VZCZCXRO1739
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0583/01 0650914
ZNR UUUUU ZZH
O 060914Z MAR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2722
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 BEIJING 000583 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD, WINTER, MCCARTIN, READE, 
VENKATARAMAN, KEMP, MILLER, MALMROSE 
DOC FOR MELCHER, SAUNDERS; LORENTZEN AND SHOWERS (5130); HEIZNEN 
(6510) 
 
E.O. 12958:  N/A 
TAGS: ECON EWWT EIND ETRD CH
SUBJECT: CHINA ANNOUNCES LIGHT INDUSTRY SUPPORT PLAN 
 
REF: (A) Beijing 151; (B) Beijing 326; (C) Beijing 425; (D) Beijing 
443; (E) Beijing 515 
 
This cable is Sensitive But Unclassified (SBU) and for official use 
only.  Not for transmission outside USG channels. 
 
¶1. (SBU) SUMMARY:  China's State Council announced on February 19 a 
light industry support plan, the seventh of ten plans to help the 
country's key industries.  Like the other plans, the light industry 
support plan seeks to promote domestic consumption and encourage 
industry consolidation.  The plan also aims to expand a program that 
subsidizes farmers' purchase of home appliances in a bid to boost 
consumption in rural areas and help the industry offset a decline in 
exports.  A Chinese media report raises concerns about possible 
protectionist measures.  A contact at China's largest white goods 
manufacturer said the company is well-positioned to take advantage 
of the program.  End Summary. 
 
¶2. (U) The State Council approved a new support plan for Chinese 
light industry on February 19 - the seventh of ten plans for key 
industries.  (See reftels for reporting on autos, steel, textiles, 
machinery, shipbuilding and IT/electronics.  As with the other 
industrial revitalization plans, the announcement listed only very 
broad, vague measures:  1) expand consumption in the cities and 
rural areas, increase domestic supply of quality products, improve 
services (such as logistics and legal services) to benefit foreign 
trade, and maintain export market share; 2) promote domestic 
equipment and key technology production, establish an industry exit 
mechanism, promote energy saving and environmental protection, and 
speed up technology improvement in the paper, home appliance, and 
plastic industries; 3) strengthen food safety regulation, improve 
the food processing industry, raise market-entry criteria, 
strengthen the recall and license revocation system, and increase 
penalties for making and selling counterfeit and low-quality 
products; 4) promote proprietary brands, support mergers and 
acquisitions by strong brands, and encourage industry consolidation; 
5) strengthen industrial policy guidance; and 6) improve the quality 
of corporate management and products in the light industry. 
 
¶3. (SBU) According to the announcement, a key aspect of the plan is 
to expand the "Appliances to the Countryside" program, which offers 
farmers 13 percent subsidies to buy TVs, refrigerators, washing 
machines, mobile phones, microwave ovens and induction cookers. 
Since its trial launch in December 2007, the program has produced 
obvious results, having sold over 3.5 million units of subsidized 
products to farmers by the end of October 2008.  Compared with 2007, 
sales of home appliances increased in 2008 by 40 percent 
year-on-year.  The campaign aims to sell 480 million units of 
appliances to farmers and boost domestic consumption by RMB920 
billion in four years. 
¶4. (U) Five provinces (Anhui, Hubei, Jiangxi, Sichuan and Zhejiang) 
and the cities of Beijing, Tianjin, Shanghai announced March 5 the 
list of companies that are eligible to sell air conditioners, 
computers and gas water heaters through the "Appliances to the 
Countryside" program.  The list of eligible companies includes the 
following Chinese firms and foreign companies:  Gree, Midea, Haier, 
Galanz, LG and Panasonic for air conditioners; Lenovo, Tongfang PC, 
TCL, Founder, Haier, Dell, Acer and HP for computers; and Midea, 
Rongseng, Haier, Royalster, Macra, and Chiffo for gas water heaters. 
 
