VZCZCXRO8585
OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #1020/01 0880925
ZNR UUUUU ZZH
O 290925Z MAR 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5882
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHBJ/AMEMBASSY BEIJING IMMEDIATE 6048
RUEHGZ/AMCONSUL GUANGZHOU IMMEDIATE 4311
RUEHHK/AMCONSUL HONG KONG IMMEDIATE 4564
RUEHGH/AMCONSUL SHANGHAI IMMEDIATE 0038
RHHMUNA/CDRUSPACOM HONOLULU HI IMMEDIATE
RUEHIN/AIT TAIPEI IMMEDIATE 1463
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UNCLAS SECTION 01 OF 03 MANILA 001020 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MTS AND EAP/CM 
 
E.O. 12958: N/A 
TAGS: PREL ECON EINV ETRD CH RP
SUBJECT: THE CHINESE ARE COMING...WELL MAYBE NOT QUITE YET 
 
REF: 05 MANILA 1954 
 
MANILA 00001020  001.2 OF 003 
 
 
¶1.  (SBU) SUMMARY:  Filipinos predicted that the economic 
rise of the People's Republic of China would benefit the 
provinces of north Luzon, which, thanks to mineral resources, 
agricultural potential, gambling, and beaches, should be a 
natural draw for Chinese tourists and investors.  However, no 
significant PRC investors have set up businesses in Ilocos 
Norte so far, and PRC tourism has stagnated.  Deep-rooted 
problems with the local investment climate, including poor 
infrastructure and infighting among local politicians, are 
likely the key factors for this.  With the imminent opening 
of a PRC Consulate in Ilocos Norte, local officials are 
hopeful that their province will yet become a destination of 
choice for Chinese investors and tourists.  The problems of 
Ilocos Norte are illustrative of many localities in the 
Philippines where political and economic conditions 
discourage overall new investment and tourism, not only from 
the PRC.  END SUMMARY. 
 
OPTIMISTIC PREDICTIONS 
---------------------- 
 
¶2.  (U) Philippine officials have identified northern Luzon 
as the ideal site for investors and tourists from the PRC. 
With its close proximity to the PRC, its mineral resources, 
agricultural potential, gambling facilities, and beautiful 
beaches, northern Luzon could in theory be a magnet for PRC 
wealth.  The northwesternmost province of Ilocos Norte 
(coincidentally, Marcos country, where the current governor 
is the son of the late dictator) figured prominently in these 
expectations.  Philippine President Arroyo once remarked that 
"there are 400 million Chinese who can afford to travel and 
are curious about the world around them," highlighting that 
capital city "Laoag is only about an hour and a half away 
from Canton and two hours from Shanghai."  In a recent media 
interview, President Arroyo observed that "the Chinese are 
very, very interested in coming to Ilocos Norte because it is 
very near China." 
 
LACKLUSTER RESULTS 
------------------ 
 
¶3.  (SBU) According to interlocutors in Ilocos Norte, 
however, the enthusiastic pronouncements of the President 
have not led to developments on the ground.  A senior 
official in the local Filipino-Chinese Chamber of Commerce 
told poloff that Ilocos Norte has seen "no substantial 
Chinese investments" in any sector.  The statistics of the 
Laoag sub-office of the Department of Tourism show that 
Ilocos Norte averaged only about 400 PRC tourists a month in 
¶2006.  A tourism official predicted that these numbers would 
likely drop further with the recent cancellation of the Hong 
Kong-Laoag flight and the reduction of the Guangzhou-Laoag 
charter flight from once a day to twice weekly.  This 
continues a downward trend begun in 2005, with the 
cancellation of direct flights from Shanghai and Macau.  In 
contrast, tourist arrivals from Taiwan have steadily averaged 
almost 2,000 a month. 
 
¶4.  (U) Tourism authorities said that that they had escorted 
numerous PRC business delegations through Ilocos Norte over 
the past several years, but have seen no notable commitments. 
 Ilocos Norte Governor Ferdinand "Bong Bong" Marcos, Jr. also 
traveled frequently to the PRC in 2005 and 2006 to drum up 
business for the province, but has had little to show for his 
efforts, they noted. 
 
