VZCZCXRO1302
RR RUEHCN RUEHGH
DE RUEHGH #0156/01 0970914
ZNR UUUUU ZZH
R 070914Z APR 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7804
INFO RUEHBJ/AMEMBASSY BEIJING 2669
RUEHGZ/AMCONSUL GUANGZHOU 0339
RUEHSH/AMCONSUL SHENYANG 1874
RUEHCN/AMCONSUL CHENGDU 1883
RUEHHK/AMCONSUL HONG KONG 2050
RUEHIN/AIT TAIPEI 1670
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8443

UNCLAS SECTION 01 OF 06 SHANGHAI 000156 
 
SENSITIVE 
SIPDIS 
 
STATE ALSO FOR EAP/CM, INR/EAP, EEB/TRA 
STATE PASS USTR FOR CHINA OFFICE - WINTER, WINELAND 
TRANSPORTATION ALSO FOR DAS JOEL SZABAT 
TRANSPORTATION ALSO FOR X1, X40 
TRANSPORTATION ALSO FOR OFFICE OF INTERNATIONAL AVIATION 
USDOC FOR ITA DAS KASOFF, MAC/OCEA - SZYMANSKI 
 
E.O. 12958: N/A 
TAGS: ECON EWWT EIND EFIN PGOV EAIR CH
SUBJECT: THIRTEEN PERCENT GDP GROWTH TARGET:  PORT CITY LIANYUNGANG 
SLOWING DOWN IN CHALLENGING 2009 
 
REF: A. A)  08 SHANGHAI 239 
     ¶B. B)  SHANGHAI 111 
     ¶C. C)  SHANGHAI 117 
 
¶1.  (SBU)  Summary.  Officials in Lianyungang, a major Chinese 
port in Jiangsu Province, have set their 2009 GDP growth target 
at 13 percent, a modest decrease from recent years' growth. 
Municipal Government and Party officials say that the Central 
Government and Jiangsu Provincial Government have committed to 
new infrastructure and industrial projects to foster growth in 
northern Jiangsu Province and surrounding areas and to make the 
port a locomotive for growth for seven inland provinces linked 
to the city by rail.  The city can rezone for industrial use 
land originally set aside salt fields without time-consuming, 
cumbersome Central Government approvals.  Lianyungang 
development projects include new rail and highway links, plans 
for a new international airport to be operational by 2016, new 
urban developments, and container terminal expansion and harbor 
dredging.  The city aims to attract new investments to expand 
and diversify its new energy, new materials and pharmaceutical 
industries.  The Chinese Academy of Sciences is involved in 
establishment of a new energy research center in Lianyungang, 
and an integrated gasification combustion cycle (IGCC) clean 
coal project should be soon announced, local officials said. 
The global financial crisis has had a serious impact on certain 
traditional industries in Lianyungang, but officials remain 
optimistic that those industries could be well on there way to 
recovery by summer 2009 and new projects and training for 
returned migrant workers would bode well for the city.  Still, 
at the time of Congenoffs' early March visit, construction of 
several apartment projects appeared to have stopped, while a 
shipping container manufacturer had ceased operations, putting 
its workers on subsistence wages rather than formally laying 
them off.  End summary. 
 
 
 
¶2.  (U)  Pol/Econ Chief, Econ-coned Consular Section officer and 
Economic Assistant visited Lianyungang March 2-4 to discuss 
local economic development prospects and the impact of the 
global economic downturn.  Our meetings included Lianyungang 
Party Secretary and People's Congress Chairman Wang Jianhua; 
Vice Mayor Shi Yan; Municipal Government Office Secretary Chen 
Chuang; senior officials from the Foreign Affairs Office, 
Foreign Trade and Economic Cooperation Bureau, Small and Medium 
Size Enterprise Bureau, and Lianyungang Economic and 
Technological Development Zone Management Committee; Port of 
Lianyungang staff; and senior managers at the COSCO 
(Lianyungang) Shipyard Co. (ref C).  We also met with professors 
from four local colleges and their students (hailing from as far 
away as Urumqi in China's northwestern Xinjiang Uighur 
Autonomous Region) to conduct the Consular Section's first visa 
outreach event in Lianyungang. 
 
