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### Viewing cable 06GUANGZHOU13385, The Long March: From Fossils to Feathers: Heyuan's

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06GUANGZHOU13385 | 2006-04-27 09:45 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Guangzhou

`

    VZCZCXRO6384
    RR RUEHAG RUEHCN RUEHDF RUEHGH RUEHIK RUEHLZ
    DE RUEHGZ #3385/01 1170945
    ZNR UUUUU ZZH
    R 270945Z APR 06
    FM AMCONSUL GUANGZHOU
    TO RUEHC/SECSTATE WASHDC 6663
    INFO RUEHOO/CHINA POSTS COLLECTIVE
    RUCNMEM/EU MEMBER STATES COLLECTIVE
    RUCPDOC/USDOC WASHDC
    RUEAIIA/CIA WASHDC
    RUEKJCS/DIA WASHDC
    RHHMUNA/HQ USPACOM HONOLULU HI

` `

    UNCLAS SECTION 01 OF 04 GUANGZHOU 013385

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR EB, R, EAP/CM, EAP/PD
    STATE PASS USTR - STRATFORD, CELICO
    USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE
    USPACOM FOR FPA

    E.O. 12958: N/A
    TAGS: ECON ETRD EINV CH
    SUBJECT: The Long March: From Fossils to Feathers: Heyuan's
    Bid to Take Flight

    (U) This document is sensitive but unclassified.  Please
    Protect accordingly.  Not for release outside U.S.
    Government channels.  Not for internet publication.

    ¶1. (SBU) Summary: As part of the Long March, a series of
    road journeys through the Guangzhou consular district
    (septel), we traveled to Heyuan, an impoverished prefecture
    largely untouched by the recent rapid development in South
    China.  Heyuan is bidding to draw further investment away
    from more developed regional competitors by leveraging its
    relatively unspoiled environment and abundant resources to
    offer a new, cleaner, more sustainable model for industrial
    development.  End Summary.

    Reading the Fossil Record as a Symbol of the Future
    --------------------------------------------- ------

    ¶2. (U) Heyuan, in South China's Guangdong Province, boasts
    the world's largest collection of dinosaur eggs. In a low,
    dusty building off a side road, double-sided racks stacked
    eight high and running the length of a long room contain
    more than ten thousand specimens unearthed nearby.  A
    display case in one corner holds the museum's prize
    exhibit: a fossil the curator claims is the long-sought
    missing link that proves the dinosaurs of yesteryear took
    flight and became the birds of today.

    ¶3. (U) Perhaps. Certainly it is a compelling story, one
    city fathers hope to mimic as they usher their largely
    undeveloped prefecture into a bright future.  Their vision
    is as clear as the pristine lake upon whose shores the town
    rests: entice clean, light industry and skilled labor to a
    strategically situated region blessed with clear air, cheap
    and abundant power, and almost unlimited water - a precious
    resource in modern China.  They even have a slogan: "More
    money, less hassle, better health."

    Some Damming Problems Prevent Full Economic Development
    --------------------------------------------- ----------

    ¶4. (SBU) The path to achieving that vision is less clear.
    The lake that supplies the water and the dam that supplies
    the power are both controlled at the provincial level;
    while Heyuan's leaders are tasked with protecting these
    resources, they have no say in their sale, and receive
    little of the proceeds.  Industrial infrastructure remains
    in many respects rudimentary, and until now the region has
    experienced a brain drain as talented, educated inhabitants
    move away in search of economic opportunity.

    Rising from the Mud - Heyuan's Humble Beginnings
    --------------------------------------------- ---

    ¶5. (SBU) Heyuan - a prefecture whose own vice mayor, Wu
    Youbi, describes as "backward" and "hilly" - clearly has
    some way to go to achieve prosperity.  Formed in 1988 from
    northwestern Guangdong's five poorest counties, it is a net
    importer of rice and pork even though 76 percent of the
    population live in rural areas.  The wealth of urban
    dwellers is four times that of the countryside, whereas
    nationwide that ratio is 3 to 1.  Some 20% of Heyuan's
    population have been forced to go elsewhere to find work.

    ¶6. (U) Despite relative poverty and lack of development,
    Heyuan does have some things going for it. It is
    strategically located a short distance from two of the
    mostly highly developed and economically active cities in
    China: Shenzhen, on the border with Hong Kong, and
    Guangzhou.  Despite that proximity, Heyuan's own lack of
    development has left it with plenty of room for expansion
    and abundant natural resources, including what the city's
    vice mayor calls "the last drop of clean water in Guangdong
    province."

    ¶7. (U) Heyuan's Evergreen Lake (Wan Lu Hu), formed in 1958
    when the East River (Dong Jiang) was dammed just below its
    source, covers 350 square kilometers, is up to 118 meters
    deep, and provides the largest portion of Hong Kong's
    drinking water.  When we visited the lake, it was clearly
    showing some strain from the past three years of drought.

    GUANGZHOU 00013385  002 OF 004

    The lake also supplies Shenzhen, Dongguan, Zhuhai and many
    other fast-developing Pearl River Delta (PRD) cities.
    Local leaders claim the water is clean enough to drink
    untreated.

