VZCZCXRO9792
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHVN #0259/01 0891004
ZNY CCCCC ZZH
R 301004Z MAR 07
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 1060
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2148
RUEHCN/AMCONSUL CHENGDU 0213
RUEHCHI/AMCONSUL CHIANG MAI 0539
RUEHGZ/AMCONSUL GUANGZHOU 0166
RUEHHK/AMCONSUL HONG KONG 7768
RUEHGH/AMCONSUL SHANGHAI 0015
RUEHSH/AMCONSUL SHENYANG 0052

C O N F I D E N T I A L SECTION 01 OF 05 VIENTIANE 000259 
 
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E.O. 12958: DECL: 03/29/2017 
TAGS: EAGR EINV ECON ECIN ELTN ETRD SMIG KRCM PHUM
SCUL, SOCI, CASC, PREL, CH, LA 
SUBJECT: CHINESE RUBBER, SINO-LAO SCHOOLS, AND OTHER 
NORTHERN LAO ISSUES 
 
REF: A. 05 VIENTIANE 0784 
     ¶B. 07 VIENTIANE 0228 
     ¶C. 07 VIENTIANE 086 
     ¶D. 06 VIENTIANE 1152 
     ¶E. 06 VIENTIANE 0804 
     ¶F. 05 VIENTIANE 1044 
 
VIENTIANE 00000259  001.2 OF 005 
 
 
Classified By: Patricia M. Haslach for reasons 1.4(b) and (d) 
 
¶1.  (C)   Summary:  Due to what one NGO director in Luang 
Namtha Province described as a "gold rush" mentality, almost 
every village in the province is growing rubber for export to 
China.  The Chinese have launched a "propaganda campaign" 
taking credit for the replacement of poppy with rubber.  Some 
NGO representatives fear too much emphasis on rubber will 
lead to environmental and food security issues.  Sino-Lao, 
awakened to the fact that Chinese language skills are of 
increasing importance, recently opened new Chinese language 
schools in Oudomsay and Luang Namtha Provinces.  The section 
of the Kunming-Bangkok Highway (A3) that traverses Luang 
Namtha and Bokeo Provinces is expected to be completed in 
late 2007.  Completion of a new regional airport in Luang 
Namtha City is planned for October 2007.  According to NGOs 
in Luang Namtha Province, prostitution has increased during 
the past year and is "close to booming" along the Chinese 
border.  Bystanders who witnessed the January abduction of a 
well-known Lao businessmen say police were responsible.  This 
cable follows up a number of issues raised in Ref A.  End 
Summary. 
 
Luang Namtha's Rubber Rush 
-------------------------- 
¶2.  (SBU) Most rubber planting in Luang Namtha and Oudomsay 
Provinces has reportedly been focused on hillsides and 
mountainous areas that have not previously been used for rice 
cultivation.  The government-controlled press in Laos has 
praised rubber planting as a means both to eliminate 
slash-and-burn agriculture and to reduce erosion on hillsides 
that have been cleared of timber.  In support of Chinese 
rubber companies, Luang Namtha Province frequently uses its 
public address system to recruit rubber workers. Companies 
generally offer monthly salaries of $50 USD, a typical sum 
for laborers in Luang Namtha Province.  Still, some areas 
previously used for rice cultivation as well as other areas 
that were previously virgin forest are now being used for 
rubber trees.  Several NGOs and business representatives in 
Luang Namtha are concerned that an expansion of this 
practice, combined with a lack of any real oversight by the 
government, will result in food security and environmental 
issues. 
 
¶3. (C) During meetings with the Adventist Development Relief 
Agency (ADRA) and the German Society for Technical 
Cooperation (GTZ) in early February, representatives of both 
organizations informed PolOff that almost every village in 
Luang Namtha Province is growing rubber for export to China. 
The GTZ representative described the boom in rubber planting 
as resulting from a "gold rush" mentality in which villages 
have been clamoring to join others that have already been 
providing rubber to six Yunnan-based companies, some of which 
have set up local offices in Luang Namtha City.  He noted 
fears regarding a decline in the price of rubber, resulting 
from a surge in supply from other countries already 
producing, potential food security issues, as well as 
livelihood changes that result from raising rubber as opposed 
to other cash crops.  (Note:  In the past, villages that had 
raised corn and soybeans for Chinese companies received less 
than originally promised (Ref A).  End Note).  The GTZ 
representative also suggested that labor in Luang Namtha 
Province is insufficient given the level of rubber planting 
taking place and the labor necessary in the future for 
harvesting the rubber; he expects Chinese laborers to make up 
the difference. 
 
