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### Viewing cable 07BEIJING3719, WESTERN CHINA'S ECONOMY CONTINUES TO LAG BEHIND COAST

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07BEIJING3719 | 2007-06-04 06:41 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Beijing

`

    VZCZCXRO3983
    PP RUEHCN RUEHGH RUEHVC
    DE RUEHBJ #3719/01 1550641
    ZNR UUUUU ZZH
    P 040641Z JUN 07
    FM AMEMBASSY BEIJING
    TO RUEHC/SECSTATE WASHDC PRIORITY 8557
    INFO RUEHOO/CHINA POSTS COLLECTIVE
    RUEATRS/DEPT OF TREASURY WASHDC
    RUCPDOC/USDOC WASHDC
    RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
    RUEHC/DEPT OF LABOR WASHDC
    RHEHNSC/NSC WASHDC

` `

    UNCLAS SECTION 01 OF 02 BEIJING 003719

    SIPDIS

    SENSITIVE
    SIPDIS

    STATE FOR EAP/CM, INR/B
    TREASURY FOR OASIA/ISA CUSHMAN
    LABOR FOR ILAB
    USDOC FOR ITA/MAC/OCEA MCQUEEN

    E.O. 12958:  N/A
    TAGS: ECON EINV ELAB ETRD PGOV SOCI INRB CH
    SUBJECT: WESTERN CHINA'S ECONOMY CONTINUES TO LAG BEHIND COAST
    DESPITE GAINS -- SHAANXI'S STORY

    SUMMARY
    -------

    ¶1. (SBU) During a May 19-23 visit, officials in Shaanxi Province
    lamented the relatively slower pace of economic development in
    Western China.  Shaanxi, considered to be China's gateway to the
    West, has enjoyed rapid growth during the past 10 years, but the
    province's economy remains far weaker than its coastal counterparts.
     Government officials in Xian, the provincial capital, hope that a
    strong university system and a hi-tech development zone, combined
    with low labor costs, will accelerate growth in the region.
    Investors in Xian, however, find businesses that are less savvy and
    infrastructure that is less developed than in coastal cities.  END
    SUMMARY.

    WHITE HOUSE FELLOWS VISIT TO CHINA
    ----------------------------------

    ¶2. (SBU) A delegation of 12 White House Fellows visited China May
    19-26 with stops in Xian and Beijing.  The visit covered a wide
    range of issues but focused primarily on economic development.  In
    Xian, the White House Fellows exchanged views on economic
    development in Western China with the Vice Governor of Shaanxi
    Province, researchers at the Shaanxi Academy of Social Sciences, and
    representatives of the Xian Hi-Tech Industries Development Zone.

    PROVINCIAL GOVERNMENT'S VIEWS ON ECONOMIC DEVELOPMENT
    --------------------------------------------- --------

    ¶3. (SBU) Zhao Zhengyong, Executive Vice Governor of Shaanxi
    Province, said on May 19 that Western China has enjoyed 10 percent
    growth per year since the launch of the Great Western Development
    Program in 1999, but economic development remains slow for
    historical and geographic reasons.  Zhao said that average urban
    income in Western China amounts to only 70 percent of the national
    average and rural incomes are at 65 percent of per capita rural
    income in China.  Zhao said he is confident that Shaanxi Province --
    the gateway to Western China -- can accelerate development and
    improve living standards, but he repeated the oft-heard refrain that
    it will be difficult for the province to catch up to the coast.
    (Note:  See Bio Note on Zhao Zhengyong in para 8.  End Note.)

