Identifier
Created
Classification
Origin
07CHENGDU124
2007-05-15 04:02:00
CONFIDENTIAL
Consulate Chengdu
Cable title:  

CHINA'S YUNNAN PROVINCE BUILDS OUT TO SOUTHEAST ASIA

Tags:  ECON ETRD PGOV SOCI CH 
pdf how-to read a cable
VZCZCXRO5056
RR RUEHCHI RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHCN #0124/01 1350402
ZNY CCCCC ZZH
R 150402Z MAY 07
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2490
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKA/AMEMBASSY DHAKA 0007
RUEHNE/AMEMBASSY NEW DELHI 0145
RUEHCI/AMCONSUL CALCUTTA
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 3013
C O N F I D E N T I A L SECTION 01 OF 05 CHENGDU 000124 

SIPDIS

SIPDIS

STATE FOR EAP/CM AND EB
NSC FOR CHRISTINA COLLINS

E.O. 12958: DECL: 5/15/2017
TAGS: ECON ETRD PGOV SOCI CH
SUBJECT: CHINA'S YUNNAN PROVINCE BUILDS OUT TO SOUTHEAST ASIA

REF: A) CHENGDU 100 B) CHIANG MAI 50

CHENGDU 00000124 001.2 OF 005


CLASSIFIED BY: James Boughner, Consul General, AmCongen Chengdu,
State.
REASON: 1.4 (b),(d)



C O N F I D E N T I A L SECTION 01 OF 05 CHENGDU 000124

SIPDIS

SIPDIS

STATE FOR EAP/CM AND EB
NSC FOR CHRISTINA COLLINS

E.O. 12958: DECL: 5/15/2017
TAGS: ECON ETRD PGOV SOCI CH
SUBJECT: CHINA'S YUNNAN PROVINCE BUILDS OUT TO SOUTHEAST ASIA

REF: A) CHENGDU 100 B) CHIANG MAI 50

CHENGDU 00000124 001.2 OF 005


CLASSIFIED BY: James Boughner, Consul General, AmCongen Chengdu,
State.
REASON: 1.4 (b),(d)




1. (C) Summary: Yunnan officials in southwest China see
construction of new road, river, and rail links with neighboring
ASEAN countries as the key to ending their mountainous and
landlocked province's long history of isolation and stimulating
economic growth. While provincial authorities disagree on
which of a number of transportation corridors under development
will offer Yunnan the greatest opportunities, there does not
appear to be a shortage of funding for any of the new routes.
With massive capital expenditure transforming the physical
appearance of the province, however, opportunities to profit
from corruption abound, and at least one high-ranking official
is being hunted by police for "economic crimes." The Yunnan
border towns of Hekou (Vietnam),Mohan (Laos),and the Mekong
port of Jinghong (Thailand) have an "anything goes" kind of
atmosphere that government authorities do not in practice seem
intent on reining in. Still uncertain are whether cross-border
trade volumes will grow sufficiently to justify the investment
in transportation infrastructure, and which local interests will
benefit the most from increased border traffic. End summary.


2. (SBU) Consul General and Congenoff traveled recently to
Kunming and to Yunnan's southern borders with Vietnam and Laos,
meeting with provincial and local government officials as well
as businesspeople and ordinary residents. Visits to Muslim
religious communities in southern Yunnan were reported ref A.
Ref B reported on a trip by regional diplomatic representatives
along some of the same routes.

--------------

YUNNAN: WHICH WAY OUT?

--------------


3. (U) By all accounts, Yunnan lags far behind China's eastern
provinces in terms of international trade and foreign direct
investment. According to official figures on the province's

website, Yunnan's total foreign trade in 2006 was USD 5.3
billion, including USD 3.5 billion in exports. The biggest
single export commodities are nonferrous metals and chemical
products (about 41 percent of the total),followed by tobacco
and cigarettes and produce, including cut flowers.


