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R 260201Z AUG 08 ZDK
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7535
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNARFC/ASEAN REGIONAL FORUM COLLECTIVE
RUEAEPA/HQ EPA WASHDC
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UNCLAS SECTION 01 OF 02 GUANGZHOU 000518 
 
SENSITIVE 
SIPDIS 
 
 
STATE FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON PGOV CH
SUBJECT: Guangdong's 'Double Transfer' Policy - A View from the 
Receiving End 
 
REF: A. Guangzhou 406; B. Guangzhou 456 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (U) Summary: Guangdong province will spend RMB 50 billion (USD 7 
billion) to encourage labor-intensive industries and migrant labor 
to move out of the Pearl River Delta under its new "double transfer" 
policy (ref A).  Less-developed, third and fourth tier cities in the 
province like Heyuan are eager to welcome them and reach the 
benefits of economic development.  The municipal government claims 
that it makes environmental protection a key factor in deciding 
which factories are allowed to move there.  For relocated 
enterprises, cheaper utilities and rents sweeten the deal, and 
Heyuan already has some pre-existing industrial parks to which PRD 
industries can relocate.  However, a lack of skilled labor, and 
concerns about absorbing migrant workers and their families pose 
challenges to realizing Heyuan's vision of future prosperity. 
 
--------------------------------------------- ----- 
With Open Arms: Welcoming Labor-intensive Industry 
--------------------------------------------- ----- 
 
¶2. (U) On a "double transfer" promotion tour, Guangdong Party 
 Secretary Wang Yang recently visited Heyuan to encourage local 
officials to take advantage of the new policy to further economic 
development efforts.  Over the next five years, Guangdong province 
is planning to invest an estimated RMB 50 billion (USD 7 billion) to 
develop hi-tech industry in the Pearl River Delta while transferring 
labor-intensive industry and migrant labor to the more remote parts 
of Guangdong or other less-developed parts China (Ref A). 
 
¶3. (SBU) Heyuan's government has heard Wang's call and openly 
welcomes the transfer of labor-intensive industries.  Heyuan's Vice 
Mayor Wen Wenfei told us that the policy will help it to achieve its 
goal of raising the city's per capita income level to the Guangdong 
average.  In 2007, Heyuan's per capita income was RMB 11,974 (USD 
1,700), compared to Guangdong's average of RMB 28,000 (USD 4,000). 
Wen, however, admitted that an even larger incentive was the 
potential effect it could have on a local official's career 
advancement.  Wen said that promotions were no longer based solely 
on economic growth, but increasingly on raising living standards, 
citing job creation as a high priority for Heyuan. 
 
------------------------ 
City-to-City Cooperation 
------------------------ 
 
¶4. (SBU) Wen explained that most financial backing for the 
'double-transfer' policy was handled on a city-to-city basis. 
Heyuan has framework agreements with Shenzhen and Zhongshan, its 
main transferring cities, to share the costs of subsidizing 
relocated enterprises.  Shenzhen and Zhongshan have also aided the 
process by organizing trips for entrepreneurs to assess Heyuan's 
investment climate. 
 
------------------------------------------ 
Gather Together: Heyuan's Industrial Parks 
------------------------------------------ 
 
¶5. (SBU) Thanks to an earlier, mostly unsuccessful effort to attract 
hi-tech industry, Heyuan is slightly ahead of the curve in 
constructing industrial parks for transferred factories.  One of its 
largest parks, Zhongshan/Heyuan Transferred Industrial Park was 
originally built as Heyuan Hi-tech Development Zone.  Unable to 
attract large amounts of hi-tech industries, the park was 
restructured to include labor-intensive enterprises, such as cell 
phone manufacturers, metal, and eyewear companies.  These new 
factories have raised Heyuan's annual growth rate by more than 20% 
over the last five years, according to Vice Mayor Wen.  Today, there 
are seven industrial parks in Heyuan that have been identified as 
destinations for relocated factories. 
 
------------------------------ 
Factoring Environmental Impact 
------------------------------ 
 
¶6. (SBU) The "double transfer" policy aims not only to relocate 
labor-intensive industries, but also energy-inefficient industries. 
When asked about the environmental impact of factory transfers, Wen 
said that the local Environmental Protection Bureau (EPB) was very 
much involved in selecting which enterprises are permitted to 
relocate.  All industries must undergo an environmental impact 
 
GUANGZHOU 00000518  002 OF 002 
 
 
assessment.  In recent years, the EPB has rejected 200 relocation 
applications due to potential threats to the local environment.  Wen 
said that prioritizing the environment was a key factor in Heyuan's 
four established criteria for selecting relocated enterprises: 
 
-- Low-to-zero pollution; 
-- All factories must be located within industrial parks; 
-- New enterprises must uphold standards of social responsibility; 
and 
-- New project construction must not waste land resources. 
 
--------------------------------------------- --- 
Trade-offs: Cheaper Costs vs. Less Skilled Labor 
--------------------------------------------- --- 
 
¶7. (SBU) Heyuan's government offers subsidies on power and water 
utilities, as well as cheaper rents to attract enterprises. 
According to Human Resources and Administration Manager Tang 
Xuezhang of the recently relocated garment company, Tien Sung Group, 
both utilities and labor costs are considerably cheaper in Heyuan 
compared to Guangzhou.  In Heyuan, electricity is RMB 0.53 per 
kilowatt-hour, versus RMB 0.85 in Guangzhou.  Also, the cost of 
Heyuan's water is RMB 0.70 per cubic meter compared to Guangzhou's 
RMB 2.65.  Tang's company has three factories in Guangzhou, and 
opened a fourth last year in one of Heyuan's industrial parks.  Tang 
admitted, however, that rather than closing down an existing factory 
and relocating it to Heyuan, his company saw Heyuan as an 
inexpensive opportunity to expand, a common trend among relocating 
businesses. 
 
¶8. (SBU) However, factories are facing challenges in recruiting 
workers, especially skilled labor.  According to Vice Mayor Wen, 
only 51% of the municipality's industrial workforce is from Heyuan, 
and 30% of workers are from outside Guangdong -- primarily from 
Jiangxi, Hunan, and Hebei provinces.  Many of Heyuan's skilled 
laborers have migrated to more developed cities with hi-tech 
industries. 
 
¶9. (SBU) Government and enterprises alike proactively recruit 
workers to staff the new factories.  The municipal government is 
trying to attract what Wen called the "redundant farmers," referring 
to excess laborers in the area's shrinking agricultural sector. 
Heyuan provides monetary incentives to township governments to 
recruit farmers and offers subsidized vocational training in the 
countryside.  In addition, the government sponsors job fairs and 
subsidizes vocational training provided by companies and local 
training schools.  Tang Xuezhang told us that his garment company's 
biggest challenge was recruiting skilled workers, and that the 
company had started a three-week program to train unskilled hires. 
 
 
¶10. (SBU) Wen told us that with the influx of outside labor, the 
government was concerned about the potential public security impact 
and social pressures that migrant workers might bring to the city. 
According to Wen, for example, accommodating the children of migrant 
laborers in the few local schools has become a challenge.  Wen said 
that migrant labor was welcome, however, the emphasis would remain 
on maintaining social stability and raising local living standards. 
 
 
GOLDBERG