 
 
¶3.  (U)  With a population of 4.7 million and an area of 7,444 
square kilometers, Lianyungang is comprised of three districts 
and four counties.   In 2008, Lianyungang's imports from the 
United States (USD 390 million) exceeded its exports to the 
United States (USD 311 million), due to the large volume and 
value of U.S. soybeans brought into China through the Port of 
Lianyungang, according to Liu Mingtai, Vice Director of the 
Lianyungang Foreign Trade and Economic Cooperation Bureau.  Liu 
and port officials noted that the port handled 3 million TEU 
(container movements) in 2008, making it the largest port in 
Jiangsu Province and one of the ten largest ports in China.  Ten 
container shipping lines serve the port.  The port handled$4.4 
billion in import and export trade in 2008, an increase of 36 
percent over 2007. 
 
 
 
Throttling Back to Only 13 Percent Growth Target 
--------------------------------------------- --- 
 
 
 
SHANGHAI 00000156  002 OF 006 
 
 
 
¶4.  (U)  Because of its location, assets, policy support and 
expected benefits under China's economic stimulus plans, 
Lianyungang has set a 13 percent GDP growth target for 2009, 
Municipal Government Office Secretary Chen Chuang said.  Small 
and Medium Enterprise Bureau Director General Li Jianxing 
further explained that in 2008, Lianyungang's GDP growth was 
14.8 percent, 2.3 percentage points below 2007 and below its 
2008 growth target of 15 percent.  In 2008/Q4, GDP only grew 
10.8 percent, 5.1 percentage points below the first nine month 
in 2008, mainly attributed to spillover effects from the global 
financial crisis.  While China has set itself a national `bao 
ba' (maintain eight percent) GDP growth goal for 2009, it is 
appropriate, if admittedly challenging, for Lianyungang to set 
its aim high to fulfill its assigned role as a locomotive of 
regional economic growth within China, Li said. 
 
 
 
Lianyungang's Assets:  Location and Preferential Policies 
--------------------------------------------- ------------ 
 
 
 
¶5.  (U)  Vice Mayor Shi Yan said the Central Government and 
Jiangsu Provincial Government both are placing emphasis on 
development of Lianyungang due to its location between the 
Yangtze River Delta and the Bohai Rim, and because the Port of 
Lianyungang provides access for inbound raw materials and 
outbound exports for seven Chinese provinces linked to the city 
by railroads.  Lianyungang is also the eastern terminus of the 
European-Asian Rail-Land Bridge linking Lianyungang to 
Rotterdam.  One of the most important factors for attracting 
businesses to Lianyungang, Shi and other officials emphasized, 
is that land zoned as salt fields may be converted to industrial 
use by the Municipal Government; China's land policies make land 
zoned for agricultural use much more difficult to convert 
lawfully to industrial use.  Planners and industries alike can 
envision major new initiatives in Lianyungang with some 
realistic hope of acquiring necessarily large pieces of land for 
such development with comparative ease. 
 
 
 
¶6.  (U)  Vice Mayor Shi pointed to three examples of important 
policy support to Lianyungang's economic development.  First, in 
2008, the State Council issued guiding opinions on development 
of the Yangtze River Delta, in which Lianyungang's huge economic 
potential was noted.  Development of Lianyungang will provide a 
locomotive force to development of Lianyungang and inland along 
the rail corridor to Xuzhou (also in northern Jiangsu) and on to 
Zhengzhou (in Henan), as well as along Jiangsu Province's 
coastal areas and up the Yangtze to Nantong.  Second, the 
Jiangsu Provincial Government and Jiangsu Communist Party 
Committee have held special meetings about Lianyungang's future 
development and will provide full support to Lianyungang. 
Lianyungang will be a leader in rejuvenating the economy of 
northern Jiangsu.  Third, the National Development and Reform 
Commission, in accordance with a request from the State Council, 
has established a team to plan for the development of Jiangsu's 
coast region, and Lianyungang plays the leading role in those 
plans.  Many important industries will be placed in Lianyungang 
as part of those plans.  Those plans will be formalized and put 
forward to the State Council for approval, after which the plans 
will be enacted.  Party Secretary Wang emphasized that the city 
will benefit from Central Government plans to accelerate 
Lianyungang's economic development, through infrastructure 
construction funding, and encouragement of innovation and 
advanced technology.  (Note:  Lianyungang Foreign Affairs Office 
(FAO) officials said Wang spent much of December and January in 
Beijing successfully lobbying the National Development and 
Reform Commission for inclusion of Lianyungang development 
projects in stimulus plans released later in 2009/Q1.  End 
note.) 
 
