Cablegate: Drc Provides Sichuan Development Overview

VZCZCXRO6121
PP RUEHGH RUEHVC
DE RUEHCN #0307/01 3490706
ZNR UUUUU ZZH
P 150706Z DEC 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC PRIORITY 3635
INFO RUCPDOC/USDOC WASHDC PRIORITY 0034
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4350

UNCLAS SECTION 01 OF 04 CHENGDU 000307

SENSITIVE
SIPDIS

DEPT FOR EAP/CM

E.O. 12958: N/A
TAGS: ECON EIND EFIN SENV KGHG PGOV PINR CH
SUBJECT: DRC PROVIDES SICHUAN DEVELOPMENT OVERVIEW

REF: A. A) CHENGDU 069, B) CHENGDU 081, C) CHENGDU 114
B. D) CHENGDU 122 E) CHENGDU 239

CHENGDU 00000307 001.2 OF 004

1. (U) This cable contains sensitive but unclassified

information -- not for distribution on the internet.

2. (U) Summary: Sichuan's Development and Reform Commission
(SDRC) expects that the province will meet ambitious 2009 growth
targets following a decade of 10 percent annual growth. Official
attributed this decade of growth to the Great Western
Development (GWD) initiative, provincial government policies,
and earthquake reconstruction. Implementation of ambitious
transportation infrastructure development plans continues.
Energy development plans focus on hydropower as well as on
expanded use of other "green" energy sources and improvement of
efficiency in coal-fired power plants. The SDRC attributed
Sichuan's 2008 energy efficiency shortfall to quake
reconstruction, but their Beijing colleagues find this a "flimsy
rationale." The SDRC believes Sichuan will meet or exceed its
2009 emission reduction targets. End summary.

3. (U) Deputy Director of the Sichuan Development and Reform
Commission (SDRC), Liu Yuan, provided Consul General on December
1 with an overview of Sichuan's economy. Liu has been in her
current position since 2004. Previously, she spent most of her
career in the provincial-level Commission for Economic
Restructuring (Tigaiwei) serving in personnel management and
Party committee positions. Also in the meeting were: Wu
Jianzhong, Deputy Chief of Energy Section; Tang Daisheng, Deputy
Chief of Great Western Development Office; and Yue Wen, Deputy
Chief of the Transportation Section.

Despite Quake and Economic Crisis,

"Sichuan's Economic Situation is Sound"

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

4. (U) While citing the dramatic impact of the 2008 quake
disaster, and moderately negative effects of the global
financial crisis in Sichuan, Liu stressed that "Sichuan's
economic situation is sound," and that the province is on track
to meet its economic targets for 2009. The value of the
provincial GDP in 2008 reached over 1.47 trillion RMB (USD 180
billion), according to official statistics. She said 68.6
percent of planned investment has been completed, totaling 975
billion RMB (about USD 143 billion), although she did not
provide further specifics regarding the focus or timeframe for
most projects. Commercial retail sales are projected to reach
463 billion RMB (USD 68 billion) in 2009, about 20 percent
higher than the previous year, and five percent higher than the
national average for the same period. Liu claimed the total
value of Sichuan's foreign imports and exports would reach USD
18.47 billion this year, up by five percent from last year. She
emphasized that Sichuan was the only Chinese province that saw
increased foreign trade in the first three quarters in 2009.
(Note: It is unclear how Liu or the SDRC calculated the 2008
figures they mentioned. These figures do not match officially
recorded statistics published in the Sichuan Statistical
Yearbook, which show that the value of imports and exports for
2008 stood at USD 22 billion, i.e. significantly higher than the
projection for 2009. End Note.)

Impact of Quake ...

