Reference ID: 06GUANGZHOU21192

Created: 2006-07-12 09:14

Released: 2011-08-30 01:44    


Origin: Consulate Guangzhou




DE RUEHGZ #1192/01 1930914


O 120914Z JUL 06





















E.O. 12958: N/A


SUBJECT: From Rural to Urban, Part 1: Industry Finds a New

Home in Qingyuan


REFERENCE: A) Guangzhou 18102; B) Guangzhou 93


(U) This document is sensitive but unclassified.  Please

protect accordingly.


¶1. (U) Summary.  Qingyuan, Guangdong Province's largest and

fastest-growing prefecture, is in the middle of an

industrialization boom that will have far-reaching

consequences for its urban and rural populations.  The Pearl

River Delta (PRD) is no longer as cost-competitive as it

once was due to a lack of land, energy and water shortages,

and rapidly rising wages.  Consequently, factories are

packing up and moving out.  Qingyuan, which lies outside of

the PRD, has been successful in courting these factories.

Many of the industries that are calling Qingyuan home are

notorious polluters, however, including chemical and

ceramics companies.  These companies also operate on a low

margin and will likely leave Qingyuan once its wages rise

too high -- a trend that is already starting to happen.

Only with a long-term development strategy, perhaps hinging

on its bourgeoning eco-tourism industry, can Qingyuan avoid

a painful hangover down the road.  End summary.


¶2. (U) Econoff and EconPolAsst recently visited Qingyuan

prefecture, a predominantly rural area stretching from

central to north Guangdong Province.  The southern reaches

of Qingyuan, home to the majority of the population and

industry, are only two hours from Guangzhou by bus.

Qingcheng City, the largest city in Qingyuan with half a

million people, served as our base as we visited nearby

factories and more distant villages in southern Qingyuan.

This cable explores the nature of Qingyuan's rapid

industrialization and its long-term impact.  Septel will

discuss the concerns of the rural population as they face

this incoming tide of industry and urbanization.


Feeding Off the Pearl River Delta



¶3. (U) The sidewalks of Qingcheng's business district at

night are overflowing with young and old residents browsing

retail stores that sell the latest clothing styles and

electronics.  Though the per-capita GDP of Qingyuan is only

about 40 percent of the Guangdong average, the urban

residents of Qingcheng are doing well and are spending their

money.  This prosperity is relatively new, however -- only

in the last few years has Qingyuan changed from being a

backwater to the fastest growing prefecture in Guangdong

(Qingyuan's GDP grew at 23.3 percent in 2005).  Qingyuan

also has the province's fastest growing industrial output,

fixed asset investment, retail sales volume, utilization of

FDI, gross industrial output, and foreign trade volume.


¶4. (U) The reasons for this growth are largely geographic:

Qingyuan lies just north of the Pearl River Delta (PRD), the

center of South China's manufacturing industry that sweeps

from Hong Kong to Guangzhou to Macau.  Despite continued

strong economic growth, the PRD is facing energy and water

shortages, rising wage levels, and a land crunch (Reftel B).

Factories -- especially low-margin, labor-intensive ones --

are finding that their operations are no longer cost

competitive and are looking to relocate.  Indeed, during the

two years after the Beijing-Zhuhai highway opened, 170

Guangdong factories moved to southern Hunan Province, which

borders Guangdong to the north.  Twenty percent of new

investment in Jiangxi Province, another bordering province,

has come from Guangdong.


¶5. (U) Qingyuan has made attracting these migrating

companies its mission.  It pitches its low land prices,

offers tax incentives, waives water and administrative fees,

and offers generous awards to agents that bring investment.

An agent can earn up to RMB 100,000 (USD 12,500) by bringing

in a large investor.  An industrial park representative we

spoke with said Qingyuan has attracted 1,600 industrial

projects in the last three years, most of which came from

the PRD.  With a salesman's self-assuredness, he touted the

geographic and financial advantages of his park and listed

its many satisfied customers.  Provincial authorities have

helped bring investment to Qingyuan as well, as they are


GUANGZHOU 00021192  002 OF 003



eager to keep investment within Guangdong.  In the case of a

30,000-employee electronics factory owned by Yi Li Group,

which recently moved from Dongguan to Qingyuan, Guangdong

authorities facilitated the move by negotiating a deal

wherein Dongguan and Qingyuan equally share the new

factory's tax revenue.


¶6. (SBU) As an example of how busy Qingyuan officials are in

their efforts to attract investment, Post has on two

separate occasions in 2006 been denied in our requests for a

series of meetings with Qingyuan offices, apparently because

they were accommodating visiting investors.  A group of

Australian investors were visiting when we last made a



But How Long Will the Good Times Last?



