BURMA: GEM AND JADE EXPORTS INCREASE IN 2008;

C O N F I D E N T I A L SECTION 01 OF 04 RANGOON 000333

SIPDIS

STATE FOR EAP/MLS, INR/EAP, EEB/TFS, INR/EAP, OES
BANGKOK FOR REO OFFICE
PACOM FOR FPA
TREASURY FOR OASIA, OFAC

E.O. 12958: DECL: 06/05/2019
TAGS: ECON SENV PREL PGOV ETRD PINR BM
SUBJECT: BURMA: GEM AND JADE EXPORTS INCREASE IN 2008;
DECLINES EXPECTED IN 2009

REF: A. 08 RANGOON 060

B. 08 RANGOON 061

C. 08 RANGOON 750

D. CHIANG MAI 70

RANGOON 00000333 001.2 OF 004


Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d).

Summary
--------------


1. (C) The total value of Burmese jade and gem exports in
2008 increased by 30 percent over the previous year, with
jade sales accounting for 98 percent of the total. Trade
analysts predict 2009 exports will drop due to the continuing
world economic crisis and declining demand. In 2008 the
majority of Burma's high-quality jade and gems were sold at
state-run auctions, although gem dealers hint that persons
connected to the regime smuggle out the best stones.
Additionally, many medium and lower quality stones are sent
to China and Thailand through illegal border trade or are
sold in local markets. State-owned Myanmar Gems Enterprise
accounted for 95 percent of 2008 jade and gem exports,
funneling profits directly into regime coffers. End Summary.

Regime Controls Jade and Gems
--------------


2. (C) The regime strictly controls Burma's jade and gem
sector. State-owned enterprises including Myanmar Economic
Holdings Ltd. (MEHL) and Myanmar Gems Enterprise control the
production of Burma's gem and jade mines and the sale of any
extracted products. According to Burmese Law, private
Burmese companies interested in the extraction of jade or
gems must form joint ventures with MEHL to receive mining
permits from the Ministry of Mines. Foreign companies are
not allowed to mine gems or jade in Burma. According to Nay
Min Han, General Manager of MK Gems (a leading private gem
dealer),joint venture agreements require private companies
to sell high-quality gemstones through MEHL at the
government's annual emporiums. However, MEHL permits firms
to sell and export lower-quality stones through private
sales. In comparison, GOB regulations mandate that all jade
mined in Burma must be sold at MEHL auctions.

Going Once, Going Twice...
--------------


3. (C) MEHL holds jade and gem emporiums four or five times
a year, depending on available stocks. The GOB identifies
and invites local and foreign companies and individuals to
participate in the week-long emporiums. Prices are set in
euros, and companies must pay a registration fee of 10,000
euros in order to bid on available lots through silent
auction (Refs A and B). In 2008 MEHL held four auctions, in
March, July, October, and December. According to Zaw Win
Naing, General Manager of privately-owned Kambawza Bank
(which owns several jade and gem mines),the majority of
companies participating in the 2008 emporiums were from
China, Hong Kong, and Thailand. While the GOB did not
release official sales figures from these emporiums, Zaw Win
Naing estimated that the regime earned more than USD 700
million.

RANGOON 00000333 002.2 OF 004



High Demand in 2008
--------------


4. (C) According to Burmese private consulting firm
Business Investment Group (BIG),2008 was a record year for
Burmese exports of jade and gemstones. Burmese state-owned
enterprises and private companies officially exported over
USD 731 million in jade and gems, a 30 percent increase over
2007 levels. Jade sales accounted for 98 percent of exports,
with the 33.6 increase in jade exports in 2008 offsetting the
46.1 decline in gemstones (see chart below). Myanmar Gems
Enterprise, a company under the jurisdiction of MEHL,
exported approximately 95 percent of Burma's jade and gems in
2008, worth approximately USD 694 million. Other state-owned
enterprises, including Myanmar Ruby Enterprise, Myanmar Pearl
Enterprise, and Myanmar Jade Enterprise, as well as several
private companies, accounted for the rest of 2008 exports.

