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RUCNDT/USMISSION USUN NEW YORK 0009

C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000145 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR INR, EAP/CM, EAP/K 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: PINR PGOV ECON PREL KN KS CH
SUBJECT: PRC-DPRK: BORDER OFFICIALS ON MUSAN MINE, RAJIN 
HARBOR, CROSS-BORDER DEVELOPMENTS 
 
REF: A. (A) SHENYANG 126 
     ¶B. (B) SHENYANG 101 
 
SHENYANG 00000145  001.2 OF 003 
 
 
Classified By: CONSUL GENERAL STEPHEN B. WICKMAN. 
REASONS: 1.4(b)/(d). 
 
¶1. (C) SUMMARY: PRC imports of North Korean iron ore from 
Musan are fueling a surge in activity at China's Nanping 
Land Port; Chinese truckers collecting the ore comprised 
over ninety percent of the 50,000 passengers that transited 
the port last year, local Chinese officials say.  Plans to 
link northern Jilin Province by road with Rajin harbor-- 
where two Chinese firms have secured fifty-year user rights 
to several docks, theoretically offering the PRC an outlet 
to the Sea of Japan--are still in the works, though local 
officials report that plans for a Chinese industrial park 
near Rajin are on hold until the road link is operational. 
Border authorities are far less optimistic about the number 
of regulated barter-trade schemes all along the border-- 
whether in the form of existing zones or aspirational 
plans--that have run aground in recent years.  But 
proposals--and hopes--continue nonetheless. END SUMMARY. 
 
¶2. (C) Poloff traveled to the Yanbian Ethnic Korean 
Autonomous Prefecture July 16-18, meeting with local PRC 
political and trade officials in Yanji, as well as in the 
key Yanbian PRC-DPRK border localities of Helong, Hunchun 
and Tumen. 
 
HELONG: GATEWAY TO MUSAN AND NORTH KOREAN MINING 
--------------------------------------------- --- 
¶3. (C) Helong sits 70 kilometers south of Yanji, shares a 
160-kilometer border with the DPRK, and administers two 
land ports to North Korea: Nanping--across from Musan, home 
to one of Asia's largest iron ore mines--and Chongshan's 
Guchengli, across the Tumen River from Samjang (see ref A 
for latest spot reports on both).  Helong's trade fortunes 
are heavily tied to Nanping, Jilin Province's largest and 
the PRC's third most important land port, LI Guofu, 
Director of Helong's Port Administration Office and its 
Bureau of Commerce, told Poloff on July 18.  Nanping in 
2006 saw a trade volume of 840,000 tons and accounted for 
roughly 70 percent of Helong's total 2006 foreign trade, 
which totaled 1.2 million tons valued at USD 250 million. 
Imports comprised USD 172 million (primarily North Korean 
iron ore from Musan and lumber), and exports USD 81.8 
million (mostly grain, processed food, seafood and light 
industrial products).  By contrast, Guchengli Land Port 
last year saw less than a tenth of Nanping's total volume-- 
just 80,000 tons, according to Li.  Pyongyang's October 
2006 nuclear test had "no effect" on Helong, nor did it 
usher in any changes in border trade or inspections 
thereof, Li claimed. 
 
THE MUSAN MINE: POLITICAL (AND ENVIRONMENTAL) SENSITIVITY 
--------------------------------------------- ------------ 
¶4. (C) Director Li and Helong Foreign Affairs Office (FAO) 
Deputy Director JIN Xiongjie became noticeably more guarded 
when asked about recent Chinese investment in the Musan 
iron mine.  Li confirmed that the privately-owned Yanbian 
Tianchi Industrial Trade Company had acquired fifty-year- 
long mining rights in Musan but said no other PRC 
enterprises were/are a party to the venture.  Li conceded 
that Tianchi had contracts with the Tonghua Iron and Steel 
Group--Jilin Province's state-owned steel heavyweight--but 
denied that Tonghua itself was a party to the Musan 
agreement, as reported in Chinese-language and other media 
outlets.  Li would only add that he expects Musan iron ore 
imports through Nanping to continue to grow, alongside 
imports of other North Korean minerals, as PRC firms 
continue to negotiate with Pyongyang on developing other 
proximate mines on DPRK territory. 
 
¶5. (C) One somewhat overlooked aspect of the Musan mine, 
particularly in recent press reporting, has been its local 
ecological impact.  Both Li and Jin acknowledged that the 
mine had for quite some time posed certain environmental 
problems for stretches of the Tumen River near Helong, but 
 
SHENYANG 00000145  002.2 OF 003 
 
 
they took pains to argue that the North Korean side has 
been the source of the problem.  Li explained that iron ore 
extracted from Musan is crushed and washed before being 
trucked across the border to Nanping, where it is then 
further processed by Tianchi.  It is primarily in the 
washing process that toxins enter the river.  Li claimed 
that the North Korean side had recently "taken some 
actions" to improve the pollution problem but demurred on 
specifics.  He seemed to imply, however, that the DPRK's 
"actions" had been taken in response to Chinese prodding. 
 
 
¶6. (C) Environmental sensitivities notwithstanding, Helong 
officials sounded an upbeat tone on Nanping, which 
continues to see increasing activity.  Helong's Port 
Administration Office has extended Nanping Land Port's 
hours of operation by an hour, Li said, so that trucks can 
now more easily make day trips into North Korea to haul 
iron ore.  And cross-border Nanping-Musan traffic has not 
been insignificant.  Li said that truckers comprised over 
ninety percent of the 50,000 passengers transiting the port 
last year, approaching 3500 transits per month on average. 
 
