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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0121
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RUEHSH/AMCONSUL SHENYANG 1654
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RUEHGH/AMCONSUL SHANGHAI 8135

UNCLAS SECTION 01 OF 04 SHANGHAI 000023 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: CH ECON EFIN ETRD PGOV SOCI
SUBJECT: SOME ECONOMIC OPTIMISM PERSISTS IN YIWU 
 
REF: 08 SHANGHAI 467 
 
¶1. (SBU) Summary:  City officials and businesspersons in the 
Zhejiang Province manufacturing and trading city of Yiwu in 
mid-December continued to express optimism that Yiwu and its 
businesses will fare comparatively better than other parts of 
Zhejiang and other parts of China during this economic downturn. 
 Despite slowing exports, officials predicted another year of 
double-digit economic growth rate for 2008.  These interlocutors 
stressed that Yiwu's nimble private sector has adjusted quickly 
and well to past economic changes and challenges, and that many 
of the goods produced or traded in Yiwu are everyday necessities 
of modest expense that many persons will need to buy in bad 
times as well as good.  Two Yiwu villages visited are themselves 
home to one hundred or more migrant farmers and home factory 
workers.  Agriculture and rural development officials say they 
have not seen signs of social instability.  End summary. 
 
¶2.  (U)  Pol/Econ Chief, Pol-coned ELO currently serving in the 
Consular Section, and Pol Assistant visited Yiwu December 15-17 
to meet with local government and Party School officials and 
examine the city's economic performance in the face of the 
global financial crisis.  Government meetings included a Vice 
Mayor, Foreign Affairs Office (FAO) officials, and officials 
from Yiwu's Employment Management and Service Bureau, 
Development and Reform Bureau, Agricultural Bureau and 
Agricultural Affairs Office.  In addition to visits to two 
relatively affluent nearby villages, we also visited two of 
Yiwu's larger manufacturers (villages and factories selected by 
the Yiwu FAO), both of whom reported production order backlogs 
but admitted they were deferring additional hiring or expansion 
plans at least until after the Lunar New Year period several 
weeks away. 
 
Attracting Migrants; Growth Slowing but Still Strong 
--------------------------------------------- ------- 
¶3. (SBU) Vice Mayor Li Xuhang, on an eighteen-month to two-year 
secondment to the Yiwu Municipal People's Government from the 
Ministry of Foreign Affairs, highlighted that Yiwu remains a 
magnet for migrant workers:  the city's total administrative 
region is home to 700,000 native residents and over 1.1 million 
migrants on long term stay (population figure for Yiwu's total 
administrative area, not just the urban area of Yiwu).  Relevant 
officials are considering abolishing the "hukou" household 
registration system that makes it difficult for long term 
migrants to receive certain social services in their place of 
residence.  Vice Mayor Li said Yiwu is in a strong position to 
weather the financial downturn because its products are for 
daily use, and the city's well-established private sector is 
accustomed to market economics.  Li noted that some Yiwu 
factories continue to hire new workers.  (Consulate visitors saw 
help-wanted signs at many retail stores, restaurants and hotels 
near their Yiwu hotel.)  He said the city's GDP growth had 
slowed to 13.5 percent in the January-October 2008 period from 
year-earlier growth rates in the high teens.  Yiwu is a diverse 
community, attracting immigrants or long-term visitors from 
other parts of Asia, the Middle East and Africa.  Li said South 
Koreans are the largest registered expatriate community in Yiwu 
but registered long-term residents hailing from such countries 
as Afghanistan, Iran, Iraq, Syria and Lebanon are as a group 
more numerous than the South Koreans. 
 
¶4. (SBU) Zhu Leming, Deputy Director of the Yiwu Development and 
Reform Bureau, said that Yiwu's full-year 2008 GDP growth rate 
will be less than the full-year 2007 growth rate of 15.7 
percent, but most assuredly remain in double digits for 2008. 
Zhu underscored that Yiwu has a record of growth and achievement 
and economic betterment for those who live and work there, 
citing resident disposable income in 2007:  Yiwu urban resident 
disposable income increased 15.9 percent in 2007 to 25,000 RMB 
(almost USD 3700) with rural residents' disposable income 
growing faster at 16.4% to 10,255 RMB (more than USD 1500). 
Local officials have enacted a number of measures to help local 
businesses throughout 2008.  In the face of a credit squeeze 
dating back to the first half of 2008, Zhu said, the local 
government has adopted measures to help resolve property deed 
problems more expeditiously so that companies can use their 
properties as collateral for low-cost loans.  Furthermore, 
merchants at the city's enormous and famous commodities fair 
year-round exhibition halls may now use their usage rights at 
the exhibition halls as collateral for loans; those with prime 
locations can borrow more against their leases than others 
tucked away on upper floors and back corners of the exhibition 
halls. New insurance products have been developed for Yiwu 
exporters to manage trade and currency risks.  The city aims to 
 