4. (SBU) According to Yunnan Department of Commerce Deputy
Director Li Jiashou, Yunnan's ASEAN neighbors are receiving the
vast majority of the province's exports: USD 2.1 billion in
2006, up 41 percent from 2005, with the bulk going to Burma (USD
700 million),Hong Kong, and Vietnam. However, Li said that
trade volumes could grow even faster if the province's
transportation infrastructure could be improved, and he called
transportation improvements the "key factor" in attracting more
FDI. Li denied that a significant percentage of exports from
Burma to Yunnan in fact originate in Thailand. (Note: According
to the Thai Consulate General in Chengdu, many Thai traders go
through Burma in order to qualify for preferential customs
treatment from China, and most Burmese exports into Yunnan
should really be credited as Thai. See paragraph 22 below as
well. End Note).


5. (C) In response to a question from CG, Li indicated he is
particularly optimistic about the potential use of Burma as a
transit corridor for the import and export of goods from Yunnan.
He stressed the close relations between Chinese and Burmese
governments and that China is fully confident of the ability of
Burmese security officials to protect road networks in northern
areas of the country. Insisting that all areas transited by the
highway were under the firm control of Burma's central
government, Li opined that overall the cross-Burma route was a
far superior way to reach southern ports than transiting Laos
and Thailand. The movement of goods between Burma and Yunnan
should prove far more "convenient" than between Yunnan and
Thailand through Laos.

--------------

ON THE OTHER HAND ~


CHENGDU 00000124 002.2 OF 005


--------------


6. (C) During a separate meeting, however, Yunnan Department of
Transportation Deputy Director Yang Yan appeared to guffaw when
Congenoffs asked him whether it would make more sense for Yunnan
to use Burma for an import/export corridor over Laos and
Thailand. He freely acknowledged the existence of armed
militias in northern Burma, noting that stretches of the road
from China into Burma are "not good." Yan commented that it
would likely be many years before a secure and reliable
transportation network could be set up through Burma.


7. (SBU) Yan outlined Yunnan's overall transportation situation,
placing special emphasis on the challenges of establishing
provincial highways, which he termed "high (in elevation),
difficult (to construct),dangerous, and beautiful" (gao, nan,
xian, mei). He described four major road corridors intended to
strengthen Yunnan's links with its southern neighbors: (1) the
Kunming-Hanoi-Haiphong Highway, which he said was the shortest
route to the sea, at 940 kms, with the Chinese portion to be
completed by the end of 2007; (2) the Kunming-Bangkok Highway,
straddling Yunnan, Laos, and Thailand in roughly equal lengths
totaling 1818 kms (Yan said the Chinese portion would be
finished by the end of the year); (3) the 1989 km-long
Kunming-Ruilin-Rangoon highway (again, the Chinese section is
expected to be finished by the end of the year, but
construction of the Burmese portion is said to be proceeding
slowly); and (4) the Kunming-Chittagong Highway, passing through
Burma, India, and Bangladesh over a portion of the World War
II-era Stilwell Road (Yan said this highway is in the
preliminary planning stages only).


8. (C) Note: Although it did not come up as a subject of
conversation, one of Yan's former superiors in the Yunnan
Transportation Department, Vice General Director Hu Xing,
disappeared in January 2007 after a warrant was issued for his
arrest due to a "serious economic crime," and recent media
reports indicate that he has been arrested in Singapore. Local
contacts have noted to us that the large infrastructure
investments subsidized by the central government in Yunnan's
transportation and other sectors have been accompanied by
significant levels of corruption, and a highly placed official
of the Kunming Urban Planning and Land Administration Bureau has
also been recently arrested on similar charges. End note.

--------------

THE ROAD TO HEKOU

--------------


9. (SBU) Following these initial provincial-level briefings, CG
and Congenoff drove the roads linking Kunming to the Vietnamese
border city of Hekou (on the Red River) and to the Laotian
border town of Mohan. Long stretches of highway were still
under construction, forcing our vehicle to travel on winding and
narrow stretches of secondary roads - which became distinctly
more treacherous and badly maintained as they neared the border
areas.