 
 
SHANGHAI 00000156  003 OF 006 
 
 
 
Future Development:  Targeted Industries and Infrastructure 
--------------------------------------------- -------------- 
 
 
 
¶7.  (U)  The city will promote investment in industries in three 
major categories in the near-term, Party Secretary Wang said, 
namely:  new materials, new energy and the pharmaceutical 
sector. While pharmaceuticals, new energy and new materials are 
the important industrial directions for the city's future 
economic development, infrastructure development projects are 
planned as well, Vice Mayor Shi elaborated.  For instance, 
construction will begin before year's end on a new berth in the 
port that will be able to handle ships of up to 300,000 dwt, and 
the Central Government will fund harbor dredging and development 
of additional container terminals.  Landfill has already been 
completed along much of the 6.2 kilometer causeway linking the 
city to a nearby island, providing improved shelter for the 
harbor and the platform on which to build those new container 
terminals.  Construction should begin in 2009 on a coastal 
railroad linking Qingdao (to the north in Shandong Province) 
through Lianyungang and Nantong on to Shanghai.  Another new 
railroad awaits approval to provide another link between 
Lianyungang and the Jiangsu provincial capital, Nanjing; the 
Vice Mayor said that construction of that future line's section 
between Lianyungang and Huai An was awaiting approval at the 
time of our March 2-4 visit. 
 
 
 
New International Airport Also Planned 
-------------------------------------- 
 
 
 
¶8.  (SBU)  Lianyungang has also been selected as the site for a 
future large international airport, the Vice Mayor and other 
officials said, with predictions that the new airport would be 
built and operational by 2016.  The airport would serve northern 
Anhui, northern Jiangsu and southern Shandong Provinces.  Party 
Secretary Wang Jianhua noted that one issue that will require a 
Beijing decision is whether the People's Liberation Army (PLA) 
Air Force will also use the planned new airport; the 
single-runway modest airport currently serving Lianyungang is a 
dual-use airport.  The current airport presently has no 
scheduled international flights, but will soon add another daily 
flight to Shanghai.  Lianyungang officials acknowledged that a 
limited number of international flights already serve the 
provincial capital, Nanjing, but downplayed the likelihood of 
significant international service expansion there in coming 
years.  They also said the airport at Wuxi, in eastern Jiangsu 
not far from Shanghai, would grow in importance in the next few 
years, but do not regard possible growth there as impeding plans 
for the international airport to be sited in or near 
Lianyungang. 
 
 
 
Continuing Urban Development 
---------------------------- 
 
 
 
¶9.  (U)  Lianyungang also has ambitious plans for a coastal city 
development area, 58 square kilometers on the north side of the 
city, which will use wetlands and reclaimed land to develop new 
residential, industrial and park areas.  That development has 
already received Central Government approval, Vice Mayor Shi 
said, and the state-owned enterprise China Communication 
Construction Corporation (owned by the Ministry of Construction 
and listed on the Hong Kong Stock Exchange) and the Jiangsu 
Provincial Government held a signing ceremony in Beijing on 
February 20, 2009 about that company's commitment to invest RMB 
20 billion in the project.  A Lianyungang FAO official 
separately commented that the urban development plans could 
 
SHANGHAI 00000156  004 OF 006 
 
 
increase Lianyungang urban population in three districts from 
the current level of 780,000 persons to one million within three 
years; about 4 million more persons reside in the four 
neighboring counties that lay within Lianyungang's 
administrative area. 
 
 
¶10.  (U)  Notwithstanding all the planned development, the city 
aims to preserve scenic beaches and mountain parks within its 
urban areas.  (Indeed, Jiangsu Province's highest point of more 
than 600 meters is in one of Lianyungang's urban districts.)  So 
the city's future aim is to be a famous coastal city, an 
important industrial port, and a location famous for sea and 
mountains, Vice Mayor Shi summarized. 
 