¶4.  (C) The GTZ representative informed PolOff that a two-day 
workshop on rubber was held in Luang Namtha City during the 
 
VIENTIANE 00000259  002.2 OF 005 
 
 
first week of February.  The workshop was chaired by the 
Director of the Luang Namtha Forestry Department, Dr. 
Khamlek.  The GTZ representative described Khamlek as an 
informed official who wants to make sure that the province 
"uses the investing companies to the province's advantage." 
Khamlek reportedly argued that the province needs to 
"supervise more closely the number and activities of rubber 
companies in the province."  He also advocated that contracts 
should allow villages to sell two-thirds of their rubber to 
the companies of their choice as opposed to the company that 
supplied the seedlings and supported the initial planting. 
(Note:  The six rubber companies active in Luang Namtha are 
all Yunnan-based companies.  End Note). 
 
¶5.  (SBU) During an evening visit to Viengphoukha Village in 
Luang Namtha Province, PolOff had a chance encounter with 
nine Chinese businessmen, including rubber investors from 
Yunnan Province as well as a Chinese counter-narcotics 
officer who was leading the group.  The group was in 
Viengphoukha to sign a rubber contract with local officials 
and had erected signage, similar to signs along highways 
throughout Oudomsay and Luang Namtha Provinces, announcing 
the replacement of poppy with rubber.  In reality, the 
signage is not near villages that have had a history of 
growing poppy in recent years and was described by the GTZ 
representative and others as a "propaganda campaign." 
 
Abduction of a Lao Businessman 
------------------------------ 
¶6.  (C) Referring to the January abduction of Mr. Somphone, a 
Lao businessman and ecotourism promoter in Luang Namtha City, 
the GTZ representative recalled speculation that Somphone's 
vocal opposition to what he reportedly regarded as excess 
rubber planting in the province had upset some provincial 
officials and may have been related to his abduction. 
Somphone has not been seen since being abducted on January 18 
(Ref C).  Somphone and his American business partner are 
joint owners of The Boat Landing Guesthouse in Luang Namtha 
City.  (Note:  Somphone's abduction should not be confused 
with the arrest of Khamsone, an employee of Natural Products 
Incorporated, an American business in Bokeo Province (Ref C). 
End Note). 
 
¶7.  (C) PolOff met with Somphone's American business partner 
and his Lao attorney on March 26.  The American noted that 
bystanders, including two adult males who witnessed 
Somphone's abduction from the roadside, said the abductors 
were police.  He also said Somphone had his cell phone with 
him at the time of his abduction and that, according to Lao 
Telecommunications Company, three days of phone records for 
Somphone's number have been deleted from company records. 
The last known call received was reportedly from a police 
officer at 10:18 AM, just minutes before Somphone's abduction 
as he was driving to a meeting at the police station - at the 
request of police.  Somphone's wife reportedly tried to call 
him around 10:35, but his cell phone was turned off by that 
time.  Remarking that the problem is with Luang Namtha 
police, the attorney told PolOff that she and Somphone's wife 
had met with officials in Vientiane to request that central 
government law enforcement officials investigate the case. 
 