10. (SBU) Getting to Hekou required 12 hours of driving from
Kunming through often quite mountainous terrain. For much of
the last half of the trip, the road paralleled the meter-gauge
railroad originally constructed by the French to link Haiphong
with Kunming. The railroad is still in operation, although we
saw few trains running, and locals told us there is no more
passenger traffic between Kunming and Mengzi, about 400
kilometers away. That section of the track has already been
widened to standard gauge, with the remainder of the track in
Chinese territory also slated for widening within the next few
years.


11. (C) Mengzi, the capital of Hong He ("Red River") Autonomous
Prefecture, appeared to be a relatively prosperous town almost
completely rebuilt and dotted with brand new, massive, and
rather expensive looking government buildings -- some decorated
to resemble 18th century French palaces - more suitable for a
national seat of power. One local contact referred to the
Mengzi government's building boom as a "scandal" and noted that
at least one deputy mayor had been removed for corruption.
Somewhat coincidentally, CG ran into the said deputy mayor (whom
he had met on a previous visit to Yunnan) in the lobby of a
Mengzi luxury hotel built on a lake near the downtown shopping
district. The former deputy mayor currently works for Yunnan's

CHENGDU 00000124 003.2 OF 005


Forestry Department in Kunming and noted to CG he was in Mengzi
for "business."

-------------- --------------

HEKOU: YUNNAN"S "LITTLE HONG KONG"

-------------- --------------


12. (SBU) Truck traffic on the highway from Mengzi to Hekou was
very light in both directions. Several large trucks heading
toward Vietnam carried large loads of steel products. Our
driver (a Yunnan native) told us that the steel had been
manufactured in central Yunnan, and was being exported to
Vietnam for use in construction projects there. A few small
trucks filled with produce were heading north. As we approached
Hekou, the road narrowed and wound through thick forests.
Closer to the border was a large and well-maintained graveyard
filled with soldiers killed during the 1979 war with Vietnam.
The driver commented Chinese troops had been "slaughtered"
during the war by the Vietnamese, who were much more experienced
in jungle warfare, and there were a number of even larger
military graveyards in the region.


13. (SBU) Hekou itself proved to be a small (9000 residents)
city perched on the border of the Red River. During the
afternoon of our arrival, about 30 Chinese trucks waited to
cross the border, most loaded with iron and steel products. We
did not see any trucks coming from the Vietnamese side.


14. (SBU) Despite the apparent slowness of the cross-border
trade, Hekou Bureau of Commerce Deputy Director Dong Gaoyun
extolled her city's virtues, calling it "little Hong Kong." She
claimed that cross-border trade had increased by an average rate
of 36 percent per year since 1999. Even better were the
prospects for further growth made possible by major
infrastructure projects: the imminent completion of the highway
to Kunming; the widening of the meter-gauge railroad; river bank
stabilization; and, most importantly, the construction of a
large new bridge over the Red River and border trade processing
area about a mile upstream from the site of the present bridge.
(Note: the new bridge did not appear particularly "large" to us
nor would it have to be, as the Red River looks like it could be
easily waded across at this relatively narrow crossing point.
End note.)

-------------- --------------

PROSTITUTION AND THE EAST IS RED

-------------- --------------


15. (C) Official pronouncements aside, one aspect of Hekou's
economy was quite evident -- its sex industry. Prostitution,
fueled apparently by lots of ready cash on the Chinese side of
the border, along with the illegal immigration of many young
Vietnamese women, was booming and conducted quite openly. While
CG and Congenoff ate dinner at an outdoor restaurant in the
central business area, a small truck drove by repeatedly
advertising the services of "special district love slaves" (Te
Qu Ai Nu) via loudspeaker and rather risqui posters (the same
truck had driven by previously in broad daylight while Congeoffs
were accompanied by local officials). Walking through a local
handicraft and produce market just a short time later, a young
woman who from her accent appeared to be Vietnamese leapt from a
sofa inside a small store and grabbed Congenoff in an attempt to
drag him into her place of business. In our hotel, we were
awakened repeatedly by telephone calls from anonymous women.


