather than enrich those who are 
increasingly well-off as a result of China's reforms. She observed 
that while the government may deny that firms are leaving the PRD 
for greener pastures elsewhere, the fact is that firms (not just 
Hong Kong and Taiwan, but Korean and Japanese as well) are looking 
at the potential for moving their base of operations to southeast 
Asia; without incentives, companies, including large Chinese ones, 
would not use China as a platform to create better (and to some 
extent "greener") products that would appeal to a global consumer 
market.  End Summary. 
 
¶2. (SBU) Nine Dragons' CEO Zhang Yan, at one time China's richest 
woman ("richer than Oprah"), has recently been in the news for 
comments she made at the early March Chinese People's Political 
Consultative Conference (CPPCC) on revising the Labor Contract Law, 
lowering taxes on individuals who earn RMB 100,000 and above, and 
reducing/eliminating the high import tax on energy efficient, 
environmentally friendly equipment.  She told the Consul General 
over dinner March 19 that while the press may have reported that she 
had been heatedly criticized by her CPPCC colleagues, she felt she'd 
gotten good support from the majority of delegates and was confident 
that the leadership would act positively to address the concerns she 
had brought to the fore.  Otherwise, she added, foreign-invested 
companies (and perhaps even larger Chinese companies) would start to 
move out of the Pearl River Delta (PRD) and individuals the 
government wanted to attract to live and work in China, including 
those who were looking forward to returning home, would remain 
overseas.  The result: more jobless people, poorer management, less 
creativity and cutting-edge intellectual property originating in 
China, an increased burden on the government to provide services to 
people who can no longer afford them, and a decline in quality of 
life for migrant workers - all with a real and negative impact on 
the social order. 
 
¶3. (SBU) Zhang pointed out that she could hardly be criticized for 
her first proposal, i.e., an amendment to the Labor Contract Law to 
exempt labor-intensive companies from the new requirement that they 
sign permanent contracts with employees who have served for more 
than ten years.  Nine Dragons, she noted, is a capital-intensive 
company, which seeks to retain its employees, many of whom it 
supports as they attend university in exchange for coming to work at 
the company for 3-5 years.  Frankly, she acknowledged, keeping the 
kind of employee Nine Dragons attracts for up to ten years, however 
desirable, is impossible.  It is the other more vulnerable PRD 
companies that she was seeking to assist, many of which are already 
planning their exit strategies.  So while the Chinese government may 
deny that firms are leaving the PRD for greener pastures elsewhere, 
the fact is that firms (not just Hong Kong and Taiwan, but Korean 
and Japanese as well) are looking at the potential for moving their 
base of operations to southeast Asia.  Unless the Chinese government 
counters with incentives, this would kill the its hope that many of 
these same firms would simply move inland, where Zhang Yan said, 
they would confront problems of moving product to market. 
 
¶4. (SBU) With regard to her proposal for reducing/even eliminating 
import taxes on energy efficient/environmentally friendly machinery, 
she said that she had been tempted to go even further and was 
considering advising the government to use its reserves to provide 
subsidies to companies to purchase the machinery from abroad.  In 
fact, if much of the machinery were American in origin, the 
government could be credited with "killing four birds with one 
stone:" improving air and water quality, helping companies 
(especially in energy poor Guangdong province) better utilize fuels, 
getting firms to retool and redesign products to make them more 
competitive in a global economy that increasingly values "green" 
production, and reducing the deficit with the United States. 
 
¶5. (SBU) Zhang noted that this year's CPPCC was more democratic than 
in years past: she didn't come with a specific agenda but was 
encouraged to speak out and tried to encourage others - those who 
sit and rest at times when they should be advising the government on 
better ways of doing them - to be similarly proactive.  The CPPCC 
can show the way forward, she said, in ways that NPC delegates 
cannot; the latter are constrained by virtue of their ties to a 
 
GUANGZHOU 00000168  002 OF 002 
 
 
political system that, when it comes to opening up, moves glacially 
if at all. 
 
¶6. (SBU) Comment: For someone who seemed under fire just a week ago, 
and whose company stock had declined March 17 by a bit over 40 
percent before meeting with the CG, Madame Zhang was in remarkably 
good spirits and good humor.  She and her husband, Liu Mingchung 
(Taiwan by birth, Brazilian by upbringing, possessor of HK residency 
and fluent in four or five languages) were preparing for a roadshow 
to Europe and America as well as a visit to their new plant in Ho 
Chi Minh City (part of their diversification planning for the 
future).  She has been reassured that her proposals will not cause 
any problems for Nine Dragons business operations in the future.  If 
that were the case, she said, how likely would it be that the 
government could attract similarly outspoken executives to the CPPCC 
and to sit on government advisory boards?  The trick was to couch 
your advice as a "suggestion" and not a criticism, which she felt 
she had done. 
 
GOLDBERG