BURMA'S ROAD TO PROSPERITY LEADS TO CHINA

UNCLAS SECTION 01 OF 03 RANGOON 000762

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON PGOV PREL CM BM
SUBJECT: BURMA'S ROAD TO PROSPERITY LEADS TO CHINA


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1. (SBU) Summary: On a visit to Muse, the main border
crossing point for trade with China, emboffs observed how
trade enriches the Burmese towns along the route, and has
spawned development on the Chinese side of the border. The
GOB retains only a small percentage of potential revenue
generated by this trade because a significant portion avoids
the inefficient official checkpoints, and because corrupt
border officials don't collect full customs duties. Recent
punitive GOB actions to increase the official revenue from
lucrative cross border trade are unlikely to succeed for
long. End Summary.


2. (U) Econoff and FSN traveled to Muse on northern Shan
State's Chinese border May 10-13. On the eleven-hour road
trip between Mandalay in central Burma and Muse, emboffs saw
over 150 heavily laden 10-wheel trucks moving goods along
this primary China-Burma trade route. Recognizing the
potential of this trade, in 1996 the GOB contracted Asia
World, one of Burma's leading construction companies linked
to the Wa drug trafficking organization, to build the winding
208 mile road, one of the best in the country. Asia World
collects 2200 kyat ($1.71 at market rates) in tolls for the
trip, which it splits with the GOB. Foreigners are generally
barred from traveling to Muse, and no tourists other than
Burmese and Chinese were evident.

Trade Brings Development
--------------

3. (U) Muse's population doubled in the past five years,
according to locals, to about 180,000. Much of the
development capital came from illicit drug proceeds, but
trade and local tourism also contribute to the town's growth.
Villages close to the border clearly show the benefits that
flow from both legal and illegal trade. Buildings are larger
and better built than in most Burmese towns, local residents
wear new, stylish clothing, and have modern bicycles and
vehicles, and the villages seem well maintained. Residents
benefit from conventional import and export of goods, illegal
trade, export services such as trucking, brokering, customs
clearance facilitation; and provision of food, fuel,
entertainment, and housing for transiting traders, truckers
and tourists. Many gain steady incomes by working in export
shops just across the border. A Shan saleswoman told us that
she earns the yuan equivalent of about $52 per month, which
compares favorably to the $8-$23 wage she could earn in
Rangoon shops. Many Burmese workers also cross the border
into China to find day labor, earning about $4-5 per day.
Burmese officials gain additional income from "facilitation
payments" for each transaction. In comparison, other
villages in the region not engaged in trade rely almost
totally on agriculture production and are filled with bare
bamboo structures, small dirt streets, and residents in much
shabbier dress.


4. (U) According to official, but unreliable, statistics
collected at border checkpoints, Burma exported about $169
million worth of goods through Muse in FY 03-04 (75% of total
exports to China),$195 million in FY 04-05 (68% of total
exports to China) and $103 million in the first eleven months
of FY 05-06. Reported imports through Muse were $155 million
in FY 03-04 (33% of total imports from China),$152 million
in FY 04-05 (31% of total imports from China),and $110
million in the first eleven months of FY 05-06. Muse is by
far the busiest of Burma's twelve official border export
points, accounting for two thirds of all border trade over
the last two years.

Exports, Imports, Transit and Transport
--------------

5. (SBU) According to business contacts, "China will buy

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whatever Burma can grow," and many Burmese take advantage of
the inexhaustible demand of their giant neighbor. Burmese
trucks bulging with produce process slowly through "105
Mile", a checkpoint 20 miles inside the border. According to
drivers and local business contacts, at 105 Mile, trucking
company drivers must pay up to eleven officials between 500
and 1000 kyat (less than a dollar) each to smooth the
clearance process. The official paperwork declares 50-75% of
the true value of the goods for a lower customs assessment,
and companies split the difference with the officials. 105
Mile is growing fast and, according to a truck driver with 5
years of experience in the area, recently expanded into a
small town. Although large, new buildings loom in the
inspection yard, GOB officials sit outside at desks on the
dirt, under an umbrella, and conduct their business slowly
and manually. All inbound trade was held up on the day
emboffs departed because one official had not yet shown up
for work an hour after the checkpoint officially opened.


6. (U) Burmese trucks can drive easily into China through one
truck gate, delivering goods to either Shweli, about three
miles inside China, or to Jiegau, a new Chinese town just on
the other side of a fenced ditch from Muse. Jiegau, a city
of colorful multi-story buildings, only recently appeared on
land adjacent to Muse that residents told us formerly
belonged to Burma. Burmese citizens on foot or in private
vehicles can cross with minimal difficulty at two smaller
gates. Econ FSN crossed easily in to Jiegau on foot, after
buying a pass, good for a year, for the equivalent of $1.25.


