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courage is contagious

Viewing cable 08GUANGZHOU590, SOUTH CHINA REPORTING OFFICERS CONFERENCE, SEPTEMBER 24-27,

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Reference ID Created Released Classification Origin
08GUANGZHOU590 2008-10-09 09:20 2011-08-23 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Consulate Guangzhou
VZCZCXRO1984
RR RUEHCN RUEHDT RUEHGH RUEHPB RUEHVC
DE RUEHGZ #0590/01 2830920
ZNR UUUUU ZZH
R 090920Z OCT 08 ZDK
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7616
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNARFC/ASEAN REGIONAL FORUM COLLECTIVE
UNCLAS SECTION 01 OF 02 GUANGZHOU 000590 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP, EAP/CM, EAP/TC, EAP/MTS 
 
E.O. 12958: N/A 
TAGS: OTRA PREL ECON PGOV CH TW HK
SUBJECT: SOUTH CHINA REPORTING OFFICERS CONFERENCE, SEPTEMBER 24-27, 
 
WRAP-UP 
 
1. (U) Summary: The September 24-27 2008 South China Reporting 
Officers Conference - with participation by officers from Embassy 
Beijing, Consulate General Shanghai, Consulate General Hong Kong, 
the American Institute in Taiwan (AIT), and Consulate General 
Guangzhou - addressed four main themes: regional integration and 
development strategies, whither cross-Strait relations , the 
Strategic Economic Dialogue (SED) in south China, and economic and 
other challenges to Chinese provinces south of the Yangzi.  The 
participants emphasized the importance of examining local 
perspectives on national level policies and priorities and how the 
latter are actually interpreted "on-the-ground."  End Summary. 
 
Regional Integration - Cooperation and Competition 
--------------------------------------------- ----- 
 
2. (SBU) The first conference session, on "Regional Integration," 
highlighted the competition in south China among provinces that are 
desirous of expanding economic linkages with one another while 
looking for a larger share of the economic pie for themselves. 
ConGen Hong Kong Econ/Poloff underscored the shifting impact of 
Guangdong's development and its growing competition with Hong Kong 
in some service sector industries, notably port operations. 
Nevertheless, Hong Kong maintains its advantage in rule of law and 
financial services, which continue to attract international 
investment.  In addition, Hong Kong Econ/Poloff noted that a growing 
focus on labor and environmental protection in the Pearl River Delta 
is hitting Hong Kong businesses hard, resulting in many enterprises 
looking to other parts of China and Southeast Asian countries, such 
as Vietnam, to relocate.  However, participants pointed out that 
Guangdong still benefits from its highly developed supply chains and 
infrastructure, compared to other areas of China and Southeast Asia, 
as well as access afforded to China's increasingly open domestic 
market. 
 
3. (SBU) Shanghai Econoff described some of the trends in financial 
sector reform and the challenges facing reform efforts, including 
the recent U.S. financial crisis and the sinking value of the 
dollar.  Trends include the reform of regulatory bodies, with a 
focus on shifting more authority from Beijing toward Shanghai, as 
well as innovative initiatives such as the raising of foreign equity 
caps.  In addition, monetary incentives are being offered to attract 
professionals to financial centers.  Participants also discussed the 
expansion and political implications of Chinese investment in the 
U.S. market, in light of the economic downturn. 
 
4. (SBU) AIT Econoff noted that cross-Strait economic opening was 
moving forward on several fronts: tourism, the establishment of 
frequent charter flights, the increase of Chinese students studying 
at Taiwanese universities, and likely further liberalization of 
direct shipping.  China remains the predominant destination for 
Taiwan external investment, and is unlikely to change despite some 
diversification into Southeast Asian markets.  AIT Econoff said 
Taiwan contacts reported that as many as 30,000 Taiwanese-owned 
enterprises have shut down in the Pearl River Delta (PRD) due 
primarily to rising costs.  Taiwan investment continues to be strong 
in the Yangzi River Delta.  Some Taiwan investors have indicated 
they are considering relocation to Southeast Asia, where 
supply-chain management conditions are reportedly improving. 
 