 
New Energy, New Materials - and Old Industries to New 
Lianyungang Facilities 
-------------------------- 
--------------------------------------------- -- 
 
 
 
¶11.  (U)  Lianyungang also has become home to a range of 
companies that manufacture blades, turbines and other parts of 
wind power windmills, Vice Mayor Shi further explained. 
Lianyungang's Donghai County is rich in silicon resources, and 
the city has already built a good foundation for development of 
materials manufacturing for composites and silicon.  Two Chinese 
pharmaceutical companies listed on the Shanghai Stock Exchange 
have large manufacturing facilities in Lianyungang, Vice Mayor 
Shi said, and he further noted that their business performance 
during the economic slowdown has remained almost unaffected, 
stating that `people still get sick, after all.'  Lianyungang is 
home to a Russian-built commercial nuclear power reactor, which 
provides the city with steady and reliable electricity supplies. 
 (FAO officials said that Russians remain the largest group of 
registered long-term foreign residents, even if the current 
airport terminal has signage in Chinese, English and Korean.)  A 
project with the support of the Chinese Academy of Sciences 
(CAS) and investments by CAS, the Jiangsu Provincial Government 
and the Lianyungang Municipal Government to establish an 
advanced technology energy and power research center in 
Lianyungang was launched in 2008.  A clean industrial park will 
be established around the research center, utilizing clean coal 
technologies with a goal of emitting no carbon.  Delegations 
from BP and General Electric have been to Lianyungang to discuss 
possible project participation (including a GE Energy delegation 
from Houston in late February 2009) in R and D and the 
industrial park.  Other officials said foreign company 
participation in a planned ICGG clean coal power plant is likely. 
 
 
 
¶12.  (U)  Further out chronologically, Shi said, Lianyungang 
hopes to build a new manmade harbor south of the current natural 
port area at which to locate petrochemical, oil refinery and 
steel industries.  (Asked whether adding to Chinese steel 
production capacity makes sense, Foreign Trade and Economic 
Cooperation Bureau Vice Director Liu Mingtai explained that the 
steel mill could target specialty steels that China does not 
produce in large quantities or replace energy-inefficient, more 
highly polluting older and smaller steel mills elsewhere.  Liu 
also pointed to Lianyungang's reliable year-round electricity 
supply from the nearby nuclear power plant and the ability to 
move large volumes of iron ore to the planned port and existing 
and future road and rail links elsewhere to move products.) 
Plans for this harbor and heavy industrial park of up to 200 
square kilometers could be completed this spring, Shi added. 
 
 
Impact of Global Financial Crisis and Responses 
--------------------------------------------- - 
 
 
¶13.  (SBU)  Despite the evidence confidence of our interlocutors 
 
SHANGHAI 00000156  005 OF 006 
 
 
about much brighter days ahead for the city, some signs of 
economic slowdown were in clear display.  Several incomplete 
high-rise apartment projects had no workers visible on two 
consecutive weekdays.  While trucks were delivering or picking 
up containers at the Port of Lianyungang when we toured the 
waterfront on March 3, there was substantial open space in the 
terminal area and not a single container ship in sight in the 
harbor (cf. ref B).  A China Shipping-affiliated container 
factory was idle, with several thousand new containers stacked 
seven-deep, higher than the factory buildings themselves, spread 
over several tens of acres.  FAO officials informed us that 
operations at the container factory had ceased several months 
earlier, and all workers have been put on basic wages (rather 
than formally laid off) to maintain social stability during the 
downturn in trade. 
 
 
 
¶14.  (SBU)  Employment - especially, coping with factory layoffs 
- remains the top priority for the municipal government.  Party 
Secretary Wang Jianhua said one hundred thousand migrant workers 
hailing from Lianyungang had returned before the Chinese New 
Year period, many of them having lost jobs elsewhere in the 
autumn and winter.  What had been a trickle of unemployed 
returnees as early as September and October became a torrent in 
the last several weeks leading up to late January's Chinese New 
Year.  Lianyungang's rapid economic development in 2008 had 
created 60,000 job openings, Wang said, and he emphasized that 
Lianyungang enterprises are now encouraged not to layoff any 
workers and further encouraged to find work for unemployed 
returned Lianyungang laborers.  Lianyungang Foreign Affairs 
Office Director General Li Ya said that local government is 
providing free training to unemployed returnees to broaden their 
basic work skills and also assisting in local job placements. 
Lianyungang Economic and Technological Development Zone Vice 
Director Wang Qiang averred that unemployed returnees also 
include some skilled workers whose talents will prove to be a 
great asset for the city's future development. 
 
