IN MANDALAY, TRADE UP AND TOURISM DOWN

UNCLAS SECTION 01 OF 02 RANGOON 000289

SIPDIS

SENSITIVE

STATE FOR EAP/MLS; PACOM FOR FPA; TREASURY FOR OASIA:AJEWELL

E.O. 12958: N/A
TAGS: ECON PGOV BM
SUBJECT: IN MANDALAY, TRADE UP AND TOURISM DOWN

REF: A. RANGOON 0287

B. RANGOON 0214

C. 05 RANGOON 1179


1. (U) Summary: Enough people make money from trade with
China to keep upscale retailers busy in Mandalay, Burma's
second largest city. However, due to rising prices and the
poor state of the economy, residents are increasingly price
sensitive, making it tougher to prosper there. Europeans,
the primary generators of tourism income, have dwindled, and
the hoped-for Russians and Israelis have just begun to
trickle in. Some farmers around Mandalay use Chinese
technology and advice to produce two or three crops a year,
which traders can easily sell to the hungry China market.
Mandalay has long been a trading crossroads between Upper and
Lower Burma and between China and India. It remains an
active commercial center today. End Summary.

Keys To Success: Diversify and Import
--------------

2. (U) As part of an Embassy outreach week (ref A),we met
with local business representatives to discuss the current
commercial climate in Mandalay. Ethnic Chinese own about
half of the city's restaurants and almost all new businesses,
according to one local businessman. The influx of Chinese
residents and businesses have caused real estate prices to
rise, but both Burmese and Chinese residents profit from
reselling the flow of imported Chinese goods. One resident
said, "Ninety-five percent of goods available here are of
Chinese origin. That's all you can find here."


3. (SBU) As in Rangoon, the most successful Mandalay
businesspeople have diversified businesses. One businessman
we met owns three hotels, has a money-changing license, and
will open an umbrella factory. His most profitable business,
though, is importing Chinese goods for resale in India and
Bangladesh. Instead of taking a two-week trip from the
Indian border through Burma to the Chinese border, Indian
traders buy Chinese goods from him in Mandalay, to take back
to the Indian border in three days. The businessman plans to
open a facility on the Indian border to take advantage of the
new demand. He did not worry about Chinese competition in
Mandalay: "The Chinese need to make money every year. If they
don't, they close. We Burmese know we will have good years
and bad years and don't always expect to make money. One of
our businesses will do well when the others are down. Then
there's always a chance we'll do better next year."

...and Export
--------------

4. (SBU) Mandalay agricultural goods, especially fruits and
vegetables, supply China's growing demand. "China will buy
anything Burma can produce," said one trader. China, not
Burma, buys many of the local crops, including watermelons,
honey oranges, and tomatoes. Using modern technology and
information from Chinese agronomists, some farmers in the
area boosted yields and recently moved from producing one
crop per year to two or three.


5. (SBU) Agricultural traders have established networks of
brokers to handle the transfer of the goods and payments at
the border. Much of this trade occurs outside the formal
sector, despite government efforts to increase controls and
tax it (ref C). Traders can move three shipments a week into
China unofficially, according to one businessman, while it
can take up to a month to get an trade permit for one
shipment using official channels. Since the government
ordered traders to stop using US dollars for border trade in
February (ref B),business reps now use yuan for official
transactions, and continue to use dollars for informal trade.
According to one trader, "Euros are useless here," despite
GOB urging.

Some Sectors Struggle
--------------

6. (U) Western tourists, primarily Europeans on group tours,
have long been the main revenue generator for the tourism
industry, but their numbers have declined. Travel reps say
the repressive political situation, successful anti-tourism
campaigns by exile groups, and a higher public profile of
Burma's problems have led many Europeans to choose other
vacation destinations. Hotels have low occupancy, even
offering rooms for only $5-$35 per night. The few Americans
that visit Mandalay are older, wealthier tourists who come on
custom tours. Tour operators now hope for growth from two
new markets, Russia and Israel.


7. (SBU) Other businesses also struggle as increasing prices
and the poor economic climate make consumers more
price-conscious. The premier computer store in Mandalay
survives on slim profit margins from IT training classes and
a busy internet cafe, but earns little from the average of 15
personal computers it sells per month. A consumer goods
manufacturer and distributor said that sales steadily drop
because his customers' purchasing power has declined. "The
prices have gone up," he said, "but their wages haven't."


8. (SBU) Comment: As the gateway to Upper Burma, and a major
link between India and China, Mandalay will always be a busy
trading city. The regime's restrictive policies and the
declining economy squeeze businesses that rely on foreign
tourists or local citizens for profits, but those able to tap
the growing Chinese and Indian markets do well. End comment.
VILLAROSA