    ¶8. (U) In the heady early days of China's rush to
    development, the charge of protecting the lake was seen as
    an unwelcome burden that often tied local leaders' hands
    and stymied their efforts to keep up with the pace of
    development around them.  Now, as neighbors like Shenzhen
    and Guangzhou struggle to provide enough clean water and
    reliable power for their burgeoning populations and
    industries, it has come to be seen as an asset that can
    help lure light industry away from those areas with the
    promise of more sustainable, ecologically viable
    development.

    Spreading Their Wings - Light Industry Takes the Lead
    --------------------------------------------- --------

    ¶9. (U) Heyuan's leaders laid out the details of the 11th
    five-year plan in a series of meetings.  Not surprisingly,
    the focus was on economic growth and industrial
    development, driven by a new High Tech Development Zone
    (HTDZ).  Project Director Li Yannan explained the rationale
    and planning for the Zone, which is nearing completion of
    the first phase of construction.  According to Li, Heyuan
    must sustain 15% growth over the next five years to meet
    its targets.  While part of this will come from developing
    mining, agriculture and tourism, the primary driver will be
    industrialization, stimulated and guided by the creation of
    the High Tech Development Zone.

    ¶10. (U) Planning for the HTDZ - which might more aptly be
    termed a "Light Industry Zone" - began in 2002.  The
    Chinese national government invested RMB 500 million (about
    USD 6.25 million), attracting additional investors from the
    mainland, Hong Kong, Taiwan, Korea, Japan, Europe and the
    United States.  Organizers claim a total of 93 companies
    have entered into contracts to invest USD 750 million.  Of
    these, 58 currently have facilities under construction in
    the zone; 38 are due to be operational by the end of this
    year, the rest in early 2007.  Hong Kong-based Long Kee, a
    maker of machine molds that employs some 10,000 people, is
    currently the zone's largest operation.  Makers of
    electronics, toys, carpets and stationary are also present.

    ¶11. (U) Roads, power, water and other infrastructure are
    nearing completion in a 6.5 sq km area of the Zone.
    Ultimately, the HTDZ is meant to cover some 40 sq km, with
    an 18.3 sq km "center."  The developers envision a mixed
    urban area of industry, housing, shopping and community
    services that will eventually support some 300,000 workers
    and contribute RMB two billion (USD 250 million) per year
    to the economy.

    Staying Green: Protecting the Water Supply Comes First
    --------------------------------------------- ---------

    ¶12. (U) The Zone is meant to address not only the benefits
    but also the unique environmental concerns raised by the
    proximity of Evergreen Lake.  Companies are held
    responsible for primary waste water treatment, but the HTDZ
    also boasts China's most advanced secondary waste water
    treatment facilities.  The provincial Environmental
    Protection Bureau (EPB) has established a 24-hour a day
    water monitoring station on site, and the zone will be
    required to maintain downstream water quality standards.
    Certain high-polluting industries, such as electroplating,
    chemical coatings, cement, ceramics and wood processing,
    will be banned entirely.

    ¶13. (U) The zone's developers believe it has a number of
    highly attractive benefits to offer industries wishing to
    expand in South China.  First is the location, on the Hong
    Kong/Beijing rail line and with highway links to major
    regional population centers.  Second is the support
    infrastructure, said to comprise waste processing, an
    extensive road network, power supplies and government
    services.  Third is a stable power supply; power from the

    GUANGZHOU 00013385  003 OF 004

    dam keeps Heyuan from exceeding national and provincial
    power grid quotas, as happens often in nearby Dongguan and
    other developing cities.  Fourth is a commitment to serving
    business on the part of the local government; new companies
    can register in less than a week, with a local
    administrator assigned to each and graded on the service he
    provides.  Lastly, developers point to a series of factors
    they say result in significantly reduced production costs:
    land is cheaper than in more developed areas, with the
    maximum price for land in Heyuan set at just 1/8th of the
    minimum price in Shenzhen; water is cheap and plentiful
    thanks to the lake; license fees are kept low; and labor
    costs are also low.  The Zone's developers say these
    factors together represent a 20-25% reduction in production
    costs relative to nearby prefectures.

    ¶14. (U) Finding qualified workers to staff these new, more
    technology-driven facilities is an issue.  Some 70% of
    workers in the HTDZ come from outside Heyuan.  While
    efforts are underway to develop a homegrown work force -
    the local technical institute recently received
    reclassification as a university, and provincial job fairs
    are being extended to the municipal level - that trend is
    likely to continue.  The Zone's developers have formed
    cooperative agreements with outside educational
    institutions; in February, they claim to have successfully
    recruited more than 23,000 workers.

    Into the Clear Blue Sky - Environment as Economic Driver
    --------------------------------------------- -----------

    ¶15. (U) Throughout meetings with Congenoffs, Heyuan's
    leaders were quick to point to their prefecture's
    relatively unspoiled environment and resources as a major
    selling point, one that sets Heyuan apart and makes it more
    attractive to light industry.  Their desire to protect the
    quality of the local water and air arises from both a
    provincial requirement to do so and a recognition that
    these resources, properly managed, can serve as an economic
    driver.

