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FM AMCONSUL SHANGHAI
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INFO RHMFIUU/104MSF BARNES ANGB MA
RUEHBJ/AMEMBASSY BEIJING 3157
RUEHCN/AMCONSUL CHENGDU 2275
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0732
RUEHHK/AMCONSUL HONG KONG 2440
RUEHLO/AMEMBASSY LONDON 0043
RUEHML/AMEMBASSY MANILA 0128
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHUL/AMEMBASSY SEOUL 0600
RUEHGH/AMCONSUL SHANGHAI 9031
RUEHSH/AMCONSUL SHENYANG 2266
RUEHIN/AIT TAIPEI 2065
RUEHKO/AMEMBASSY TOKYO 0811

UNCLAS SECTION 01 OF 04 SHANGHAI 000451 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
NSC FOR LOI, SHRIER 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ/MAIN 
USDOC FOR ITA DAS KASOFF, MELCHER, SZYMANSKI, MAC/OCEA 
TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP 
TREASURY FOR IMFP -- SOBEL/CUSHMAN 
STATE PASS CEA FOR BLOCK 
STATE PASS CFTC FOR OIA/GORLICK 
MANILA FOR ADB USED 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV PREL CH
SUBJECT: ODD NUMBERS: EXPLAINING JIANGSU'S PROVINCIAL ECONOMIC DATA 
 
REF: A. A. Shanghai 444 
     ¶B. B. Shanghai 436 
     ¶C. C. Shanghai 156 
 
¶1.  (SBU) Summary:  Jiangsu Province economic growth figures do 
not add up -- provincial GDP growth is well above national 
average, while key indicators such as exports and electricity 
production have declined.  Jiangsu's reported figures also 
outshine the province's neighbors Shanghai and Zhejiang, even 
though the global financial crisis has hit exports similarly 
hard in all three jurisdictions.  Local interlocutors offer a 
variety of explanations, including shifts in the location and 
composition of manufacturing within the Yangtze River Delta 
region and the effects of an infrastructure and real estate 
boom, particularly in Jiangsu's less-developed north.  Some 
observers, however, also admit that local governments have 
padded their statistics for political reasons.  End Summary. 
 
========== 
Background 
========== 
 
¶2.  (SBU) EconOff traveled to Nanjing, the capital of Jiangsu 
Province, October 22-23 to meet with local academics, government 
researchers, and businesspersons to gauge local economic 
conditions.  Although the contacts presented is a picture of 
province-wide economic growth (ref A).  However, they also 
raised serious concerns about the accuracy and consistency of 
Jiangsu's economic data, which are described below. 
 
============================================= ======= 
Jiangsu Province Growing Faster than Neighbors . . . 
============================================= ======= 
 
¶3.  (SBU) In the first three quarters of 2009, Chinese 
statistics show that Jiangsu Province grew substantially faster 
than its two neighbors in the Yangtze River Delta, Shanghai and 
Zhejiang Province: Jiangsu rang in 11.7 percent GDP growth, 
compared with the same period the previous year, while Zhejiang 
reported its growth to be 7.7 percent and Shanghai, 7.1 percent. 
 Inland Anhui Province, which is experiencing a boost from the 
Central Government's stimulus policy (ref B), posted 12.9 
percent growth.  China as a whole claimed growth of 7.7 percent 
in the first three quarters.  The high reported growth in 
Jiangsu especially ruffles feathers in Shanghai, which is coming 
in lower than the national average for the first time since 
1991, while Jiangsu reports figures much higher than the 
national average. 
 
============================================= ============ 
. . . Even Though Exports and Electricity Output Are Weak 
============================================= ============ 
 
¶4.  (SBU) Jiangsu's relatively high reported GDP growth comes at 
a time when it faces pressures similar to Shanghai and Zhejiang 
in tumbling demand for exports.  According to China Customs 
data, in the first three quarters of 2009 exports from Jiangsu 
were down 21.7 percent over the same period in 2008, more than 
Shanghai's decline of 21.1 percent and Zhejiang's decline of 
15.1 percent.  (Comment: Trade data probably is less susceptible 
to manipulation by government officials, since it is supposed to 
reflect the movement of actual goods.  However, there are some 
problems with Chinese trade data, including phantom exports 
reported to claim value-added-tax rebates, and over- and 
under-invoicing of exports as a cover for unregistered 
cross-border capital movements.  End comment.) 
 
