VZCZCXRO5056
RR RUEHCHI RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHCN #0124/01 1350402
ZNY CCCCC ZZH
R 150402Z MAY 07
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC 2490
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKA/AMEMBASSY DHAKA 0007
RUEHNE/AMEMBASSY NEW DELHI 0145
RUEHCI/AMCONSUL CALCUTTA
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHCN/AMCONSUL CHENGDU 3013

C O N F I D E N T I A L SECTION 01 OF 05 CHENGDU 000124 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB 
NSC FOR CHRISTINA COLLINS 
 
E.O. 12958: DECL:  5/15/2017 
TAGS: ECON ETRD PGOV SOCI CH
SUBJECT: CHINA'S YUNNAN PROVINCE BUILDS OUT TO SOUTHEAST ASIA 
 
REF: A) CHENGDU 100   B) CHIANG MAI 50 
 
CHENGDU 00000124  001.2 OF 005 
 
 
CLASSIFIED BY: James Boughner, Consul General, AmCongen Chengdu, 
State. 
REASON: 1.4 (b), (d) 
 
 
 
¶1. (C) Summary:  Yunnan officials in southwest China see 
construction of new road, river, and rail links with neighboring 
ASEAN countries as the key to ending their mountainous and 
landlocked province's long history of isolation and stimulating 
economic growth.   While provincial authorities disagree on 
which of a number of transportation corridors under development 
will offer Yunnan the greatest opportunities, there does not 
appear to be a shortage of funding for any of the new routes. 
With massive capital expenditure transforming the physical 
appearance of the province, however, opportunities to profit 
from corruption abound, and at least one high-ranking official 
is being hunted by police for "economic crimes."  The Yunnan 
border towns of Hekou (Vietnam), Mohan (Laos), and the Mekong 
port of Jinghong (Thailand) have an "anything goes" kind of 
atmosphere that government authorities do not in practice seem 
intent on reining in.  Still uncertain are whether cross-border 
trade volumes will grow sufficiently to justify the investment 
in transportation infrastructure, and which local interests will 
benefit the most from increased border traffic.  End summary. 
 
¶2. (SBU) Consul General and Congenoff traveled recently to 
Kunming and to Yunnan's southern borders with Vietnam and Laos, 
meeting with provincial and local government officials as well 
as businesspeople and ordinary residents.  Visits to Muslim 
religious communities in southern Yunnan were reported ref A. 
Ref B reported on a trip by regional diplomatic representatives 
along some of the same routes. 
 
----------------------------------------- 
 
YUNNAN:  WHICH WAY OUT? 
 
----------------------------------------- 
 
¶3. (U) By all accounts, Yunnan lags far behind China's eastern 
provinces in terms of international trade and foreign direct 
investment.  According to official figures on the province's 
website, Yunnan's total foreign trade in 2006 was USD 5.3 
billion, including USD 3.5 billion in exports.  The biggest 
single export commodities are nonferrous metals and chemical 
products (about 41 percent of the total), followed by tobacco 
and cigarettes and produce, including cut flowers. 
 
¶4. (SBU) According to Yunnan Department of Commerce Deputy 
Director Li Jiashou, Yunnan's ASEAN neighbors are receiving the 
vast majority of the province's exports: USD 2.1 billion in 
2006, up 41 percent from 2005, with the bulk going to Burma (USD 
700 million), Hong Kong, and Vietnam.  However, Li said that 
trade volumes could grow even faster if the province's 
transportation infrastructure could be improved, and he called 
transportation improvements the "key factor" in attracting more 
FDI.  Li denied that a significant percentage of exports from 
Burma to Yunnan in fact originate in Thailand.  (Note: According 
to the Thai Consulate General in Chengdu, many Thai traders go 
through Burma in order to qualify for preferential customs 
treatment from China, and most Burmese exports into Yunnan 
should really be credited as Thai.   See paragraph 22 below as 
well.  End Note). 
 