¶7. (SBU) Qingyuan is booming, but if recent history is any

guide, its time at the top will be fleeting.  Shoetown --

Nike's first OEM manufacturer in China -- recently moved

from Guangzhou to Qingyuan because it ran out of room to

expand and was facing rapidly rising wages.  Indeed, the

Guangzhou minimum wage has risen from RMB 450 (USD 56) per

month in 2003 to RMB 684 (USD 86) in 2006.  And PRD cities

are reportedly considering wage hikes of 17-42 percent in

2006, which would bring Guangzhou's minimum wage to RMB 800

(USD 100).  In the Qingyuan Shoetown factory, the starting

take-home pay is RMB 650 (USD 81) per month.  (Company

payments, which include insurance and pension contributions,

bring the total to RMB 1220 [USD 153].)  With the rush of

new factories to Qingyuan, however, this wage will not stay

competitive for long.  Most of the laborers and factory

workers that we spoke with in the area earn RMB 700-900 (USD

88-113).  A large banner outside what appeared to be a

textile factory in Qingyuan offered RMB 900 (USD 113) as a

starting salary.


¶8. (U) A reliable supply of labor is not assured either, as

many of the workers in Qingyuan's factories are migrants.

The Shoetown manager said the majority of his employees come

from inland provinces, such as Hunan, and only 30 percent

are locals.  These migrant laborers have more options than

in the past, when Guangdong was the only place in China for

factory jobs.  Better wages and working conditions have

convinced large numbers of laborers to travel to the Yangzi

Delta and other industrializing regions instead.  Indeed,

Qingyuan's Yi Li electronics factory has reportedly only

been able to find enough workers to fill half of its 30,000

openings, and a large banner outside the factory gate

announces job opportunities.


¶9. (SBU) So how long before these new factories, faced with

the same problems that forced them to leave the PRD --

including rising wages and energy shortages -- decide to

move to new and cheaper locales?  Five years at the most,

according to the Shoetown manager.  By that time, he said,

his factory will likely relocate further inland, or possibly

outside of China, to India, Vietnam, or Indonesia.


The Down Side: Pollution



¶10. (U) With a new emphasis on sustainable development and

innovation in China's 11th Five-Year Plan, PRD officials are

more willing to see polluting factories depart in order to

make room for clean and high-tech companies.  For example,

approximately 1,000 PRD factories (including those involved

in electroplating, dyeing, and paper-making) will reportedly

need to comply with stringent new safety and environmental

requirements by the end of 2006 or be forced to leave.

Investors, including many from Hong Kong, are resigned to

the fact that PRD officials are serious this time, and are

looking to places outside of the PRD to invest -- Qingyuan

being one.


¶11. (U) Qingyuan has seen a large number of ceramics

factories open in the last couple of years.  These factories

emit high levels of pollutants into the air and use clay

stripped from nearby hills -- both of which we witnessed


GUANGZHOU 00021192  003 OF 003



during our stay.  A recent Hong Kong study identified

ceramics factories and automobiles are the two largest

contributors to pollution in the Guangzhou area.


¶12. (U) In addition, local environmental authorities in

Qingyuan and other less developed areas in South China, who

are mindful of the importance of this new investment, have a

reputation as being lax in their enforcement.  In December

2005, a smelting factory in northern Guangdong's Shaoguan

discharged 1,000-tons of cadmium-carrying waste into the

Beijiang River during facility maintenance, forcing Qingyuan

cities to use back-up water supplies (Reftel A).  Officials

took five days to notify the public about the incident, and

the owner of the offending smelter told the press that any

number of factories along the river could have been



Eco-Tourism Firms Find a Foothold



¶13. (U) Qingyuan is scenic area, blessed with forested

mountains and abundant rivers.  It is also home to a small

but successful eco-tourism industry.  Prefecture maps and

hotel pamphlets tout the area's white-water rafting, and a

mountain not far from Qingcheng has an "adventure" hiking

trail, complete with chain bridges and pulley swings.

Workers were clearing a road through a bamboo forest on a

mountain north of Qingyuan that will provide access to a

nearby river for rafting.  Another successful venture is a

3,000 mu (494 acre) farm outside of Qingcheng, run by an

overseas Chinese from Malaysia, which charges visitors RMB

25 (USD 3.13) to pick a variety of native and exotic fruits

and vegetables.


¶14. (U) Eco-tourism is a dependable long-term industry for

Qingyuan, and tourists will continue to grow as the PRD and

other areas of South China become more interconnected.

Nevertheless, industrial development and pollution threaten

to extinguish eco-tourism in its infancy, at least in the

south where the majority of development is taking place.

The mountainous north, which has less appeal to industry and

more pristine land, stands to benefit greatly if these types

of enterprises can attract enough customers.


Comment: A Hard Bargain



¶15. (SBU) Qingyuan's breakneck industrialization is bringing

prosperity to a formerly poor, agricultural prefecture.

Jobs are now abundant, and wages are rising.  For companies,

Qingyuan is a good compromise: it is located within two

hours of Guangzhou and offers numerous investment

incentives.  Qingyuan's good times may be short-lived,

however, as these factories are by no means wedded to it --

as the Nike manager said, within five years some of them

will move again, taking their jobs with them and leaving

behind abandoned buildings and polluted air and water.

Migrant laborers from the interior will follow the factories

elsewhere.  Those who stay behind will need to figure out a

more sustainable model for economic growth.