GOLDEN TRIANGLE TO BECOME GOLDEN GATEWAY

UNCLAS SECTION 01 OF 03 CHIANG MAI 000093

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV ETTC TH
SUBJECT: GOLDEN TRIANGLE TO BECOME GOLDEN GATEWAY

REF: A) CHIANG MAI 18 B) (05) CHIANG MAI 253 C) (05) CHENGDU 527

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1. Summary. Northern Thailand's physical proximity to southern
China has led the eight provinces of upper northern Thailand to
promote the region as the "Golden Gate of Trade to the World."
Although the area is still better known as the "Golden Triangle"
of opium fame, new river, air and land routes are increasing
trade and transit opportunities in a number of directions. End
summary


2. Hoping to take advantage of rapid economic development in the
Greater Mekong Subregion (GMS),officials in upper northern
Thailand adopted in February the moniker of "Golden Gate of
Trade to the World". Besides the upper GMS countries (China,
Laos, Cambodia, Burma, Vietnam and Thailand) the region is
reaching out to Bangladesh, India, Burma, Sri Lanka, Bhutan and
Nepal under the BIMSTEC (Bangladesh, India, Sri Lanka, Thailand
Economic Cooperation) trade grouping.

Transit Route
--------------


3. Thailand's potential as a transit country, especially for
Chinese products, is highlighted by a claim that turbines for a
major Chinese dam are to be shipped from Shanghai to China's
Yunnan province via an extraordinarily long route that passes
through Thailand. The shipping route, according to a senior
Thai customs official, will take the turbines by sea around
Vietnam and Cambodia to Thailand's southern port of Laem
Chabang, where the turbines are to be offloaded for transport by
road to northern Thailand and, finally, shipment by boat to
Yunnan via the Mekong River. The customs official claimed that
such heavy equipment is more costly to transport within China,
through 4000 mountainous miles from Shanghai to Yunnan, than by
sea freight and land transport via Thailand and finally by water
again on the Mekong River.


4. Even discounting for some boosterism, Northern Thailand and
southern China are actively engaged in a broad expansion of
trade, investment, educational exchange (ref a) and tourism.
Thailand's hope for the Mekong to serve as a "Golden Gateway"
for trade is echoed by China's interest in using the river as a
link to ASEAN. Exports from Yunnan can be shipped via the
Mekong and connecting road to Thailand's Laem Chabang seaport in
the Gulf of Siam in a day and half; shipments in the opposite
direction require an extra day.

New Industrial Zone to Attract Chinese Investment
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5. To further attract Chinese investment and trade, the Thai
cabinet in February approved a proposal to establish a "Border
Economic Zone" (BEZ) and industrial estate on 6,400 acres at
Chiang Khong District, Chiang Rai province. Although an earlier
plan to build an industrial estate in Chiang Saen ran into
local opposition over historical preservation issues, the new
location is less controversial and expected to proceed. Chiang
Rai Chamber of Commerce President Pattana Sitthisombat told
participants in a logistics seminar in March that Chinese
private and public sector representatives, including the
Director General of the New Industrial Estate in Kunming, had
visited the Chiang Khong site.

Kunming-Bangkok Highway Due for Completion in 2007
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--------------


6. Although the original Chiang Saen site offered better access
to the Mekong, the BEZ site at Chiang Khong will tie in with the
road now under construction through Laos to the Chinese border.
The section through Laos, funded by the Asian Development Bank
(ADB),is expected to be completed in 2007. According to an
earlier Consulate Chengdu report (ref c),the upgrades on the
final Chinese portions of the road should also be ready in 2007.
Still awaiting a Lao government decision and a source of
funding is the site for the bridge over the Mekong River linking
Huay Sai in Laos to Chiang Khong. Once all sections are
complete, the 2,100 kilometer Kunming-Bangkok highway will
contribute to expanded trade among the GMS countries.


7. Traders in the north increasingly expect this land route via
the Kunming-Bangkok Highway to be more reliable than the Mekong,

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which has suffered from unsteady water volume in the past few
years because of dam construction upstream in China. Rachan
Veeraphan, former President of the Chiang Mai Chamber of
Commerce, said that trade by land via Laos would be safer and
more secure than via the Mekong, which flows past unstable
regions in Burma.

Mekong River Carries Increased Trade
-------------- --------------


8. Even though the road may eventually prove more viable, trade
along the Mekong between northern Thailand and Yunnan has
already increased dramatically. Bank of Thailand annual
reports show that river trade grew from USD 9 million in 1996 to
USD 129 million in 2005. Altogether, this trade volume accounts
for 3 percent of the total foreign trade of northern Thailand in

2005.


9. During 2004-2005, the Chiang Saen port recorded 2500 boat
dockings (one boat may be docked several times in a year).
Statistics from the Chiang Saen Customs Office showed that
exports by weight increased from 84,520 to 154,660 metric tons
from 2003 to 2005, with an annual growth rate of 35 percent
during that period. Chinese statistics are much higher than
the Thai figures, reporting over 500,000 metric tons of goods.
Bank of Thailand official Sakorn Srisawat explained that the
higher Chinese numbers include cargo that is offloaded in Burma
before entering Thailand, implying that substantial smuggling
takes place.


