VZCZCXRO5014
RR RUEHAST RUEHDH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHSL RUEHTM
RUEHTRO
DE RUEHGZ #0496/01 2300902
ZNR UUUUU ZZH
R 180902Z AUG 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0850
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0223
RUEHBJ/AMEMBASSY BEIJING 0659
RUEHHK/AMCONSUL HONG KONG 0225
RUEHGH/AMCONSUL SHANGHAI 0161
RUEHSH/AMCONSUL SHENYANG 0171
RUEHCN/AMCONSUL CHENGDU 0160
RUEHIN/AIT TAIPEI 0171
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE 0012
RHMFIUU/HQ EPA WASHINGTON DC 0024
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0081
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0127
RHEHAAA/NSC WASHINGTON DC 0047
RUEAIIA/CIA WASHDC 0214
RUEKJCS/DIA WASHDC 0210
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 GUANGZHOU 000496 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, OES/PCI, DRL, AND EAP/PD 
STATE ALSO PASS USTR FOR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: EIND EINV ECON ETRD SENV ELTN CH
SUBJECT: Hi-Tech Zones in the Western Pearl River Delta Strive to 
Compete 
 
REF: Guangzhou 0418 
 
GUANGZHOU 00000496  001.2 OF 003 
 
 
¶1. (SBU) Summary. Guangdong province is eager to move beyond the 
labor-intensive export processing industries that have driven much 
of its growth over the last 30 years to develop hi-tech industries 
to take their place; hi-tech industrial zones are an important part 
of its development strategy and have proliferated throughout the 
Pearl River Delta (PRD).  Smaller zones in the less developed areas 
of the PRD's western bank struggle to compete with larger zones in 
Guangzhou and Shenzhen, attempting to distinguish themselves by 
offering special incentives, targeting particular industries and 
using more flexible management structures among other means.  End 
Summary. 
 
Competing With the Big Boys 
--------------------------- 
 
¶2. (SBU) Developing hi-tech industries in the Pearl River Delta 
(PRD) is one of the top economic priorities of the Guangdong 
provincial government under Party Secretary Wang Yang's "double 
transfer" policy, and hi-tech industrial zones are an important part 
of that effort.  According to the provincial government, the output 
of Guangdong's hi-tech industry totaled RMB 2.2 trillion (US$320 
billion) in 2008. Two of Guangdong's 21 municipalities, Guangzhou 
and Shenzhen, accounted for much of the output with an industrial 
output of RMB 294 billion and RMB 225 billion (US$43 billion and 
US$33 billion), respectively, in 2008.  However, the share from 
smaller hi-tech zones in the less developed western PRD were 
nonetheless consequential and growing.  The industrial output of the 
Foshan Hi-Tech Zone reached RMB 120 billion (US$18 billion) in 2008. 
 The Zhuhai Hi-tech Zone and Zhongshan Torch Development Zone had 
output of RMB 113 billion and RMB 81 billion (US$17 billion and 
US$12 billion), respectively.  Administrators of these smaller zones 
acknowledge that they are at a disadvantage in competing with the 
larger zones in Guangzhou and Shenzhen, but they have found ways to 
distinguish themselves and attract investors. 
 
Incentives - Building on Existing Benefits 
------------------------------------------ 
 
¶3. (SBU) The incentives afforded to enterprises operating in the 
west PRD hi-tech zones are similar to those available to firms the 
government labels as hi-tech enterprises elsewhere in China. 
Enterprises in the zones may have a tax rate as low as 15%.  Some 
also receive subsidies for research and development and access to 
low-cost loans.  However, some of west PRD zones have been able to 
offer additional incentives to enterprises willing to invest there. 
Qiu Shi, director of the Zhuhai Economic Development Bureau (EDB), 
explained to us that the Zhuhai Hi-tech Zone also provided an 
incubator base for small enterprises, setting them up with 
facilities, advice and up to RMB 20 million in development funds per 
year.  Incentives are not only monetary in nature, but include 
access to prime land at little or no-cost, priority access to power 
during a shortage and intangible assets, such as titles and awards 
that can raise the profile of a company.  The government through the 
zone management streamlines bureaucratic procedures and even some 
judicial matters.  Qiu noted that Zhuhai is planning to build an 
intellectual property rights (IPR) court in the zone to make it more 
attractive to firms in the information technology (IT) and software 
industries. 
 
