Identifier
Created
Classification
Origin
07CHENGDU33
2007-02-01 09:21:00
CONFIDENTIAL
Consulate Chengdu
Cable title:  

ORANGE GROVES AND CORRUPTION ALONG THE YANGTZE

Tags:  ECON EAGR PGOV SENV CH 
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VZCZCXRO4586
RR RUEHGH RUEHVC
DE RUEHCN #0033/01 0320921
ZNY CCCCC ZZH
R 010921Z FEB 07
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2373
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 2868
C O N F I D E N T I A L SECTION 01 OF 03 CHENGDU 000033 

SIPDIS

SIPDIS

STATE FOR EAP/CM
BANGKOK FOR USAID/MSTIEVATER AND SKISSINGER

E.O. 12958: DECL: 2/1/2032
TAGS: ECON EAGR PGOV SENV CH
SUBJECT: ORANGE GROVES AND CORRUPTION ALONG THE YANGTZE

CHENGDU 00000033 001.2 OF 003


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



C O N F I D E N T I A L SECTION 01 OF 03 CHENGDU 000033

SIPDIS

SIPDIS

STATE FOR EAP/CM
BANGKOK FOR USAID/MSTIEVATER AND SKISSINGER

E.O. 12958: DECL: 2/1/2032
TAGS: ECON EAGR PGOV SENV CH
SUBJECT: ORANGE GROVES AND CORRUPTION ALONG THE YANGTZE

CHENGDU 00000033 001.2 OF 003


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




1. (U) This cable contains business sensitive information -
please protect accordingly.


2. (C) Summary. During a recent visit by Consul General and
Congenoff to Chongqing's Zhongxian County, U.S. investors in a
citrus cultivation project described the many trials and
tribulations of trying to turn a profit in this remote corner of
China. Although relatively small in terms of dollars invested,
if successful the project could prove a great boon to an
economically backward area. Corruption, poor local government
practices, and outright theft and bureaucratic incompetence,
however, remain major challenges for an investment that has
reportedly been brought to the attention of the highest levels
of the Chinese government. End summary.


3. (SBU) Consul General, Congenoff, and Consulate Econ Assistant
recently visited Chongqing to investigate economic and social
conditions in the Three Gorges Dam reservoir area. Results of
official meetings, and of a visit to the nearby city of Fuling,
will be reported septel. During that same trip, Congenoffs also
visited Zhongxian County, about four hours by car from
Chongqing's urban areas. There they inspected a project
undertaken by the Edgar M. Bronfman Citrus Company ("Bronfman")
to develop an orange juice industry in the area.


4. (C) Before the visit, FAO officials contacted Consul General
and made two requests: first, that Congenoffs would only visit
certain orange groves designated by local officials; and second,
that an FAO official be present whenever Congenoffs met with
Bronfman representatives. Consul General declined those
requests.

--------------
THE PROJECT: GOOD ON PAPER
--------------


5. (C) In Zhongxian, Consul General and Congenoff met with
Bronfman CEO Jeffrey S. Muir, Business Operations Director Cindy

Lau, and Project Construction Director Rene Trevino (strictly
protect all). Neither Chinese officials nor Consulate Econ
Assistant attended, and the meeting took place in Muir's hotel
room. Muir, an Amcit resident in Hong Kong, has more than 30
years of experience in China and in agricultural development
generally, and he claims access to the highest levels of Chinese
political leadership. He speaks both Mandarin and Cantonese.


6. (C) Muir began by outlining the history of the project.
Shortly after 2000, managers of what was then the Seagram
Company conceived the idea of using the resettled areas of the
Three Gorges project for the cultivation of juice oranges.
(Note: Seagram's parent company Bronfman took over the project
after 2004. End note.) Although transportation and other basic
infrastructure were lacking, Muir and Trevino indicated that
Zhongxian's climate and soil conditions make it perhaps the best
location in all of East Asia in which to develop juice orange
groves. After obtaining the approval of central and local
government agricultural officials, company representatives gave
large numbers of orange seedlings to Zhongxian farmers, with the
idea that by the time the trees matured in five to seven years'
time, the company would have a juice processing plant
constructed and operating.

--------------
THE VULTURES GATHER
--------------


7. (C) According to Muir, local officials assigned a Zhongxian
businessman named Lan Yihua to assist the company, and urged
Seagram/Bronfman to consider Lan as a joint venture partner once
the project became commercially viable. (Note: Muir said that
Lan had served as a high-level manager of the Three Gorges
Construction Group before that entity had been privatized, and
as a result had powerful political connections. He currently
serves as Vice Chairman of the Zhongxian CPPCC. End note.)
Muir alleged that Lan quickly moved to "use" the
Seagram/Bronfman names to get financial assistance from central
and local government agencies, and then diverted those funds to
his own use. One example Muir gave was the town of Wuyang
across the river from Zhongxian, where Muir said Lan had
misappropriated funds intended for the construction of roads and
orange groves. Muir remarked it was well known in the area that
Lan was protected by Chongqing Deputy Mayor Chen Guangguo, the

CHENGDU 00000033 002.2 OF 003


number three in the Chongqing Communist Party hierarchy.