    WESTERN CHINA LAGGING BEHIND THE COAST
    --------------------------------------

    ¶4. (SBU) Zhang Haoting, a researcher in the Economics Department at
    the Shaanxi Provincial Academy of Social Sciences, outlined Western
    China's problems in terms of the region's lack of resources and slow
    pace of urbanization and industrialization relative to Coastal
    China.  Zhang said Western China has 71.5 percent of total area but
    only 28 percent of the populatio and 16.9 percent of the GDP.
    Western China poduces only 14.8 percent of the nation's industial
    output, 13.8 percent of its services, and25.8 percent of
    agriculture's contribution tothe GDP.  According to Zhang, the
    Central Government's emphasis on rural reform with the lanch of the
    New Socialist Countryside initiative in 2005 is important for
    Western China as the region aims to raise incomes and improve
    livelihoods through improved infrastructure and increasing incomes,
    as well as improved social services.

    HI-TECH ZONE HOPES TO ACCELERATE DEVELOPMENT IN REGION
    --------------------------------------------- ---------

    ¶5. (SBU) Given these challenges, XQn's Municipal Government
    established China's first hi-tech development zone (there now are
    53) on three square kilometers of land southwest of the city in
    ¶1991.  Located within a 12-hour transportation circle of 10
    provincial capitals and approximately 600 million potential
    consumers, the zone hopes to accelerate economic development by
    attracting outside investors.  The Xian Hi-Tech Industries
    Development Zone (XHTZ) now has expanded to 35 square kilometers and
    includes more than 8,000 companies and 672 research and development
    institutes.  The XHTZ's annual growth rate exceeds 30 percent per
    year, and there are more than 40 MNCs operating in the zone,
    including NEC, ABB, Emerson, Micron, Daikin, Intel, Siemens,
    Honeywell, Robert Bosch, Brother, and Infineon.

    ¶6. (SBU) Investors are attracted to the XHTZ primarily by low labor
    costs.  With more than 900,000 college students in Xian, companies
    can draw from a constant stream of graduates for all of their human

    BEIJING 00003719  002 OF 002

    resource needs.  Even managers and PhDs make less than USD 10,000
    per year, and average university graduates earn only USD 3,000 to
    USD 5,000.  Employers take advantage of Xian residents' preference
    for staying close to home after graduating from university, and as
    the XHTZ is a government entity, companies rely completely on the
    Municipal Government to address labor, intellectual property and
    other concerns, XHTZ-based business leaders said.  Reflective of the
    gap between companies in Western China and their counterparts on the
    coast, business representatives at the XHTZ said they need a much
    better understanding of consumers and the market in the region, and
    they also need to improve standards to meet international accounting
    practices and to provide better customer service.

    COMMENT:  LONG WAY TO GO
    ------------------------

    ¶7. (SBU) Discussing economic development with interlocutors in
    Western China and visiting business sites such as the XHTZ provides
    visitors to China with a much better understanding of the country's
    challenges than they would have if they only visited Beijing and
    Shanghai.  Despite gains in recent years, Western China remains
    economically backward when compared to the Coast.  Investors may
    chase lower labor costs further inland, but they will find business
    representatives who are less savvy than their coastal counterparts
    and an infrastructure that is less developed.  The region's economy
    still has a long way to go.  END COMMENT.

    BIO NOTE:  ZHAO ZHENGYONG, EXECUTIVE VICE GOVERNOR
    --------------------------------------------- -----

    ¶8. (SBU) Zhao Zhengyong was born in 1951 and is a native of Anhui
    Province where he previously served as Deputy Secretary of the
    Huangshan City CPC Committee and Director of Anhui's Public Security
    Bureau.  He was named Vice Governor of Shaanxi Province in 2005, and
    the Central Government will sponsor him to attend Harvard
    University's John F. Kennedy School of Government for a short-term
    course later this year.  Zhao said his view on leadership is that
    Chinese leaders need to pay attention to the people's needs.  If
    leaders study hard and understand the local situation, their work
    will benefit local people, he said.  Zhao said he grew up in a
    worker's home but had an opportunity to go to school (he later
    attended the Central Party School), and he experienced first-hand
    that knowledge can change a person's life.  Like many of China's
    current generation of leaders, Zhao majored in engineering and
    worked in a factory before becoming a government official in the
    1980s.  Zhao previously studied in Germany for a short period.  END
    BIO NOTE.

    PICCUTA

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