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UNCLAS SECTION 01 OF 05 GUANGZHOU 005377 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE ALSO PASS USTR 
PACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ECIN ELAB CH
SUBJECT: Journey to the West Heads South to the Guangxi 
Border with Vietnam 
 
Ref:  A) Guangzhou 4831 and previous, B) Guangzhou 4352 
 
C) 05 Guangzhou 22787, D) 05 Guangzhou 21369 (last two 
notal) 
 
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  PLEASE 
PROTECT ACCORDINGLY.  NOT FOR RELEASE OUTSIDE U.S. 
GOVERNMENT CHANNELS.  NOT FOR INTERNET PUBLICATION. 
 
¶1. (SBU) Summary: In Guangxi, the three port cities of 
Pingxiang, Dongxing and Fangchenggang boast a relatively 
healthy trade with neighboring Vietnam, though Dongxing's 
and Fangchenggang's access to the sea demonstrate a clear 
economic advantage over land-locked Pingxiang.  Budding 
signs of foreign investment and real estate development, 
combined with the market potential of other ASEAN member 
countries, offer some economic promise to the region 
particularly in the urban areas with direct land and sea 
links with Vietnam.  End Summary. 
 
Congzuo Overview 
---------------- 
¶2. (U) After receiving the perspective of the Vietnamese 
Consul General as part of the Consulate' "journey to the 
west" (ref A), Congenoffs proceeded south by expressway to 
Guangxi's border with Vietnam.  The Consulate party met 
first with Deputy Secretary General Qin Qun of Congzuo, the 
prefecture supervising Pingxiang, who described the area's 
economic potential, particularly in light of its proximity 
to Vietnam and recent improvements to infrastructure.  Qin 
stated that the RMB 14.8 billion (approximately USD 1.8 
billion) GDP in 2005 reflects a year-on-year 13% GDP growth 
rate, a 12.8% increase in revenues, and a 45% increase in 
foreign trade to USD 440 million. 
 
¶3. (SBU) Qin attributed Congzuo's growth to three main 
factors.  First, he noted the strength of agricultural 
products, stating that the Congzuo area produces among the 
highest levels of sugar in Guangxi province, at over 1,000 
pounds per capita or 15 million tons total.  The area also 
produces per annum USD 2 billion of manganese.  Next, the 
Deputy Secretary General touted the area's tourist sites 
such as the Detian waterfall and Zhuang minority cultural 
destinations.  A native of Guilin, Qin also compared the 
karst mountain scenery in Congzuo very favorably with the 
famous scenery of his hometown.  Finally, the Deputy 
Secretary General cited the new Nanning-Pingxiang highway 
 
SIPDIS 
as an opportunity for economic growth.  This new toll road 
opened in December 2005 and reduced driving time by nearly 
fifty percent, from over four hours to two and one half 
hours.  (The costly toll may be prohibitive for potential 
users; in the round-trip drive from Nanning to Pingxiang, 
Congenoffs noted the lack of traffic on both sides, 
particularly the absence of large cargo trucks transferring 
goods.  The cost is RMB 180 (approximately USD 22) for a 
two-axle vehicle to travel one-way from Nanning to Hanoi) 
 
First Pacify; Now Befriend 
-------------------------- 
¶4. (U) In a subsequent meeting, officials from Pingxiang's 
Commerce Bureau explained that Guangxi has had trade 
relations with Vietnam since 1992, and that last year more 
than 100 export/import companies handled USD 340 million in 
trade with Vietnam.  In addition to fostering bilateral 
trade relations with Vietnam, Pingxiang has begun 
developing relations with other ASEAN member countries as 
well.  On January 1, 2005, Pingxiang dropped all tariffs on 
agricultural products coming from other ASEAN countries, 
and over the past year has seen big increase in trade.  The 
officials explained that the trade of agricultural products 
remains the main economic focus.  Guangxi's plans to 
promote regional trade through the upgrade of product 
exhibition centers.  They cited Guangxi's plans to invest 
RMB 1 billion (approximately USD 124 million) to develop a 
China-ASEAN logistic park 
 
¶5. (U) The Pinxiang officials stated that in 2005, Vietnam 
and China announced the creation of two economic corridors 
between Hanoi and Kunming, and Hanoi and Nanning, which 
includes the border towns of Pingxiang and Dongxing.  As a 
result, Pingxiang expects an increase in its service sector 
 
GUANGZHOU 00005377  002 OF 005 
 
 
as well as development of expanded rail services to Hanoi. 
The creation of the economic corridor also coincided with 
the recent opening of the Nanning-Pingxiang expressway. 
When asked about the efficiency of the road network on the 
Vietnamese side, local officials acknowledged that 
Vietnamese roads are poorer than those on the Guangxi side. 
They did, however, mention the Greater Mekong Sub region 
(GMS), a grouping of six Mekong River Delta entities 
including Guangxi, one of whose goals is to promote 
economic growth of member entities in part through 
developing infrastructure with an emphasis on 
transportation. 
 
