VZCZCXRO0346
RR RUEHCN RUEHVC
DE RUEHGH #0057/01 0330348
ZNR UUUUU ZZH
R 020348Z FEB 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7583
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8213

UNCLAS SECTION 01 OF 03 SHANGHAI 000057 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA/HAARSAGER 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 PREL KIPR CH
SUBJECT: ZHEJIANG ECONOMIC ENGINE STILL MOVING, BUT TRADE SECTOR 
STRUGGLING 
 
REF: A) 08 SHANGHAI 521, B) SHANGHAI 23, C) 08 SHANGHAI 550 
 
SHANGHAI 00000057  001.2 OF 003 
 
 
¶1.  (SBU) Summary:  Zhejiang provincial officials remain upbeat 
on their largely private sector economy but acknowledged the 
growth rate is slowing.  The province's 2008 GDP grew roughly 10 
percent over 2007, and total exports and imports for 2008 were 
up 19.4 percent.  When introducing economic targets for 2009, 
provincial officials said they still are committed to a strategy 
of "making the province strong through innovation and the people 
rich by fostering entrepreneurship" despite the economic 
slowdown.  In contrast, Zhejiang Foreign Affairs Office (FAO) 
officials injected a bit of realism into the province's trade 
figures, noting that newly signed orders for goods have 
decreased by about 39 percent since the beginning of the global 
economic downturn.  Separately, China Council for the Promotion 
of International Trade (CCPIT) Zhejiang Sub-council leadership 
said that many trade-oriented enterprises in the province are 
floundering, but FDI is relatively unaffected.  End summary. 
 
Zhejiang Officials on 2008 Economic Data 
---------------------------------------- 
 
¶2.  (SBU) During a January 12 work report for foreign consulates 
in Shanghai, Zhejiang officials provided a relatively rosy 
report on the state of the province's economy.  In 2008, GDP was 
roughly RMB 2.1 trillion (USD 308 billion), a 10 percent 
increase over 2007.  Zhejiang's GDP accounts for roughly 9 
percent of China's total GDP.  Zhejiang has the fourth largest 
provincial GDP, behind Guangdong, Shandong and Jiangsu.  Total 
fiscal revenue growth was 15 percent.  Per capita disposable 
income of urban residents was RMB 22,727 (USD 3,340) and 
disposable income for rural residents was RMB 9,258 (USD 1,360), 
which represent a real increase of 5.4 percent and 6.2 percent 
respectively.  Zhejiang's inflation rate for 2008 was 5 percent, 
and there were approximately 740,000 new jobs created in urban 
areas.  Registered unemployment in urban areas was 3.5 percent, 
which represented the first rise in unemployment in the province 
in over 5 years.  (In 2007, the unemployment rate was 3.2.) 
Government expenditure on R&D as a percentage of GDP was 1.6 
percent. 
 
Trade and FDI Still Growing 
--------------------------- 
 
¶3.  (SBU) Zhejiang officials reported that the province has 
direct trade links with more than 230 countries and regions of 
the world.  Total exports and imports for 2008 were USD 211.17 
billion, up 19.4 percent from 2007.  Private enterprises are 
responsible for more than 70 percent of the province's exports. 
Foreign direct investment currently "in use" in the province 
amounts to USD 10.1 billion, and Zhejiang remains the fourth 
largest recipient of FDI in China.  The number of approved 
foreign-invested companies doing business in Zhejiang totaled 
42,000; among them 210 are Fortune 500 companies.  According to 
the Zhejiang work report, the province is also the source of 18 
of China's 50 "most independently innovative private 
enterprises." 
 
Optimistic Targets for 2009 
--------------------------- 
 
¶4.  (SBU) During the work report and in a subsequent media 
release, Zhejiang outlined its plan for handling the economic 
crisis.  Zhejiang officials said the province's overarching goal 
remains "making the province strong through innovation and the 
people rich by fostering entrepreneurship" by addressing the 
"root causes of current problems and maintaining stability while 
promoting coordination."  For 2009, the province has set the 
following targets:  GDP growth of approximately 9 percent, local 
fiscal revenue growth of 6 percent, growth of per capita 
disposable income of urban residents and per capita disposable 
income for rural residents roughly 7 percent, inflation less 
than 4 percent, 600,000 new jobs in urban areas, less than 4 
percent unemployment in urban areas, population growth less than 
6 percent, and support for R&D equal to 1.7 percent of GDP. 
 