SHANGHAI 00000023  002 OF 004 
 
 
work with Yiwu manufacturers and regulatory bodies to develop 
standards for many commodities so that Yiwu manufacturers can be 
national leaders.  City officials are also working assiduously 
on fire prevention and workplace safety measures, Zhu said, 
arguing that such costs are far less than those that might be 
incurred in a workplace tragedy.  Public works construction of 
new medical facilities in Yiwu already planned through 2010, and 
potential enlargement of the Yiwu Commodity Market site and 
contemplated establishment of a furniture commodity market in 
Yiwu may also provide some degree of protection from external 
economic impacts, Zhu added. 
 
Official Unemployment Remains Low 
--------------------------------- 
¶5. (SBU) Huang Yunlong of the Yiwu Employment Management and 
Service Bureau said the global financial crisis has not had a 
large impact on Yiwu's employment rate.  Huang said Yiwu's 
current official unemployment rate is 2.7 percent, well below 
the Zhejiang provincial target of 4 percent.  He said the bureau 
had already started checking at train stations on whether many 
migrants are returning home and to gauge whether Yiwu needs to 
launch programs for returnees.  As of our mid-December meeting, 
Huang said, Yiwu has seen very few jobless migrants returning to 
Yiwu from elsewhere. 
 
Rural Development Progressing Around Yiwu 
----------------------------------------- 
¶6. (SBU) Lou Liping of the Yiwu Agriculture Bureau said the 
local government encourages rural residents to transfer land 
usage rights and that so far the process is running smoothly. 
Lou said initial results have been beneficial, showing an 
increase in the scale of production, and in increased farmer 
income and increased land usage efficiency. 
 
¶7. (SBU) Bao Xiaolong, Yiwu People's Government Agricultural 
Affairs Office (the city office responsible for agricultural 
development policy and rural infrastructure construction), said 
Yiwu has made progress in rural development.  Established in 
April 2002, the office now has 13 staff covering 800 villages in 
the city's administrative district.  With a budget of over 100 
million RMB (almost USD 15 million), Bao and his colleagues 
focus on infrastructure construction, public transport, potable 
water supply and sewage treatment systems.  Currently the 
drinking water system covers 88.5 percent of the rural areas 
surrounding Yiwu and is expected to reach 100 percent coverage 
by 2010.  Lou, Bao and accompanying FAO officials all stressed 
that Yiwu remains in a relatively strong economic situation, 
including in its rural areas, and that as of mid-December, the 
global financial crisis' impact on Yiwu's villages and rural 
conditions and employment had not been significant. 
 
¶8. (SBU) The Yiwu FAO arranged a visit to two Yiwu villages near 
the Yiwu Airport, Yannan Cun and Lizu Cun.  The former is home 
to about 800 persons and the latter to nearly 600 - with 100 or 
more migrant workers, primarily hailing from Henan, Jiangxi or 
Sichuan, additionally residing in each of those villages. 
Village chiefs and Party secretaries (several of whom admitted 
they themselves spend most of the week living and working in 
Yiwu's urban area) noted that many young adults native to the 
two villages commute to manufacturing and service jobs in the 
urban area of Yiwu, while the migrant workers tend village farm 
fields (vegetables for the city, some fruit orchards, too) or 
work in village enterprises which supply larger companies and 
merchants in the city.  Officials in Yannan Cun said a very few 
migrant workers had recently departed for their home provinces, 
with most remaining very busy in farming.  Yiwu's rapid economic 
growth clearly has brought money to these two villages.  Yannan 
Cun consists almost entirely of recently constructed apartment 
buildings and recreational facilities, with remaining original 
dilapidated housing scheduled for replacement soon.  While 
Yannan Cun has been largely rebuilt, Lizu Cun has taken the 
course of preserving and refurbishing older buildings, giving 
the village a more historical feel potentially suitable for 
tourism.  Village leaders said several neighboring villages send 
their school children to a nearby new school.  Officials and 
residents in both villages were pleased that the major tasks of 
providing paved roads, potable water supplies, electrification, 
garbage pickup and public health facilities and parks have been 
accomplished in recent years; roads were only paved in one of 
these villages in 2006. 
 
