VZCZCXRO4586
RR RUEHGH RUEHVC
DE RUEHCN #0033/01 0320921
ZNY CCCCC ZZH
R 010921Z FEB 07
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2373
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 2868

C O N F I D E N T I A L SECTION 01 OF 03 CHENGDU 000033 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM 
BANGKOK FOR USAID/MSTIEVATER AND SKISSINGER 
 
E.O. 12958: DECL:  2/1/2032 
TAGS: ECON EAGR PGOV SENV CH
SUBJECT: ORANGE GROVES AND CORRUPTION ALONG THE YANGTZE 
 
CHENGDU 00000033  001.2 OF 003 
 
 
CLASSIFIED BY: James Boughner, Consul General, Chengdu, 
Department of State. 
REASON: 1.4 (b), (d) 
 
 
 
¶1. (U) This cable contains business sensitive information - 
please protect accordingly. 
 
¶2. (C) Summary.  During a recent visit by Consul General and 
Congenoff to Chongqing's Zhongxian County, U.S. investors in a 
citrus cultivation project described the many trials and 
tribulations of trying to turn a profit in this remote corner of 
China.  Although relatively small in terms of dollars invested, 
if successful the project could prove a great boon to an 
economically backward area.   Corruption, poor local government 
practices, and outright theft and bureaucratic incompetence, 
however, remain major challenges for an investment that has 
reportedly been brought to the attention of the highest levels 
of the Chinese government.  End summary. 
 
¶3. (SBU) Consul General, Congenoff, and Consulate Econ Assistant 
recently visited Chongqing to investigate economic and social 
conditions in the Three Gorges Dam reservoir area.  Results of 
official meetings, and of a visit to the nearby city of Fuling, 
will be reported septel.  During that same trip, Congenoffs also 
visited Zhongxian County, about four hours by car from 
Chongqing's urban areas.  There they inspected a project 
undertaken by the Edgar M. Bronfman Citrus Company ("Bronfman") 
to develop an orange juice industry in the area. 
 
¶4. (C) Before the visit, FAO officials contacted Consul General 
and made two requests: first, that Congenoffs would only visit 
certain orange groves designated by local officials; and second, 
that an FAO official be present whenever Congenoffs met with 
Bronfman representatives.  Consul General declined those 
requests. 
 
-------------------------------------------- 
THE PROJECT: GOOD ON PAPER 
-------------------------------------------- 
 
¶5. (C) In Zhongxian, Consul General and Congenoff met with 
Bronfman CEO Jeffrey S. Muir, Business Operations Director Cindy 
Lau, and Project Construction Director Rene Trevino (strictly 
protect all).  Neither Chinese officials nor Consulate Econ 
Assistant attended, and the meeting took place in Muir's hotel 
room.  Muir, an Amcit resident in Hong Kong, has more than 30 
years of experience in China and in agricultural development 
generally, and he claims access to the highest levels of Chinese 
political leadership.  He speaks both Mandarin and Cantonese. 
 
¶6. (C) Muir began by outlining the history of the project. 
Shortly after 2000, managers of what was then the Seagram 
Company conceived the idea of using the resettled areas of the 
Three Gorges project for the cultivation of juice oranges. 
(Note: Seagram's parent company Bronfman took over the project 
after 2004.  End note.)  Although transportation and other basic 
infrastructure were lacking, Muir and Trevino indicated that 
Zhongxian's climate and soil conditions make it perhaps the best 
location in all of East Asia in which to develop juice orange 
groves.  After obtaining the approval of central and local 
government agricultural officials, company representatives gave 
large numbers of orange seedlings to Zhongxian farmers, with the 
idea that by the time the trees matured in five to seven years' 
time, the company would have a juice processing plant 
constructed and operating. 
 
----------------------------------- 
THE VULTURES GATHER 
----------------------------------- 
 
¶7. (C) According to Muir, local officials assigned a Zhongxian 
businessman named Lan Yihua to assist the company, and urged 
Seagram/Bronfman to consider Lan as a joint venture partner once 
the project became commercially viable.  (Note: Muir said that 
Lan had served as a high-level manager of the Three Gorges 
Construction Group before that entity had been privatized, and 
as a result had powerful political connections.  He currently 
serves as Vice Chairman of the Zhongxian CPPCC.  End note.) 
Muir alleged that Lan quickly moved to "use" the 
Seagram/Bronfman names to get financial assistance from central 
and local government agencies, and then diverted those funds to 
his own use.  One example Muir gave was the town of Wuyang 
across the river from Zhongxian, where Muir said Lan had 
misappropriated funds intended for the construction of roads and 
orange groves.  Muir remarked it was well known in the area that 
Lan was protected by Chongqing Deputy Mayor Chen Guangguo, the 
 
CHENGDU 00000033  002.2 OF 003 
 
 
number three in the Chongqing Communist Party hierarchy. 
 
