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RR RUEHWEB

DE RUEHGZ #0723/01 3510628
ZNR UUUUU ZZH
R 160628Z DEC 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0065
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0025
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0018
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0022
RUEAIIA/CIA WASHDC 0025
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UNCLAS GUANGZHOU 000723 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV ETRD
SUBJECT: Thirty Years of Reform and Opening: Shantou - The SEZ That 
Was Left Behind (Part 1 of 2) 
 
(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. (U) Summary: Despite its special economic zone (SEZ) status and 
natural advantages such as a seaport and a large overseas Chinese 
population, Shantou's economic performance over the last 30 years 
has lagged behind that of Guangdong Province as a whole.  Shantou 
officials and academics say their city of five million people faces 
unique challenges: geographic isolation from the locus of provincial 
economic growth (the Pearl River Delta), cultural insularity, and a 
history of intellectual property rights (IPR) violations that have 
made some investors wary of committing resources there.  They also 
concede that the development process, especially the tolerance of 
using counterfeit goods as an engine of growth, over the last few 
decades has at times been mismanaged.  Still, they are cautiously 
optimistic about the region's future prospects.  (Septel will 
examine some of the advantages Shantou has in moving forward.)  End 
summary. 
 
Potential Unrealized 
-------------------- 
 
¶2. (U) At the start of reform and opening thirty years ago, the city 
of Shantou in eastern Guangdong Province held significant promise. 
It was named one of the first five SEZs along with Shenzhen, Zhuhai, 
Xiamen and the island of Hainan.  But Shantou has not lived up to 
the promise.  It remains a third-tier city at best and its economic 
growth has lagged behind Guangdong Province as a whole. Over the 
last decade, Shantou's GDP growth rate has averaged just over nine 
percent, compared to Guangdong's 14 percent. Per capita income in 
Guangdong grew from 370 RMB (US$54) in 1978 to 28,332 RMB (US$4,166) 
in 2006. In contrast, during the same period, Shantou's per capita 
income went from 366 RMB (US$53) to 14,872 RMB (US$2,187), growing 
at half the speed as that of the Province. 
 
Geographic Isolation - Planning for Failure? 
-------------------------------------------- 
 
¶3. (SBU) Shantou was chosen to be an SEZ in part because of its 
relatively isolated location and the presumed willingness of 
Chaoshan (Chaozhou-Shantou) people living abroad to provide 
investment funding (see para 6).  However, the geographical distance 
from the Pearl River Delta has contributed to its lack of success 
compared to the other SEZs.  "If the reform failed, it would not 
lead to any significant impact on the wider province", according to 
Wu Nansheng, former Guangdong (GD) Party Secretary.  Liu Wenhua, 
Assistant Director of Shantou Bureau of Foreign Trade and Economic 
Cooperation (BOFTEC) told us that, situated more than 300 miles away 
from the PRD, Shantou's economy is virtually "cut off" from the 
influences of major local economic centers, such as Guangzhou and 
Shenzhen.  She called the city an "isolated economic island". 
 
¶4. (SBU) In addition, Shenzhen, Zhuhai and Xiamen were chosen among 
the first SEZs, in part because of their proximity to Hong Kong, 
Macau and the Taiwan-controlled island of Jinmen, respectively. 
Shantou lacks this kind of geographic advantage.  Still, Liu hopes 
that recent agreements, which open new channels for travel and 
commerce between the mainland and Taiwan, will provide opportunities 
for Shantou to establish itself as a major conduit for cross-Strait 
trade and investment.  Comment: Liu did not provide specifics and 
it's unclear how Shantou would compete with other cities such as 
Xiamen, which already has well-developed ties to Taiwan.  End 
Comment. 
 
Cultural Ties: A Mixed Bag 
-------------------------- 
 
¶5. (SBU) Shantou's unique Chaoshan culture makes it difficult for 
outsiders to integrate and has in some ways been an impediment to 
economic development, said Liao Xiaoping, Deputy Director of Shantou 
DRC.  The region has its own cuisine, music and a dialect that is 
unintelligible to the Pearl River Delta's Cantonese speakers.  He 
told us that very few talented workers are willing to come to 
Shantou for this reason.  Other SEZ cities, such as Shenzhen, were 
able to create their own progressive business cultures from a "clean 
slate," while Shantou is pushing against generations of local 
tradition, according to Liao. 
 
¶6. (U) On the other hand, an academic contact said overseas Chinese 
with cultural ties to eastern Guangdong play an important role in 
the development process.  This was one of the reasons the city was 
initially selected as an SEZ.  Shantou claims that almost ten 
 
percent (3.35 million) of overseas Chinese come from their city, 
providing a substantial pool of investment capital and remittances 
to the local economy.  Shantou native, now Hong Kong tycoon and 
richest man in China, Li Ka Shing, donates and invests heavily in 
the city.  He funds the prominent Shantou University (China's only 
privately-funded public university), which serves as the education 
center, with a thriving journalism school, for eastern Guangdong. 
 
Learning from Past Mistakes 
--------------------------- 
 
¶7. (SBU) Lack of leadership, poor oversight, and lax enforcement of 
IPR helped stifle the city's innovation and economic growth, 
government and business contacts agree.  BOFTEC Assistant Director 
Liu pointed out that the government did not aggressively expand 
Shantou's small SEZ (initially less than one square kilometer) to 
cover the city's entire urban area until 1991, ten years after the 
initial status was granted.  In contrast, Shenzhen, Zhuhai and 
Xiamen all finished their geographic expansions within two years of 
establishment.  In addition, she highlighted lax enforcement of tax, 
IPR and other economic regulations during the 1990s as factors that 
held back Shantou's development.  Liu pointed out that a major 
government crackdown on these violations contributed to several 
years of relatively slow and even negative growth from 1999 to 2002. 
 The owner of a major glass factory in the city echoed Liu's 
comments, noting that manufacture of counterfeit goods and other 
economic crimes put the city on the wrong development track 
throughout the 1990s. 
 
¶8. (SBU) Despite these setbacks, officials remain cautiously 
optimistic.  During the past four years Shantou's economic growth 
has nearly kept pace with the province's, and for the first time in 
10 years, officials proudly pointed out the city's 2008 growth rate 
of 10.8% is on track to outpace that of both the country and the 
province. Of course, it is unclear whether city fathers have given 
much consideration to the impact of the financial crisis on this 
optimistic scenario.  (Septel will further examine the advantages 
Shantou officials and business leaders see moving forward.) 
 
Comment - The Uneven Results of Reform and Opening 
--------------------------------------------- ----- 
 
¶9. (SBU) The city of Shantou has certainly fared better economically 
than many parts of China.  But this rough-edged third-tier city 
shows that there are even parts of coastal Guangdong province with 
economic advantages like an SEZ and strong connections to overseas 
Chinese that still have not realized all the benefits of 30 years of 
reform and opening.  It's illustrative of the uneven distribution of 
prosperity that will continue to be a challenge for China's 
leaders. 
 
GOLDBERG