FAO Injects a Bit of Realism 
---------------------------- 
 
¶5.  (SBU) During a separate meeting with congenoffs on January 
12, Zhejiang Foreign Affairs Office (FAO) Deputy Director Yu 
Siba recited the same GDP and trade figures; however, on trade 
 
SHANGHAI 00000057  002.2 OF 003 
 
 
numbers, he said that the majority of exports were from old 
orders.  Newly signed orders have decreased by about 39 percent 
since the beginning of the global economic downturn.  He also 
noted that the Central Government promised to spend roughly RMB 
4 trillion to boost the economy, but the Central Government is 
actually only disbursing RMB 1.18 trillion.  Local and 
provincial governments will provide the remaining amount.  In 
comparison with Guangdong, Yu said Zhejiang is not as reliant on 
foreign trade, but the private sector makes up a bigger slice of 
the economy.  In Zhejiang, private companies accounted for 70 
percent of the economic volume, 50 percent of GDP, 90 percent of 
total employment and 70 percent of total profit. 
 
¶6.  (SBU) Yu added that the Chinese Government is paying 
particular attention to the plight of farmers, and noted a 
recent push to provide more equipment to the countryside.  The 
Zhejiang Government is also concerned about rising unemployment 
and is closely monitoring factory closings and dismissal of 
employees.  Companies are now required to report all lay-offs; 
however, if employee is released at the end of his or her 
contract, there is no need to report (ref A). 
 
Zhejiang CCPIT Says Provincial Exports Are Suffering 
--------------------------------------------- ------- 
 
¶7.  (SBU) Tie Jianshe, Chairman of the Zhejiang Chamber of 
Commerce and China Council for the Promotion of International 
Trade (CCPIT) Zhejiang Sub-council, also discussed the effect of 
the global economic crisis on Zhejiang and the province's 
response.  (Note:  Zhejiang CCPIT is the largest foreign trade 
organization in the province and is made up of a large 
networking system that includes representatives from every city 
and municipality.  In total there are roughly 10,000 members.) 
Tie said that Zhejiang export sector is suffering greatly and 
cited his recent visit to Yiwu, home to China's largest "small 
commodities" market.  Suppliers there told him that orders have 
dropped drastically in recent months.  (Comment:  During a 
December visit, Yiwu officials had expressed optimism about the 
Yiwu economy. (ref B). End comment.)   According to Tie, the 
United States is Zhejiang's largest and most important trading 
partner.  As such, its exports have been most affected by the 
U.S. downturn. 
 
¶8.  (SBU) He added that the Zhejiang Government is actively 
engaged on how the province can "survive the economic winter." 
The Provincial Government plans to invest RMB 40-50 million (USD 
5.8 to 7.2 million) as part of an economic stimulus package, 
mostly in infrastructure projects such as high speed rail and 
highway expansion.  Tie projected that Zhejiang would be 
entirely linked by high speed rail within three years, reducing 
the maximum time required to travel between any two points in 
the province from four hours to three. 
 
¶9.  (SBU) In addition to increased investment in infrastructure, 
the province is responding by asking banks to give more loans to 
SMEs.  According to Tie, Zhejiang foresaw the economic crisis at 
an early stage and had already requested and been approved for a 
RMB 14 to 15 billion (USD 2.03 to 2.17 billion) aid package from 
the Central Government.  The money is being injected into local 
banks to encourage lending to SMEs.  He said the real problem 
lies with local private sector firms that expanded too quickly 
and racked up unsustainable debt.  As a result, it is difficult 
for them to get new loans.  Local governments and business 
associations are also stepping in to help.  As for U.S. 
investment in the province, nothing has changed according to 
Tie.  There has not been any withdrawal of FDI, and investment 
levels continue at a normal level. 
 
Comment: Why Zhejiang's Growth Matters 
-------------------------------------- 
 
¶10.  (SBU) Excluding Beijing, Shanghai and Tianjin, Zhejiang has 
the highest GDP per capita in China. Those are all cities; but 
earlier you say it has the fourth hightest provincial GDP.  What 
is remarkable about Zhejiang's wealth is that it was recently 
acquired and it has largely been built by private 
entrepreneurship, mostly small and medium sized enterprises. 
And unlike its neighbors Shanghai and Jiangsu, the Zhejiang 
Government has largely subscribed to a laissez-faire economic 
model.  As result of its bottom-up entrepreneurial society, 
Zhejiang has achieved one of the highest per capita household 
 
SHANGHAI 00000057  003.2 OF 003 
 
 
incomes in China.  However, Zhejiang has also been relatively 
hard hit by the economic downturn.  Zhejiang's numerous small 
and medium size enterprises, many of which are dependent on 
exports, have been folding at a rapid clip.  Unlike its 
neighbors, Zhejiang has been less able to reduce the bite of 
unemployment by ensuring state-owned enterprises stay afloat. 
For this reason, Zhejiang has injected a large amount of its 
stimulus package into local banks to encourage lending to SMEs 
(ref C).  China's officials will undoubtedly watch closely how 
these measures take effect - and how Zhejiang's alternative, 
bottom-up economic model continues to perform. 
CAMP