8. (C) Muir also said that Seagram/Bronfman had invested USD 11
million in constructing and staffing a technical assistance
center to help farmers deal with the challenges of raising
commercially viable fruit. In December of 2004, Muir continued,
the company was served with a "court order" requiring it to turn
the center and all of its funds over to the county government.
Muir described how "five cars full of thugs" delivered the
"order." At the same time, according to Muir, the center's
former general manager and other local businesspeople began a
smear campaign against Muir, accusing him of having diverted
project funds to Hong Kong. Muir was however able to leave the
area and return to his home in Hong Kong. The local government
assumed oversight of the orange groves.


9. (C) By the summer of 2005, said Muir, the technical center
had been "abandoned," and farmers had become unhappy with the
lack of support, to the point of organizing occasional
demonstrations against local officials. In an effort to restart
the project, Muir said he contacted former Hong Kong Chief
Executive C.H. Tung, and wrote letters to the National People's
Congress and to central bodies of the Chinese Communist Party.
Muir said the Bronfman family patriarch personally visited China
and raised the project with Premier Wen Jiabao and Chongqing
Party Secretary Wang Yang. Although the "lobbying" process was
lengthy, the political pressure proved effective, and in
December 2005 local officials invited Bronfman to return.
However, only about half of the orange groves were returned to
Bronfman's oversight, while the remainder continued to be
managed by Lan and by the local government.


10. (C) Muir noted the time and money lost as a result of those
malfeasances had caused significant delays, and the project now
looked likely to get only half of its originally anticipated
juice supply. In addition, project managers faced enormous
challenges in educating local farmers to maintain the trees
properly, and to avoid the process of "intercropping," in which
other crops such as tobacco, cabbages, potatoes, and peanuts
were planted between the rows of orange trees. Addressing the
subject of damage from the recent drought, Muir and Trevino said
that although trees had suffered some stress, none had died,
partly as the result of "water bucket brigades" organized by
local farmers.


11. (C) Bronfman is proceeding with the construction of the
juice processing plant, and Congenoffs toured the site. Muir
and Trevino told Congenoffs that they hoped to have the plant
operating by the end of 2007. Muir claimed Bronfman's main
purpose in maintaining the project was not "economic" at this
time, but Bronfman hoped to make political points at the central
government level. At one point, Bronfman officials had hoped to
market an orange juice product for the Chinese domestic market
in time for the 2008 Olympic Games, but Muir and Trevino agreed
that this goal was almost impossible.

--------------
CORRUPTION AND FEAR
--------------


12. (C) In a comment on the current state of local leadership,
Muir described corruption as "extensive," although he said the
situation had improved somewhat as the result of increased
central government attention to the Three Gorges resettlement
areas. According to Muir, corruption and large income gaps in
areas of Chongqing have attracted the personal interest of
Premier Wen Jiabao, who has "lambasted" local officials for poor
performance. Businessman Lan, however, has been able to
continue to create problems for the project by interfering in
Bronfman's relationship with the local government.


13. (C) Addressing his relations with local farmers, Muir said
he is careful to avoid being cast as an "advocate" for rural
residents. He said that local officials were "terrified" of the
farmers, due to ongoing discontent over land use and
resettlement, and the farmers' reputation for violence. Asked
about farmer's associations, Muir said that although they
operated outside the immediate control of the local government
and Communist Party, those associations closely mirrored the
structure of previous agricultural work units dating from the
time of collectivization, and local security officials monitored
all of their activities carefully. He said that Bronfman's
local office had two or three staff members who reported to
security officials as well.


14. (C) Congenoffs and Bronfman officials later met with
Zhongxian Vice Party Secretary Chen Daoliu, who called the
project a "win-win" situation. He also noted that Bronfman's

CHENGDU 00000033 003.2 OF 003


total planned investment in the project (USD 13 million for the
technical center and trees plus USD 30 million for the
processing center) was far in excess of the county's annual GDP,
underscoring its importance to the area's economy. He stressed
the Zhongxian government's support for the project. (Note: Muir
later described Chen Daoliu as a "relatively good guy" compared
with other local officials. End note.)

--------------
COMMENT
--------------


15. (C) Bronfman's citrus project is quite small by the
standards of multinational FDI, but if it succeeds, it could
have an notable impact on the local economy of one of
Chongqing's most backward areas. However, Muir's story of
corruption makes it clear local officials and business figures
often do not have the long-term interests of their citizens at
heart, and the project's ultimate commercial viability is far
from certain. The story serves as a cautionary tale about the
challenges of doing business in China's hinterlands and the
major developmental difficulties faced by government
authorities. Congen will continue to try to monitor the project
closely.
BOUGHNER