 
Media Report Suggests Worrisome Details 
--------------------------------------------- --- 
¶5. (U) The State Council is expected to announce details of this and 
other industry support plans later this month.  However, the 
well-respected Chinese financial newspaper Shanghai Security news, 
quoting "an authoritative source," said the plan would reduce the 
consumption tax on alcohol, cosmetics, expensive jewelry, and 
high-end watches; eliminate the personal income tax for lower-income 
Chinese; raise the VAT rebate on 631 export-orientated products, 
including home appliances, furniture, leather, and hardware 
products.   More worrisome, the article also stated that China will 
raise tariffs on high-end consumer products and "encourage" the 
purchase of Chinese-made products for major national projects and 
government procurement. 
 
¶6. (SBU) In a February 17 meeting with EconOff, Chinese Academy of 
Social Sciences (CASS) Institute of Industrial Economics Researcher 
Lu Tie downplayed concerns about protectionist measures, arguing 
that the plan included "no obvious signs of trade protectionism." 
He said protectionist measures were unnecessary because China's 
light industry products were highly competitive in international 
markets.  However, Lu said China would raise tariffs on luxury 
consumer goods, noting the tariff rate would still be lower than 
China's WTO bound rates. 
 
BEIJING 00000583  002 OF 002 
 
 
 
Chinese Manufacturer Haier the Big Winner 
---------------------------------------- 
¶7. (SBU) One of the big winners of the light industry support plan 
is China's largest white goods manufacturer, Haier.  Li Pan, General 
Manager of Haier's Overseas Administrative Department, told EconOff 
February 26 that the company had USD70.50 billion of sales in 2008, 
an 8.9 percent increase over 2007.  The company, based in the 
coastal city of Qingdao in Shandong Province, has been hit by 
slowing exports since October 2008 but still predicts "high 
single-digit growth" in 2009, according to Li.  One reason for the 
company's relatively optimistic prediction is the above-mentioned 
"Appliances to the Countryside" program, which applies to many of 
Haier's best-selling products.  Li said that, although all appliance 
makers could take advantage of the program, Haier was in the best 
position to benefit.  He credited the company's focus on innovation, 
arguing that Haier had researched rural customers and designed 
products to meet their demands.  He claimed that Haier was not 
involved in the formulation of the industry support plan. 
 
¶8. (SBU) However, an executive at Haier told EconOff in a separate 
meeting that the "Appliances to the Countryside" program was 
"basically a Haier program."  He said the program was successfully 
trialed in Shandong Province in 2008.  During the first round, 43 
percent of appliance sales were Haier products.  In the last three 
years, Haier has established 7000 Haier brand shops in small towns 
throughout China.  The Haier executive said this network of brand 
shops and prior experience with the "Appliances to the Countryside" 
program put the company in a prime position to benefit from the 
newly-expanded program.  He suggested foreign companies could best 
benefit from the program by partnering with Chinese companies such 
as Haier and "piggy-backing" on their distribution network. 
 
Comment 
------- 
¶9. (SBU) The State Council's light industry support plan offers 
general principles and guidance but few details on measures to be 
implemented.  The Shanghai Security News report raises concerns 
about possible protectionist measures.  In particular, the possible 
tariff increase on high-end consumer goods and encouragement to "Buy 
China," if implemented, would appear inconsistent with the spirit of 
China's G20 pledge not to raise new protectionist barriers. 
However, China has frequently used WTO-inconsistency as its standard 
for defining protectionism.  As a non-participant in the WTO's 
Government Procurement Agreement, China is unlikely to violate any 
WTO rules in that area.  Assuming China stays within its tariff 
bindings for luxury goods, its actions there may be WTO-consistent 
as well.  Although foreign firms are eligible to sell their products 
through the "Appliances to the Countryside" program, the program 
sets upper limits on the price for appliances, functionally 
preventing any but the very lowest-price imports from competing. 
Regardless of the soon-to-be-announced details of the plan, the 
program will mainly benefit large Chinese enterprises such as Haier 
that are already well-positioned to sell to the Chinese domestic 
consumer and to take advantage of the government's support 
measures.