¶6. (U) When asked about border crossings for cargo 
vehicles, the Pinxiang Commerce officials stated that cargo 
vehicles are required to go to designated border points to 
offload goods to domestic trucks; the same rule applies on 
the Vietnamese side.  They said that the two countries are 
moving towards the use of dual-country license plates to 
bypass the offloading step.  (Comment: It appears that the 
adoption of cross-border license plates has not moved very 
quickly to date, but may speed up through ASEAN-initiated 
mechanisms.)  They claimed that Guangxi offers the quickest 
entry point for goods, as vehicles can cross and depart in 
a single day.  When asked about following sanitary and 
phyto-sanitary guidelines, they replied that Pingxiang 
follows international standards and has no problems 
regarding plant and animal trade between Vietnam and China. 
She confirmed that imported goods are inspected upon entry. 
 
¶7. (U) Congenoffs visited Pingxiang's truck crossing point, 
at the free zone area of Puzhai.  Nearly six thousand 
trucks per month cross Puzhai in both directions, and the 
designated transfer point that Congenoffs visited processes 
one to two hundred trucks per day.  Immediately inside the 
border, the government is building an overly large 
administrative and commercial structure in anticipation of 
greatly increased trade flows.  Despite the relatively high 
volume of trade in the region, however, the people seemed 
poor and the town was dirty.  Local officials did not show 
us the red light district, which is buried in the back 
alleys of Puzhai.  Consulate officials visited the red 
light district in June 2005, as part of a HIV/AIDs 
reporting trip (ref C). 
 
¶8. (U) Pingxiang's second crossing point at You Yi Guan 
(or, Friendship Gate) handles some trucks but primarily is 
intended for foot traffic.  Congenoffs observed some 
tourists and several people hand carrying goods across the 
border, but the crossing was rather desultory in trade. 
Local regulations allow individuals to carry across goods 
worth up to RMB 3,000 (approximately USD 372) an unlimited 
number of times each day.  (Comment: This regulation does 
not seem to have much impact at the You Yi Guan crossing 
because not much trade was going on, even on a Friday 
morning.)  You Yi Guan was formerly called Zhen Nan Guan, 
or "Pacify the South (meaning, Vietnam) Gate." 
 
A Brisk Trade, All on Foot 
-------------------------- 
¶9. (U) The following day, Congenoffs visited another 
crossing point at Dongxing, adjacent to the Tonkin Gulf 
(Beibu Wan).  The town has seen significant amounts of 
development in recent years, as exemplified by the 
relatively well decorated new buildings lining both sides 
of the road leading to the border crossing, as well as new 
construction in the town.  Dongxing appears much wealthier 
and economically vibrant than the competing border zone of 
Pingxiang, and a large number of brand name shops seem to 
be doing a brisk business.  Despite having fewer residents 
than Pingxiang, Dongxing appears to have benefited more 
from trade with Vietnam.  Local officials emphasized, for 
example, that no spare land is available for development in 
urban Dongxing.  They noted that four real estate 
development companies and over thirty logistics companies 
currently operate in town.  Officials also pointed out the 
current development of a "China product city" intended to 
facilitate trade through the Dongxing area.  At the edge of 
town, we observed a new center for products from "Yiwu," 
obviously named for the famed market city near Shanghai, as 
 
GUANGZHOU 00005377  003 OF 005 
 
 
well as a separate designated construction site for a 
China-ASEAN building materials center. 
 