¶5. (C) In response to a question from CG, Li indicated he is 
particularly optimistic about the potential use of Burma as a 
transit corridor for the import and export of goods from Yunnan. 
 He stressed the close relations between Chinese and Burmese 
governments and that China is fully confident of the ability of 
Burmese security officials to protect road networks in northern 
areas of the country.  Insisting that all areas transited by the 
highway were under the firm control of Burma's central 
government, Li opined that overall the cross-Burma route was a 
far superior way to reach southern ports than transiting Laos 
and Thailand.  The movement of goods between Burma and Yunnan 
should prove far more "convenient" than between Yunnan and 
Thailand through Laos. 
 
----------------------------------- 
 
ON THE OTHER HAND ~ 
 
 
CHENGDU 00000124  002.2 OF 005 
 
 
----------------------------------- 
 
¶6. (C)  During a separate meeting, however, Yunnan Department of 
Transportation Deputy Director Yang Yan appeared to guffaw when 
Congenoffs asked him whether it would make more sense for Yunnan 
to use Burma for an import/export corridor over Laos and 
Thailand.  He freely acknowledged the existence of armed 
militias in northern Burma, noting that stretches of the road 
from China into Burma are "not good."  Yan commented that it 
would likely be many years before a secure and reliable 
transportation network could be set up through Burma. 
 
¶7. (SBU) Yan outlined Yunnan's overall transportation situation, 
placing special emphasis on the challenges of establishing 
provincial  highways, which he termed "high (in elevation), 
difficult (to construct), dangerous, and beautiful" (gao, nan, 
xian, mei).  He  described four major road corridors intended to 
strengthen Yunnan's links with its southern neighbors:  (1) the 
Kunming-Hanoi-Haiphong Highway, which he said was the shortest 
route to the sea, at 940 kms, with the Chinese portion to be 
completed by the end of 2007; (2) the Kunming-Bangkok Highway, 
straddling Yunnan, Laos, and Thailand in roughly equal lengths 
totaling 1818 kms (Yan said the Chinese portion would be 
finished by the end of the year); (3) the 1989 km-long 
Kunming-Ruilin-Rangoon highway (again, the Chinese section is 
expected to be finished  by the end of the year, but 
construction of the Burmese portion is said to be proceeding 
slowly); and (4) the Kunming-Chittagong Highway, passing through 
Burma, India, and Bangladesh over a portion of the World War 
II-era Stilwell Road (Yan said this highway is in the 
preliminary planning stages only). 
 
¶8. (C) Note: Although it did not come up as a subject of 
conversation, one of Yan's former superiors in the Yunnan 
Transportation Department, Vice General Director Hu Xing, 
disappeared in January 2007 after a warrant was issued for his 
arrest due to  a "serious economic crime," and recent media 
reports indicate that he has been arrested in Singapore.  Local 
contacts have noted to us that the large infrastructure 
investments subsidized by the central government in Yunnan's 
transportation and other sectors have been accompanied by 
significant levels of corruption, and a highly placed official 
of the Kunming Urban Planning and Land Administration Bureau has 
also been recently arrested on similar charges.  End note. 
 
------------------------------- 
 
THE ROAD TO HEKOU 
 
------------------------------- 
 
¶9. (SBU) Following these initial provincial-level briefings, CG 
and Congenoff drove the roads linking Kunming to the Vietnamese 
border city of Hekou (on the Red River) and to the Laotian 
border town of Mohan.  Long stretches of highway were still 
under construction, forcing our vehicle to travel on winding and 
narrow stretches of secondary roads - which became distinctly 
more treacherous and badly maintained as they neared the border 
areas. 
 
¶10. (SBU) Getting to Hekou required 12 hours of driving from 
Kunming through often quite mountainous terrain.  For much of 
the last half of the trip, the road paralleled the meter-gauge 
railroad originally constructed by the French to link Haiphong 
with Kunming.  The railroad is still in operation, although we 
saw few trains running, and locals told us there is no more 
passenger traffic between Kunming and Mengzi, about 400 
kilometers away.  That section of the track has already been 
widened to standard gauge, with the remainder of the track in 
Chinese territory also slated for widening within the next few 
years. 
 