Sino-Lao Open New Chinese Schools 
--------------------------------- 
¶8.  (SBU) PolOff visited two new Chinese schools that are 
owned by Lao citizens of Chinese origin (Sino-Lao) in 
Oudomsay and Luang Namtha Provinces.  The new school in Xai 
City, Oudomsay Province, was established in mid-2006.  The 
school currently has 80 students and seven teachers, four of 
whom are from Mengla, Yunnan Province, China.  The other 
three teachers are Sino-Lao.  The student body is 80 percent 
Sino-Lao, while the remaining 20 percent includes both 
Chinese citizens from China and ethnic Lao.  The school 
provides instruction in Chinese, Lao, and English.  Reliable 
statistics are unavailable on the number of Sino-Lao and 
Chinese citizens in Xai City, but it is noteworthy that the 
city is often regarded as one of the most Chinese cities in 
 
VIENTIANE 00000259  003.2 OF 005 
 
 
Laos.  However, according to Oudomsay officials, only 275 
Chinese citizens are legally present in Xai City, with a 
total of more than 1000 legally present in the province.  In 
February 2007 Chinese citizens working in Xai City estimated 
to PolOff that their numbers are now more than 1000, compared 
to estimates of around 500 in mid-2005 (Ref A). 
 
¶9.  (SBU) While in Luang Namtha City, PolOff visited the 
newly-constructed Lao-China Friendship School.  The school is 
large enough to accommodate about 150 students.  The Sino-Lao 
owner planned to open the school in March 2007.  The owner 
had already hired three teachers from Mengla, Yunnan 
Province, China as well as a few Sino-Lao to teach at the 
school.  Some of the Sino-Lao working at the school had 
studied Chinese in Mengla.  The teachers were already 
present, and the school was in the process of registering 
students.  Sino-Lao teachers and administrators at both the 
Chinese school in Oudomsay and Luang Namtha cited increasing 
Chinese economic activity and the resulting advantages of 
speaking Chinese as reasons for opening the schools.  (Note: 
Based on GoL sources, Chinese investment makes up roughly 90 
percent of total Foreign Direct Investment (FDI) in Oudomsay 
Province and more than 92 percent in Luang Namtha Province, 
not including the more than $120 million USD Boten Golden 
City Project (Ref B).  End Note). 
 
Infrastructure Developments 
--------------------------- 
¶10.  (U) The A3 Highway in Laos is now complete from Boten on 
the Lao-China border to just beyond Luang Namtha City. 
Between Luang Namtha City and Houaysay City, Bokeo Province, 
there are several sections of the highway still under 
construction.  Currently the trip from Boten on the Lao-China 
border to Houaysay on the Lao-Thai border takes slightly over 
four hours.  The trip is expected to take two hours when the 
222 kilometer highway is completed.  Lao officials maintain 
that construction will be completed in late 2007, slightly 
behind schedule.  Survey work has begun for the construction 
of a bridge from Houaysay to Thailand's Chang Khong Province, 
which will finalize the highway connection between China and 
Thailand through northern Laos when it is completed.  The 
Chinese and Thai Governments have agreed to share the costs 
of the bridge (Ref D). 
 
¶11.  (SBU) The construction of a new regional airport in 
Luang Namtha City began in April 2006 and is expected to be 
completed in October 2007.  The project is funded by an Asian 
Development Bank (ADB) loan of $4.25 million USD and is being 
constructed by Thai Sorkhemmalath Industry Company.  The 
airport runway will be 1,600 meters in length and 30 meters 
wide, roughly equivalent to the runways of the airports in 
Savannakhet and Champassak Provinces and longer than those in 
Oudomsay and Luang Prabang Provinces.  Besides domestic 
flights, the airport will also accommodate flights between 
Luang Namtha City and Jing Hong in China's Yunnan Province. 
There are reportedly discussions regarding potential flights 
to Burma as well. 
 
Sex Trade a Growing Concern 
--------------------------- 
¶12.  (SBU) During a February 13 meeting with an Adventist 
Development Relief Agency (ADRA) representative in Luang 
Namtha City, PolOff was informed that most women and girls 
working in the sex industry in Luang Namtha are ethnic Khmu 
(the largest ethnic minority group in Laos).  The ADRA 
representative noted that the sex workers, most from 
Oudomsay, Luang Prabang, Luang Namtha, and Bokeo Provinces, 
tend to move among establishments within the region.  While 
indicating that the number of establishments in Luang Namtha 
City with prostitutes had increased during the past year, he 
remarked that many establishments had changed their operating 
methods and no longer provide sex services in house. 
Instead, clients pay the bars, discos, and restaurants 
(usually the equivalent of $2 to $3 USD) to take the sex 
workers to other locations where the actual cost of sex 
services is agreed upon between the client and the sex worker. 
 