7. (U) Burmese import Chinese housewares, clothing, sporting
goods, DVDs, electronic goods, luggage, and shoes. For those
who make the trip from inside Burma, new shops across the
border in Jiegau offer wholesale appliances and electronic
goods. Most salespeople either are from Burma or speak
Burmese. Trucks, however, carry the majority of Chinese
goods to 105 Mile for sale and transfer to other parts of
Burma. A new MOU with China, once signed, will allow 3,000
each Burmese and Chinese trucks to cross each other's border
and travel into the neighboring country, eliminating the
current need to offload at border checkpoints. Truck drivers
told us that the Chinese have no desire to carry their goods
any further into Burma because, "the road is bad, and
clearance procedures in Burma are difficult."


8. (U) Major businesses are not the only ones benefiting from
trade activity at the border. Small private Burmese business
owners, families, and travel groups make the long trip to
Muse or across the border to Shweli or Jiegau to purchase
goods they will resell in central and lower Burma. They come
by truck or bus from as far away as Rangoon to fill their
vehicles to bursting before returning. The Chinese products
sold in Muse are slightly cheaper than in the rest of Burma,
since they don't pass through customs at 105 Mile, and are
even cheaper in Jiegau. We spoke with one entrepreneurial
businessman who transships Chinese goods from Muse to
customers across the Indian border. According to Muse
businessmen, sales of Chinese goods have fallen as the kyat
depreciated, reducing Burmese purchasing power. Local
traders sell products from Burma to Chinese customers from
warehouses and offices in the city. Chinese individuals
also come to Muse as tourists and buy Thai or Singapore goods
brought from Rangoon that are expensive or unavailable in
western Chinese provinces.

Chasing the Elusive Underground Economy
--------------

9. (U) Business contacts estimate that the informal economy
in Burma is at least as large as the formal economy, and that
much of the underground trade crosses the Chinese and Thai

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borders. Most of the Chinese border around Muse is
unmonitored and is crossed by numerous lesser roads and
trails. We saw many motorbikes stacked dangerously high with
goods emerging onto the main road from side trails. These
"carriers" avoid legal checkpoints and other fees. Residents
told us that the illegal drug trade is not as obvious as it
was three to four years ago, and that most of the drugs are
now carried across these hidden routes.


10. (U) On May 9 and 10, in a surprise move, the GOB detained
dozens of officials and traders after investigating
corruption by customs, immigration, police and army officials
working at 105 Mile. A business contact told us that some of
his colleagues fled into China, and now risk arrest if they
return. A source told us later that the GOB released the
detained immigration officials because the chief of
immigration at the border is a classmate of the regional
military commander. Everyone in Muse with whom we spoke
discussed the crackdown and said it represents a GOB effort
to capture more of the revenue that now goes into officials'
pockets rather than into government coffers.


11. (SBU) On May 18, government officials informally notified
importers and exporters that the Ministry of Commerce offices
remaining in Rangoon will close by the end of May. Beginning
in June, all traders must obtain an identification badge, and
must submit all import and export applications to the
Ministry of Commerce office in the new capital. These new
procedures, never officially announced by the GOB, will add
time and expense to an already lengthy and arbitrary process.

Log Exports Declining?
--------------

12. (SBU) Emboffs observed well over 100 trucks on the
Mandalay-Muse road, and at least 100 trucks waiting for
clearance at 105 Mile. Only about 5% of these trucks carried
logs, a dramatic decline from Embassy observations and
reporting on illegal timber trade. On May 20-23, a Chinese
delegation visited Rangoon to promote sustainable logging
practices. In a May 31 press release, the international NGO,
Global Witness, announced that China had closed its border to
imports of Burmese logs, after claiming that China had
imported over 1.5 million cubic meters of mostly illegal
Burmese timber in 2005 alone.


13. (SBU) Comment: Trade with China brings a measure of
prosperity to this region lacking government support for
infrastructure and market incentives and is less risky than
illicit drug trade. Located at the nexus of three large
economies, enterprising Burmese take advantage of poorly
controlled borders and corruption to profit from exports,
imports, and transshipment of Burmese, Chinese, Indian and
Thai goods. Most of this occurs outside official channels.
The regime's crackdown shows awareness of the magnitude of
lost revenues, but replacing one group of corrupt border
officials with another will only put a temporary damper on
trade. The inefficiencies we saw in the control of this very
porous border, the new application procedures and the
existing incentives to continue to trade informally, will
more likely than not, push more cross-border trade beyond the
reach of the government. End comment.
STOLTZ