¶11. (C) Mengzi, the capital of Hong He ("Red River") Autonomous 
Prefecture,  appeared to be a relatively prosperous town almost 
completely rebuilt and dotted with brand new, massive, and 
rather expensive looking government buildings -- some decorated 
to resemble 18th century French palaces - more suitable for a 
national seat of power.  One local contact referred to the 
Mengzi government's building boom as a "scandal" and noted that 
at least one deputy mayor had been removed for corruption. 
Somewhat coincidentally, CG ran into the said deputy mayor (whom 
he had met on a previous visit to Yunnan) in the lobby of a 
Mengzi luxury hotel built on a lake near the downtown shopping 
district.  The former deputy mayor currently works for Yunnan's 
 
CHENGDU 00000124  003.2 OF 005 
 
 
Forestry Department in Kunming and noted to CG he was in Mengzi 
for "business." 
 
--------------------------------------------- --------------- 
 
HEKOU: YUNNAN"S "LITTLE HONG KONG" 
 
--------------------------------------------- --------------- 
 
¶12. (SBU) Truck traffic on the highway from Mengzi to Hekou was 
very light in both directions.  Several large trucks heading 
toward Vietnam carried large loads of steel products.  Our 
driver (a Yunnan native) told us that the steel had been 
manufactured in central Yunnan, and was being exported to 
Vietnam for use in construction projects there.  A few small 
trucks filled with produce were heading north.  As we approached 
Hekou, the road narrowed and wound through thick forests. 
Closer to the border was a large and well-maintained graveyard 
filled with soldiers killed during the 1979 war with Vietnam. 
The driver commented  Chinese troops had been "slaughtered" 
during the war by the Vietnamese, who were much more experienced 
in jungle warfare, and there were a number of even larger 
military graveyards in the region. 
 
¶13. (SBU) Hekou itself proved to be a small (9000 residents) 
city perched on the border of the Red River.  During the 
afternoon of our arrival, about 30 Chinese trucks waited to 
cross the border, most loaded with iron and steel products.  We 
did not see any trucks coming from the Vietnamese side. 
 
¶14. (SBU) Despite the apparent slowness of the cross-border 
trade, Hekou Bureau of Commerce Deputy Director Dong Gaoyun 
extolled her city's virtues, calling it "little Hong Kong."  She 
claimed that cross-border trade had increased by an average rate 
of 36 percent per year since 1999.  Even better were the 
prospects for further growth made possible by major 
infrastructure projects: the imminent completion of the highway 
to Kunming; the widening of the meter-gauge railroad; river bank 
stabilization; and, most importantly, the construction of a 
large new bridge over the Red River and border trade processing 
area about a mile upstream from the site of the present bridge. 
(Note:  the new bridge did not appear particularly "large" to us 
nor would it have to be, as the Red River looks like it could be 
easily waded across at this relatively narrow crossing point. 
End note.) 
 
--------------------------------------------- -------- 
 
PROSTITUTION AND THE EAST IS RED 
 
--------------------------------------------- -------- 
 
¶15. (C) Official pronouncements aside, one aspect of Hekou's 
economy was quite evident --  its sex industry.   Prostitution, 
fueled apparently by lots of ready cash on the Chinese side of 
the border, along with the illegal immigration of many young 
Vietnamese women, was booming and conducted quite openly.  While 
CG and Congenoff ate dinner at an outdoor restaurant in the 
central business area, a small truck drove by repeatedly 
advertising the services of "special district love slaves" (Te 
Qu Ai Nu) via loudspeaker and rather risqui posters (the same 
truck had driven by previously in broad daylight while Congeoffs 
were accompanied by local officials).  Walking through a local 
handicraft and produce market just a short time later, a young 
woman who from her accent appeared to be Vietnamese leapt from a 
sofa inside a small store and grabbed Congenoff in an attempt to 
drag him into her place of business.  In our hotel, we were 
awakened repeatedly by telephone calls from anonymous women. 
 
