VZCZCXYZ0001
RR RUEHWEB

DE RUEHGZ #0724/01 3520615
ZNR UUUUU ZZH
R 170615Z DEC 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0067
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0027
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0020
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0024
RUEAIIA/CIA WASHDC 0027
RUEKJCS/DIA WASHDC 0027

UNCLAS GUANGZHOU 000724 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN ETRD EIND PGOV
SUBJECT: Shantou - Eastern Guangdong Economy Has Advantages to 
Weather Financial Crisis (Part 2 of 2) 
 
REF: A) Guangzhou 618, B) Guangzhou 715, C) Guangzhou 719, D) 
Guangzhou 723 
 
(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: Maybe our industry and government contacts in 
Shantou are dreaming but they are starting to think that perhaps 
after thirty years their time has come and the global financial 
storm won't have the same damaging impact in eastern Guangdong 
Province that it's wreaking on the export-processing centers of the 
Pearl River Delta (refs A, B and C).  They claim that their region's 
private companies own their own brands, control their own marketing 
and distribution channels, are less reliant on bank credit and are 
licensed to sell to the domestic market.  Larger firms in the region 
maintain healthy market share and report receiving more orders after 
factory closures in Dongguan.  Executives also hope their companies 
will receive government stimulus money and contracts.  However, 
local officials and executives alike acknowledge slowing export 
growth and shrinking demand and wonder aloud if local 
export-oriented manufacturers can quickly and profitably pivot to 
the domestic market. Persistent challenges such as high domestic 
shipping costs, intellectual property rights (IPR) violations, and a 
struggling export sector, might in the end, outweigh any perceived 
advantages in the current economic environment. End Summary 
 
This is the second of a two part report on Shantou.  Ref D examined 
the city's experience as one of the original special economic zones 
with 30 years of reform and opening. 
 
Private Companies Picking Up the Slack 
-------------------------------------- 
 
¶2.  (SBU) While the global financial crisis is clearly having a 
major impact on south China's economy, the impact on Shantou will be 
less severe than in Dongguan and other parts of the Pearl River 
Delta (PRD), according to Liao Xiaoping, Deputy Director of Shantou 
Development and Reform Commission (DRC).  Shantou's economy relies 
heavily on light industrial manufacturing of consumer products.  But 
the region's companies generally manufacture under their own brand 
names, many of which are licensed and with well defined distribution 
channels for the domestic market, in contrast to the original 
equipment manufacturing (OEM) model more prevalent in the PRD, which 
is export oriented. 
 
¶3. (SBU) Liu Wenhua, Assistant Director of the Bureau of Foreign 
Trade and Economic Cooperation (BOFTEC) added that manufacturers in 
eastern Guangdong are less reliant on bank credit than their 
competitors in the PRD.  She explained that in the aftermath of the 
2000 government crackdown on piracy and smuggling, banks would not 
lend and companies learned to survive by relying on 
internally-generated capital to expand operations.  As a result, 
they are not suffocating from the current credit crunch. 
 
Silver Lining in the Financial Storm 
------------------------------------ 
 
¶4. (U) Local government officials even see growth opportunities 
emerging from the crisis.  They report that several toy factories in 
Shantou's Chenghai District are receiving more orders as a result of 
the factory closings in Dongguan (ref A). Some companies also 
reported they have enough orders to fill up their production 
schedules through the first half of next year. An executive from 
Yihua Enterprises Co Ltd, Shantou's largest furniture manufacturer, 
added that, initially the company could not find sufficient (read: 
cheap) labor, but since the factory closures began in the PRD, 
finding workers has not been a problem. 
 
¶5. (U) Shantou officials have also invested significant resources 
preparing to be recipients of the provincial government's "double 
transfer" policy aimed at moving labor-intensive industries out of 
the PRD to less-developed parts of the province.  Shantou and other 
local governments in eastern Guangdong are building industrial parks 
to attract factories leaving the PRD.  The transfers may come sooner 
than they had planned.  In policy documents released last month, the 
provincial government - which despite concerns raised at the 
national level by senior officials, including Wen Jiabao, about the 
impact of factory closings on jobs, migrant workers and social 
conditions in the PRD - outlined stimulus package plans aimed at 
speeding up the transfer process by investing heavily in new 
high-tech infrastructure in the PRD.  However, Shantou officials 
caution that, because of land scarcity, they will only allow "high 
 
quality capital" to transfer to the region. 
 
Crisis Still Has a Bite 
----------------------- 
 
¶6. (U) Despite these advantages, local officials and businesses are 
clearly bracing for a downturn.  Liao said that Shantou's October 
economic indicators already show signs of slowing and is especially 
concerned about local firms producing for the export market. Based 
on BOFTEC's interviews with local exporters, orders for next year 
are dropping by as much as half.  According to Liu, several large 
foreign invested enterprises (FIEs), which make automobile parts for 
American buyers, have suffered a "severe hit" due to shrinking 
demand overseas.  Zhuang Dajian, owner of Golden Glass Co. Ltd, a 
producer of specialty and solar panel glass, reported that orders 
from Chile, Canada and the Middle East have been delayed or 
cancelled altogether (his company does not currently export to the 
United States).  Zhuang, whose company supplied glass panels for the 
Beijing "Bird's Nest" Olympic stadium, hopes to secure project 
contracts for environmental friendly railway stations using solar 
glass panel roofs, which he said would be part of the central 
government's stimulus package. 
 
Overly optimistic? 
------------------ 
 
¶7. (SBU) The companies that survived a local recession five years 
ago appear to be stronger and better suited to cope with the current 
crisis, but the region faces other disadvantages that could prove 
hard to overcome.  Zhuang says inconvenient location makes shipping 
costs too high to serve the domestic market; IPR counterfeiting 
remains a problem; and factory closures that have occurred in the 
area raise concerns about unemployment and social unrest. 
Nonetheless, officials and executives believe that the local economy 
will come out of the crisis, not unscathed, but less seriously 
wounded than the PRD's. 
 
GOLDBERG