¶5.  (SBU) Provincial electricity production figures also 
indicate that Jiangsu industry has been facing headwinds in the 
 
SHANGHAI 00000451  002 OF 004 
 
 
wake of the global export downturn.  Chinese National Bureau of 
Statistics (NBS) data for the first three quarters of 2009 show 
that electricity production in Jiangsu is down by 2.09 percent 
compared with the same period in 2009.  The same data for 
Shanghai show a drop of 5.94 percent, and for Zhejiang a drop of 
1.1 percent.  By way of contrast, Anhui Province, with reported 
GDP growth much higher than Shanghai and Zhejiang, reported much 
more significant electricity production growth during the 
period: 19.69 percent. 
 
============================================= ================= 
Locals Claim Jiangsu Benefitting from Industry Transfer . . . 
============================================= ================= 
 
¶6.  (SBU) When presented with this seeming paradox, 
interlocutors in Nanjing offered a variety of explanations.  One 
commonly raised factor was the transfer of industrial production 
from the more coastal areas of the Yangtze River Delta (YRD) -- 
Shanghai in particular -- to Jiangsu.  Hu Guoliang, deputy 
director of the Economic Research Institute of the Jiangsu 
Academy of Social Sciences (JSASS), said that Shanghai is in a 
transition period during which industrial production as a 
portion of GDP is being downsized, while the service sector is 
being built up.  However, he said, Shanghai's services are still 
not developed enough to compensate for the drop off in 
industrial output during the global financial crisis.  Shanghai 
will hold on to a portion of its manufacturing base -- such as 
some precision instruments, chemicals, and shipbuilding -- but 
the small textile and chemical factories are moving elsewhere in 
the YRD and beyond, he said. 
 
¶7.  (SBU) Nanjing University Business School professor Shi 
Xiancheng, who has studied enterprise restructuring, agreed with 
this trend, noting as one example that Shanghai Automotive 
Industry Corp. was cutting costs by shifting parts procurement 
to Nanjing Automobile Corp.  (Note: JSASS's Hu said that 
Jiangsu's costs are 60 percent lower than Shanghai's.  See ref 
A.)  Data reported by Jiangsu Province on industrial production 
may provide support for this industrial transfer theory:  in the 
first three quarters, Jiangsu's industrial value-added output 
rose 13 percent over the same period the previous year, while in 
Shanghai it fell 1.9 percent, and in Zhejiang it rose only 3 
percent. 
 
============================ 
. . . Catch-Up Growth . . . 
============================ 
 
¶8.  (SBU) A second factor mentioned by several interlocutors is 
that Jiangsu is growing faster because it is starting from a 
lower base.  That is, Jiangsu, especially in the north, is still 
picking the low-hanging fruit of early economic development, 
such as moving labor off of overpopulated farms and into 
industrial production.  Wu Min, chief economist of the Nanjing 
Municipal Development and Reform Commission (Nanjing DRC), for 
example, said that the current spate of government and corporate 
investment is particularly effective in northern Jiangsu. 
(Note: See ref C for details on these trends in the northern 
port of Lianyungang.  End note.) 
 
¶9.  (SBU) Some contacts noted that -- as Jiangsu grows more 
prosperous --  industries there are moving up the value-added 
ladder, and are becoming more efficient and productive.  Jiangsu 
firms are becoming more likely to use higher technology and 
lower proportions of energy and raw materials, said Prof. Zhao 
Shudong, head of Nanjing University's International Economics 
Department.  In fact, these interlocutors noted that this could 
explain, in part, the province's lower electricity usage. 
 
SHANGHAI 00000451  003 OF 004 
 
 
(Comment: It is doubtful that this gradual industrial shift 
could explain the sharp divergence in the ratio of electricity 
production growth to unit of GDP growth in the first three 
quarters.  End comment.) 
 
