CHINA'S DPRK-BOUND FOOD AID, AG EXPORTS CONTINUE

S E C R E T SECTION 01 OF 02 SHENYANG 000014

SIPDIS

SIPDIS

DEPARTMENT FOR EAP/CM, EAP/K, INR, EB

E.O. 12958: DECL: 01/23/2018
TAGS: PINR PGOV ECON ETRD EAGR KN KS CH
SUBJECT: CHINA'S DPRK-BOUND FOOD AID, AG EXPORTS CONTINUE
BUT SLOWDOWN LIKELY IN NEAR TERM

REF: 07 SHENYANG 252

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


1. (S) SUMMARY: Contrary to ROK press reports, PRC food aid
and agricultural exports to the DPRK have not been
suspended as a result of increased export tariffs on grain
and other agricultural commodities imposed by Beijing in a
bid to counter domestic inflation. New export regulations
and a drought-induced Chinese grain shortfall may, however,
unwittingly slow DPRK-bound agricultural shipments to North
Korea in the short term. PRC aid to North Korea will be
closely monitored in order to make sure grain shipments are
not used to circumvent domestic export restrictions.
Behind the scenes, Beijing is ordering major producers in
the country's grain belt not to export corn or soybeans
this year, regardless of quota availability. One local
PRC-DPRK border administration predicted that increased
tariffs will have an "important influence" on small-scale
border trade and may encourage smuggling. END SUMMARY.

PRC FOOD AID NOT/NOT SUSPENDED, BUT SLOWDOWNS POSSIBLE
-------------- --------------

2. (C) YANG Wenjia (STRICTLY PROTECT),Chief of the Foreign
Trade Administration Section of Dandong's Foreign Trade and
Economic Cooperation Bureau, privately confirmed that
Dandong this month implemented the Ministry of Commerce's
new export tariffs on grain and a number of other
agricultural commodities. He stressed that there has not,
however, been a suspension in PRC food aid or agricultural
exports to the DPRK, contrary to ROK press reports earlier
this month. The new Chinese measures apply equally to all
countries, and do not target the DPRK. Shipping items like
grain, Yang explained, now need additional permits. He
acknowledged that the new requirements may wave a "certain
impact" in the short term, but declined to say to what
extent the new measures would slow cross-border shipping
via Dandong, through which the majority of PRC-DPRK trade,
and much of the PRC's aid to North Korea, passes.

INCREASED SCRUTINY OF NK AID TO COME
--------------

3. (S) Increased tariffs are ultimately only part of a
bigger picture, according to an insider at one of Jilin
Province's largest grain producers. WANG Haisheng
(STRICTLY PROTECT) of the Jilin Grain Group Export and
Import Company again confirmed that there will be severe
restrictions on grain exports in 2008 (see reftel). Wang
said that aid to North Korea would be closely monitored in
order to make sure grain shipments are not being used to
circumvent domestic grain-export restrictions.


4. (S) Behind the scenes, central authorities have told
companies like Jilin Grain Group not to export any corn or
soybeans, regardless of quota availability. Rice is also
being tightly controlled. Wang said that the PRC is
currently releasing large amounts of stored grain
domestically in a bid to moderate prices. He echoed Yang
Wenjia's assessment that aid/exports to North Korea may be
delayed to a certain extent, but offered another reason:
China is currently still shopping for supply in the global
markets to simultaneously cover a current shortfall through
the upcoming Spring Festival, as well as to replenish
strategic stores. Wang said the problem is largely one of
inadequate supply due to a drought-induced poor harvest in
the northeast grain belt, the PRC's grain-producing
powerhouse. While press reports say that 2007 slightly
surpassed 2006, Wang confided that yields were down by ten
to twenty percent in all of northeast China, with the
exception of southern Liaoning Province.

"IMPORTANT INFLUENCE" ON SMALL-SCALE BORDER TRADE
-------------- --------------

5. (U) According to a report by customs authorities in
Ji'an, a key northern Liaoning PRC-DPRK border town
opposite the DPRK's Manpo, the new PRC grain restrictions
will have an "important influence" on small-scale cross-
border trade in the area. The online report, dated January

SHENYANG 00000014 002 OF 002


15, predicted that the level of local exports to the DPRK
would drop in the near term, while the price of Chinese
grain exports would continue to rise as a result of growing
producer costs. Another consequence also mentioned: a
potential surge in cross-border smuggling.
WICKMAN