VZCZCXRO3320
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0762/01 1600924
ZNR UUUUU ZZH
O 090924Z JUN 06
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4654
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0927
RUEHBY/AMEMBASSY CANBERRA 9700
RUEHKA/AMEMBASSY DHAKA 4188
RUEHLO/AMEMBASSY LONDON 1644
RUEHNE/AMEMBASSY NEW DELHI 3370
RUEHUL/AMEMBASSY SEOUL 6796
RUEHTC/AMEMBASSY THE HAGUE 0523
RUEHKO/AMEMBASSY TOKYO 4411
RUEHCI/AMCONSUL CALCUTTA 0777
RUEHCN/AMCONSUL CHENGDU 0779
RUDKIA/AMCONSUL CHIANG MAI 0449
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 2709
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 0353
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 03 RANGOON 000762 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS; PACOM FOR FPA; TREASURY FOR OASIA:AJEWELL 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL CM BM
SUBJECT: BURMA'S ROAD TO PROSPERITY LEADS TO CHINA 
 
 
RANGOON 00000762  001.2 OF 003 
 
 
¶1. (SBU) Summary: On a visit to Muse, the main border 
crossing point for trade with China, emboffs observed how 
trade enriches the Burmese towns along the route, and has 
spawned development on the Chinese side of the border.  The 
GOB retains only a small percentage of potential revenue 
generated by this trade because a significant portion avoids 
the inefficient official checkpoints, and because corrupt 
border officials don't collect full customs duties.  Recent 
punitive GOB actions to increase the official revenue from 
lucrative cross border trade are unlikely to succeed for 
long.  End Summary. 
 
¶2. (U) Econoff and FSN traveled to Muse on northern Shan 
State's Chinese border May 10-13.  On the eleven-hour road 
trip between Mandalay in central Burma and Muse, emboffs saw 
over 150 heavily laden 10-wheel trucks moving goods along 
this primary China-Burma trade route.  Recognizing the 
potential of this trade, in 1996 the GOB contracted Asia 
World, one of Burma's leading construction companies linked 
to the Wa drug trafficking organization, to build the winding 
208 mile road, one of the best in the country.  Asia World 
collects 2200 kyat ($1.71 at market rates) in tolls for the 
trip, which it splits with the GOB.  Foreigners are generally 
barred from traveling to Muse, and no tourists other than 
Burmese and Chinese were evident. 
 
Trade Brings Development 
------------------------ 
¶3. (U) Muse's population doubled in the past five years, 
according to locals, to about 180,000.  Much of the 
development capital came from illicit drug proceeds, but 
trade and local tourism also contribute to the town's growth. 
 Villages close to the border clearly show the benefits that 
flow from both legal and illegal trade.  Buildings are larger 
and better built than in most Burmese towns, local residents 
wear new, stylish clothing, and have modern bicycles and 
vehicles, and the villages seem well maintained.  Residents 
benefit from conventional import and export of goods, illegal 
trade, export services such as trucking, brokering, customs 
clearance facilitation; and provision of food, fuel, 
entertainment, and housing for transiting traders, truckers 
and tourists.  Many gain steady incomes by working in export 
shops just across the border.  A Shan saleswoman told us that 
she earns the yuan equivalent of about $52 per month, which 
compares favorably to the $8-$23 wage she could earn in 
Rangoon shops.  Many Burmese workers also cross the border 
into China to find day labor, earning about $4-5 per day. 
Burmese officials gain additional income from "facilitation 
payments" for each transaction.  In comparison, other 
villages in the region not engaged in trade rely almost 
totally on agriculture production and are filled with bare 
bamboo structures, small dirt streets, and residents in much 
shabbier dress. 
 
¶4. (U) According to official, but unreliable, statistics 
collected at border checkpoints, Burma exported about $169 
million worth of goods through Muse in FY 03-04 (75% of total 
exports to China), $195 million in FY 04-05 (68% of total 
exports to China) and $103 million in the first eleven months 
of FY 05-06.  Reported imports through Muse were $155 million 
in FY 03-04 (33% of total imports from China), $152 million 
in FY 04-05 (31% of total imports from China), and $110 
million in the first eleven months of FY 05-06.  Muse is by 
far the busiest of Burma's twelve official border export 
points, accounting for two thirds of all border trade over 
the last two years. 
 
Exports, Imports, Transit and Transport 
--------------------------------------- 
¶5. (SBU) According to business contacts, "China will buy 
 
RANGOON 00000762  002.2 OF 003 
 
 
whatever Burma can grow," and many Burmese take advantage of 
the inexhaustible demand of their giant neighbor.  Burmese 
trucks bulging with produce process slowly through "105 
Mile", a checkpoint 20 miles inside the border.  According to 
drivers and local business contacts, at 105 Mile, trucking 
company drivers must pay up to eleven officials between 500 
and 1000 kyat (less than a dollar) each to smooth the 
clearance process.  The official paperwork declares 50-75% of 
the true value of the goods for a lower customs assessment, 
and companies split the difference with the officials.  105 
Mile is growing fast and, according to a truck driver with 5 
years of experience in the area, recently expanded into a 
small town.  Although large, new buildings loom in the 
inspection yard, GOB officials sit outside at desks on the 
dirt, under an umbrella, and conduct their business slowly 
and manually.  All inbound trade was held up on the day 
emboffs departed because one official had not yet shown up 
for work an hour after the checkpoint officially opened. 
 
