VZCZCXRO0075
RR RUEHCN RUEHGH
DE RUEHGH #0449/01 2950217
ZNR UUUUU ZZH
R 210217Z OCT 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7259
INFO RUEHBJ/AMEMBASSY BEIJING 2212
RUEHCN/AMCONSUL CHENGDU 1482
RUEHGZ/AMCONSUL GUANGZHOU 1453
RUEHHK/AMCONSUL HONG KONG 1638
RUEHSH/AMCONSUL SHENYANG 1474
RUEHIN/AIT TAIPEI 1276
RHEHAAA/NSC WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7851

UNCLAS SECTION 01 OF 03 SHANGHAI 000449 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP 
DEPT FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON PGOV ELAB ETRD EIND EINV CH
SUBJECT: ANHUI OPTIMISTIC IT WILL WEATHER ECONOMIC STORM 
 
REF: A. (A) SHANGHAI 436 
     ¶B. (B) SHANGHAI 320 
     ¶C. (C) SHANGHAI 313 
     ¶D. (D) SHANGHAI 309 
     ¶E. (E) BEIJING 1760 
     ¶F. (F) GUANGZHOU 518 
     ¶G. (G) SHANGHAI 351 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
Summary 
------- 
 
¶1. (SBU) Anhui Provincial officials told visiting Congenoffs on 
October 14-15 that the global economic slowdown has affected the 
province but not as severely as in coastal provinces.  The most 
significant impact of the economic situation is likely to be 
felt by Anhui's rural-to-urban migrants working on the coast. 
Some migrants may be returning home, however, as they see more 
opportunities to start their own companies or work for new 
investors in Anhui.  The provincial government is seeking to 
attract more investors from the Pearl River Delta (PRD) and is 
emphasizing integration with the Yantze River Delta (YRD).  End 
Summary. 
 
Visit to Hefei 
-------------- 
 
¶2. (SBU) Poloff and Pol Assistant visited Hefei, Anhui 
Province's Provincial capital, on October 14-15.  They met with 
officials from the Provincial Development and Reform Commission, 
Bureau of Labor and Social Security, and Foreign Affairs Office, 
as well as with an Anhui University law professor to discuss 
labor issues. 
 
Impact of Global Crisis on Central China's Anhui 
--------------------------------------------- --- 
 
¶3. (SBU) Anhui Province has been affected by the global 
financial crisis and U.S. economic slowdown, said Wu Jinsong, 
Vice Director of the Anhui Provincial Development and Reform 
Commission (APDRC), but the impact has been less acute than on 
the coast due to structural differences in Anhui's economy (see 
Refs A, B, C, and D for reporting on the economic slowdown in 
coastal provinces).  Certainly, some export sectors have been 
hit hard by the economic slowdown, Wu said, citing Anhui's auto 
sector as an example of an industry feeling the pinch.  For the 
most part, however, Anhui has been unaffected since only 15 
percent of the provincial GDP is derived from exports. 
 
¶4. (SBU) Wu stated that slowing exports from East China are more 
closely related to renminbi (RMB) appreciation than global 
factors.  Peng Jiahai, Director of the Policy and Law Division 
at Anhui's Bureau of Labor and Social Security, agreed that 
global problems are not having a significant impact on Anhui's 
economy and RMB appreciation is the main domestic culprit, 
further adding that criticism of the new Labor Contract Law 
(LCL) for raising employers' costs and slowing the province's 
economy is misplaced.  The LCL should not be the scapegoat for 
East China's economic problems, Peng said. 
 
The Slowing Economy and Migrant Workers 
--------------------------------------- 
 
¶5. (SBU) Anhui contacts all said the most significant impact of 
the slowing economy would be on the province's migrant workers. 
Anhui remains a major source of migrant workers with as many as 
12 million of the province's 51 million registered rural 
residents working in coastal areas, said Chen Xiaoling, Vice 
Director of the Anhui Provincial Bureau of Labor and Social 
Security.  Wu Jinsong at the APDRC agreed that China's economic 
situation would affect Anhui's rural-to-urban migrants but said 
his organization has not yet conducted any surveys to determine 
the potential economic impact on migrants. 
 