Yiwu Commodity Market:  Where "Made In China" Is 
Sold To Everywhere Else 
--------------------------------------------- --- 
 
SHANGHAI 00000023  003 OF 004 
 
 
¶9. (SBU) We made a morning visit to the Yiwu Commodity Market, 
where 62,000 or so vendors sell every conceivable household good 
in an area the size of four large airport terminals.  Customer 
traffic was not heavy that morning, but even so we encountered 
potential purchasers from China, South Asia, the Middle East, 
Europe, and the United States.  As many as 200 personnel help 
monitor the market to protect trademarks and maintain market 
order, according to an Yiwu Administration of Industry and 
Commerce official.  Exhibitors who violate IPR can be expelled 
from the Commodity Market, and purchasers who do not pay for 
their shipments as contracted may have their names and amounts 
due posted on stadium-size electronic billboards throughout the 
Commodity Market grounds.  Yiwu FAO Director Feng Meilan noted 
that Yiwu and the Yiwu Commodity Market presently fall under the 
jurisdiction of the Jinhua Customs District, but the city has 
lobbied the Central Government to establish of a Customs 
District just for Yiwu as a time- and cost-savings measure for 
traders doing business in Yiwu.  Ms. Feng expressed optimism 
that the Customs District request would be granted.  Feng 
suggested that U.S. states could arrange for up to six months of 
free exhibition space in the international section of the Yiwu 
Commodity Market, though not necessarily gratis if overlapping 
with the annual Yiwu Commodity Fair each October. 
Notwithstanding the relatively few customers we saw prowling the 
huge Yiwu Commodity Market, we passed large lines of backed up 
semi-trailers outside logistics and shipping facilities in the 
Yiwu area.  Yiwu Development and Reform Bureau's Zhu said that 
the number of containers shipped from Yiwu had increased by more 
than 20 percent in 2008 versus 2007. 
 
Frame and Sock Factories Still Filling Orders 
--------------------------------------------- 
¶10. (SBU) Managers of Huahong (www.chinaframe.com) and Mengda, 
Yiwu manufactures of frames and socks respectively, painted a 
cautiously optimistic picture of their economic position and 
prospects.  Huahong supplies frames and artwork to U.S. 
companies such as Target, CVS and Walgreens.  Mr. Ding there 
said the company began as a family business in 1998 and 
currently employs 3,900 people.  He said the company has felt 
the impact of the global financial crisis in the form of 
declining orders from its smaller customers.  Their larger 
customers are still ordering and to some extent are picking up 
the loss in volume from smaller customers.  Ding said Huahong 
will send employees to tradeshows in Las Vegas and Bologna in 
early 2009 to drum up new business, but that the company will 
wait to see how many new orders are received before deciding 
after the Lunar New Year holidays whether to hire additional 
workers.  The company is nearing completion of a new multi-story 
exhibition and sales center in Yiwu that it hopes will spur new 
sales with tourists and business visitors. 
 
¶11. (SBU) At Mengda's sock factory in Yiwu, manager Zhou Xiaoli 
explained that the company already has sufficient orders to fill 
production capacity through the first half of 2009. 
Nonetheless, the company is postponing a real estate project 
planned for a site adjacent to the Yiwu factory until the 
economic situation becomes clearer.  Mengda, a large OEM, makes 
socks for Puma, NBA, Goldtoe, and China's Ministry of Foreign 
Affairs, among others.  Mengda paid USD one million to the 
National Basketball Association in the United States for the 
rights to make and sell NBA-logo socks in China.  Zhou said 95 
percent of the company's factory workers in Yiwu are migrant 
laborers.  Workers with whom Poloff spoke originally hailed from 
Henan, Hunan and Anhui and all had been at this factory less 
than one year.  Zhou highlighted that staff turnover has 
recently become quite low, perhaps as low as 5 percent on an 
annualized basis.  The Yiwu factory has 5,600 sock knitting 
machines each capable of producing one sock every three minutes. 
 Zhou feels that Mengda is in a strong position because socks 
and underwear are not luxury goods and he expects demand for the 
company's products to remain stable. 
 
Comment 
------- 
¶12. (SBU) Mid-December attitudes in Yiwu reflect a persistent 
streak of optimism about the future and a feeling that 
industries based on goods related to everyday use remain 
well-positioned in the current economic environment.  Even so, 
signs of caution about business expansion are evident, and 
worker concerns about employment stability may be inferred from 
the sock company manager's comments about rapidly falling staff 
turnover rates.  Consulate plans to include Yiwu again in our 
travels in a few months' time to look further at developments 
there and to gauge anew how this city of competitively priced 
 
SHANGHAI 00000023  004 OF 004 
 
 
commodities is faring in the face of the global financial crisis. 
CAMP