PRC-DPRK: BORDER OFFICIALS ON MUSAN MINE, RAJIN

C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000145

SIPDIS

SIPDIS

DEPARTMENT FOR INR, EAP/CM, EAP/K

E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION
TAGS: PINR PGOV ECON PREL KN KS CH
SUBJECT: PRC-DPRK: BORDER OFFICIALS ON MUSAN MINE, RAJIN
HARBOR, CROSS-BORDER DEVELOPMENTS

REF: A. (A) SHENYANG 126

B. (B) SHENYANG 101

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Classified By: CONSUL GENERAL STEPHEN B. WICKMAN.
REASONS: 1.4(b)/(d).


1. (C) SUMMARY: PRC imports of North Korean iron ore from
Musan are fueling a surge in activity at China's Nanping
Land Port; Chinese truckers collecting the ore comprised
over ninety percent of the 50,000 passengers that transited
the port last year, local Chinese officials say. Plans to
link northern Jilin Province by road with Rajin harbor--
where two Chinese firms have secured fifty-year user rights
to several docks, theoretically offering the PRC an outlet
to the Sea of Japan--are still in the works, though local
officials report that plans for a Chinese industrial park
near Rajin are on hold until the road link is operational.
Border authorities are far less optimistic about the number
of regulated barter-trade schemes all along the border--
whether in the form of existing zones or aspirational
plans--that have run aground in recent years. But
proposals--and hopes--continue nonetheless. END SUMMARY.


2. (C) Poloff traveled to the Yanbian Ethnic Korean
Autonomous Prefecture July 16-18, meeting with local PRC
political and trade officials in Yanji, as well as in the
key Yanbian PRC-DPRK border localities of Helong, Hunchun
and Tumen.

HELONG: GATEWAY TO MUSAN AND NORTH KOREAN MINING
-------------- ---

3. (C) Helong sits 70 kilometers south of Yanji, shares a
160-kilometer border with the DPRK, and administers two
land ports to North Korea: Nanping--across from Musan, home
to one of Asia's largest iron ore mines--and Chongshan's
Guchengli, across the Tumen River from Samjang (see ref A
for latest spot reports on both). Helong's trade fortunes
are heavily tied to Nanping, Jilin Province's largest and
the PRC's third most important land port, LI Guofu,
Director of Helong's Port Administration Office and its
Bureau of Commerce, told Poloff on July 18. Nanping in
2006 saw a trade volume of 840,000 tons and accounted for
roughly 70 percent of Helong's total 2006 foreign trade,
which totaled 1.2 million tons valued at USD 250 million.
Imports comprised USD 172 million (primarily North Korean
iron ore from Musan and lumber),and exports USD 81.8
million (mostly grain, processed food, seafood and light
industrial products). By contrast, Guchengli Land Port
last year saw less than a tenth of Nanping's total volume--
just 80,000 tons, according to Li. Pyongyang's October
2006 nuclear test had "no effect" on Helong, nor did it
usher in any changes in border trade or inspections
thereof, Li claimed.

THE MUSAN MINE: POLITICAL (AND ENVIRONMENTAL) SENSITIVITY
-------------- --------------

4. (C) Director Li and Helong Foreign Affairs Office (FAO)
Deputy Director JIN Xiongjie became noticeably more guarded
when asked about recent Chinese investment in the Musan
iron mine. Li confirmed that the privately-owned Yanbian
Tianchi Industrial Trade Company had acquired fifty-year-
long mining rights in Musan but said no other PRC
enterprises were/are a party to the venture. Li conceded
that Tianchi had contracts with the Tonghua Iron and Steel
Group--Jilin Province's state-owned steel heavyweight--but
denied that Tonghua itself was a party to the Musan
agreement, as reported in Chinese-language and other media
outlets. Li would only add that he expects Musan iron ore
imports through Nanping to continue to grow, alongside
imports of other North Korean minerals, as PRC firms
continue to negotiate with Pyongyang on developing other
proximate mines on DPRK territory.


5. (C) One somewhat overlooked aspect of the Musan mine,
particularly in recent press reporting, has been its local
ecological impact. Both Li and Jin acknowledged that the
mine had for quite some time posed certain environmental
problems for stretches of the Tumen River near Helong, but

SHENYANG 00000145 002.2 OF 003


they took pains to argue that the North Korean side has
been the source of the problem. Li explained that iron ore
extracted from Musan is crushed and washed before being
trucked across the border to Nanping, where it is then
further processed by Tianchi. It is primarily in the
washing process that toxins enter the river. Li claimed
that the North Korean side had recently "taken some
actions" to improve the pollution problem but demurred on
specifics. He seemed to imply, however, that the DPRK's
"actions" had been taken in response to Chinese prodding.