¶10. (U) At the border crossing, an Inspections and 
Quarantine official explained that a large number of visits 
each day consists of small border traders who make multiple 
trips carrying goods under the RMB 3,000 limit.  This 
activity appears in sharp contrast to the relative dearth 
of foot traffic at the You Yi Guan crossing in Pingxiang. 
Conversely, the Dongxing crossing averaged only one cargo 
truck a day, a number eclipsed by the nearly two hundred 
trucks entering at Puzhai.  The Inspections official noted 
a travel exception for "tourism" vehicles, which are 
allowed to traverse 200 km from the border on both the 
China and Vietnam sides, reaching as far as Nanning and Hai 
Phong on either side, but not as far as Hanoi, which is 230 
km from the border. 
 
A New Kid on the Block: No Rival to Guangdong 
--------------------------------------------- 
¶11. (U) In contrast to the hustle and bustle of Dongxing, 
Fangchenggang, which is the administrative center at the 
prefecture level for Dongxing and its nearest port town, 
appears to be a sleepy town with little economic activity 
in sight.  Fangchenggang's Vice Mayor Xi Yang indicated 
that the main reason for backward development of the area 
is due to the conflict with Vietnam in the 1970's and 
1980's.  Formal reopening of border areas did not begin 
until 1992, and Fangchenggang was not reorganized as a town 
until 1993, and so the city and port are quite young.  The 
town took over the port role formerly located in Dongxing 
because authorities wanted to remove the port from the 
range of Vietnamese artillery, which had pounded the area 
as late as 1984.  The Vice Mayor also mentioned that the 
largely urban nature of the population is also due in large 
part to the tensions between China and Vietnam.  He noted 
that Fangchenggang is the smallest prefecture in Guangxi 
Province, and 500,000 of its 800,000 residents are urban 
dwellers, an unusual statistic in an otherwise heavily 
rural region. 
 
¶12. (U) Despite the town's late start, Vice Mayor Xi was 
upbeat about both the recent growth in the town's economy 
and its potential for the future, projecting a goal of four 
hundred percent growth in GDP over the next five years.  He 
stated that Fangchenggang expected to exceed goals outlined 
in its eleventh five-year plan through further development 
of the port cities, trade and industry, particularly by 
attracting both domestic and foreign investment sources. 
The Vice Mayor noted Fangchenggang's intent to bring in 
foreign expertise to develop the state-owned port, as it 
already has brought in a large Spanish port management 
company and a large Hong Kong group, which, combined, will 
spend several hundred million RMB.  The advantage of 
Fangchenggang (as with Dongxing) over Pingxiang is the 
access to the sea. 
 
¶13. (U) Fangchenggang is the closest seaport for products 
from Yunnan, Sichuan, Guizhou and other western provinces, 
and hopes to expand its role as the gateway for China's 
west.  Shipping lines leaving Fangchenggang go to such 
diverse places as Shenzhen, Hong Kong, Singapore, San 
Francisco and Pusan.  However, Vice Mayor Xi was clear in 
acknowledging that the port city's largest competitor for 
export traffic is Zhanjiang in western Guangdong province. 
Each year, Fangchenggang's port handles 45,000 containers 
and 20 million tons of bulk cargo consisting of ores and 
agricultural products, compared to rival Zhanjiang's 
170,000 containers and 40 million tons in 2005.  The Vice 
Mayor also noted sadly that all of the fruit imported from 
Thailand did not go through Fangchenggang, the nearest 
port, but rather via Shenzhen, which has a long and 
illustrious record of distribution of fruits and other 
goods. 
 
The Port Itself -- Hope Springs Eternal 
--------------------------------------- 
¶14. (U) A visit to Fangchenggang port itself included a 
perusal of a large American investment, Archer Daniels 
Midland, which now owns one hundred percent of what was 
 
GUANGZHOU 00005377  004 OF 005 
 
 
previously a joint enterprise with a Chinese state-owned 
enterprise and a Singaporean company.  The American company 
has a large soybean crushing facility to produce food oil 
at the Fangchenggang port.  Another significant project in 
the pipelines for the town is a proposed steel project 
initiated by the Wuhan Iron and Steel and Liuzhou Iron and 
Steel companies.  These two companies plan to invest RMB 80 
billion (approximately USD 9.9 billion) for the first phase 
of the plant.  (From our conversations with Liuzhou 
officials earlier in the trip, steel products produced by 
the plant will serve both the domestic and export markets.) 
The project is awaiting final approval from the central 
government, but the Guangxi authorities already are heavily 
promoting the project (ref B).  Vice Mayor Xi mentioned 
that with the current oversupply of steel manufacturing 
capacity in China, Beijing may shut down less efficient 
production sites in other areas.  He also noted that 
Fangchenggang already sees major imports of coal and iron 
ore, particularly iron ore from Australia.  As 
Fangchenggang's growth strategy rests on three peninsulas, 
with the western-most peninsula focusing on tourism and the 
middle peninsula on the city and port economy, the eastern- 
most peninsula is the intended site for the Wuhan and 
Liuzhou iron and steel companies steel project.  The city 
also will extend a rail spur from the port line over to the 
steel plant once the project is approved. 
 