-------------- --------------
Burma's Jade and Gem Exports
2005-2009*
In Millions US Dollars
-------------- --------------
Product 2005 2006 2007 2008 2009*

-------------- --------------
Gems 28.8 30.3 26.5 14.3 4.2
Jade 167.8 375.8 535.1 714.8 191.1
-------------- --------------
Total 196.6 406.1 561.6 731.9 195.3
-------------- --------------
Source: Business Investment Group, May 2009
*Through March 2009


5. (C) While the GOB does not include border trade figures
(illegal or legal) in its official statistics, BIG trade
analysts estimate that in 2008 approximately USD 15 million
worth of gems were smuggled out of Burma, either to China or
Thailand. Nay Min Han estimated that the value could be even
higher, and intimated that as more military officials (and
their spouses) and regime cronies become involved in gem
mining and trade, smuggling of high-quality stones will
increase. (Note: this corroborates what a Burmese gem
dealer told the GAO team in Chiang Mai in May -- Ref D.) Zaw
Win Naing told us that jade is not sold via border trade, as
jade pieces, unlike rough gems, are often too large and
conspicuous to smuggle across the border.


6. (C) According to BIG, a substantial majority of Burma's
jade and gem exports go to Asia. In 2008 Japan and Thailand
imported approximately two-thirds of Burma's gemstones. BIG
trade analysts stated that, unlike in previous years, there
is no official record of official sales of gems to China or
the United States. They indicated that gems may have been
exported to China via unofficial border trade. According to
Nay Min Han, the substantial drop in gem exports was due to
decreasing demand for Burmese stones worldwide. He opined
that while the price of gems has increased during the past
few years, the quality of Burmese gems has decreased,
accounting for lower demand.

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

RANGOON 00000333 003.2 OF 004


Destination of Burmese Gem Exports 2006-2008
In Millions US Dollars
-------------- --------------
Destination 2006 2007 2008

-------------- --------------
Japan 8,728,056 11,401,587 7,643,496
Thailand 13,769,775 8,595,049 3,734,373

Hong Kong 3,697,046 3,903,062 2,633,385
Australia 899,712 363,841 262,385
Singapore 58,116 77,547 39,222
Indonesia 35,864 208,689 27,842
Russia 152 13,494 20,041
Canada 98,828 -- 30
China 7,680 1,024,522 --
USA 2,640,120 353,233 --
Germany 227,446 125,195 --
India 57,224 37,298 --
Other 84,033 427,843 --
-------------- --------------
Total 28,815,465 26,531,323 14,360,458
-------------- --------------
Source: Business Investment Group, May 2009


7. (C) The regime earns the most revenue from jade; more
than 95 percent is exported to Hong Kong and China each year.
Hong Kong imports of Burmese jade increased by 31.6 percent
while China's imports of Burmese jade increased by 32.2
percent in 2008. The Myanmar Gems Enterprise also exported
jade to Thailand, Singapore, and Malaysia, as demand in these
three countries increased substantially in recent years.

-------------- --------------
Destination of Burmese Jade Imports, 2006-2008
In Millions of US Dollars
-------------- --------------
Destination 2006 2007 2008
-------------- --------------
Hong Kong 371,329,791 523,089,437 688,215,116
China 1,974,866 8,823,738 11,663,157
Thailand 184,763 381,256 6,295,212
UK 363 -- 4,418,215
Singapore 818,399 2,776,237 2,232,064
Malaysia 4,607 -- 1,669,541
Japan 142,792 20,337 303,483
South Korea 4,696 9,384 --
UAE 1,314,729 -- --
Other 49,988 5,824 931,651
-------------- --------------
Total 375,824,631 535,106,427 715,728,439
-------------- --------------
Source: Business Investment Group, May 2009

Sales Expected to Drop in 2009
--------------


8. (C) BIG trade analysts predict that after record jade
sales in 2008, total jade and gem exports in 2009 may fall
due to lower worldwide demand and the continuing effects of
the world financial crisis. Nay Min Han told us that the
number of participants in the March 2009 auction was the same
as last year, but the regime earned approximately 10 percent

RANGOON 00000333 004.2 OF 004


less than in March 2008. He estimated March 2009 sales
totaled approximately USD 200 million. MEHL will host the
next auction from June 22-July 9 in Rangoon. According to
Nay Min Han, the regime expects to sell at least 3,500 lots
of jade and 1,000 lots of rough gems. Nay Min Han and other
gem dealers expressed their doubts the regime would hit these
targets, based on the March 2009 emporium results.

DINGER