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RUEHUL/AMEMBASSY SEOUL 0646
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RUEHHI/AMEMBASSY HANOI 0052
RUEHGH/AMCONSUL SHANGHAI 9150

UNCLAS SECTION 01 OF 04 SHANGHAI 000019 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EINV PGOV CH
SUBJECT: OFFICIALS SAY YANGTZE RIVER DELTA PLAYS "VITAL ROLE" IN 
ECONOMIC TRANSFORMATION, BUT POOR GOVERNANCE HINDERS COOPERATION 
BETWEEN CITIES 
 
REF: A. (A) 09 SHANGHAI 492 
     ¶B. (B) 09 SHANGHAI 190 
 
(U) Sensitive but unclassified.  Not for dissemination outside 
USG channels; not for Internet distribution. 
 
 
 
Summary 
 
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¶1. (SBU) Participants in a conference organized by the Communist 
Party's Organization Department and the National Development and 
Reform Commission on economic and social development in the 
Yangtze River Delta (YRD) region observed that the 
administrative division of the region among Shanghai and its 
adjoining provinces, combined with the political imperative for 
officials to show ever increasing levels of economic output and 
fiscal revenue, undermines efforts toward market-based regional 
integration.  They also highlighted the importance of attracting 
new "talent" to the region through improvements in the YRD's 
economic and social infrastructure.  Several conference 
participants said they hope the Shanghai 2010 World Expo will 
help advance YRD integration.  Although the candor in pointing 
out the political obstacles to greater economic integration in 
the YRD impressed us, the conference's clear focus on raising 
the region's international competitiveness signaled ongoing 
adherence to an export-oriented economic strategy among the 
conference participants despite Central and local government 
pronouncements about economic transformation to reorient the 
Chinese economy toward domestic demand.  End Summary. 
 
 
 
The YRD's "Vital Role" in China's Transformation 
 
--------------------------------------------- --- 
 
 
 
¶2. (SBU) The National Development and Reform Commission (NDRC) 
and the China Executive Leadership Academy Pudong (CELAP) -- the 
Shanghai-based training institute under the Communist Party's 
Central Organization Department -- co-hosted a January 16 
conference  on "The Future of the YRD Region: Opportunities and 
Challenges" at CELAP's new branch campus in city of Kunshan, 
located in Jiangsu Province just outside Shanghai.  In addition 
to government and Party officials from around the region, 
members of Shanghai's consular foreign business community were 
invited to attend the conference. 
 
 
 
¶3. (SBU) In her keynote remarks, Shanghai Communist Party 
Municipal Committee Vice Secretary Yin Yicui characterized the 
YRD as China's "economic engine," adding that YRD integration is 
an "important priority for the Central Government."  Improving 
the region's international competitiveness in order to 
contribute to China overcoming the global financial crisis and 
simultaneously transforming the country's economic growth model 
is a "daunting task," Yin said.  (Note:  Yin ranks third in 
Shanghai's political hierarchy after Party Secretary Yu 
Zhengsheng and Mayor Han Zheng.  She is the only woman among the 
municipality's top leaders and oversees propaganda and united 
front work.  End note.)  NDRC Economy Department Director 
General Fan Hengshan said in his remarks that from the Central 
Government's perspective, the YRD plays a "vital role" in 
China's economic growth and transforming the "growth model" is a 
"historic mission" (Ref A).  Fan said the YRD contributed to 23 
percent of China's GDP and 36.7 percent of total trade volume in 
¶2009.  He rehashed the laundry list of 11th Five Year Plan 
(2006-2010) goals on narrowing the rural-urban gap, achieving 
regional balances, protecting the environment, and supporting 
innovation, stating that the YRD's growth contributes to each of 
 
SHANGHAI 00000019  002 OF 004 
 
 
these objectives. 
 
 
 
"Talent" Wanted (Foreigners [Basically] Welcome) 
 
--------------------------------------------- --- 
 
 
 
¶4. (SBU) Shanghai needs to develop an economic and social 
environment more attractive to "talent" (rencai) -- in effect, 
individuals with professional or technical credentials -- in 
order to maintain its competitive edge, stated Shanghai CPC 
Municipal Propaganda Department Deputy Director General Zong 
Ming.  Elaborating on this theme, Shanghai Academy of Social 
Sciences Human Resource Research Center Director Wang Zhen 
described Pudong's efforts to become a "special zone" for the 
attraction of foreign talent and stressed the ongoing lack of 
adequate incentives and "national treatment" for expatriates, 
such as a permanent residency system like the U.S. "green card"; 
guarantees of fair tax treatment, foreign currency conversion, 
and health insurance coverage; world-class academic and research 
"platforms"; and suitable social infrastructure (schools, 
hospitals, housing, cultural facilities and events, and natural 
environment).  Nicholas Morris of Australian firm IPA Economics 
reviewed Dubai's experience in attracting foreign talent -- 
notably the absence of income tax and the development of 
expatriate-friendly infrastructure -- had contributed to the 
principality's growth and stressed the risks of basing an 
economic strategy almost totally on external demand. 
Discussants highlighted the importance of having a strategic 
approach to human resource attraction and development and of 
creating a suitable environment, including "appropriate" 
mobility for professionals. 
 
