VZCZCXRO2998
RR RUEHCN RUEHVC
DE RUEHGH #0571/01 3580251
ZNR UUUUU ZZH
R 230251Z DEC 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7464
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8078

UNCLAS SECTION 01 OF 03 SHANGHAI 000571 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA/CUSHMAN AND WINSHIP 
DEPT FOR EAP/CM, INR/B, EEP/TRA/AN 
USDOC PASS BUREAU OF ECONOMIC ANALYSIS 
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA 
STATE PASS USTR FOR STRATFORD, WINTER, KATZ 
NSC FOR LOI, SHRIER 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EFIN ETRD ELAB EAIR CH
SUBJECT: SHANGHAI COFCOM DG:  SHANGHAI'S ECONOMY ON SOLID GROUND, BUT 
TRADE FALLING, CONCERNS INCREASING 
 
REF: SHANGHAI 477 
 
SHANGHAI 00000571  001.2 OF 003 
 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
¶1.  (SBU) Summary:  During a courtesy call with Shanghai 
Municipal Commission of Commerce (Shanghai COFCOM) Director 
General Sha Hailin, the Consul General discussed a wide range of 
economic and business-related issues, including Shanghai's 
response to the financial crisis, the city's long-term plans, 
concerns about foreign express delivery services, the growing 
number of business disputes involving U.S. businesses, and the 
October 23 Municipal Government restructuring.  Sha said the 
economic fundamentals of the city are still "sound," but 
import/export companies are being adversely impacted.  He added 
that it is in both sides' "mutual interest" to receive prior 
notification of any U.S.-invested factory shutdowns for reasons 
of social stability.  Shanghai is on the path to becoming a 
service-based economy, but is still unsure of its way to 
becoming an international trade center.  Sha was unaware of 
potential liabilities for foreign express delivery services 
created by the draft Postal Law; however, he would welcome more 
information on the matter.  He also noted that municipal-level 
reforms creating Shanghai COFCOM are a reflection of national 
level reforms.  End Summary. 
 
Focus on Containing Financial Crisis 
------------------------------------ 
 
¶2.  (SBU) Sha told the CG during her December 18 introductory 
meeting that the new Shanghai COFCOM's main focus is the global 
financial crisis and how to mitigate its effect on Shanghai's 
economy.  Shanghai's economic fundamentals are still healthy - 
from January through November 2008, Shanghai's contracted FDI 
was USD 17 billion and realized FDI was USD 10 billion, both 
highest on record since 1997.  The main issue now is falling 
export orders. Shanghai's exports dropped five percent from 
October to November.  Sha predicted that the first quarter of 
2009 would be "difficult" for Shanghai.  Shanghai firms 
dependent on imports and export are not only having difficulty 
with slumping business, but they are also having difficulty 
raising capital.  As a result, import/export companies are under 
pressure to lay off employees.  Sha emphasized that it is in 
"our mutual interests" for reasons of social stability and the 
reputation of companies involved for the Consulate and the 
Shanghai government to receive prior notifications of any 
production stoppages or factory closures at U.S.-invested 
companies in Shanghai.  Another difficulty Shanghai faces is 
declining tax revenue; from October to November, Shanghai tax 
revenue fell by ten percent. 
 
¶3.  (SBU) Sha said Shanghai is streamlining policies to assist 
struggling companies, in response to the financial crisis.  In 
total, Shanghai is implementing 36 measures to create a better 
business environment.  Some of the 36 policies are in the hands 
of the Central Government and cannot be changed immediately. 
However, those Shanghai can change are quickly being put into 
effect.  According to Sha, Beijing is also showing a great deal 
of interest in Shanghai's economic conditions.  In succession, 
Premier Wen Jiabao and Vice Premier Li Keqiang each recently 
visited Shanghai to study the state of the city's economy. 
Shanghai officials will also participate in a December 23 and 24 
Ministry of Commerce (MOFCOM) conference, which will outline 
2009 plans for how to deal with the economic crisis.  Sha opined 
that in the short-term, the government can and will intervene to 
help alleviate the financial crisis, but in the long-run the 
problems should be solved by the market itself. 
 
¶4.  (SBU) Shanghai is relying on three measures, Sha said, to 
deal with the crisis:  boosting trade, spurring domestic demand, 
and attracting additional investment.  To increase domestic 
demand, the property market must be stabilized.  Once 
stabilized, it will be "the most powerful driver" of domestic 
demand.  Shanghai has a number of incentives to boost its 
property market.  Other mechanisms the city is using to support 
the economy include "investments, utilities and social 
programs." 
 