HUNCHUN: GATEWAY TO RASON AND THE SEA OF JAPAN? 
--------------------------------------------- -- 
¶7. (C) Hunchun sits 90 kilometers north of Yanji, shares a 
130-kilometer border with the DPRK and is home to two PRC- 
DPRK land ports: Quanhe--a significant trade conduit that 
offers a straight shot to Rason, North Korea--and the far 
less significant Shatuozi.  In 2006, Russia loomed largest 
in Hunchun's foreign trade mix, accounting for nearly half 
of its USD 450 million year-end overall total; PRC-DPRK 
trade through Quanhe/Shatuozi amounted to only about USD 50 
million, according to JIN Xi, deputy head of Hunchun's 
local trade promotion authority, and ZHAO Bin, Deputy 
Director of Hunchun's FAO.  Echoing Helong port officials, 
Jin and Zhao told Poloff on July 17 that the DPRK's nuclear 
test has had "no effect" on Hunchun, whether on trade or 
its trade inspections regime. 
 
¶8. (C) Zhao and Jim both became remarkably cagey when asked 
about Hunchun's ambitious but seemingly problematic plans 
for integrating the city with Rason via Hunchun's so-called 
"road-port-zone" (lu-gang-qu) project.  The project 
envisions a PRC entity upgrading the 48-kilometer road 
linking Quanhe and Rajin; making use of piers (matou) in 
Rajin harbor for shipping purposes; and constructing an 
industrial park not far from the latter.  Hunchun's 11th 
Five-Year Plan claims that the project has already achieved 
"substantive" progress, but both Zhao and Jin sounded 
slightly less categorical.  Hunchun's privately-owned 
Donglin Trade Company has officially contracted to upgrade 
the road; Donglin has also, Zhao and Jin confirmed, 
partnered with the Rason municipal government--forming with 
it and another Hunchun firm the Rason International 
Logistics Joint Company--and acquired 50-year user rights 
to Rajin Port's Pier 3, as well as rights to construct and 
use Pier 4.  However, plans for the five-to-ten-square- 
kilometer "zone" (i.e., the industrial park) are on hold 
until the road is paved, according to Jin.  Media reports 
and even Hunchun's own most recent Five-Year Plan seem to 
suggest that Hunchun--and thus the PRC--may have some 
official hand in these Quanhe-Rason integration plans. 
When pressed on this, however, Jin and Zhao repeatedly 
claimed that on the Chinese side it is a fully private 
project, albeit one supported by the Hunchun government. 
 
 
¶9. (C) Hunchun, in the meantime, continues to be a base for 
Chinese investment in North Korean light industry, 
attracting mostly small- and medium-sized local firms 
seeking low wage rates and a platform for the production of 
plastic goods, rubber boots, and undergarments, inter alia. 
Hunchun-based investment has not so far extended to Chinese 
state-owned enterprises (SOEs), Jin claimed.  Hunchun 
continues to primarily process North Korean seafood 
products in its Export Processing Zone, though the zone is 
likely to be eclipsed by a Sino-Russian Cooperative 
 
SHENYANG 00000145  003.2 OF 003 
 
 
Industrial Zone focused on timber processing slated to open 
later this month. 
 
BARTER-TRADE ZONES FLAGGING ALONG THE BORDER 
-------------------------------------------- 
¶10. (C) Regulated barter-trade schemes all along the 
border, whether in the form of existing zones or 
aspirational plans, have fared quite poorly in recent years 
and continue to do so.  No established barter-trade zone, 
for instance, is currently operational along the border, 
Tumen FAO Director CUI Zhenglong (protect) privately told 
Poloff on July 18.  But proposals--and hopes--continue 
nonetheless.  Helong FAO Director Jin Xiongjie told Poloff 
that Helong has plans for a barter-trade zone, though he 
offered no specifics.  Hunchun's Quanhe-Yuandingli Barter- 
Trade Zone closed several years ago because of a lack of 
"complementarity," FAO Deputy Director Zhao Bin said--i.e., 
the North Korean side could offer nothing of interest to 
Chinese traders and the zone fell into desuetude.  In 2005 
Beijing authorities gave a green light to Hunchun's plans 
for a new PRC-DPRK barter-trade zone just 12 kilometers 
from Hunchun on Qingyuan County's Liuduo Island, but 
hopeful Hunchun authorities have yet to receive approval 
from Pyongyang.  Asked when the authorization might be 
forthcoming, Zhao said "the sooner the better," only thinly 
disguising his annoyance at North Korean delays.  Even so, 
Zhao and Hunchun trade official Jin Xi could offer little 
insight on how Liuduo would differ from the ill-fated 
Quanhe-Yuandingli zone and overcome the "complementarity" 
problem. 
 
¶11. (C) Other proposed barter-trade zone projects are 
languishing elsewhere along the border, largely as a result 
of DPRK stalling according to local Chinese border 
officials.  Included here are proposed PRC-DPRK zones for 
Tumen/Onsung County (ref A), Sanhe/Hoeryong and 
Changbai/Hyesan (ref B). 
WICKMAN