6. (C) Environmental sensitivities notwithstanding, Helong
officials sounded an upbeat tone on Nanping, which
continues to see increasing activity. Helong's Port
Administration Office has extended Nanping Land Port's
hours of operation by an hour, Li said, so that trucks can
now more easily make day trips into North Korea to haul
iron ore. And cross-border Nanping-Musan traffic has not
been insignificant. Li said that truckers comprised over
ninety percent of the 50,000 passengers transiting the port
last year, approaching 3500 transits per month on average.

HUNCHUN: GATEWAY TO RASON AND THE SEA OF JAPAN?
-------------- --

7. (C) Hunchun sits 90 kilometers north of Yanji, shares a
130-kilometer border with the DPRK and is home to two PRC-
DPRK land ports: Quanhe--a significant trade conduit that
offers a straight shot to Rason, North Korea--and the far
less significant Shatuozi. In 2006, Russia loomed largest
in Hunchun's foreign trade mix, accounting for nearly half
of its USD 450 million year-end overall total; PRC-DPRK
trade through Quanhe/Shatuozi amounted to only about USD 50
million, according to JIN Xi, deputy head of Hunchun's
local trade promotion authority, and ZHAO Bin, Deputy
Director of Hunchun's FAO. Echoing Helong port officials,
Jin and Zhao told Poloff on July 17 that the DPRK's nuclear
test has had "no effect" on Hunchun, whether on trade or
its trade inspections regime.


8. (C) Zhao and Jim both became remarkably cagey when asked
about Hunchun's ambitious but seemingly problematic plans
for integrating the city with Rason via Hunchun's so-called
"road-port-zone" (lu-gang-qu) project. The project
envisions a PRC entity upgrading the 48-kilometer road
linking Quanhe and Rajin; making use of piers (matou) in
Rajin harbor for shipping purposes; and constructing an
industrial park not far from the latter. Hunchun's 11th
Five-Year Plan claims that the project has already achieved
"substantive" progress, but both Zhao and Jin sounded
slightly less categorical. Hunchun's privately-owned
Donglin Trade Company has officially contracted to upgrade
the road; Donglin has also, Zhao and Jin confirmed,
partnered with the Rason municipal government--forming with
it and another Hunchun firm the Rason International
Logistics Joint Company--and acquired 50-year user rights
to Rajin Port's Pier 3, as well as rights to construct and
use Pier 4. However, plans for the five-to-ten-square-
kilometer "zone" (i.e., the industrial park) are on hold
until the road is paved, according to Jin. Media reports
and even Hunchun's own most recent Five-Year Plan seem to
suggest that Hunchun--and thus the PRC--may have some
official hand in these Quanhe-Rason integration plans.
When pressed on this, however, Jin and Zhao repeatedly
claimed that on the Chinese side it is a fully private
project, albeit one supported by the Hunchun government.



9. (C) Hunchun, in the meantime, continues to be a base for
Chinese investment in North Korean light industry,
attracting mostly small- and medium-sized local firms
seeking low wage rates and a platform for the production of
plastic goods, rubber boots, and undergarments, inter alia.
Hunchun-based investment has not so far extended to Chinese
state-owned enterprises (SOEs),Jin claimed. Hunchun
continues to primarily process North Korean seafood
products in its Export Processing Zone, though the zone is
likely to be eclipsed by a Sino-Russian Cooperative

SHENYANG 00000145 003.2 OF 003


Industrial Zone focused on timber processing slated to open
later this month.

BARTER-TRADE ZONES FLAGGING ALONG THE BORDER
--------------

10. (C) Regulated barter-trade schemes all along the
border, whether in the form of existing zones or
aspirational plans, have fared quite poorly in recent years
and continue to do so. No established barter-trade zone,
for instance, is currently operational along the border,
Tumen FAO Director CUI Zhenglong (protect) privately told
Poloff on July 18. But proposals--and hopes--continue
nonetheless. Helong FAO Director Jin Xiongjie told Poloff
that Helong has plans for a barter-trade zone, though he
offered no specifics. Hunchun's Quanhe-Yuandingli Barter-
Trade Zone closed several years ago because of a lack of
"complementarity," FAO Deputy Director Zhao Bin said--i.e.,
the North Korean side could offer nothing of interest to
Chinese traders and the zone fell into desuetude. In 2005
Beijing authorities gave a green light to Hunchun's plans
for a new PRC-DPRK barter-trade zone just 12 kilometers
from Hunchun on Qingyuan County's Liuduo Island, but
hopeful Hunchun authorities have yet to receive approval
from Pyongyang. Asked when the authorization might be
forthcoming, Zhao said "the sooner the better," only thinly
disguising his annoyance at North Korean delays. Even so,
Zhao and Hunchun trade official Jin Xi could offer little
insight on how Liuduo would differ from the ill-fated
Quanhe-Yuandingli zone and overcome the "complementarity"
problem.


11. (C) Other proposed barter-trade zone projects are
languishing elsewhere along the border, largely as a result
of DPRK stalling according to local Chinese border
officials. Included here are proposed PRC-DPRK zones for
Tumen/Onsung County (ref A),Sanhe/Hoeryong and
Changbai/Hyesan (ref B).
WICKMAN