VZCZCXRO3057
RR RUEHGH RUEHVC
DE RUEHCN #0279/01 3341719
ZNR UUUUU ZZH
R 301719Z NOV 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 3578
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4289

UNCLAS SECTION 01 OF 04 CHENGDU 000279 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG PGOV SENV CH
SUBJECT: GUIZHOU:  POOR PROVINCE GROWS FASTER THAN NATIONAL AVERAGE; 
INFRASTRUCTURE AND ENERGY INVESTMENT BRING HOPE FOR FUTURE 
 
REF: CHENGDU 253 
 
CHENGDU 00000279  001.2 OF 004 
 
 
¶1. (U) This cable contains sensitive but unclassified 
information - not for distribution on the Internet. 
 
 
 
¶2. (SBU) Introduction and Summary: Guizhou, an ethnically 
diverse province 92 percent covered by mountains, remains one of 
China's poorest.  In two recent meetings, officials from the 
Guizhou Economic and Information Department and the Guizhou 
Development and Reform Commission told Consul General that 
Guizhou had grown faster than the national average during the 
past decade, in part due to Beijing's "Great Western 
Development" strategy.  The global financial crisis only 
moderately impacted Guizhou's economy, which is less dependent 
on foreign trade, while Beijing's economic stimulus is allowing 
Guizhou to update its highway and railway infrastructure as an 
engine for future growth, and escape route from poverty. 
 
 
 
¶3. (SBU) Officials also hope to exploit Guizhou's energy sector 
to drive economic growth, but claim some national policies force 
Guizhou to subsidize the wealthy economies of the eastern 
provinces through, e.g. underpriced electricity.  Guizhou has 
been boosting energy efficiency by closing old factories, and 
seeks to shift its industrial structure to higher--tech, lower 
polluting sectors; however, it recently received a poor score 
card from the central government in meeting these goals.  End 
Introduction and Summary. 
 
 
 
 
 
Financial Crisis Reaches Guizhou With a Lag 
 
 
 
------------------------------------------- 
 
 
 
 
 
¶4. (SBU) The financial crisis was slow to reach Guizhou, with 
its 2008 provincial GDP growth of 10.2 percent exceeding the 
national average.  GDP growth was a robust 15.9 percent in the 
first quarter of 2009, but the financial crisis finally left its 
mark in the second quarter as growth fell to about five percent. 
 Guizhou's third quarter economy stabilized, with industrial 
output rising to 10.38 billion RMB in August and 10.89 billion 
RMB in September.  For the first three quarters of 2009, 
Guizhou's average GDP grew 9.9 percent, well above the national 
rate of 7.7 percent.  Guizhou has minimal foreign trade, a mere 
0.14 percent of China's total foreign trade, which explains the 
lagged and milder effects of the financial crisis.  Instead, the 
financial crisis indirectly affected Guizhou as demand fell for 
its energy and raw materials in export--oriented coastal 
provinces. 
 
 
 
Successes of the Great Western Development Strategy 
 
 
 
--------------------------------------------- ------ 
 
 
 
 
 
¶5. (SBU) The GWD strategy was implemented in 2000 in an effort 
to close the gap between the wealthier eastern coastal provinces 
and the poorer inland western provinces, and has been important 
in allowing Guizhou's GDP growth rate to outpace the national 
rate nine of the last 10 years.  As the policy approaches its 
ten--year anniversary, on January 1, 2010, a new strategy will 
be worked out for the coming decade.  Due to massive government 
investment, Guizhou has made huge improvements to its outdated 
infrastructure.  Ten years ago, Guizhou had no expressways, but 
by 2008 it had built 924 km.  All counties have now been 
connected with paved highways and 78 percent of villages have 
roads.  The policy has also emphasized ecological protection, 
improving water quality, and reforestation.  Low--yield hillside 
farms have been shut down and reforested.  The policy also seeks 
to attract foreign investment. 
 
