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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGV/USMISSION GENEVA 0127
RHEHAAA/NSC WASHINGTON DC
RUEHPS/USMISSION OEDC PARIS FR
RUEHGH/AMCONSUL SHANGHAI 9205

UNCLAS SECTION 01 OF 03 SHANGHAI 000042 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR OASIA/INA DOHNER/HAARSAGER/WINSHIP 
DEPT FOR EAP/CM, INR 
USDOC PASS BUREAU OF ECONOMIC ANALYSIS 
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA 
STATE PASS USTR FOR STRATFORD, WINTER, KATZ 
NSC FOR LOI 
MANILA FOR USADB 
 
E.O. 12958: N/A 
TAGS: ECON ELAB PGOV EFIN ETRD EINV SENV CH
SUBJECT: ANHUI ECONOMY FLYING HIGH ON INVESTMENT-DRIVEN 
STIMULUS...FOR NOW 
 
REF: 09 SHANGHAI 436 (ANHUI'S 2009 ECONOMIC ROLLER COASTER RIDE) AND PREVIOUS 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
 
 
Summary 
 
------- 
 
 
 
¶1. (SBU) Anhui Province appears to have weathered China's early 
2009 economic downturn and one year later is reporting labor 
shortages in several sectors as a result of rapid growth. 
Observers expressed concern, however, that the province is 
enjoying only a "temporary prosperity" fueled by investment in 
heavy industry, infrastructure, and construction.  End Summary. 
 
 
 
Provincial Government Officials Optimistic on Economy 
 
--------------------------------------------- -------- 
 
 
 
¶2. (SBU) Anhui provincial government officials expressed 
optimism about the local economic situation during CongenOffs' 
January 27-28 visit to Hefei, the provincial capital.  Following 
a year and a half of ups and downs (reftel), officials stated 
that they were confident of sustained growth during 2010.  Anhui 
Provincial Foreign Affairs Office Deputy Director General Lu 
Youqin and Anhui Provincial Development and Reform Commission 
Comprehensive Economy Department Director Guo Hao both pointed 
out that the province's GDP topped RMB 1 trillion (USD 147 
billion) for the first time in 2009, making it the fourteenth 
province to reach that milestone.  GDP grew by 12 percent in 
2009 and is expected to increase by 10 percent in 2010, they 
said. 
 
 
 
¶3. (SBU) Guo attributed Anhui's success in 2009 to the strength 
of the automobile, steel, and petrochemical sectors. 
Manufacturing and construction contributed more than 50 percent 
of provincial GDP.  (Note: According to Governor Wang Sanyun's 
January 25 work report to the Provincial People's Congress, 
fixed asset investment in Anhui increased over 36 percent 
year-on-year in 2009, a rate six percentage points higher than 
the blistering 30 percent nationwide average figure.  End note.) 
 A greater number of migrant workers are staying closer to home 
to work in local factories, Guo said. He estimated that, by 
year's end, roughly two-thirds of Anhui's 11 million migrant 
workers were employed in the Yangtze River Delta (YRD: i.e., 
Shanghai and environs), in the Pearl River Delta (PRD) around 
Guangzhou, or in Beijing, with the other one-third remaining in 
Anhui.  According to Anhui Provincial Human Resources and Social 
Security Bureau Policy and Legislative Division Director Peng 
Jiahai, local government support to new investment projects -- 
as well as Central Government funding for economic stimulus 
projects -- have provided jobs at home for many migrant workers. 
 
 
 
From Layoffs to Labor Shortages in One Year 
 
------------------------------------------- 
 
SHANGHAI 00000042  002 OF 003 
 
 
 
 
 
¶4. (SBU) Prior to the Lunar New Year Holiday in 2009, there were 
grave concerns about unemployed migrant workers in Anhui, as 
many lost their jobs in other provinces and returned home early 
for the holiday without guaranteed future prospects.  With an 
economic recovery in the Yangtze River Delta and Pearl River 
Delta in the second half of 2009 as well as more job 
opportunities at home, however, Anhui faces a very different 
labor problem.  Rather than worrying about finding jobs for 
migrant workers, employers in Anhui and parts of the YRD now are 
experiencing labor shortages in some sectors.  According to 
Professor Dong Baohua of Shanghai's East China University of 
Political Science and Law, labor analysts are attempting to 
ascertain whether the shortage of low-cost labor in some sectors 
is permanent or whether shortages are merely a result of a 
highly volatile labor market over the past 18 months. 
 