16. (SBU) In an apparent throwback to the '79 border conflict,
CG and Congenoff were awakened early the next morning by
loudspeakers aimed from Hekou into Vietnam blaring "The East Is
Red," followed shortly thereafter by patriotic music played from
the Vietnamese side of the border. (Note: Relatively
new-looking air raid drill instruction notices could be seen
posted throughout the town. End note). At 8:30 am, Congenoffs
watched the Chinese flag-raising ceremony, followed by the
opening of the cross-border bridge to traffic. First, a single
Chinese man holding the hand of a small boy walked by themselves
towards Vietnam - we were told that the man was probably
originally from Vietnam and was taking his son to school.
Shortly afterwards, a crowd of about 300 Vietnamese farmers
began running across the bridge toward China, bringing baskets
of fresh produce for sale in local markets. The trucks on the

CHENGDU 00000124 004.2 OF 005


Chinese side that had been waiting to cross the afternoon before
had all disappeared, and no new ones had yet taken their place
at the border inspection point.

-------------- -

MOHAN: "THE NEXT SHENZHEN"

-------------- -


17. (SBU) The provincial Foreign Affairs Office (FAO) refused
permission for CG and Congenoff to drive directly from Hekou to
the China-Laos border town of Mohan (population approximately
700),a route that would have taken our vehicle along the roads
directly paralleling the Vietnamese and Laotian borders.
Instead, the route prescribed by the FAO required us to spend an
extra day driving north to the main highway before cutting back
down to follow the route of the Kunming-Bangkok highway (most of
which was unfinished from Yuanjiang to the Laotian border).


18. (C) We saw little Chinese truck traffic headed south to
Laos, even less than on the road to Hekou. However, many large
trucks filled with produce (often mangosteens) passed us by
headed north from the Laotian border. Local contacts told us
that Laotian drivers and trucks were allowed to drive on
Yunnan's highways as far north as Kunming, while Chinese drivers
and trucks could drive into Laos as far as Vientiane (note: see
paragraph 22 below concerning the use of falsified certificate
of origin documents in cross-border agricultural trade. End note)


19. (SBU) The first part of that trip from Yuanjiang to Mohan
was quite spectacular - 30 percent of the 147 kilometer stretch
just south of Yuanjiang is said to be consist of bridges and
tunnels. However, the last eight hours proved to be a
bone-jarring ride over badly decayed secondary roads twisting
through dense tall canopy jungle. In those areas where the
route of the new highway was visible, construction activity
appeared to be feverish, with large earthmoving vehicles and
steamrollers working constantly. Mohan itself was a sleepy
little (population 700) town with little evident (legitimate)
commercial activity. A quick after-dinner stroll around the
city's sleepy streets showed lots of new but often empty
buildings. However, one prominent two-block area was devoted to
the "entertainment" industry, and on the town's main drag, we
saw a woman about 35 years of age shepherd a group of teenaged
looking girls into a karaoke club, saying "come on, girls,
you've got customers waiting."


20. (SBU) Daylight the next morning revealed a line of about 15
Chinese trucks waiting to cross into Laos, most filled with
hardware and construction materials. In an office near the
border crossing post, Congenoffs met with Mohan Border Port
Deputy Director An Yongxiang. While admitting his town
attracted far less attention from outsiders than did other some
areas including Hekou, he still waxed rhapsodic about the town's
prospects, calling it the "next Shenzhen." Why? According to
An, the answer lies in the prospects for Chinese-Thai trade that
will accompany implementation in the next few years of a
China-ASEAN free trade zone, as well as the promised completion
of the Yuxi-Mohan Railway (a part of the Trans-Asian Railroad).
He admitted, however, that few provincial or central government
delegations had visited Mohan recently and that the town's
prospects had not yet appeared to attract much attention.