CHENGDU 00000279  002.2 OF 004 
 
 
 
 
 
And Failures: Are Western Provinces Subsidizing the East? 
 
 
 
--------------------------------------------- ----------- 
 
 
 
 
 
¶6. (SBU) Officials expressed frustration at national policies 
that have led to what they alleged to be subsidization by 
(poorer) western provinces of China's (richer) eastern coastal 
provinces.  They cited three specific examples: 
 
 
 
a. Energy Prices: Guizhou relies heavily on its coal industry, 
ranking fifth in China in total coal output.  Due to government 
price controls, however, the price at which eastern provinces 
buy Guizhou coal is lower than the price Guizhou customers pay. 
According to a November 13 article in the "21st Economic Century 
Business Herald," Guizhou sells about 50 billion kWh of power to 
Guangdong every year.  In 2008, the sale price to Guangdong was 
fixed at 0.333 RMB per kWh, yet Guangdong could sell to its 
customers at 0.731 RMB per kWh.  Guizhou only receives about 
1.28 billion RMB in tax revenue, while Guangdong receives a 14 
billion RMB windfall profit.  This also leads to social 
pressure, as farmers are relocated due to the "Western Power 
Transmitted to the East" policy.  An official from the Guizhou 
Economic Commission has said, "Those farmers relocated due to 
power projects, they get nothing." 
 
 
 
b. Cleaner Rivers: Guizhou and other western provinces have 
spent a large amount of resources to clean up rivers flowing 
from west to east.  This has improved water quality in the 
eastern provinces, led to fewer floods, and boosted agricultural 
output, yet Guizhou receives no compensation for this benefit 
spillover. 
 
 
 
c. Fresh Water Diversion: Every year Guizhou is forced to 
provide fresh water to coastal provinces to prevent sea water 
from flowing into the eastern rivers, such as the Pearl River in 
Guangdong.  This forces Guizhou to store more water in the 
winter, reducing its agricultural output.  Officials told CG 
that Guizhou receives nothing in return, save oral thanks from 
leaders of the coastal provinces. 
 
 
 
GWDP and Post--Financial Crisis Stimulus Package 
 
Lead to Boom in Highway and Railway Infrastructure Investment 
 
 
 
--------------------------------------------- ---------------- 
 
 
 
 
 
¶7. (SBU) Guizhou is rich in natural resources and positioned to 
act as a transshipment point between parts of China and ASEAN 
countries, but had been unable to fully exploit these advantages 
largely due to poor transportation infrastructure.  Both the 
GWDP and the post--financial crisis stimulus package have given 
Guizhou the financing needed to greatly expand badly--needed 
infrastructure projects.  Despite comprising only three percent 
of China's population, Guizhou received four percent of stimulus 
funds. 
 
 
 
¶8. (U) Guizhou is currently building 600 km of expressways, with 
plans to build another 1,150 km this year, for a total of 4,000 
km by 2018.  The Shanghai--Kunming highway will pass through 
Guizhou from east--west, while the Chongqing--Beihai highway 
will cut through Guizhou from north--south.  By 2030, officials 
hope provincial capital Guiyang will be an eight--hour drive to 
the capitals of neighboring provinces.  Guizhou is currently 
 
CHENGDU 00000279  003.2 OF 004 
 
 
making huge investments in its railroads as well, which are 
crucial for shipping coal to the eastern provinces.  Guizhou is 
currently building a Guiyang--Guangzhou line, which will cut 
transportation time by about one--third.  They also plan to 
build a Guiyang--Chongqing line.  The goal is to make Guizhou a 
major transportation hub for southwest China, ultimately linking 
to ASEAN countries via Guangxi and Yunnan provinces. 
 