¶16.  (SBU) In an apparent throwback to the '79 border conflict, 
CG and Congenoff were awakened early the next morning by 
loudspeakers aimed from Hekou into Vietnam blaring "The East Is 
Red," followed shortly thereafter by patriotic music played from 
the Vietnamese side of the border.  (Note: Relatively 
new-looking air raid drill instruction notices could be seen 
posted throughout the town.  End note).  At 8:30 am, Congenoffs 
watched the Chinese flag-raising ceremony, followed by the 
opening of the cross-border bridge to traffic.  First, a single 
Chinese man holding the hand of a small boy walked by themselves 
towards Vietnam - we were told that the man was probably 
originally from Vietnam and was taking his son to school. 
Shortly afterwards, a crowd of about 300 Vietnamese farmers 
began running across the bridge toward China, bringing baskets 
of fresh produce for sale in local markets.  The trucks on the 
 
CHENGDU 00000124  004.2 OF 005 
 
 
Chinese side that had been waiting to cross the afternoon before 
had all disappeared, and no new ones had yet taken their place 
at the border inspection point. 
 
--------------------------------------------- - 
 
MOHAN: "THE NEXT SHENZHEN" 
 
--------------------------------------------- - 
 
¶17.  (SBU) The provincial Foreign Affairs Office (FAO) refused 
permission for CG and Congenoff to drive directly from Hekou to 
the China-Laos border town of Mohan (population approximately 
700), a route that would have taken our vehicle along the roads 
directly paralleling the Vietnamese and Laotian borders. 
Instead, the route prescribed by the FAO required us to spend an 
extra day driving north to the main highway before cutting back 
down to follow the route of the Kunming-Bangkok highway (most of 
which was unfinished from Yuanjiang to the Laotian border). 
 
¶18. (C) We saw little Chinese truck traffic headed south to 
Laos, even less than on the road to Hekou.  However, many large 
trucks filled with produce (often mangosteens) passed us by 
headed north from the Laotian border.  Local contacts told us 
that Laotian drivers and trucks were allowed to drive on 
Yunnan's highways as far north as Kunming, while Chinese drivers 
and trucks could drive into Laos as far as Vientiane (note: see 
paragraph 22 below concerning the use of falsified certificate 
of origin documents in cross-border agricultural trade. End note) 
 
¶19. (SBU) The first part of that trip from Yuanjiang to Mohan 
was quite spectacular - 30 percent of the 147 kilometer stretch 
just south of Yuanjiang is said to be consist of bridges and 
tunnels.  However, the last eight hours proved to be a 
bone-jarring ride over badly decayed secondary roads twisting 
through dense tall canopy jungle.  In those areas where the 
route of the new highway was visible, construction activity 
appeared to be feverish, with large earthmoving vehicles and 
steamrollers working constantly.  Mohan itself was a sleepy 
little (population 700) town with little evident (legitimate) 
commercial activity.  A quick after-dinner stroll around the 
city's sleepy streets showed lots of new but often empty 
buildings.  However, one prominent two-block area was devoted to 
the "entertainment" industry, and on the town's main drag, we 
saw a woman about 35 years of age shepherd a group of teenaged 
looking girls into a karaoke club, saying "come on, girls, 
you've got customers waiting." 
 
¶20. (SBU) Daylight the next morning revealed a line of about 15 
Chinese trucks waiting to cross into Laos, most filled with 
hardware and construction materials.  In an office near the 
border crossing post, Congenoffs met with Mohan Border Port 
Deputy Director An Yongxiang.  While admitting  his town 
attracted far less attention from outsiders than did other some 
areas including Hekou, he still waxed rhapsodic about the town's 
prospects, calling it the "next Shenzhen."  Why?  According to 
An, the answer lies in the prospects for Chinese-Thai trade that 
will accompany implementation in the next few years of a 
China-ASEAN free trade zone, as well as the promised completion 
of the Yuxi-Mohan Railway (a part of the Trans-Asian Railroad). 
He admitted, however, that few provincial or central government 
delegations had visited Mohan recently and that the town's 
prospects had not yet appeared to attract much attention. 
 