¶8. (C) Muir also said that Seagram/Bronfman had invested USD 11 
million in constructing and staffing a technical assistance 
center to help farmers deal with the challenges of raising 
commercially viable fruit.  In December of 2004, Muir continued, 
the company was served with a "court order" requiring it to turn 
the center and all of its funds over to the county government. 
Muir described how "five cars full of thugs" delivered the 
"order."  At the same time, according to Muir, the center's 
former general manager and other local businesspeople began a 
smear campaign against Muir, accusing him of having diverted 
project funds to Hong Kong.  Muir was however able to leave the 
area and return to his home in Hong Kong.  The local government 
assumed oversight of the orange groves. 
 
¶9. (C) By the summer of 2005, said Muir, the technical center 
had been "abandoned," and farmers had become unhappy with the 
lack of support, to the point of organizing occasional 
demonstrations against local officials.  In an effort to restart 
the project, Muir said he contacted former Hong Kong Chief 
Executive C.H. Tung, and wrote letters to the National People's 
Congress and to central bodies of the Chinese Communist Party. 
Muir said the Bronfman family patriarch personally visited China 
and raised the project with Premier Wen Jiabao and Chongqing 
Party Secretary Wang Yang.  Although the "lobbying" process was 
lengthy, the political pressure proved effective, and in 
December 2005 local officials invited Bronfman to return. 
However, only about half of the orange groves were returned to 
Bronfman's oversight, while the remainder continued to be 
managed by Lan and by the local government. 
 
¶10. (C) Muir noted  the time and money lost as a result of those 
malfeasances had caused significant delays, and the project now 
looked likely to get only half of its originally anticipated 
juice supply.  In addition, project managers faced enormous 
challenges in educating local farmers to maintain the trees 
properly, and to avoid the process of "intercropping," in which 
other crops such as tobacco, cabbages, potatoes, and peanuts 
were planted between the rows of orange trees.  Addressing the 
subject of damage from the recent drought, Muir and Trevino said 
that although trees had suffered some stress, none had died, 
partly as the result of "water bucket brigades" organized by 
local farmers. 
 
¶11. (C) Bronfman is proceeding with the construction of the 
juice processing plant, and Congenoffs toured the site.  Muir 
and Trevino told Congenoffs that they hoped to have the plant 
operating by the end of 2007.  Muir claimed Bronfman's main 
purpose in maintaining the project was not "economic" at this 
time, but Bronfman hoped to make political points at the central 
government level.  At one point, Bronfman officials had hoped to 
market an orange juice product for the Chinese domestic market 
in time for the 2008 Olympic Games, but Muir and Trevino agreed 
that this goal was almost impossible. 
 
----------------------------------- 
CORRUPTION AND FEAR 
----------------------------------- 
 
¶12. (C) In a comment on the current state of local leadership, 
Muir described corruption as "extensive," although he said the 
situation had improved somewhat as the result of increased 
central government attention to the Three Gorges resettlement 
areas.  According to Muir, corruption and large income gaps in 
areas of Chongqing have attracted the personal interest of 
Premier Wen Jiabao, who has "lambasted" local officials for poor 
performance.  Businessman Lan, however, has been able to 
continue to create problems for the project by interfering in 
Bronfman's relationship with the local government. 
 
¶13. (C) Addressing his relations with local farmers, Muir said 
he is careful to avoid being cast as an "advocate" for rural 
residents.  He said that local officials were "terrified" of the 
farmers, due to ongoing discontent over land use and 
resettlement, and the farmers' reputation for violence.  Asked 
about farmer's associations, Muir said that although they 
operated outside the immediate control of the local government 
and Communist Party, those associations closely mirrored the 
structure of previous agricultural work units dating from the 
time of collectivization, and local security officials monitored 
all of their activities carefully.  He said that Bronfman's 
local office had two or three staff members who reported to 
security officials as well. 
 
¶14. (C) Congenoffs and Bronfman officials later met with 
Zhongxian Vice Party Secretary Chen Daoliu, who called the 
project a "win-win" situation.  He also noted that Bronfman's 
 
CHENGDU 00000033  003.2 OF 003 
 
 
total planned investment in the project (USD 13 million for the 
technical center and trees plus USD 30 million for the 
processing center) was far in excess of the county's annual GDP, 
underscoring its importance to the area's economy.  He stressed 
the Zhongxian government's support for the project. (Note: Muir 
later described Chen Daoliu as a "relatively good guy" compared 
with other local officials.  End note.) 
 
--------------- 
COMMENT 
--------------- 
 
¶15. (C)  Bronfman's citrus project is quite small by the 
standards of multinational FDI, but if it succeeds, it could 
have an notable impact on the local economy of one of 
Chongqing's most backward areas.  However, Muir's story of 
corruption makes it clear local officials and business figures 
often do not have the long-term interests of their citizens at 
heart, and the project's ultimate commercial viability is far 
from certain.  The story serves as a cautionary tale about the 
challenges of doing business in China's hinterlands and the 
major developmental difficulties faced by government 
authorities.  Congen will continue to try to monitor the project 
closely. 
BOUGHNER