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

5. (U) The impact of the 2008 quake on the economy was
significant, causing economic losses of over one trillion RMB,
but has also presented opportunities for economic development.
She noted that two-thirds of central government's 300 billion
RMB (approx. USD 44 billion) reconstruction fund was allocated
for projects in Sichuan. The province has also received
extensive support from 21 provinces and municipalities mandated
by the central government to spend one percent of annual
revenues on quake reconstruction projects. Increased credit
access have also helped, she said, but did not provide further

CHENGDU 00000307 002.2 OF 004

details on who has benefited from credit flow increases. (Note:
We understand that most of the increased credit access has
benefited the bigger companies - often SOEs -- carrying out the
many large-scale quake reconstruction projects. Additionally, a
portion of families rebuilding quake-destroyed homes have seen
some improved access to bank loans for this purpose, typically
capped at 20,000 RMB (USD 2500) per family. End Note.)

... and Global Financial Crisis

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

6. (U) Discussing the impact of the global economic crisis, Liu
emphasized that Sichuan's relatively low reliance on
international trade helped it weather the storm more smoothly
than other provinces. According to third quarter 2009
statistics, the employment difficulties faced by Sichuan's
estimated 20 million migrant workers early in the year have
largely disappeared, with employers even facing worker
shortages, she said. She noted that the employment difficulties
were resolved faster than the Sichuan government had
anticipated, although she did not elaborate on this point.

Great Western Development Driving a Decade of Growth

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

7. (U) Liu credited GWD policies with helping to stimulate
economic growth in Sichuan over the last decade. The provincial
government and party organs have also played crucial roles in
issuing the "correct development strategies" she emphasized.
This has included their emphasis on "one hub" -- developing
Chengdu as a transportation hub in western China; "three
centers" -- developing financial/banking, logistics and
commercial centers in western China; and, "four bases" --
developing natural resources, processing and manufacture,
science and technology innovation, and agriculture products
processing. Additional and related drivers of growth included
regional advantages (quwei youshi), increased foreign
investment, and accelerating industrialization and urbanization,
she said.

8. (U) As a result of these policies, Liu said, Sichuan saw a
decade-long average annual growth rate of 11.3 percent. This
beat the national average of 9.9 percent in the same period,
placing Sichuan in ninth place among all the provinces in terms
of the total GDP value. Sichuan's total GDP value now accounts
for a quarter of the total in western China. (Note: Liu did not
specify which provinces were included in this statistic, but
official statistics for 2008 suggest that she was referring to a
group of 10 provinces that includes Shaanxi, Chongqing, Guizhou
and the provinces further west. End note.) The 2008 GDP growth
rate of 9.5 percent marked the first time in many years that
Sichuan's growth rate had dropped below 10 percent.
Nevertheless, Liu assessed the province's growth is still "too
slow" in light of the fact that per capita GDP still stands at
under 70 percent of the national average.

"Transportation Hub" Development Continues Apace;

Chengdu-Lhasa Railway Construction Start Uncertain

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

8. (U) Sichuan has made notable progress in transportation
infrastructure development (ref B) with new expressways
rendering most prefecture-level cities now within two-three
hours drive of Chengdu. The present length of expressways in
the province now stands at about 3,000 kilometers, a six-fold
increase over a decade ago. Ongoing construction will add
another 700 kilometers by 2012, and the total is planned to
reach 8,600 kilometers by 2020. In addition to ongoing efforts
to also expand rail and air links, provincial planners have
placed particular emphasis on creating a network of high-speed
railways, especially for city-to-city links. Approval for a

CHENGDU 00000307 003.2 OF 004

Sichuan-Guizhou high speed rail is expected soon, and will allow
travelers to complete the Chengdu-Guiyang trip in about four
hours. Rail travel to Guangzhou from Chengdu will then be
possible in about eight hours.

9. (U) Construction of both expressways and railways to Yunnan
and to connect Sichuan with Southeast Asian countries remains a
priority goal of transportation infrastructure development. Liu
highlighted Sichuan's participation in the annual Pan-Pearl
River Delta Conference as well as an agreement signed with
Yunnan province on transportation links between the two
provinces and to Southeast Asia. (See Ref A for discussion of
the provincial protectionism challenges that may stymie
Sichuan's ambitions on this front.)