    ¶16. (U) Heyuan EPB Deputy Director Lai Zhi Gang reminds
    visitors that the prefecture contains within its borders
    87% of the East River basin, and almost half the river's
    total length.  His bureau allows only minimal tourist
    activity on Evergreen Lake, the river's headwater, and has
    banned all development along its shores.  Visitors stay in
    hotels in town, and all waste generated at the lake is
    shipped out of the area.  EPB officials have implemented
    educational programs to raise local awareness of
    environmental issues.

    ¶17. (U) Beyond that, Lai points to a three-part strategy
    intended to create a "win/win" situation in which
    industrial development and environmental protection go
    hand-in-hand.  Step one is to clean up existing sources of
    pollution: some RMB 200 million (USD 25 million)has been
    spent to clean up more than 60 sites, including a small
    pharmaceuticals manufacturing complex and a cement plant;
    30 high-polluting businesses have been shut down entirely;
    and a new wastewater treatment plant is being built.  Step
    two involves regulating new industries.  The HDTZ is
    designed to attract low-pollution, new-technology
    industries and lessen their environmental impact by
    gathering them together in a single, well-maintained area.
    All new industries are required to obtain an environmental
    impact report assuring their run-off water achieves the
    highest level (level 1) on China's industrial emissions
    scale; the standard throughout the rest of Guangdong
    province is level 2.  The final step is effective
    enforcement of environmental regulations.  Heyuan
    authorities have shut down all restaurants and hotels
    upstream of the lake and set up 24-hour a day water quality
    monitoring.  Since the city was founded in 1988, they claim
    to have refused more than RMB 20 billion (USD 2.5 billion)
    in investments deemed incompatible with environmental
    protection.

    No Farmer Left Behind:
    Heyuan's Vision of the New Socialist Countryside

    GUANGZHOU 00013385  004.2 OF 004

    --------------------------------------------- ---

    ¶18. (U) While the primary focus of Heyuan's 11th Five-year
    Plan is on developing light industry, the majority of the
    prefecture's inhabitants will continue to live a rural
    existence for the foreseeable future.  According to Li
    Yunhan, Deputy Director of the Heyuan Agriculture Bureau,
    the prefecture has designated 120 sites as pilot villages
    for developing the New Socialist Countryside called for by
    Chinese President Hu Jintao.

    ¶19. (U) Li says income in rural areas rose slightly more
    than in urban areas - 37% to 35% - over the last five
    years, though from a much lower base.  The Heyuan
    Agricultural Bureau has identified four strategies for
    developing the countryside.  The first is to shift farmers'
    emphasis from growing crops to raising livestock.  The
    second is to shift cultivation from subsistence crops to
    cash crops; the ratio is currently .82 to 1, while the goal
    is a ratio of 1 to 1.  The third is a campaign to spur
    agricultural development.  The fourth strategy is
    optimization of the economic structure of villages.  This
    will be achieved by raising incomes, building homes,
    developing infrastructure, focusing on product quality and
    safety standards, protecting villages from natural
    disasters, and promoting commoditization of rural products
    by encouraging "dragonheads."  Dragonheads are leading
    enterprises, large, cooperative organizations that help
    market and distribute farmers' products.  Heyuan farmers
    currently participate in a total of 103 dragonheads: six
    are organized at the provincial level, 23 at the prefecture
    level, and the rest are municipal.

    ¶20. (U) The ultimate goal is to improve farmer's living
    conditions, particularly in the areas of housing; drinking
    water quality and safety; domestic infrastructure, moving
    from wood ovens to gas; and waste removal, with projects to
    recycle both animal and human waste into methane that can
    be used to cook food and light and heat homes.  Health care
    is being addressed in the form of a rural insurance program
    funded 10% from participant fees, 40% from central
    government contributions, and 40% from municipal government
    contributions.  Participants will be reimbursed up to RMB
    5,000 (USD 624) for medical costs.  Prefecture leaders also
    claim to be investing some RMB 400 million (USD 50 million)
    in hospitals, renovating 41 clinics, and providing each
    village with a RMB 10,000 (USD 1,250) subsidy for a local
    medical unit.

    ¶21. (SBU) All of this takes place against the backdrop of a
    push to further urbanize Heyuan's population.  The goal for
    the next five years is to move from the current 24.3% of
    population in urban areas to 38%.  While it is not clear
    exactly how this is meant to be achieved, it appears any
    change may come more through reclassification than actual
    physical movement of populations.

    Comment: Limited by Its Role as Water Source
    --------------------------------------------

    ¶22. (SBU) Heyuan's leaders have both a clear plan for
    developing their prefecture, and a project - the HTDZ - in
    place to do so.  In fact, theirs is still a largely rural
    prefecture, and will likely continue to be for some time.
    With little revenue generated from sales of power and water
    from the local lake and dam, funding will be an issue,
    giving greater influence to those bringing in investment,
    and less to those promoting sustainability and
    environmental protection.  Providing the education and
    support necessary to help rural dwellers become industrial
    workers will also be important.  The vision is in place,
    and it's a good one, but time, wise governance and adequate
    funding will all be required to make it a reality.

    DONG

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