VZCZCXRO2471
RR RUEHCN RUEHVC
DE RUEHGH #0239/01 1770527
ZNR UUUUU ZZH
R 250527Z JUN 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6941
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7503

UNCLAS SECTION 01 OF 03 SHANGHAI 000239 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP 
TRANSPORTATION FOR VARNEY 
DEPT FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: PGOV EINV KIPR ELAB ETRD ENRG EWWT CH
SUBJECT: LIANYUNGANG - ENTREPOT FOR JIANGSU'S LESS DEVELOPED NORTH 
AND BEYOND 
 
SHANGHAI 00000239  001.2 OF 003 
 
 
(U) Sensitive but unclassified.  Not for dissemination 
outside USG channels; not for Internet distribution. 
 
¶1. (SBU) Summary:  During the Consul General's June 12-13 visit 
to the city of Lianyungang in northern Jiangsu Province, Mayor 
Xu Yiping extolled the virtues of Lianyungang's strategic 
location, noting the city has received a large amount of 
attention and financial support from the Provincial and Central 
Governments.  The city is also striving to protect intellectual 
property through its IP Complaint Center, focus on legal 
software compliance, and cooperation with other IP 
administrations in the Yangtze River Delta.  During a visit to 
the Lianyungang Development Zone, Vice Director Wang Qiang 
emphasized that the city is working hard to attract investment, 
including foreign investment, which thus far has primarily come 
from Japan and Korea (after Hong Kong).  A visit to the 
Lianyungang Port, China's tenth largest in volume, revealed a 
port rapidly expanding capacity to deal with China's burgeoning 
trade and internal transshipments, primarily coal.  The CG also 
called on an American textile business manager, who commented 
that the appreciating RMB was having a notable effect on 
business.  End summary. 
 
A Key to Northern Jiangsu's Economy 
----------------------------------- 
 
¶2.  (U) Lianyungang, situated on the northern coast of Jiangsu 
Province, is home to 4.8 million residents, with about 820,000 
living in the city proper.  It plays a key role in Jiangsu 
Province's relatively underdeveloped northern half, providing 
port access to the products manufactured in both northern 
Jiangsu and southern Shandong provinces.  In 1984, Lianyungang 
was one of the first 14 coastal cities opened to the outside 
world for trade, and today it is one of China's top ten foreign 
trade ports.  The city's per capita GDP in 2007 was USD 3,949. 
By comparison, Jiangsu per capita GDP in 2007 was USD 4,705 and 
the national per capita GDP was USD 2,226.  During the first 
quarter of 2008, Lianyungang's GDP growth was 13.5 percent over 
the same period last year.  In 2007, Lianyungang's total 
import-export trade volume was USD 3.2 billion, up 23.1 percent 
from the previous year.  The total export volume was USD 1.8 
billion, up 27 percent from 2006; the total import volume was 
USD 1.4 billion, an increase of 11 percent.  According to the 
Lianyungang Foreign Affairs Office, there are approximately 
1,000 foreign invested enterprises in the city, with the vast 
majority originating with investors from Hong Kong, Taiwan, 
Korea and Japan.  There are only a handful of American-invested 
enterprises. 
 
Making the Pitch for Lianyungang 
-------------------------------- 
 
¶3. (SBU) Lianyungang Mayor Xu Yiping briefed the CG on the 
development of the city, emphasizing that both Jiangsu 
Provincial Government and Central Government leaders pay a great 
deal of attention to the city.  He noted that Premier Wen Jiabao 
visited Lianyungang in 2007 and said the city should develop 
more rapidly.  Evidence of the support and attention the city 
received is manifest in the high amounts of Provincial and 
Central Government funding for road and port development.  For 
example, the Jiangsu Government has provided RMB 5 billion (USD 
715 million) for development of the port.  Xu maintained the 
city has a balanced plan for development, which plays to all the 
city's strengths as a trade center, transportation hub, and 
tourist center.  Lianyungang also attaches great importance to 
environmental protection and is consistently rated as one of the 
top cities in China for air quality, according to local 
officials. The CG welcomed increased cooperation with 
Lianyungang and said that American business people are generally 
unaware of northern Jiangsu's advantages, including its 
geographic location, people, transportation, and government 
policies. 
 