10. (SBU) In contrast with reports we saw several months ago,
which cited plans to commence building the Chengdu-Lhasa Railway
within the calendar year, Liu described the project as
"impossible to start in the near future." Noting that mid- and
long-term plans have been approved for the railway, she
emphasized the "two kinds of planning" employed in China - one
"to really put into practice" and the other to implement at some
point in the future "according to economic and other
situations." The Chengdu-Lhasa Railway currently belongs to the
latter category, she said.

Energy: Hydropower Main Energy Source ...

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

11. (U) Sichuan will continue to develop the province's
hydropower potential, which currently accounts for about 65
percent of total energy production. According to SDRC
projections, this will increase to over 80 percent within a
decade. (See Ref C for statistics on provincial hydropower
resources provided previously by SDRC). Asked whether there is
much external investment in hydropower, Liu responded that "it
is hard to say." However, she noted that several small
hydropower stations approved by the provincial Government have
applied for United Nations Clean Development Mechanism funding
(ref E).

... Closing Small Coal-fired Plants ...

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

12. (U) Outside of hydropower, the remainder of Sichuan's energy
comes primarily from coal (although efforts are underway to
develop "green energy" sources - see Ref C). The SDRC is
emphasizing the need to close down less efficient power
production. SDRC officials noted that all thermal power plans
with an installed generating capacity of less than 50 megawatts
will be required to close down. Others assessed to fall short
in energy efficiency or emission standards are also being
closed, according to the SDRC. Shanwayao Thermal Power Plant
and Chengdu Thermal Power Plant, each with installed capacities
of around 200 megawatts, were cited as examples of the latter.
As for new thermal power projects, only those with an installed
capacity of at least 600 megawatts are being approved.

... and Expanding Use of Natural Gas

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

13. (U) Natural gas exploitation, on the other hand, will see
some expansion. The province is rich in natural gas, with
proven recoverable reserves within the Sichuan basin (including
Chongqing) reaching 780 billion cubic meters, the third highest
among all provinces in China (behind Xinjiang and Shanxi). SDRC
officials noted that Sichuan has played an important role in the
campaign to transmit more natural gas sourced in the west to
meet eastern power demand. Liu highlighted a recently approved
plan to potentially build a natural gas-fired power plant in

CHENGDU 00000307 004.2 OF 004

Dazhou, north of Chongqing, that if completed might have a total
installed generation capacity of 330 megawatts. Another
gas-fired plant might be built in Jiangyou, in northern Sichuan,
although it is unclear if these projects will go forward.

Sichuan's Energy Efficiency Targets:

Failed in 2008, But "On Track" for 2009

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

14. (U) Acknowledging Sichuan's failure to reach its energy
efficiency reduction targets in 2008, as recently cited in a
Ministry of Environmental Protection report, Liu cited the
immense post-quake reconstruction needs as the primary culprit.
Many small cement, iron, steel and other building supply
factories that would otherwise have been shut down were allowed
to continue operations. (Comment: A November article in China
Economic Week, however, quoted an expert from the National
Development and Reform Commission characterizing the SDRC
explanation as a "flimsy rationale.") Sichuan has drafted plans
to improve the situation, she said, and will catch up with other
provinces. While the province was only able to obtain a three
percent emission reduction in 2008, versus the four percent
national average, this is expected to increase to six percent
for 2009. (See ref E regarding Sichuan officials on energy
efficiency tactics.)

15. (U) Liu clarified that the SDRC has the overall
responsibility for energy savings and emission reductions
throughout the province, while the economic department is in
charge of energy saving and emission reduction in industrial
sector. Discussing the particular measures being taken to
reduce emissions, Liu cited emission reduction assessments that
all new projects must pass before commencing. Older factories,
she claimed, must improve their facilities if they fail to meet
environmental standards. If standards are still not met, they
must voluntarily cease production or be shut down by the
government. Moreover, Sichuan will continue to take actions to
close down five types of small industries credited with
producing a large proportion of pollution: cement, iron and
steel, and fertilizer factories; small coal mines; and small
paper mills.
BROWN

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