10. To accommodate the hoped-for growth in river transport,
the RTG last December announced plans for a second Chiang Saen
port (ref b),with USD 50 million in infrastructure. Deputy
Minister of Transportation Phumtham Wechayachai returned late
last year from a trip to Yunnan sold on China's "Look South
Economic Strategy" and convinced that Chinese vessels had the
potential to ship a million metric tons of goods on the Mekong,
including 500,000 tons of consumer goods, 300,000 tons of oil
and 200,000 tons of natural gas. (Meanwhile, Thai business
newspaper Prachachart Thurakit reported that Phumtham's sister
is a major holder in one of Bangkok's largest sea freight
companies.)


11. The Deputy Minister also touted the tourism potential of
the Mekong. Noting that the current port will serve tourist
boats once the new port is operational for trade, Phumtham
predicted that one-third of the three million Chinese tourists
who visit Jinghong in southern Yunnan province annually could be
expected to sail down to northern Thailand. (Comment: under
current tourism conditions this appears to be a wildly
optimistic statement.)


12. The Early Harvest Program agreement on fruit and vegetable
products that Thailand and China signed in June 2003 is one
factor in increased Mekong River shipments. Although Thai fruit
exporters preferred sea transport through Laem Chabang port to
reach the large Chinese importers and distributors in eastern
China, trade tonnage via the Mekong in 2005 leaped 55 percent as
Thai exporters sent natural rubber and vehicle oil to Yunnan.
The value of natural rubber exports alone nearly doubled, from
USD 21 million to USD 41 million, in one year.

Chinese Dams Cause Problems Downstream
-------------- --------------


13. While Thailand sees the Mekong River as a trade route, as
well as a fishing and tourism resource, for China the river is
also a source of energy. Ongoing hydropower dam construction
has restricted water volume on the Mekong to the point that it
is often insufficient for shipping. During this year's dry
season from January to May the water level dropped so low that
boats were forced to a stop during one week, with some stuck in
the middle of the river.


14. Thai authorities and business people express optimism that
China will take steps to better manage the water level when all
of the dams are completed. The Deputy Secretary General of the
Thai Maritime Department told a March logistics seminar in
Chiang Rai that water volume is not a barrier to Mekong
shipments because China holds only 17 per cent of the total
volume of water in the Mekong River. (An environmental NGO

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pointed out, however, that in Chiang Saen, 75 percent of the
water comes from China.) He assured the audience that Chinese
dams on the Mekong would not affect boat operations because the
narrow gorges along the Mekong in China were not conducive to
holding large volumes of water in large reservoirs. The Chinese
dams, he said, are intended solely for hydroelectricity
generation rather than agricultural production and would allow
water to be released from the dams to flow down to lower part of
the Mekong Delta.


15. Bank of Thailand staff also claimed that Chinese
authorities facilitate boat operations on the Mekong by
announcing a water release schedule for the dams. They noted
that the water level was unusually low this past dry season due
to accelerated dam construction and would likely return to
normal as construction tails off. Even under these conditions,
Mekong shipments greatly reduce transportation time from
Thailand to some parts of China, these officials claimed.


16. A less sanguine view emerged from conversations with
journalists from Laos, Cambodia, Thailand, Burma, Vietnam and
China attending a seminar sponsored by the Indochina Media
Memorial Foundation in Chiang Mai on "Managing the Mighty
Mekong". These journalists reported hearing many complaints
from Thai NGOs and villagers about the negative effects
downstream of Chinese dam building and rapids-blasting. A China
Daily reporter who was part of the training appeared taken aback
by the critical accounts the students had heard of Chinese
activity.

Chiang Mai Aims to be Aviation Hub
-------------- --


17. Growing aviation links and airport improvements offer a
third alternative to river and road transport. Air cargo at the
Chiang Mai International Airport accounts for 60-70 percent of
the total value of imports and exports for foreign companies at
the Northern Region Industrial Estate's Export Processing Zone
in nearby Lamphun. Electronic assembly plants there rely on air
cargo to ship finished components to assembly plants located
primarily in Japan and other places in Asia, the EU and the U.S.



18. Chiang Mai airport's on-going USD 52.5 million upgrade is
scheduled for completion in 2007, with the aim of establishing
the northern city as an aviation hub for the Greater Mekong
Subregion and South Asia. The number of passengers at Chiang
Mai grew from 2 million in 2003 to 2.9 million in 2005, with
direct flights to Kunming and Jinghong in China as well as to
Laos, Taiwan, Singapore, Burma, Malaysia, and Bangladesh. With
some routes available only once or twice a week, however, many
northern travelers still find it more convenient to fly through
Bangkok to these destinations.


19. Comment: The growth in river, land, and air routes is
creating more trade and tourism opportunities between Northern
Thailand and China's southwestern Yunnan. Educational exchanges
are flourishing as well. While each route has its problems -
low water levels on the Mekong, incomplete sections on the
highway, limited flight schedules by air - both the RTG and the
northern provinces are serious about promoting the region as an
economic corridor to China and for China to the Greater Mekong
Subregion and are investing accordingly.
CAMP