¶4.  (SBU) Mayor Xu elaborated that the city is an ideal place to 
invest.  A great deal of effort is being made to connect it with 
the prosperous southern part of Jiangsu through better road 
infrastructure.  The people are every bit as talented as those 
in southern Jiangsu, and they know how to "chi ku," or "eat 
bitterness," to get tough jobs done.  Xu also said the city has 
put a great deal of work into its development zone to attract 
new business; in 2007 alone, there were 70 new business projects 
approved for the area.  In addition, Xu noted that Lianyungang 
has a partnership with the city of Zhenjiang in the south of 
 
SHANGHAI 00000239  002.2 OF 003 
 
 
Jiangsu.  He said the partnership is comprised mostly of 
exchanges between government officials on ways to increase 
development.  Xu noted that the city generally does not have 
enough amenities to attract foreign residents, but it does have 
a hospital that is "up to standards."  Regarding whether the 
slow down in the U.S. economy is having an effect on the area, 
Xu maintained that it does not because of the relatively low 
level of foreign trade-related enterprises. 
 
IPR Protection in its Nascent Stages 
------------------------------------ 
 
¶5.  (SBU) The CG emphasized the importance of adequate IP 
protection in developing the economy and asked what the city was 
doing in this regard.  Xu said the city was one of the three 
cities in Jiangsu that has an IPR Complaint Center, but it has 
not received many complaints thus far.  There have been no 
foreign rights holders that have filed complaints at the IPR 
Complaint Center.  The local government has also made sure that 
all government agencies use legitimate software and is now 
focusing on ensuring all large companies are compliant. 
Municipal Science and Technology Bureau Deputy Director Zhang 
Yunni said there is a special tribunal in Lianyungang that 
handles all IPR-related cases.  In addition, Customs coordinates 
closely with the Municipal Government on IP-infringement cases 
involving the port.  The city is also part of the Yangtze River 
Delta IPR-coordination network on administrative cases.  Zhang 
noted that the city has had no cases of Internet piracy, unlike 
its neighboring city of Yancheng, which is known for Internet 
piracy.  Zhang also maintained the city has not seen any cases 
of counterfeiters moving from southern Jiangsu to escape a 
crackdown.  (Note:  U.S. companies have repeatedly asserted that 
as southern Jiangsu has cracked down on counterfeiters, they 
have simply moved to the more "lenient" northern part of the 
province.) 
 
A City Itching to Develop 
------------------------- 
 
¶6.  (SBU) During a separate meeting, Lianyungang Development 
Zone Vice Director Wang Qiang acknowledged that while the area 
was not growing as fast as Southern Jiangsu, it is still growing 
at a rapid clip.  He attributed the growth to the city's ideal 
location on a natural harbor, the integrated transportation 
network, and the city's attractiveness as a tourist destination. 
 The Port of Lianyungang is located half way between the ports 
of Shanghai and Qingdao.  It also serves as the terminus for the 
Longhai/Lanxia rail line that reaches all the way to Xinjiang 
and services a "hinterland" of 260 million people.  The area 
also recently completed a highway that cuts transportation time 
to Shanghai from 7 hours to 4.5 hours.  However, Wang 
acknowledged that more needs to be done to develop the area's 
infrastructure, including more road connectivity and a deeper 
channel for the port.  A stable energy supply is also one of the 
city's advantages.  As the city is a routing stop for a great 
deal of coal coming from western provinces for the rest of the 
country, coal is never in short supply.  The city also has a new 
nuclear power plant that was built as a joint project with the 
Russians, who provided the technology.  The power plant went 
into operation in May 2007 and currently has two 1,000 megawatt 
generators.  Once all phases are completed, it will have a total 
capacity of 8 generators of 1,000 megawatts each.  According to 
local officials, the power plant will also service other parts 
of East China. 
 