--------------

THE PORT OF JINGHONG

--------------


21. (SBU) From Mohan, CG and Congenoff spent a rather long eight
hours on the road driving to Jinghong, the capital of the
Xishuangbanna Dai Autonomous Prefecture. Jinghong is also the
first significant port inside China on the Mekong River, known
in Chinese along that stretch as the Lancang River. Local
officials told us the river is suitable for smaller oceangoing
ships during high-water seasons, although rocky and shallow
areas often made the journey difficult. A visit to Jinghong's
port facilities indicated they were used mostly for passenger
traffic and engineered to deal with large fluctuations in the
river's water levels. We did not see any evidence of freight
vessels coming into Jinghong or using the port facilities,
perhaps due to the very low water levels during our visit.


CHENGDU 00000124 005.2 OF 005



22. (C) Introduced to us by the Thai Consul General resident in
Chengdu, CG and Congenoff met with a local Dai minority (ethnic
Thai) businessman based in Jinghong. The Dai trader is involved
in a number of border-related agricultural and transportation
businesses in both China and Thailand, and hinted at
relationships with militia leaders in Burma. He confirmed to us
that "around 80 percent" of agricultural goods exported from
Thailand to China are shipped under falsified documents showing
that they originate in Laos or Burma in order to take advantage
of lower tariff rates applying to those countries.


23. (C) The trader also stressed that successful enterprises
engaging in large volumes of cross-border trade in the region
are regularly shaken down for bribes by officials and (in Burma)
by armed militias, and merchants needed to be flexible and smart
in order to prosper. According to the trader, the writ of China
central or provincial-level government officials does not in
practice go very far along Yunnan's borders Laughing, he cited
his own transportation company as an example, and said that it
is much easier to expedite cargo by giving gifts to local
customs officials than to go through official bureaucratic
processes. The trader made it quite clear that with a
combination of the right connections and local expertise, it is
possible to move any kind of cargo expeditiously within the
region.


24. (SBU) During an obligatory banquet in our honor, Jinghong
Foreign Affairs Office representatives stressed that tourism --
both internal and international -- is a major pillar of the
local economy. They agreed that the city's location in China's
"tropics" and proximity to the protected national areas of
Xishuangbanna gives the place an atmosphere of exoticism. Many
Chinese come to Xishuangbanna to see wild monkeys and elephants
(Note: we understand in reality it is actually quite difficult
to see such animals "in the wild." End note). While our FAO
hosts talked, the restaurant put on a so-called "cultural show"
consisting for the most part of young, scantily-clad women
dancing and singing according to "Dai traditions." Between
numbers they circulated through the restaurant to force drinks
upon a giggling audience of mostly Han Chinese tourists.

--------------

COMMENTS

--------------


25. (C) While there can be no doubt that modern high-speed roads
and rail connection will greatly facilitate the flow of goods
from Yunnan to its ASEAN neighbors, several important questions
remain. Will China's poorer neighbors benefit from an even
larger and cheaper flood of manufactured items from China? Will
the new roads bring an upsurge in drugs and sexually-transmitted
diseases? Will they bring more illegal immigration across those
southern borders? And perhaps most important, who will be the
ultimate beneficiaries of the new trade links?


26. (C) On the road from Mohan to Jinghong, CG and Congenoff
stopped at a very poor Dai village located just by the side of
the road. The place was filthy, and the villagers' livestock
(pigs, water buffalo, and chickens) lived in the lower levels of
the villager's huts. Pumps in the middle of the village belched
out suspiciously brown water intended for domestic use. We
asked the village residents what they thought of the new road.
Would it bring them greater opportunities? Most villagers just
shrugged and turned away, but one said directly, "This is a rich
man's road. We're poor. How can it help us?
BOUGHNER