Targeting Industries 
-------------------- 
 
¶4. (SBU) The Zhuhai EDB's Qiu explained that because the Zhuhai zone 
cannot compete with the size of the Guangzhou and Shenzhen zones, it 
focuses on specific industries, especially IT and software.  Other 
hi-tech zones in Guangdong adopt a similar approach.  According to 
Huang Jian, Deputy Director of Zhongshan Torch Development Zone 
Administration Committee, electronics, health technologies, 
packaging and printing, specialty chemicals, and automobile 
manufacturing are the Zhongshan zone's five key industries. 
 
GUANGZHOU 00000496  002.2 OF 003 
 
 
Hengquin Economic Development Zone, which is in the initial stage of 
development in Zhuhai, received approval from the State Council in 
June 2009 for developing a hi-tech area that focuses on research and 
development (R&D), IT and software, tourism and business services. 
 
A Higher Status 
--------------- 
 
¶5. (SBU) According to Huang, Zhongshan Torch Hi-Tech Zone's national 
status gives it a competitive advantage, allowing for more favorable 
polices.  Huang pointed out that the municipal government has more 
control of the revenues collected by the zone and can freely 
reinvest it to improve the zone's facilities and services. 
Zhongshan Torch Hi-Tech Zone, established in March 1990 is one of 
only four zones given the elevated status of "torch," meaning 
established by the Ministry of Science and Technology (MST), 
Guangdong Provincial Government and Zhongshan Municipal Government; 
the other three torch zones are located Weihai in Shandong province, 
Xiamen in Fujian Province and one more in Hainan Province. 
Zhongshan has a management committee composed of leaders from the 
municipal government and the party committee of the zone and is 
supervised by the municipal government.  According to Huang, 
services, resources and facilities that are available to the 
government are also accessible to the companies in the zone and are 
provided in a timely, efficient manner. 
 
Flexible Management 
------------------- 
 
¶6. (SBU) Foshan's hi-tech zone claims flexible management is one of 
its advantages.  According to Ye Weifeng, Deputy Director of the 
Foshan Hi-tech Zone Administration Committee, the Foshan zone has 
six parks that each focus on their own competitive advantages and 
develop distinguishing features for their core industries.  Ye said 
that the Foshan zone adopts an open management style with central 
coordination from the administration committee and free movement to 
manage and operate for the individual parks.  Ye contrasted Foshan's 
management style with the closed style of Guangzhou's hi-tech zone. 
 
 
Infrastructure - Increasing Connections 
--------------------------------------- 
 
¶7. (SBU) The hi-tech zones in Guangdong capitalize on their 
proximity to Hong Kong and Macau.  They also benefit from access to 
multiple airports; the Zhongshan Torch Development Zone is located 
within 100 kilometers of six major airports.  Three container ports 
along the Pearl River Delta are ranked among the top 10 in China. 
Zone administrators point out that several new infrastructure 
projects will increase the competitiveness of the smaller hi-tech 
zones on the west PRD by improving their transportation links with 
Hong Kong, Guangzhou and major transportation facilities.  These 
include the Hong Kong-Zhuhai-Macao Bridge, the Zhongshan-Shenzhen 
underwater tunnel, Guangzhou-Zhuhai rail link and the subway link 
between Guangzhou-Foshan. 
 
Environment 
----------- 
 
¶8. (SBU) Some hi-tech zones like Zhuhai and Hengqin have embraced 
sustainable development as a selling point.  In Zhuhai, pollution 
emission serves as a criterion for acceptance into the zone. 
Henqgin prides itself on its natural environment and has 
incorporated sustainable development in its master plan to maintain 
tourism and promote industry.  Hengquin also has 21 large wind 
turbines making it the second largest island wind power project in 
China. 
 
Surviving the Downturn 
---------------------- 
 
¶9. (SBU) The global economic downturn has not lead to a widespread 
 
GUANGZHOU 00000496  003.2 OF 003 
 
 
decline in the zones, which include many companies that are focused 
on China's domestic market.  Luo Mingzhao, board chairman and senior 
engineer of Foshan Henglitai Machinery Co., a ceramic tile equipment 
maker, noticed a drop in sales during the worst of the crisis, but 
said the central government's stimulus package in May 2009 has 
helped the real estate industry rebound, improving the demand for 
tiles.  Foshan Nationstar Optoelectronics General Manager Wang Sen 
told us that the downturn had affected the company to some extent in 
the first half of 2009.  But since the company is mainly doing 
business domestically, sales have recovered to 80% the previous 
level, he said. 
 
GOLDBECK