Shanghai's Long-Term Priority Is to Become a "Service City" 
--------------------------------------------- -------------- 
 
 
SHANGHAI 00000571  002.2 OF 003 
 
 
¶5.  (SBU) According to Sha, Shanghai's second priority is to how 
to build the city's service-based economy.  Although this is a 
long-term priority, Shanghai will become a "service-based city." 
 While city leaders are still mindful of Shanghai's 
manufacturing sectors, such as in the automotive, petrochemical, 
shipbuilding and aircraft industries, they knows what direction 
the city's economic development should take:  services are the 
city's future.  Sha acknowledged that although Shanghai has 
already plotted paths to become a world financial and 
international shipping center, it still "does not have a clear 
path" how it will reach its goal of becoming an international 
trade center. 
 
Response on Express Delivery Service Concerns 
--------------------------------------------- 
 
¶6.  (SBU) The CG noted concerns that the draft Postal Law now 
before the National People's Congress could potentially harm 
U.S. express delivery services if enacted in its present form. 
Sha responded that he was unfamiliar with those draft 
provisions, but promised to read and reflect on the points that 
the CG provided on the issue.  Shanghai COFCOM's Deputy Director 
of the Europe and America Business Office Shen Qing interjected 
and (incorrectly) remarked that the issue is solely about 
"foreign express delivery companies trying to get involved in 
domestic delivery, which is not allowed."  The CG responded that 
the issue is complex and could affect Shanghai's business 
environment.  (Note:  The Consulate raised the issue in order to 
ensure local authorities are aware of the potential negative 
impact for U.S companies and competition in their own markets. 
East China is home to major distribution centers for both Fedex 
and UPS.  In seeking to raise the issue at higher levels, 
however, the Consulate has met some resistance.  The Shanghai 
Foreign Affairs Office rejected a mid-December request by the 
Consul General to meet Executive Vice Mayor Yang Xiong about the 
draft Postal Law, on the grounds that it would be inappropriate 
to "discuss" a draft law under consideration by the NPC.  End 
Note.) 
 
¶7.  (SBU) The Consul General also raised the issue of allowing 
express delivery company vehicles in downtown Shanghai during 
the day time.  (Note:  Shanghai, like many large cities in 
China, limits truck and commercial vehicle access to urban areas 
during the day.  Consequently,  express and small parcel 
delivery companies make urban deliveries in "passenger" cars and 
vans, not in registered commercial vehicles.  End note.)  Sha 
was interested in finding out more about the issue and appears 
genuinely eager to assist.  He would welcome more information 
about the issue from the Consulate. 
 
An Increasing Number of U.S. Business Disputes in Shanghai 
--------------------------------------------- ------------- 
 
¶8.  (SBU) The CG noted that the Consulate has been seeing an 
increasing number of business disputes involving U.S. companies 
in Shanghai, and the Consulate would like to work with the city 
to resolve the disputes early, before they become too big.  She 
also recognized that Shanghai is a leader on intellectual 
property rights protection in China and welcomed continued work 
with Shanghai on this important issue.  Sha replied that 
Shanghai is committed to "the path of reform and economic 
openness."  He added that particularly because foreign invested 
companies may feel they are in a precarious situation with the 
financial crisis, Shanghai is committed to helping foreign firms 
settle business disputes as expeditiously as possible.  Sha 
emphasized that Shanghai wants to maintain close contact with 
the U.S. business community and welcomes a friendly, frank and 
constructive dialogue with the Consulate in resolving business 
disputes. 
 
COFCOM Formation Reflects Changes in Beijing 
--------------------------------------------- - 
 
¶9.  (SBU) Sha said the local government reforms that created the 
Shanghai Municipal Commission of Commerce were a reflection of 
recent national level reforms.  (Note: Shanghai established the 
new government entity and appointed Sha as the Director General 
on October 23.  End note.)  As with the reforms at the national 
level, the municipal-level changes included consolidating some 
government functions under Shanghai COFCOM's umbrella, merging 
others into separate agencies, and abolishing of some functions 
 
SHANGHAI 00000571  003.2 OF 003 
 
 
or agencies all together.  (Reftel reports further on the 
Shanghai Municipal Government reorganization.)  According to 
Sha, these changes are necessary so that the Municipal 
Government agencies parallel the Central Government in structure 
and responsibilities.  The newly formed Shanghai COFCOM oversees 
four main functions - foreign trade, foreign direct investment 
(FDI), outbound economic cooperation, and domestic business 
development.  The Shanghai Foreign Economic Relation and Trade 
Commission (SMERT) and the Shanghai Economic Commission have 
both been absorbed into the new Shanghai COFCOM. 
CAMP