---------------------------------- 
 
THE PORT OF JINGHONG 
 
---------------------------------- 
 
¶21. (SBU) From Mohan, CG and Congenoff spent a rather long eight 
hours on the road driving to Jinghong, the capital of the 
Xishuangbanna Dai Autonomous Prefecture.  Jinghong is also the 
first significant port inside China on the Mekong River, known 
in Chinese along that stretch as the Lancang River.  Local 
officials told us the river is suitable for smaller oceangoing 
ships during high-water seasons, although rocky and shallow 
areas often made the journey difficult.  A visit to Jinghong's 
port facilities indicated  they were used mostly for passenger 
traffic and  engineered to deal with large fluctuations in the 
river's water levels.  We did not see any evidence of freight 
vessels coming into Jinghong or using the port facilities, 
perhaps due to the very low water levels during our visit. 
 
 
CHENGDU 00000124  005.2 OF 005 
 
 
¶22. (C) Introduced to us by the Thai Consul General resident in 
Chengdu,  CG and Congenoff met with a local Dai minority (ethnic 
Thai) businessman based in Jinghong.  The Dai trader is involved 
in a number of border-related agricultural and transportation 
businesses in both China and Thailand, and hinted at 
relationships with militia leaders in Burma.  He confirmed to us 
that "around 80 percent" of agricultural goods exported from 
Thailand to China are shipped under falsified documents showing 
that they originate in Laos or Burma in order to take advantage 
of lower tariff rates applying to those countries. 
 
¶23. (C) The trader also stressed that successful enterprises 
engaging in large volumes of cross-border trade in the region 
are regularly shaken down for bribes by officials and (in Burma) 
by armed militias, and merchants needed to be flexible and smart 
in order to prosper.  According to the trader, the writ of China 
central or provincial-level government officials does not in 
practice go very far along Yunnan's borders  Laughing, he cited 
his own transportation company as an example, and said that it 
is much easier to expedite cargo by giving gifts to local 
customs officials than to go through official bureaucratic 
processes.  The trader made it quite clear that with a 
combination of the right connections and local expertise, it is 
possible to move any kind of cargo expeditiously within the 
region. 
 
¶24. (SBU) During an obligatory banquet in our honor, Jinghong 
Foreign Affairs Office representatives stressed that tourism -- 
both internal and international -- is a major pillar of the 
local economy.  They agreed that the city's location in China's 
"tropics" and proximity to the protected national areas of 
Xishuangbanna gives the place an atmosphere of exoticism.  Many 
Chinese come to Xishuangbanna to see wild monkeys and elephants 
(Note: we understand in reality it is actually quite difficult 
to see such animals "in the wild."  End note).  While our FAO 
hosts talked, the restaurant put on a so-called "cultural show" 
consisting for the most part of young, scantily-clad women 
dancing and singing according to "Dai traditions." Between 
numbers they circulated through the restaurant to force drinks 
upon a giggling audience of mostly Han Chinese tourists. 
 
----------------- 
 
COMMENTS 
 
----------------- 
 
¶25. (C) While there can be no doubt that modern high-speed roads 
and rail connection will greatly facilitate the flow of goods 
from Yunnan to its ASEAN neighbors, several important questions 
remain.  Will China's poorer neighbors benefit from an even 
larger and cheaper flood of manufactured items from China?  Will 
the new roads bring an upsurge in drugs and sexually-transmitted 
diseases?  Will they bring more illegal immigration across those 
southern borders?  And perhaps most important, who will be the 
ultimate beneficiaries of the new trade links? 
 
¶26. (C) On the road from Mohan to Jinghong, CG  and Congenoff 
stopped at a very poor Dai village located just by the side of 
the road.  The place was filthy, and the villagers' livestock 
(pigs, water buffalo, and chickens) lived in the lower levels of 
the villager's huts.  Pumps in the middle of the village belched 
out suspiciously brown water intended for domestic use.  We 
asked the village residents what they thought of the new road. 
Would it bring them greater opportunities?  Most villagers just 
shrugged and turned away, but one said directly, "This is a rich 
man's road.  We're poor.  How can it help us? 
BOUGHNER