VZCZCXRO8460
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0661/01 0720829
ZNR UUUUU ZZH
P 130829Z MAR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 2869
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BEIJING 000661 
 
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 NONFERROUS METALS INDUSTRY SUPPORT PLAN 
 
REF: (A) Beijing 151; (B) Beijing 326; (C) Beijing 425; (D) Beijing 
443; (E) Beijing 515; (F) Beijing 583; (G) Beijing 585; (H) Beijing 
592 
 
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 25 a 
nonferrous metals industry support plan, the ninth of ten plans to 
help the country's key industries.  The plan aims to control 
production volumes and support technical innovations within the 
nonferrous metals sector, which includes aluminum, copper, tin, 
lead, zinc and other metals.   An industry contact welcomed the 
plan's support for industry consolidation and establishment of 
national reserves of nonferrous metals while downplaying concerns 
about export rebates and China's "go out" policy of encouraging 
leading Chinese firms to acquire natural resources overseas.  End 
Summary. 
 
¶2. (U) The State Council approved a new support plan for the Chinese 
nonferrous metals industry on February 25 - the ninth of ten plans 
for key industries.  The plan covers aluminum, copper, tin, lead, 
zinc and other nonferrous metals.  (See reftels for reporting on 
autos, steel, textiles, machinery, shipbuilding, IT/electronics, 
petrochemicals, light industry and logistics.) 
 
¶3. (SBU) Full of generalities and lacking in details, the plan 
includes the following measures:  1) stabilize and expand domestic 
markets, improve the export environment, support high-value added 
exports, and adjust production to meet power, transportation, 
construction, machinery and light industries' demand; 2) control 
total production volume and accelerate elimination of backward 
production capacity; 3) upgrade technology and improve R&D, develop 
advanced technologies, and upgrade processing equipment; 4) promote 
mergers and improve industry concentration levels, improve 
management, work safety, and competitiveness; 5) fully utilize both 
domestic and overseas resource markets; and 6) develop recycling and 
improve comprehensive resource utilization.  The State Council also 
announced that the government would subsidize loans for upgrading 
technologies, "adjust" the VAT refund rate structure, and establish 
a national reserves mechanism. 
 
Industry Welcomes Plan's Support for Consolidation, Reserves 
--------------------------------------------- --------- 
¶4.  (SBU) The China Nonferrous Metals Industry Association drafted 
the plan, which was then reviewed and revised by the National 
Development and Reform Commission (NDRC) and approved by the State 
Council.  According to Bian Gang, Deputy Director General of the 
Association's Department of International Cooperation, the global 
financial crisis and sharp drop in prices of nonferrous metals have 
had a significant impact on China's nonferrous metals industry.  He 
said the Association, which represents more than 1000 metals 
producers, welcomed the plan's support for industry consolidation. 
The plan would help the Association's efforts to encourage producers 
to consolidate through mergers and acquisitions, forcing inefficient 
and polluting industries to leave the market and resulting in energy 
savings, reduced emissions and improved efficiency.  Bian said the 
plan to establish national reserves for nonferrous metals would 
benefit both producers and the government.  The reserves would allow 
the government to buy necessary metals when prices are low and use 
them when prices are high.  At the same time, the government 
purchase of metals for reserve would help companies facing 
overcapacity. 
 
¶5. (SBU) Regarding the government's 4 trillion yuan stimulus 
package, Bian said the nonferrous metals industry would benefit from 
increased domestic demand for infrastructure projects, though not 
nearly as much as the steel industry.  He also noted that the 
"Appliances to the Countryside" program announced as part of the 
light industry support plan (ref F) would increase demand for 
nonferrous metals used for the production of certain appliances. 
Bian downplayed concerns about "adjustments" to the VAT refund rate 
structure, arguing that the export rebate policy would only apply to 
end use products made of nonferrous metals and not to the metals 
themselves. 
 
Companies "Go out" to Acquire Overseas Resources 
--------------------------------------------- --- 
¶6. (SBU) According to Bian, the Association and the government 
encourage nonferrous metals producers to "go out" (zouchuqu) and buy 
shares of overseas resources.  However, he stressed the commercial 
nature of these activities, arguing that the government does not 
provide financial support to these activities.  In the case of 
Chinalco's proposed USD19.5 billion investment in Rio Tinto (ref H), 
Bian said the state-owned China Development Bank (CDB) supported the 
 
BEIJING 00000661  002 OF 002 
 
 
deal because the bank believed it would profit.  He noted that 
several other Chinese nonferrous metals companies - including 
Jinchuan Group, Zhongjin Lingnan Nonfemet Company, and China 
Minmetals Nonferrous Metals Company - had plans to invest overseas. 
Bian said some members of the Association had a strong interest in 
buying a U.S. silver mining company, noting the selling price of the 
company had dropped to 1/10 of the original price. 
 
Comment 
------- 
¶7. (SBU) Although the nonferrous metals industry support plan does 
not explicitly endorse the "go out" policy, its measures clearly 
suggest government support for creating internationally-competitive 
SOEs with the ability to acquire resources overseas.  In particular, 
the government's support for "promoting mergers" and "fully 
utilizing both domestic and overseas markets to ensure the supply of 
resources" will no doubt benefit large SOEs such as Chinalco.  With 
deep pockets and government backing, these SOEs will likely continue 
to seek overseas investments that take advantage of low prices and 
secure strategic resources. 
 
WEINSTEIN