CHINA/RUSSIA: CROSS-BORDER TRADE SUFFERS FROM ECONOMIC

UNCLAS SECTION 01 OF 02 BEIJING 001543 SENSITIVE SIPDIS C O R R E C T E D C O P Y (PARAGRAPH MARKINGS CORRECTED ) E.O. 12958: N/A TAGS: PREL PGOV ECON EIND ETRD CH RS SUBJECT: CHINA/RUSSIA: CROSS-BORDER TRADE SUFFERS FROM ECONOMIC DOWNTURN, RUSSIAN CRACKDOWN ON SHUTTLE TRADERS REF: VLADIVOSTOK 051 BEIJING 00001543 001.6 OF 002 This cable is Sensitive but Unclassified (SBU) and for official use only. Not for transmission outside USG channels. ¶1. (SBU) SUMMARY: China-Russia cross-border trade has dropped noticeably since October 2008, due largely to Russia's economic troubles and a Russian crackdown on Russian shuttle traders, according to Chinese officials in the border town of Suifenhe in Heilongjiang Province. Suifenhe officials have adopted a number of measures to support the local timber industry and attract more Russian tourists, while at the same time seeking central government stimulus package funding for large-scale infrastructure projects and investment in the IT sector. In spite of the region's proximity to Russia, relatively few Chinese students study Russian in school. The region has attracted some large-scale Russian investors, including one who bought a former state-owned cement factory and turned it profitable. Concerned about the difficult job markets, some university students are looking to go to western China to find work. Administrators at a local university canceled an Embassy official's presentation on U.S.-China relations, reflecting local concerns about discussing "sensitive" subjects in the lead-up to the 20th anniversary of the Tiananmen Square massacre. End Summary. ¶2. (SBU) EconOff recently traveled to Suifenhe, a border town in Heilongjiang Province with a population of 160,000, as well as Mudanjiang, a city of 800,000 that is approximately 160 kilometers from the Russian city of Vladivostok. Cross-Border Trade Takes a Big Hit -------------- ¶3. (SBU) Cross-border trade between China and Russia has dropped noticeably since October 2008, according to Suifenhe's Vice Mayor Zhang Aizhong. Zhang blamed the drop in trade on the global economic crisis, devaluation of the Russian ruble, inflation and Russian economic policy changes. In particular, he mentioned Russia's increase in export tariffs on timber products and Russia's crackdown on "pomogaiki," Russian shuttle traders who had received subsidized trips to China from Russian retailers in return for carrying goods back for resale. The "pomogaiki" were previously allowed to carry 35 kilograms of goods into Russia duty-free for "personal use." The number of Russians crossing the border at Suifenhe has plummeted from 5000 a day in 2008 to approximately 1500 a day now, a reflection of the dramatic drop in the number of shuttle traders. Chinese Border Town Responds to Downturn, Gets Stimulus Funding -------------- -------------- ¶4. (SBU) Given the importance of cross-border trade to Suifenhe's economy, local authorities have adopted a number of measures to boost trade. Vice Mayor Zhang said the city would support the timber industry by building new storage/processing facilities, reducing import duties to the 11-30 percent range, and reducing corporate income taxes levied on timber processors. The city is encouraging timber industry restructuring to move away from sawmills to plywood production and thereby take advantage of lower Russian export duties on sawn wood. To attract more Russian tourists, Suifenhe now allows Russians to cross the border visa-free for trips up to four days. A local official complained that Russians were no longer crossing the border "because they have no money" but predicted the increase in the price of oil and recovery of the Russian economy would bring large numbers of Russians back to Suifenhe. Zhang said the Suifenhe city government had also been lobbying to get stimulus package funding from the central and provincial governments, noting their success in receiving RMB 200 million from the central government to build a high-speed rail from Suifenhe to Mudanjiang that had been in the planning phase for years. Suifenhe: E-city of the Future? -------------- ¶5. (SBU) Suifenhe has also adopted plans to transform the city into a high-tech, digitized city, Vice Mayor Zhang told EmbOffs while showing off a futuristic exhibition on "Suifenhe: Digitized City." Parts of the plan have already been implemented, such as digitized port and customs facilities and a network of more than 300 security cameras that provide a continuous, live feed to a centralized control room and allow city officials "to maintain social order." Zhang said the city was in talks with Microsoft and other software companies in an effort to develop e-government, digitize city services and health records, and promote the use of energy-saving technology such as smart meters for utilities. BEIJING 00001543 002.3 OF 002 Russian Investment Turns Former SOE Profitable -------------- - ¶6. (SBU) Heilongjiang Province has attracted a number of large-scale Russian investors in recent years. One example is the Mudanjiang Jianxin Cement Group, a former state-owned enterprise that went bankrupt in 2008 and was bought by a private Russian investor in August 2008. The Russian CEO told EmbOffs May 14 that the cement factory retained 1300 of the factory's previous 4000 workers. He said the factory was now profitable, crediting the company's investment in newer and more energy efficient technology and growing demand for cement needed for major infrastructure projects in the region. The same investor plans to invest in a "Russian culture street" in Mudanjiang. Russian Language Study: Even Near Border, Few Study Russian -------------- -------------- ¶7. (SBU) In spite of Mudanjiang's relative proximity to the Russian border, the school's largest high school eliminated its Russian language program several years ago. While showing off the school's English language program, the school principal told EconOff that few students now wanted to study Russian because only a small number of Chinese universities offered Russian language as a major. One of those universities is the local Mudanjiang University, where approximately 300 of the university's 7000 students study Russian. Two hours away in the border town of Suifenhe, about 30 percent of school students study Russian while 70 percent study English, according to a local official. The official lamented the declining interest in the Russian language among the city's youth, commenting that "even here on the border, most parents prefer that their children learn English in school." Graduates Looking West, Administrators Looking to Avoid Trouble -------------- -------------- ¶8. (SBU) During EconOff's visit to Mudanjiang University, students expressed concern about the difficult job market. Several students said they planned to go west to Xinjiang or Tibet after graduation to teach but hoped to return to the relatively prosperous east coast after a few years to find work in the private sector. A university professor said that his best students would likely find jobs after graduation but the weaker students would face a period of unemployment or be forced to settle for low-paying jobs unrelated to their majors. EconOff had planned to deliver a PowerPoint presentation to the students on U.S.-China relations but was not allowed to deliver the presentation because of its "sensitive" content. A local official expressed concern about one slide that mentioned U.S.-China relations reaching a low point in 1989 over human rights, commenting that "we don't discuss political issues at the local level." (Note: A week later, EconOff was allowed to deliver the presentation to over 200 students at a private college near Qingdao in Shandong Province. A contact at the college argued that, in spite of sensitivities about the 20th anniversary of the Tiananmen Square massacre, the presentation was not a problem because of Qingdao's relative openness and the fact that the private college was not required to get approval from the local Foreign Affairs Office.) PICCUTA