 
 
¶15.  (U) Small and Medium Enterprise Bureau Director General Li 
Jianxing presented a quick synopsis of developments in specific 
industrial sectors and made a case for Lianyungang's imminent 
recovery in many of them.  Speaking on March 4, Li said 
investment had begun to pick up earlier in the first quarter of 
2009, leading to signs of recovery in the city's manufacturing 
sector.  Sector by sector, Li said Lianyungang sees that: 
 
 
 
--The pharmaceuticals sector continues to perform strongly; 
mechanical and electrical equipment manufacturers almost 
unaffected. 
 
 
 
--The textile industry was the worst hit sector in 2008, 
suffering from declining orders and higher labor costs.  In 
early 2009, however, new orders have increased slightly as 
exporters are switching their target markets from the United 
States and Europe to emerging markets. 
 
 
--Eighty percent of the mineral crystal companies in 
Lianyungang's Donghai County had closed by year-end 2008 due to 
weak external demand.  (The multicolored rocks are used for 
low-end bracelets and trinkets.)  In 2009, a few companies have 
already resumed production, but demand remains weak.  Mr. Li 
believed it would take at least until June of this year for most 
of the crystal companies to fully resume production; and surely 
some of the smaller players in this industry will ultimately 
stay closed or merge with bigger players. 
 
 
--Lianyungang's food and beverage industry mainly exports to 
 
SHANGHAI 00000156  006 OF 006 
 
 
Japan, followed by South Korea.  Despite increased raw material 
prices in 2008, sales prices declined, dampening companies' 
profitability.  Lianyungang firms lost many export orders to 
Japan due to the `poisoned dumpling scandal' in 2008. 
Lianyungang's food companies did not participate in a food 
product exhibition in Japan in 2008.  The city and companies are 
intent on participating in exhibitions in Japan in 2009 to 
rebuild sales in that important export market. 
 
 
--As of early March, Lianyungang's plywood industry was running 
at thirty percent of its production capacity.  Li said local 
plywood companies principally blamed renminbi appreciation 
against the dollar for a deterioration in their competitiveness. 
 
 
--Eighty percent of chemical products manufacturers in the 
Lianyungang area closed for periods longer than the required 
seven-day shutdown at the Chinese New Year (late January in 
2009), Li said, reflecting their lower business volumes.  Some 
companies in this sector had accumulated raw materials when oil 
prices peaked in 2008, concerned that prices may have been 
headed even higher.  These companies do not feel much incentive 
to sell to date unless selling prices allow them to recover 
their input costs.  High inventory ratios will cause cash flow 
problems in these companies.  Chinese banks have not been eager 
to lend to such companies which in retrospect are seen to have 
demonstrated such poor business judgment. 
 
 
--Metals and minerals companies in the Lianyungang area face 
some of the same problems as chemical products manufacturers. 
Some companies purchased raw materials when commodity prices 
were at their peak in 2008.  The 2008/Q4 freefall in global 
commodity prices seriously hurt these companies' profitability. 
Li asserted that nonetheless, as a whole, these companies will 
be more resilient in the economic downturn than some other 
industries. 
 
 
--Auto and auto components companies in the Lianyungang area saw 
negative sales growth last year; while the new auto industry 
revitalization plan has helped to registered modest positive 
growth year to date. 
 
 
--Local shipbuilding companies are still completing orders 
placed in 2008 or earlier, but have not received new orders 
recently.  Therefore, local shipbuilding industry worries about 
their business situation in 2010 are beginning to rise. 
 
 
 
Comment 
------ 
 
 
 
¶16.  (U)  Lianyungang officials hold ambitious development 
plans, and appear to be adroitly moving to secure stimulus plan 
funding while matching those plans to Central Government 
initiatives to facilitate interior development and development 
of innovative and advanced technologies.  A sustained global 
economic downturn would likely call into question the 
development timelines envisioned by these officials, as a 
principal component of the local and regional economy, the Port 
of Lianyungang, has suffered a serious downturn in throughput. 
CAMP