¶15. (U) Fangchenggang's port area currently has 34 berths 
with a ten thousand-ton capacity and the space to build one 
hundred additional berths of the same capacity.  The port 
has a number of berths capable of handling vessels up to 
twenty thousand tons, with five additional berths of the 
same capacity and one fifty thousand ton crude oil dock 
planned for the future.  Local officials noted the town's 
goal to expand the bulk cargo volume to sixty million tons 
per year, and to specialize the various berths by product 
category.   Currently, there is no separation of products, 
as we watched bauxite being unloaded immediately adjacent 
to soybeans presumably for the Archer Daniel Midland 
facility.  Fangchenggang has three thousand port workers; 
the number of workers has not changed in the past ten 
years, even though cargo volume has increased fivefold to 
twenty million tons in same period.  In comparison, rival 
port Zhanjiang has ten thousand workers for more than 
triple the number of containers and double the level of 
cargo (ref D).  Furthermore, Fangchenggang's port officials 
claimed that the actual volume difference between the two 
is not as great as the numbers would suggest, because ten 
million tons of the total amount is crude oil imports, and 
another seven to eight million tons is consumed locally by 
Zhanjiang. 
 
¶16. (U) Though it shares the same customer base with 
Guangdong's Zhanjiang port, Fangchenggang aims to surpass 
its main rival as the major bulk port in southern China by 
competing through a combination of improved service and 
lower costs.  Last year, Fangchenggang experienced a 
twenty-five percent growth in total volume, while its 
operating costs already are much lower than those of 
Zhanjiang.  In addition, as a bulk cargo port that handles 
a large amount of iron ore, coal and other products, the 
port is dirty but compares favorably in cleanliness and 
organization to rival Zhanjiang's port.  On the other hand, 
Fangchenggang's port equipment is relatively old fashioned 
and inefficient, using a series of cranes with scoops to 
transfer bulk cargo to chute loaders or onto conveyor belt. 
The port has only two vacuum systems for grain and two 
container cranes at port side, but port officials said that 
after the expansion of berths they hope to purchase more up 
to date equipment.  Finally, it appeared that many of the 
loading and unloading techniques were inefficient, with 
bags of fertilizer being hand-unloaded from containers 
before being palletized.  Inefficient practices, in 
combination with the prevalence of old machinery, leave 
much room for Fangchenggang's future modernization and 
improvement. 
 
Comment 
------- 
¶17. (U) Despite having a number of different development 
 
GUANGZHOU 00005377  005 OF 005 
 
 
promotion packages at their disposal, such as the Greater 
Mekong Sub region package, the Greater West program and the 
China-ASEAN corridor, Congzuo and Pingxiang seem to be 
pinning its hopes for future growth mostly on Vietnam. 
Though Congzuo and Pingxiang each has its own industrial 
development areas boasting low land and labor costs aimed 
primarily at ASEAN business, their emphasis on cross-border 
trade in cheap agricultural products such as sugar raises 
questions about the area's ability to achieve the predicted 
high levels of GDP growth.  At the same time, while 
Dongxing and Fangchenggang appear to be thriving port 
towns, they are still a long way from attaining their 
vision of regional domination.  Southern Guangxi cannot 
overlook its eastern neighbor, Guangdong Province, whose 
ports of entry are potent competitors with the resources 
and long-standing records of distribution throughout the 
country.  And at least some of the growth of these border 
cities is fueled by "spillover" investments by Guangdong 
entrepreneurs looking to expand their operations. 
 
¶18.  (SBU) There is dark side to those Guangxi cities 
bordering Vietnam, including the threats of HIV/AIDS (and 
its origins in prostitution and narcotics use) and Avian 
Influenza.  These topics will be taken up in the next 
message in the Consulate's series on its "journey to the 
west." 
 
¶19. (U) This message has been cleared by AmEmbassy Hanoi. 
 
DONG