 
LACK OF CAPACITY/INFRASTRUCTURE 
-------------------------------- 
 
¶5.  (SBU) Governor Marcos told poloff that the slow growth of 
PRC tourism and investment in his province was due primarily 
to a lack of hotel capacity, a view shared by other local 
officials.  According to one, only the Fort Ilocandia Resort 
and Casino (289 rooms) effectively courts PRC tourists. 
Currently, there are only about 1000 hotel rooms in all of 
Ilocos Norte, and most of these are not up to international 
standards. 
 
¶6.  (SBU) Another persistent problem appears to be poor power 
 
MANILA 00001020  002.2 OF 003 
 
 
supply, in part due to the demise of a local development 
project -- the Laoag-Luzon Industrial Estate -- which "never 
left the drawing board."  Managers of the Fort Ilocandia 
Resort also cited frequent brown-outs as a problem.  Other 
local officials pointed to the lack of bridges, a deep-water 
port, and farm-to-market roads as further hindering economic 
progress, if not necessarily tourism. 
 
¶7.  (SBU) Another major hindrance to foreign investment is 
the difficulty in purchasing or renting property.  One 
official recalled how the incoming PRC Consul to Laoag City 
(see para 10) offered to bring a PRC agribusiness investment 
if officials could identify 20 hectares of land for a 
greenhouse.  Officials decided that in order to rent 20 
contiguous hectares of land they would have to deal with 
"thousands" of separate owners, and concluded it would be "an 
impossible task."  Additionally, there is a constitutional 
prohibition on foreigners owning land. 
 
DIRTY POLITICS 
-------------- 
 
¶8.  (SBU) Several interlocutors quietly pointed to a conflict 
between the Laoag Mayor and Governor Marcos as the "invisible 
force" behind the poor investment climate in the province. 
Members of the Filipino-Chinese Chambers of Commerce 
described to poloff a "hypothetical province" in which the 
mayor and the governor, as political enemies, ruthlessly 
blocked each other's development initiatives by imposing 
insurmountable regulatory requirements.  Another official 
commented more benignly that a "lack of government 
coordination" had slowed the influx of PRC investment in 
Ilocos Norte. 
 
¶9.  (SBU) As a reminder of the literal dangers of a bitter 
political climate, authorities in 2005 charged the Laoag 
Mayor with the murder of his vice mayor, although they later 
dropped the charges.  The Mayor maintains a protective detail 
of eight bodyguards - one of whom, in a recent incident, 
accidentally shot the Mayor in the foot with his M-16 rifle. 
 
NEW PRC CONSULATE 
----------------- 
 
¶10.  (U) The long-awaited (since Hu Jintao's April 2005 State 
visit -- reftel) formal opening of a PRC consulate in San 
Nicholas/Laoag City will take place on April 11.  According 
to press reports, the Consulate will initially consist of 
Consul Chen Lai Ping and attaches Zhing Xin and Yu Shuang. 
Chen remarked to local media that "the two countries would 
like to strengthen cooperation between Southern China and 
Northern Luzon." 
 
¶11.  (U) Chen has publicly indicated that the Consulate's 
primary mission will be to promote PRC investment in Ilocos 
Norte, especially in the mining and agribusiness sectors. 
Cruz said that the PRC is offering to widen and extend the 
runway at Laoag City International Airport and is already 
engaged in various feasibility studies.  In addition, Chen 
noted that the PRC Ambassador promised to bring PRC investors 
with him to the opening of the Consulate. 
 
COMMENT 
------- 
 
¶12.  (SBU) Despite the interest expressed by the governments 
of the Philippines and the PRC in encouraging investment and 
tourism in northern Luzon, fundamental problems with the 
investment climate in Ilocos Norte appear so far to have 
discouraged attempts to attract large numbers of PRC tourists 
and businesses.  Some observers view the opening of the PRC 
with a more suspicious eye, suggesting instead that the real 
intent is to keep an eye on Taiwan and visitors from Taiwan. 
The problems of Ilocos Norte in attracting significant 
investment from any foreign source are illustrative of the 
conditions in many localities in the Philippines, where 
bitter dynastic rivalries sometimes end in stalemate or even 
violence, and where hidebound local officials often believe 
that attracting investments -- whether from the PRC or 
elsewhere -- is a zero sum game at which the primary goal is 
not letting political opponents "win." 
 
 
MANILA 00001020  003.2 OF 003 
 
 
Visit Embassy Manila's Classified website: 
http://www.state.sgov.gov/p/eap/manila/index. cfm 
KENNEY