VIENTIANE 00000259  004.2 OF 005 
 
 
 
¶13.  (C) While he did not have access to Lao Government 
statistics, the ADRA representative said officials were 
surprised by recent reports of increased HIV infection rates 
in Luang Namtha Province.  Noting that Population Services 
International (PSI) meets with sex service workers once each 
week to promote HIV and STD awareness, he remarked that it is 
not commercial sex workers but rather ethnic Khmu and Akha 
women and girls in rural villages who are the most vulnerable 
to HIV infection.  While GoL and NGO health education 
campaigns do not regularly reach these populations, he said 
Chinese traders and rubber investors do.  He added that ADRA 
has a mobile clinic that has offered health services in some 
of these areas and that ADRA had found unexpectedly high 
rates of STDs among women and girls.  Paralleling the ADRA 
representative's comments, the GTZ representative in Sing 
District on the Chinese border described prostitution in Sing 
as "close to booming." 
 
Not Friendly to Friends of the Upland Farmer 
-------------------------------------------- 
¶14.  (C) On February 14, PolOff met with the General Manager 
of Friends of the Upland Farmer (FUF), an American 
agricultural company that has operated in Luang Namtha 
Province for more than a decade.  More than 6,000 people, 
mostly ethnic minorities, produce corn, soybeans, rice, and 
other agricultural produce for the company.  On the day of 
PolOff's visit, Lao and Chinese trucks were arriving at the 
company's distribution area to pick up more than 100 tons of 
corn for delivery to buyers in China.  The company's last two 
years have been the most profitable in its history.  However, 
despite good relations with growers, the company has been 
plagued with problems because of its perceived religious 
activities.  Since early 2006, the GoL has not renewed the 
company's business and tax licenses.  Repeated requests by 
the company for a reason have gone unanswered.  (Comment: 
The Embassy has offered assistance on several occasions and 
has maintained close contact with the company, but to date 
the General Manager has preferred to address the issue on his 
own. (Ref D).  End Comment). 
 
Comment 
------- 
¶15.  (C) Most villagers in Luang Namtha who are growing 
rubber are doing so on their own because of the perceived 
potential financial benefits.  Even outside Luang Namtha many 
have started growing rubber based on the wealth generated by 
a few Luang Namtha villages that were among the first to grow 
rubber and now have mature rubber trees.  While there have 
certainly been deals and contracts between officials and 
rubber companies, to date post is not aware of any government 
deals in Luang Namtha and Oudomsay Provinces that have forced 
villagers to vacate their lands to make room for rubber 
concessions.  This, unfortunately, is not the case in 
southern Laos and some other northern provinces where 
villagers have been asked to move to make room for rubber 
concessions. 
 
¶16.  (C) While rubber is generally regarded as a good cash 
crop for northern Laos, there are long-term concerns 
regarding market prices, food security, and environmental 
effects.  The extent of flooding in Luang Namtha Province in 
2006 was partly blamed on the unregulated planting of rubber 
trees, which has reportedly involved the clearing of virgin 
forest in some areas of the province.  As is endemic 
throughout Laos, the personal short-term interests of 
district and provincial level officials usually take 
precedent over the long-term interests of villagers. 
 
¶17. (C) Vocal opposition to anything that is supported by the 
government - at any level - is not tolerated.  According to 
speculation, Somphone's opposition to extensive rubber 
planting may have been related to his January abduction.  The 
GoL has indicated that it is interested in development of 
civil society, and the Prime Minister's Office is reportedly 
drafting a decree that will allow the development of civil 
 
VIENTIANE 00000259  005.2 OF 005 
 
 
service organizations.  However, given the intolerance of 
many Lao officials for views of people such as Somphone that 
are counter to government policies and/or the personal 
interests of officials, the development of civil society in 
Laos appears a distant dream. 
HASLACH