¶6. (U) Burmese trucks can drive easily into China through one 
truck gate, delivering goods to either Shweli, about three 
miles inside China, or to Jiegau, a new Chinese town just on 
the other side of a fenced ditch from Muse.  Jiegau, a city 
of colorful multi-story buildings, only recently appeared on 
land adjacent to Muse that residents told us formerly 
belonged to Burma.  Burmese citizens on foot or in private 
vehicles can cross with minimal difficulty at two smaller 
gates.  Econ FSN crossed easily in to Jiegau on foot, after 
buying a pass, good for a year, for the equivalent of $1.25. 
 
¶7. (U) Burmese import Chinese housewares, clothing, sporting 
goods, DVDs, electronic goods, luggage, and shoes.  For those 
who make the trip from inside Burma, new shops across the 
border in Jiegau offer wholesale appliances and electronic 
goods.  Most salespeople either are from Burma or speak 
Burmese.  Trucks, however, carry the majority of Chinese 
goods to 105 Mile for sale and transfer to other parts of 
Burma.  A new MOU with China, once signed, will allow 3,000 
each Burmese and Chinese trucks to cross each other's border 
and travel into the neighboring country, eliminating the 
current need to offload at border checkpoints.  Truck drivers 
told us that the Chinese have no desire to carry their goods 
any further into Burma because, "the road is bad, and 
clearance procedures in Burma are difficult." 
 
¶8. (U) Major businesses are not the only ones benefiting from 
trade activity at the border.  Small private Burmese business 
owners, families, and travel groups make the long trip to 
Muse or across the border to Shweli or Jiegau to purchase 
goods they will resell in central and lower Burma.  They come 
by truck or bus from as far away as Rangoon to fill their 
vehicles to bursting before returning.  The Chinese products 
sold in Muse are slightly cheaper than in the rest of Burma, 
since they don't pass through customs at 105 Mile, and are 
even cheaper in Jiegau.  We spoke with one entrepreneurial 
businessman who transships Chinese goods from Muse to 
customers across the Indian border.  According to Muse 
businessmen, sales of Chinese goods have fallen as the kyat 
depreciated, reducing Burmese purchasing power.  Local 
traders sell products from Burma to Chinese customers from 
warehouses and offices in the city.   Chinese individuals 
also come to Muse as tourists and buy Thai or Singapore goods 
brought from Rangoon that are expensive or unavailable in 
western Chinese provinces. 
 
Chasing the Elusive Underground Economy 
--------------------------------------- 
¶9. (U) Business contacts estimate that the informal economy 
in Burma is at least as large as the formal economy, and that 
much of the underground trade crosses the Chinese and Thai 
 
RANGOON 00000762  003.2 OF 003 
 
 
borders.  Most of the Chinese border around Muse is 
unmonitored and is crossed by numerous lesser roads and 
trails.  We saw many motorbikes stacked dangerously high with 
goods emerging onto the main road from side trails.  These 
"carriers" avoid legal checkpoints and other fees.  Residents 
told us that the illegal drug trade is not as obvious as it 
was three to four years ago, and that most of the drugs are 
now carried across these hidden routes. 
 
¶10. (U) On May 9 and 10, in a surprise move, the GOB detained 
dozens of officials and traders after investigating 
corruption by customs, immigration, police and army officials 
working at 105 Mile.  A business contact told us that some of 
his colleagues fled into China, and now risk arrest if they 
return.  A source told us later that the GOB released the 
detained immigration officials because the chief of 
immigration at the border is a classmate of the regional 
military commander.  Everyone in Muse with whom we spoke 
discussed the crackdown and said it represents a GOB effort 
to capture more of the revenue that now goes into officials' 
pockets rather than into government coffers. 
 
¶11. (SBU) On May 18, government officials informally notified 
importers and exporters that the Ministry of Commerce offices 
remaining in Rangoon will close by the end of May.  Beginning 
in June, all traders must obtain an identification badge, and 
must submit all import and export applications to the 
Ministry of Commerce office in the new capital.  These new 
procedures, never officially announced by the GOB, will add 
time and expense to an already lengthy and arbitrary process. 
 
Log Exports Declining? 
---------------------- 
¶12. (SBU) Emboffs observed well over 100 trucks on the 
Mandalay-Muse road, and at least 100 trucks waiting for 
clearance at 105 Mile.  Only about 5% of these trucks carried 
logs, a dramatic decline from Embassy observations and 
reporting on illegal timber trade.  On May 20-23, a Chinese 
delegation visited Rangoon to promote sustainable logging 
practices.  In a May 31 press release, the international NGO, 
Global Witness, announced that China had closed its border to 
imports of Burmese logs, after claiming that China had 
imported over 1.5 million cubic meters of mostly illegal 
Burmese timber in 2005 alone. 
 
¶13. (SBU) Comment: Trade with China brings a measure of 
prosperity to this region lacking government support for 
infrastructure and market incentives and is less risky than 
illicit drug trade.  Located at the nexus of three large 
economies, enterprising Burmese take advantage of poorly 
controlled borders and corruption to profit from exports, 
imports, and transshipment of Burmese, Chinese, Indian and 
Thai goods.  Most of this occurs outside official channels. 
The regime's crackdown shows awareness of the magnitude of 
lost revenues, but replacing one group of corrupt border 
officials with another will only put a temporary damper on 
trade.  The inefficiencies we saw in the control of this very 
porous border, the new application procedures and the 
existing incentives to continue to trade informally, will 
more likely than not, push more cross-border trade beyond the 
reach of the government.  End comment. 
STOLTZ