 
 
Importance of the Energy Sector 
 
 
 
------------------------------- 
 
 
 
 
 
¶9. (SBU) Guizhou also hopes to leverage its rich energy 
resources, particularly coal and hydroelectric, to boost future 
growth: 
 
 
 
a. Coal: With 58.7 billion tons of proven reserves, another 49.9 
billion tons easily exploited, and several hundred billion tons 
deeper underground, Guizhou is heavily reliant on its coal 
industry.  About 70 percent of Guizhou coal is high--quality, 
higher--priced anthracite.  Guizhou has thus far been able to 
keep pace with the increasing coal demand, with a 68 percent 
increase in coal output expected for the 11th five--year plan 
('06--'10) versus the previous five--year plan.  Officials 
mentioned that they are interested in coal gasification and 
liquification, but at present it is too expensive to pursue. 
 
b. Coalmine Gas: Guizhou hopes to use coalmine gas as an energy 
source.  Coalmine gas is the surrounding gas, primarily methane, 
found in coal beds.  Significant technological challenges 
remain, and rules restricting foreign investment make it 
difficult for foreign companies to acquire the necessary mining 
rights from the National Land Resource Bureau.  (Coalmine gas 
also poses a great explosion risk to miners, but recent 
regulations have imposed stricter rules on mining companies to 
pump out coalmine gas before mining activity begins (reftel).) 
 
c. Alternative Energy: Guizhou hopes to further develop the 
following alternative energies: 
 
i) Hydropower: In 2008, Guizhou increased its total hydropower 
capacity by 700,000 kW.  The total installed hydropower capacity 
stands at 7.7 million kW, over a quarter of the total electric 
capacity.  Guizhou is estimated to have about 16.83 million kW 
of hydropower reserves, and they plan to vigorously develop 
them.  Officials commented that, due to the mountainous 
topography of Guizhou, hydropower projects are easier to pursue 
than other provinces because fewer villagers must be displaced. 
 
ii) Garbage Power: Zunyi city recently built a high--tech power 
plant which burns garbage to generate power.  Guizhou is very 
interested in expanding the generation of electricity through 
garbage incineration, and claims to have studied the most 
effective technologies to minimize resulting emissions, e.g. of 
dioxins. 
 
iii) Solar: Solar energy is still being assessed for potential 
usefulness in Guizhou, which receives relatively little sunshine 
(but whose use could still be expanded in areas such as heating 
water in households). 
 
 
 
Energy Savings 
 
-------------- 
 
 
 
¶10. (SBU) Concurrent with development of its energy resources, 
Guizhou also hopes to both boost its economy through greater 
energy efficiency, and address climate change/pollution.  The 
11th 5--year plan emphasizes efforts to reduce energy 
consumption, with a specific goal of a 20 percent reduction in 
energy consumption per unit of GDP.  To realize this goal, the 
Guizhou Economic Commission established the Guizhou Energy 
Savings Office, and the Guizhou Environmental Protection Agency 
set up an Emissions Reduction Office.  Officials outlined 
 
CHENGDU 00000279  004.2 OF 004 
 
 
several energy--savings measures they are pursuing: 
 
a. Enforcement of Energy Targets: All new projects must meet the 
energy savings standards.  105 enterprises are under the direct 
supervision of the provincial government to enforce these 
targets.  All other enterprises are under the authority of city 
and county governments. 
 
b. Closings of Non--Compliant Enterprises: Typically 
non--compliant businesses are given a grace period to meet the 
new efficiency standards, or face closure.  In certain 
instances, closed factories are given economic compensation, 
such as the Kaili and Zunyi thermal power plants, but in most 
cases they are not. 
 
c. Adjusting Industrial Structures: Heavy industry such as coal, 
non--ferrous metals, and energy account for 70% of Guizhou's 
total industrial output.  Officials hope to capitalize on the 
province's natural beauty and shift the economy towards tourism 
and other service sectors.  They also hope to shift industry 
away from processing of raw materials to high--tech, lower 
energy intensity industries. 
 
¶11. (U) Despite these efforts, China's Environmental Protection 
Ministry warned November 27 that Guizhou's emissions reductions 
in the first half of 2009 had lagged behind most other provinces. 
BROWN