PROSPECTS OF INCREASED CHINA TRADE BRING BOTH ANTICIPATION

UNCLAS SECTION 01 OF 02 CHIANG MAI 000217

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV CH TH
SUBJECT: PROSPECTS OF INCREASED CHINA TRADE BRING BOTH ANTICIPATION
AND FEAR

REF: A. A) CHIANG MAI 193 (GOLDEN TRIANGLE TO BECOME GOLDEN GATEWAY)

B. B) 05 CHIANG MAI 252 (BUILD IT AND THEY WILL COME: THAILAND PLANS NEW MEKONG PORT TO BOOST CHINA TRADE)

CHIANG MAI 00000217 001.2 OF 002



1. Summary. The scheduled late-2007 completion of the final
section of a highway between Kunming and Bangkok will open a
new, faster route for trade with southern China. Two other
routes, one via the Mekong River and another by road through
Burma, are less attractive alternatives. Plans for a second
port on the Mekong in Chiang Saen are likely to be shelved while
a future industrial estate along the Mekong remains in question.
End summary


2. Businessmen in Thailand's northern most province of Chiang
Rai eye with mixed eagerness and concern the inevitability of
greater trade with southern China, both via road and via the
Mekong River. According to Chiang Rai Chamber of Commerce
President Pattana Sitthisombat, when the last 160-kilometer
section of the Kunming-Bangkok highway is completed from Luang
Namtha to Huayxay in late 2007, the road will offer an 18-hour
drive from the Yunnan capital to Bangkok. Others believe the
approximately 1800-kilometer trip is more likely to take 24
hours.

--- Size matters ---


3. Although the Chiang Rai private sector has promoted greater
economic linkages with southern China for years (ref a),small
and medium business people are nervous at competing with such an
economic giant. Former Chiang Rai Chamber of Commerce head
Anan Laothamatas expressed concern that the completed
Kunming-Bangkok Highway - with talk of 3,000 Chinese trucks
rolling into Thailand daily -- would bring a flood of Chinese
goods and services that could dominate the Thai economy. A few
development experts similarly warned of likely social, cultural,
and health disruptions along the trade route. Nevertheless,
faced with Yunnan's population of 43 million and the 65,000
members claimed by its Chamber of Commerce, northern business
leaders see no option other than riding the wave as skillfully
as possible.


4. The road under construction through Laos is generally
considered the most reliable route for future trade between
Thailand and southwestern China. An alternate land route
through northern Burma passes through insurgency areas while the
oft-touted Mekong river route is subject to changing water
levels controlled by the Chinese.


5. Completion of the much-anticipated road, however, has been
hampered by construction delays as well as indecision over the
bridge that will cross the Mekong between Ban Huayxay in Laos
and Chiang Khong on the Thai side. After negotiations with
China, representatives from Thailand, Laos and the Asian
Development Bank recently agreed to reduce the size of the
bridge to fit a budget of USD 33.11 million, to be shared by
Thailand and China. Even with the funding hurdle overcome,
however, the finished bridge may be another 3-4 years ahead,
with design, construction start and a target completion date
still to be decided.

--- Mekong port activity grows ---


6. Although expected to be eclipsed once the road is
completed, transport along the Mekong River continues to
increase, especially for heavy products such as fuel and rubber.
The customs officer in Chiang Saen recorded Thai-Chinese trade
import and export goods in the 2006 fiscal year at 263,000
metric tons. These numbers represent only imports and exports
through the official port operated by the Ports Authority of
Thailand; additional goods enter through 10 private customs
bonded warehouses and ports lining the Mekong riverbank.
According to the Water Transportation office in Chiang Rai, the
number of Chinese boats on the Mekong River increased by 16
percent to 1,600 boats in 2005 while the number of Lao boats
increased from 340 to 520. (No Thai boats operate on the river
-- explanations variously include a lack of skilled Thai river
pilots and the inside information Chinese pilots are said to
receive about water release from the dams upstream.)


7. Tourism through the port is also growing, with 5-6 Chinese
tourist boats operating 2-3 trips weekly on the Jing Hong-Chiang
Saen route. The one-way trip on a fast tourist boat takes about
10 hours upriver and costs baht 20,000 (USD 570) per passenger,
according to the Chiang Saen port manager. In the first nine
months of 2006, Chiang Saen Immigration recorded 7,358 tourists
departing and arriving at the port. Over half of these
passengers, 3,696, were inbound Chinese, with another 1362
outbound; Thai tourists totaled 500 inbound and another 500
outbound, with other nationals showing 800 arrivals and 500
departures.


CHIANG MAI 00000217 002.2 OF 002



8. Despite these steady increases in port activities, plans to
build a second port (ref b) at Chiang Saen dimmed with the
demise of the Thaksin Shinawatra government. Although the
government compensated villagers 53 million baht to move off the
160-acre site earlier this year, the interim Minister of
Transport is now studying whether to go ahead with additional
funding. When and if the new port is built, the current port
would serve tourist boats exclusively.

--- Doubts over industrial estate in Chiang Kong ---


9. Additional Thaksin-era plans to promote trade with China
included an industrial estate and Border Economic Zone in Chiang
Khong. Ratified by the cabinet in February (ref a),the 6,400
acre estate would serve logistics, agricultural processing
plants, high value garments, jewelry, and electronics. This
project has lost some of its luster since the Sept. 19 coup;
both Chamber of Commerce head Pattana and the Chiang Khong
district officer questioned whether Chinese investors would be
interested.


10. Viable or not, the plan for an industrial estate in Chiang
Rai has competition from two new Chinese investment schemes on
the Lao side of the river, one across from Chiang Khong and
another opposite the Chiang Saen port. Locating manufacturing
and farming projects in Laos would allow Chinese investors to
bypass Thai regulations while still providing access to
Southeast Asian markets.


11. Comment: Northern business people remain eager to
promote trade with China and support all proposals for roads,
river transport, ports, and industrial estate development that
will further strengthen economic relations and the border
economy. While somewhat fearful at the prospect of being
overwhelmed by trade and investment from China, they are even
more nervous at the idea that China might seek other trade
routes through Vietnam and Burma. Although tighter government
budgets after the coup may delay or cancel some of the plans,
the Kunming-Bangkok road link will eventually be completed, with
inevitable big changes to this area of the country.
MOORE