Cross-Strait Relations - Intl Space Still a Problem 
--------------------------------------------- ------ 
 
5. (SBU) Conference participants from Beijing and Taipei agreed that 
expansion of Taiwan's international space would be a contentious 
issue even as cross-Strait relations improve under the Ma Ying-jeou 
administration.  According to the AIT Deputy Director, Taiwan's new 
leadership has brought stability to the cross-Strait relationship 
and much potential for further opening.   However, further economic 
opening will be easier than expanding Taiwan's international space 
or addressing other issues that touch on sovereignty and security. 
Taiwan's ruling Kuomintang (KMT) believes Taiwan has made major 
compromises in cross-Strait policy and the ball is now in Beijing's 
court.  Embassy Beijing Poloff agreed that one of the main points of 
contention between Beijing and Taiwan was the expansion of Taiwan's 
role on the international stage, including its interest in 
participating more fully in the World Health Organization (WHO). 
Beijing Poloff pointed out that President Hu Jintao had 
significantly softened his rhetoric on cross-Strait relations, 
though there was considerable discussion on how rhetoric will 
translate into political changes. 
 
6. (SBU) From Hong Kong and Macau's perspective, cross-Strait 
relations are mainly an economic concern.  ConGen Hong Kong 
Econ/Poloff said that increased ties between Taiwan and mainland 
China were expected to have the greatest impact on Macau.  As direct 
cross-Strait transportation opens further, the number of Taiwan 
travelers transiting Macau, which currently make up approximately 
47% of Macau's air travelers, will decrease significantly.  ConGen 
 
GUANGZHOU 00000590  002 OF 002 
 
 
WRAP-UP 
 
Shanghai Econoff commented that Taiwan businesses in Shanghai simply 
hoped that the status quo continues and political stability further 
enhances the investment environment.  ConGen Guangzhou Econ/Poloff 
noted that the more challenging environment in the PRD for Taiwan 
investors would likely affect cross-Strait and U.S.-Taiwan-China 
trade flows, but it was not likely to have much impact on 
cross-Strait political ties. 
 
The Strategic Economic Dialogue and South China 
--------------------------------------------- -- 
 
7. (SBU) Embassy Beijing Econoff described the SED process and 
current status of discussion.  He commented that the Ten-Year 
Framework on Energy and the Environment would help institutionalize 
the SED process.  The SED will have an impact on south China to the 
degree that local officials, NGOs, and enterprises implement 
projects on key SED issues such product safety, environmental 
protection/energy efficiency and transportation reform. 
 
Greater China Challenges 
------------------------ 
 
8. (SBU) Guangzhou Congenoffs also highlighted some of the 
challenges facing the PRD that have broader implications for U.S. 
interests in Greater China: labor issues, intellectual property 
rights (IPR) and environmental protection.  ConGen Guangzhou Poloff 
commented that the region's labor market was changing due to rising 
wages and China's new Labor Contract Law.  Companies must work 
harder to recruit skilled employees while workers are becoming more 
proactive at exercising their rights.  Unions and NGOs are more 
engaged in organizing labor, which has in some cases led enterprises 
to crack down.  ConGen Guangzhou's IPR Officer pointed out that 
enforcement was the main IPR concern in south China compared to 
Beijing's focus on policy.  Regulations are enforced inconsistently 
and local officials lack the will and capacity to take action 
against infringement.  ConGen Guangzhou Econoff pointed out that a 
growing interest in environmental protection in Guangdong was driven 
by a desire for higher living standards.  In general, south China 
continues to face challenges with regard to local implementation of 
national environmental and energy efficiency goals. 
 
Exploring the PRD: Welcome to the World's Factory Floor 
--------------------------------------------- ---------- 
 
9. (SBU) The following day participants visited Shenzhen's Huawei 
and Foxconn companies.  The visit to Huawei, China's leading 
producer of telecommunications equipment, included a campus tour, 
and a briefing with top-level management.  A senior Huawei executive 
told us that the firm is still looking to strengthen investment 
relations with the United States and is in the process of getting 
its Washington, D.C., government relations office up and running. 
At Foxconn, the Taiwan-invested contract manufacturer of consumer 
electronics goods and components, participants saw the sprawling 
manufacturing campus that employs approximately 270,000 and toured 
testing labs.  According to a senior Foxconn executive, the 
manufacturing giant is looking to expand its operations in the areas 
of nanotechnology, and to strengthen its joint design/manufacturing 
relations with leading brand-name companies, such as Apple.  It is 
drawing down employment at the Shenzhen facility to focus on design 
and other high-end processes there as it expands manufacturing in 
other parts of China and in Southeast Asia. 
 
10. (U) This cable was coordinated with Embassy Beijing, Consulate 
General Shanghai, Consulate General Hong Kong, and AIT. 
 
GOLDBERG