Back to Hefei: Are Migrants Returning Home? 
------------------------------------------- 
 
¶6. (SBU) Chen said she is not concerned that the slowing economy 
 
SHANGHAI 00000449  002 OF 003 
 
 
will make it harder for migrants to find jobs, stating that 
there "are always jobs" with low-cost laborers remaining in high 
demand.  In fact, Chen said many migrants are returning home to 
Anhui either to start their own companies or work for factories 
managed by investors from the Pearl River Delta (PRD) (see also 
Ref E on migrants reportedly returning to Hunan Province).  Chen 
estimated that at least 700,000 migrants (and possibly as many 
as one million) have returned to Anhui in the last two to three 
years.  As a result, the Provincial Bureau of Labor and Social 
Security has increased the number of loans available to start 
small businesses and ramped up worker trainings to satisfy 
investors' demand.  Because of the increasing number of job 
options, many migrants elected to stay in Anhui and remain close 
to family after they returned home during the Lunar New Year 
holiday this year, she said. 
 
¶7. (SBU) Li Kunkang, a law professor at Anhui University, said 
he does not believe the estimated number of returning migrants 
is as high as Chen claims, but it is clear that factories are 
closing on the coast and relocating to Central China in search 
of lower costs, opening up more job opportunities for workers in 
Anhui.  Li said there is a generational difference, however, 
between older and younger migrant workers with the older 
generation more willing to return to Anhui than their younger 
counterparts who want to continue working in urban areas on the 
coast. 
 
Shoe on the Other Foot:  Coastal Investors in Anhui 
--------------------------------------------- ------ 
 
¶8. (SBU) Chen said Anhui Province is actively working to attract 
investors from Guangdong and other coastal provinces.  In 
particular, Chen said the province has successfully attracted 
investors from Dongguan to build a new development zone near 
Hefei.  With coastal companies setting up development zones in 
Anhui, there is even more of a reason for rural-to-urban 
migrants to return home, Chen said.  According to Chen, some 
Dongguan-based companies started looking into investing in Anhui 
after Guangdong Party Secretary Wang Yang began promoting the 
"double transfer" policy to move labor-intensive industries 
outside the PRD (Ref F).  Once they explored their options for 
moving inland, the companies found that costs were lower in 
Anhui than in other parts of Guangdong, Chen said.  Wu Jinsong 
at APDRC said attracting more investment from the coast would be 
a major focus of the 4th Central China Expo in Hefei in April 
¶2009. 
 
¶9. (SBU) Officials at the Anhui Bureau of Labor and Social 
Security acknowledged, however, that there is a downside to 
attracting new investment from the PRD, as the provincial 
government copes with importing Guangdong's old problems.  For 
example, Wang Jie, Director of the Bureau's Legal Compliance 
Division, said his office needs to do more inspections of 
factories to ensure that the new investors are abiding by labor 
laws, including the LCL.  There also has been an increase in the 
number of workers complaining that their salaries have not been 
paid by their employers.  Li Kungang said Anhui's arrears 
problem is not too significant because the LCL requires local 
governments to pressure employers to pay wages promptly.  There 
is an inherent conflict for local governments, however, between 
encouraging employers to obey labor laws and attracting new 
investment, he said. 
 
Wooing Shanghai:  Officials Stress YRD Integration 
--------------------------------------------- ----- 
 
¶10. (SBU) As part of the province's strategy to strengthen 
cooperation with the Yangtze River Delta (YRD), Anhui Provincial 
Party Secretary Wang Jinshan visited Shanghai in late August as 
the head of a delegation to discuss regional integration and 
further developing the YRD economy.  Wang met with Shanghai 
Municipal Party Secretary Yu Zhengsheng and visited sites in 
Pudong, including the Zhangjiang Hi-Tech Industrial Park and 
Maglev Rail on August 28.  Wu Jinsong at APDRC said the trip was 
short but signified the importance of YRD integration to Anhui's 
leaders.  (Note: Party Secretary Wang also stressed the 
importance of YRD integration during his August 13 meeting with 
the Consul General (Ref G).  End Note.) 
 
Comment:  Anhui Optimistic on Economic Prospects 
 
SHANGHAI 00000449  003 OF 003 
 
 
--------------------------------------------- --- 
 
¶11. (SBU) The reaction of officials in Anhui to the global 
economic slowdown differed markedly with the relatively gloomy 
assessments in Jiangsu and Zhejiang Provinces (Refs A, B, C, and 
D).  Anhui's positive spin on the slowdown -- that it would 
attract more investment to the province from businesses seeking 
lower costs -- gives the impression that provincial officials 
believe Coastal China's loss is Central China's gain.  Anhui's 
economy remains weak when compared to neighboring Jiangsu and 
Zhejiang, however, and Anhui will need to manage difficult labor 
and environmental issues as it grows, particularly as the 
province undergoes rapid urbanization. 
CAMP