 
 
¶5. (SBU) Zhejiang Provincial Organization Department Deputy 
Director Yao Zhiwen acknowledged Zhejiang lags Shanghai and 
Jiangsu in efforts to attract professional and skilled workers 
and indicated Zhejiang is looking to propose a cooperative 
agreement with its neighbors on human resource development. 
Zhejiang Provincial Communist Party Secretary Zhao Hongzhu has 
made developing human resources a priority, Yao noted.  In 
particular, Zhejiang has stressed improving talent employed by 
private enterprises. 
 
 
 
¶6. (SBU) Observers also commented on the contributions of 
rural-to-urban migrants in the YRD.  East China Normal 
University Professor Gao Xiangdong presented data that showed 
migrants in the Yangtze River Delta are clustered in a Z-shaped 
area bounded by the major municipalities of Nanjing, Shanghai, 
Hangzhou, and Ningbo, with most living in the suburban areas of 
these metropolises.  He believed the migrant population would 
likely increase significantly in the next 5-10 years.  Professor 
Yin Qinjian of Shanghai University of Finance and Economics 
analyzed the age structure of inhabitants in the Yangtze River 
Delta and noted the much higher social security burden on 
Shanghai than on the other jurisdictions in the region.  East 
China Normal University's Zhang added, however, despite 
Shanghai's rapidly aging population, the real social security 
problem was in the rural areas where no institutions exist to 
care for the elderly.  Discussants agreed migration to the 
region has benefitted the local economy but debated the extent 
to which administrative controls over migration needed to be 
maintained in order to avoid excessive strain on public 
resources and services. 
 
 
 
Political System Stymies Regional Cooperation 
 
--------------------------------------------- 
 
SHANGHAI 00000019  003 OF 004 
 
 
 
 
 
¶7. (SBU) However, several commentators pointed out that 
institutional deficiencies in the Communist Party's cadre 
evaluation system and competition among localities hampers the 
YRD's growth.  Jiangsu Academy of Social Sciences Vice President 
Zhang Haohan pointedly argued the current administrative 
division of the region among Shanghai, Zhejiang, and Jiangsu 
combined with the present benchmarks by which leading officials 
are evaluated -- notably GDP and fiscal revenue growth within 
their own jurisdictions -- discourages cooperation among the 
different jurisdictions that make up the YRD.  The most 
significant challenge, Zhang said, is to synthesize the various 
local political objectives into a market-based regional economic 
strategy.  The cadre performance evaluation system should be 
adjusted to encourage cooperation rather than competition and a 
mechanism should be implemented so that YRD localities could 
share the benefits of regional development, he recommended. 
Shanghai Academy of Social Sciences Urbanization Development 
Center Director Yu Hongsheng concurred with Zhang, stating that 
the 16 cities of the YRD need to improve their institutional 
cooperation.  Yu cited environmental protection as a policy area 
that demands region-wide efforts. 
 
 
 
¶8. (SBU) Agreeing with the observations by Zhang and Yu, East 
China Normal University professor Shen Yufang advocated regional 
planning to complement existing municipal development plans. 
The lack of coordination is particularly acute with regard to 
transportation networks and land use planning.  CELAP Foreign 
Affairs Director Jiang Haishan wryly noted in one session that 
"Every city in the YRD is building big ring roads, but they are 
never connected."  Fudan University Yangtze River Delta Research 
Institute Vice Director Zhang Huiming pointed out that the 
desire on the part of the authorities in Shanghai's Pudong New 
District to continue to expand industrial capacity, even as 
Shanghai moves further toward becoming a service-based economy, 
led to the recent municipal government decision to merge 
adjoining Nanhui District with Pudong. 
 
 
 
Shanghai World Expo a Mechanism for YRD Cooperation 
 
--------------------------------------------- ------ 
 
 
 
¶9. (SBU) Several conference participants said they hope the 
Shanghai 2010 World Expo will help advance YRD integration. 
Shanghai Communist Party Vice Secretary Yin Yicui expressed the 
hope the Shanghai 2010 World Expo will be a positive example of 
closer cooperation within the region (Ref B).  Xinhua News 
Agency's Jiangsu Branch Head Tian Shubin called 2010 the "Year 
of YRD Integration" because of the Expo.  Shanghai University of 
Finance and Economics professor Zhang Xueliang said the 2010 
World Expo will play an important role improving services and 
infrastructure in the YRD.  Shanghai also needs support from 
other YRD cities, Zhang noted, later adding to PolOff that 
"Shanghai can't pull off the Expo on its own -- it needs help 
from the region."  The World Expo hopefully will help local 
governments overcome their inward focus, Zhang stated. 
 
 
 
Comment 
 
------- 
 
 
 
¶10. (SBU) We heard good news and bad news at the Kunshan 
conference.  First, the candid acknowledgement by several 
conference participants from government and Communist Party 
 
SHANGHAI 00000019  004 OF 004 
 
 
institutions -- with a substantial number of foreign observers 
in the room -- that elements of China's political system are 
inhibiting regional economic growth was a refreshing bit of 
openness about a sensitive issue.  The bad news, however, was 
that discussion of optimal economic strategy for the YRD 
centered on making the region more internationally competitive 
with little attention to ways in which local firms could better 
tap China's domestic market and rely less on external demand. 
Despite all the calls from central and local leaders for 
economic transformation aimed at tapping domestic demand, the 
officials and scholars we encountered seemed uninterested in how 
to serve better Chinese consumers and very interested in making 
new inroads into markets abroad. 
CAMP