============================================ 
. . . Industrial Development Planning . . . 
============================================ 
 
¶10.  (SBU) Government support is a third factor used by Nanjing 
contacts to explain the strong growth of Jiangsu.  Sheng Li, the 
deputy general manager of Everbright Bank's Nanjing Branch, 
noted that local governments have subsidized shipbuilding firms 
in the province, allowing them to finish off ships under 
construction even if the orders for the ships have been 
cancelled.  JSASS's Hu said Jiangsu is emphasizing development 
of ocean shipping, biopharmaceuticals, logistics, agricultural 
biotechnology, and clean energy such as wind and solar power 
(see ref A).  This may be reflected in Jiangsu's reported strong 
growth in fixed asset investment during the first three 
quarters, compared with the same period last year -- 25 percent 
-- much higher than Shanghai's 12.1 percent and Zhejiang's 13.7 
percent. 
 
============================================= ======= 
. . . And the Resulting Growth in Consumer Spending 
============================================= ======= 
 
¶11.  (SBU) Several of the Nanjing economists noted that higher 
GDP growth was feeding into higher household consumption, 
although they offered scant evidence of this.  JSASS's Hu 
pointed to a high contribution of consumption to GDP growth in 
the first three quarters, but in China's GDP reporting system 
this figure also includes government procurement (see ref A). 
NBS household survey findings also tend to discount household 
consumption as a major driver of the high reported Jiangsu 
growth compared with its neighbors.  In urban areas, Jiangsu's 
reported expenditures per capita grew 9.55 percent in the first 
three quarters, while they grew at similar rates of 7.79 percent 
in Shanghai and 8.23 percent in Zhejiang. 
 
¶12.  (SBU) Among rural households, there may be some support for 
this claim, since Jiangsu's reported cash expenditure per capita 
in rural areas grew 5.38 percent in the first three quarters, 
compared to 4.82 percent in Shanghai and 1.23 percent in 
Zhejiang.  However, the Jiangsu figure fell below the reported 
national growth in rural cash expenditures of 7.35 percent. 
Also, rural household expenditure growth rate, as with the urban 
figures, was less than Jiangsu's provincial GDP growth rate in 
the same period, suggesting that it was not a key factor in 
growth. 
 
============================================= ========== 
But Some Also Admit There is "Water" in the Statistics 
============================================= ========== 
 
¶13.  (SBU) When pressed, a few interlocutors admitted that local 
officials probably padded their statistics to look good -- 
called adding "water" (shui fen).  One senior economist passed 
this off, saying that some padding was inevitable, but what 
mattered was whether real growth was above 7 percent in order to 
maintain social stability.  An academic who has studied Jiangsu 
enterprises said that some businesses and local governments 
probably had worked together to give a false impression of 
higher economic growth in 2009.  In late 2008, he said, 
officials and firm executives realized that the economy was in a 
tailspin, and that they would not be blamed for low growth.  At 
the same time, he said, they anticipated that when the economic 
 
SHANGHAI 00000451  004 OF 004 
 
 
winds changed, they would be under pressure to show a local 
turnaround.  Thus, some began to underreport local economic 
growth, "saving" this to boost results in 2009.  Comment: This 
could help explain how industrial value-added increased while 
electricity production did not. 
 
======== 
Comment 
======== 
 
¶14.  (SBU) A visit to Nanjing reveals a striking surge in 
infrastructure and real estate construction, offering at least 
superficial confirmation that the economy is growing, even if 
only as a result of investment spending.  (Note:  Ref C also 
highlights this theme of growth led by a government-directed 
industrial and infrastructure plan in northern Jiangsu.  End 
note.)  Sidewalks and streets are being torn up for additional 
subway construction, even as some stations are being finished to 
reveal broad intersections with expensive-looking tooled-metal 
finishing touches above ground and sleek, modern subway 
entrances underneath.  One meeting brought EconOff to the newly 
established "University Town" on the city's northeastern 
outskirts, where twelve institutions of higher learning stretch 
for miles around, as observed from the top of one university's 
gleaming new 14-story administrative building. 
 
¶15.  (SBU) This economic activity supports the view of one 
contact that Jiangsu is growing sufficiently for officials in 
many localities to meet the expectations of their superiors, and 
to stave off social unrest.  But at the same time it underscores 
the lopsided nature of this growth (see also ref A).  In this 
light, the concerns about padding of economic growth figures in 
Jiangsu add further doubts about the sustainability of the 
current Jiangsu economic growth pattern.  More generally, the 
suggestions that economic data continues to be manipulated for 
political ends serve as a reminder to treat all Chinese 
statistics with skepticism. 
CAMP