 
 
¶5. (SBU) Prof. Dong supported the view of the Anhui officials 
that the increasing number of migrants working "close to home" 
is a contributing factor to the labor shortages in the YRD. 
Anhui-based industries, however, also are reporting labor 
shortages.  Anhui Academy of Social Sciences researcher Lu 
Liansheng said several industrial cities in southeastern Anhui 
-- Wuhu, Ma'anshan, and Tongling -- all are having difficulties 
finding workers. 
 
 
 
No Fears of Rural Instability in 2010... 
 
---------------------------------------- 
 
 
 
¶6. (SBU) Contrary to a year ago when Anhui's leaders were 
concerned about social unrest in the countryside because of the 
poor employment prospects for migrant workers, there is little 
fear of rural instability in 2010, our contacts said.  Anhui 
University San Nong Institute Deputy Director Zhang Deyuan said 
the Central Government's economic stimulus package and rural 
policies effectively alleviated pressure, especially in Anhui's 
poorer northern region.  For example, in northwestern Anhui's 
Fuyang Municipality, where there were serious concerns about 
instability in early 2009, the situation stabilized in the 
second half of the year and the "worst was not realized," said 
Fuyang Rural Cooperative Economy Management and Administration 
Station Director Gao Yuzhen.  According to Liu'an Municipal 
Communist Party Secretary Tang Linxiang, the view from his city 
west of Hefei is that the migrant worker unemployment problem 
may have been "overstated" in 2009. 
 
 
 
...But Long-Term Socio-Economic Concerns Remain 
 
--------------------------------------------- -- 
 
 
 
¶7. (SBU) Anhui's apparent prosperity, however, may be fragile. 
Zhang Deyuan at Anhui University told PolOff on January 28 that 
although the migrant worker employment situation is "good enough 
for now," it is "not as good as before."  While younger migrants 
returned to factory work shortly after the 2009 Lunar New Year, 
many older migrants remained at home to farm, and they are not 
 
SHANGHAI 00000042  003 OF 003 
 
 
considered in unemployment figures.  In addition, Anhui 
Provincial Academy of Social Sciences researcher Lin Fei 
characterized economic development in Anhui as "temporary 
prosperity" because consumption remains low as a share of GDP 
and "investment can't drive the economy forever." 
 
 
 
¶8. (SBU) Provincial government officials also acknowledged that, 
in an effort to attract investment, local governments have 
disregarded provisions in the Labor Contract Law (LCL) on social 
security payments to workers.  Peng Jiahai at the Bureau of 
Human Resources and Social Security said some workers have begun 
to complain about excessive overtime work -- especially at 
Taiwan and Hong Kong companies -- and local governments are not 
requiring those investors to pay social security. 
 
 
 
¶9. (SBU) Anhui also has other long-term problems.  Anhui 
University labor law professor Li Kungang said university 
graduates still are having difficulties finding good jobs in 
Anhui and housing prices are rising too rapidly.  In addition, 
environmental concerns threaten the sustainability of the 
province's development.  Local officials' focus on GDP growth 
has directly contributed to a deteriorating environmental 
situation, said "Green Anhui" (a local NGO) director Zhou Xiang, 
adding that Anhui now has two of China's five most polluted 
cities. 
 
 
 
There's Got to Be a Morning After 
 
--------------------------------- 
 
 
 
¶10. (SBU) Comment:  Anhui benefited in 2009 from the Central 
Government's economic stimulus plan, as well as from the 
continuing trend of Taiwan and Hong Kong investors relocating to 
Central China in search of lower costs.  It will be extremely 
difficult, however, to increase consumption in Anhui where rural 
and urban incomes remain 13 and 18 percent below the national 
averages, respectively.  In addition, environmental concerns are 
key in a province that already has one of China's most polluted 
rivers (the Huai).  Although the authorities' dramatic efforts 
to bolster economic growth through high rates of investment in 
the face of receding global demand succeeded, the costs of 
maintaining Anhui's "stimulus high" are likely to be 
unsustainable in the medium to long term.  End comment. 
CAMP