¶7.  (SBU) Wang also emphasized the city is doing a great deal to 
attract investment by ensuring good development plans and 
advertising them widely.  One of the major attractions for 
investors is the abundant space in the area and the lower cost 
for land.  Another is the local labor force, which tends to be 
relatively more educated and more stable than other areas since 
there are not many migrants.  Wang, however, pointed out that 
one of the city's weak spots is the lack of amenities for 
foreigners, such as an international school.  There are some 
Korean and Japanese long-term foreign residents, but U.S. and 
European residents are rare. 
 
A Little-Known Port with an Eye for the Future 
--------------------------------------------- - 
 
¶8.  (U) According to city statistics, Lianyungang port is the 
tenth largest seaport in China in volume and has relations with 
approximately 1,000 ports in over 150 countries.  Lianyungang 
 
SHANGHAI 00000239  003.2 OF 003 
 
 
has ten international container lines with over 160 voyages per 
month directly to most countries and regions in the world. 
Lianyungang port has 28 productive berths, which include 
special-purpose docks for coal, wood, grain and hazardous cargo. 
  The port terminal is connected by a rail link that has an 
annual organizing capacity of 30 million tons. The port is also 
the fifth largest coal export port in China, a crude oil loading 
and unloading center, and one of the seven largest transit ports 
for ore in China. 
 
¶9.  (SBU) During a visit to the port, Lianyungang Port Group 
Executive Vice Director Song Tiande briefed the CG on port 
operations.  In 2007, the port handled over 3 million TEU and 85 
million tons of cargo.  In 2008, it is expected to handle 5 
million TEU and 100 million tons.  In 2020, the port projects an 
annual throughput capacity of 10 million TEU and 300 million 
tons.  To handle the increasing volume, Song pointed out that 
the port is expanding rapidly.  Song also noted that the Port of 
Lianyungang is primarily a transshipment port that transfers 
goods from inland China, such as Shanxi, Sichuan, and Anhui to 
other parts of China and abroad.  The port handles a large 
volume of coking coal and thermal coke from Shanxi to cities 
like Shanghai, Nanjing, and Guangdong.  Approximately 70 percent 
of the port's traffic is import and export related.  According 
to Song, the port handles about 2 million tons of soybean 
imports from the United States each year.  Other large imports 
from the United States are scrap paper and some scrap metal.  In 
addition, Song noted that 60-70 percent of the financial support 
for the port comes from the local government.  The remaining 30 
percent of the funding comes from the Central Government.  The 
staff at the port is mostly comprised of local people. 
 
A U.S. Company Feels the RMB Pinch 
---------------------------------- 
 
¶10.  (SBU) In a meeting with APlus Group LYG Aiyeh Non-Woven 
Product Co. Ltd Managing Director Zhang Xuefeng, the CG inquired 
about the effect RMB appreciation is having on the business. 
Zhang replied that since the company produces entirely for the 
export market (70 percent going to the United States alone), 
they are definitely feeling a pinch.  The company currently 
supplies about one third of the U.S. market for medical textiles 
(draping clothes, etc.) and is a wholly-owned U.S. company 
headquartered in Los Angeles.  Aplus also has production 
facilities in Kunshan and Changzhou (both in the southern half 
of Jiangsu Province), Shanghai, and Qingdao (in Shandong 
Province).  The company's Lianyungang workforce is comprised 
primarily of approximately 1,000 local workers, who are housed 
nearby in dormitories.  The average salary for the workers is 
RMB 1,000 (USD 140) per month.  Zhang said the local business 
environment is conducive to investment, and the company has good 
relations with the local government at all levels. 
JARRETT