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PP RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHCHI #0166/01 2880915
ZNR UUUUU ZZH
P 150915Z OCT 07
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0579
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
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RUEHCHI/AMCONSUL CHIANG MAI 0630

UNCLAS SECTION 01 OF 03 CHIANG MAI 000166 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PREL CH TH
SUBJECT: GATEWAY OR SPEED-BUMP?  NORTHERN THAILAND AND THE 
KUNMING-BANGKOK CORRIDOR 
 
REF: 06 CHIANG MAI 217 - PROSPECTS OF INCREASED CHINA TRADE BRING BOTH ANTICIPATION AND FEAR 
 
CHIANG MAI 00000166  001.2 OF 003 
 
 
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Summary 
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¶1. The Greater Mekong Subregion's North-South Corridor links 
southern China to Bangkok and foreign markets further afield. 
The route passes through northern Thailand, which aspires to be 
inner China's "golden gateway" and thereby develop its 
transportation and logistics sectors and expand its trade and 
tourism income.  Business and government officials along 
Thailand's northern border are skeptical, however.  In their 
view, high overland transportation costs and the predominance of 
agricultural (vice manufactured) exports coming out of southern 
China could relegate northern Thailand to mere speed-bump status 
on the global trade highway.  End Summary. 
 
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The Mekong is China's "Gift from God" 
--------------------------------------------- ---- 
 
¶2. Econoff and EconLES recently traveled to Chiang Rai 
province's border cities of Chiang Saen, Chiang Khong and Mae 
Sai to examine trade flows between northern Thailand and 
southern China (via transit through Laos or Burma).  We found 
that, despite recent and large-scale investment in bridges and 
highways that connect China's Yunnan province to northern 
Thailand, the Mekong River remains the primary mode of trade in 
this region.  Over 90% of goods traded along the North-South 
Corridor flow down the Mekong River from Yunnan, then along the 
Laos-Burma border, before being off-loaded in the river port 
city of Chiang Saen.  Currently, Chiang Saen houses one public 
port, which receives about half of the Mekong River trade, and 
12 private ports, which collectively receive the other half. 
 
¶3. Eighty to 90% of Thailand's imports through Chiang Saen are 
Chinese agricultural goods, including fresh fruits, vegetables, 
and flowers, most of which are destined for markets in Bangkok. 
According to Chiang Saen Port Manager Paiboon Photidee, the 
Mekong is a "gift from God" for the Chinese because its 
naturally low temperatures allow them to ship these perishable 
goods by day from Gaun Lei port in Yunnan to Chiang Saen, a 
12-hour trip.  The goods are then transferred to trucks and 
driven overnight for another 12 hours to the Talad Tai wholesale 
market in Bangkok.  Thus in less than 24 hours, southern China's 
agricultural exports move from Yunnan to Bangkok's markets. 
 
¶4. The capacity of the Chiang Saen public port has expanded in 
recent years to accommodate ships 130-feet long weighing 300 
tons.  In addition, Chiang Saen is expecting a second public 
port to be built and ready for use by 2011, though the 1.97 
billion baht ($57.9 million) budget is still pending in the 
Marine Department, according to Water Transportation Office 
Chief Apisit Kampiro.  Long-term plans developed by the former 
Thaksin government envision eleven ports for commercial boats 
and four service ports by 2018, as well as an additional eight 
container ports in a second phase that begins in 2019. 
 
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The Road Less Traveled:  R3B Highway Via Burma 
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¶5. Along the western edge of the North-South Corridor, the R3B 
highway connects Yunnan province to northern Thailand via Burma. 
 Though completed with a new bridge and semi-finished Thai 
customs house, officials expect the R3B will be the least-used 
route for China-Thailand trade, because: 
 
--  the Chinese government has partially closed the China-Burma 
border crossing to keep Chinese from gambling at casinos in 
Burma, according to Mae Sai Customs Officer Kiatchai Pokprapai; 
and 
 
--  Burmese officials have unhelpfully burdened the R3B highway 
with eight separate checkpoints. 
 
¶6. Kiatchai therefore believes the R3B is a costly route for 
traders and remains an option only because Burma is a GMS 
member.  The more frequently used western route is for Chinese 
goods to enter Mae Sai by Mekong shipment and a short overland 
hop through Burma.  Goods are shipped from Jing Hong port in 
Yunnan to Ban Pong port in Burma, and then transported by truck 
to Tha Khi Lek, which is just across the border from Mae Sai. 
The Mae Sai Customs House reported that women's apparel and fake 
CDs and DVDs are the primary Chinese imports entering Mae Sai, 
typically for consumption by Thai tourists in local northern 
markets. 
 
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CHIANG MAI 00000166  002.2 OF 003 
 
 
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Third Mekong Bridge To Connect Laos-Thailand Via R3A Highway 
--------------------------------------------- -------------- 
----------------------- 
 
¶7. The R3A highway runs along the eastern edge of the GMS 
North-South Corridor. The R3A remains incomplete until a bridge 
over the Mekong at Chiang Khong is completed in 2011.  The Thai 
and Chinese governments each fund half of this $31 million 
bridge project, with the Thai government paying an additional $1 
million for the survey and design.  In addition, Thailand plans 
to expand Chiang Khong's southbound highway from two lanes to 
four to accommodate the Asian Development Bank's (ADB) estimate 
of 400 Chinese trucks that will cross the bridge into Thailand 
daily. 
 
¶8. The R3A, also known as the Kunming-Bangkok Highway, is 
expected to be the safer and more time-efficient land route 
connecting China to Thailand.   Local officials estimate that, 
once the bridge is complete and improvements are made on the 
Chinese portion of the highway, the total driving time from 
Kunming to Lamchabang port near Bangkok would be reduced 
markedly from the current 34 hours' driving time. 
 
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Trade by Land Remains an Expensive Option 
--------------------------------------------- ---------- 
 
¶9. Despite these investments in highway and bridge construction, 
it is considerably less costly to transporting Chinese goods to 
Thailand via the Mekong or via the sea route through Bangkok. 
In a study by Chiang Mai University and Chiang Rai Rajabhat 
University, the cost of transporting goods from Kunming to 
Thailand via the Mekong was found to be $270 per ton, compared 
to about $470 per ton via either the R3A or R3B highways. 
Moreover, many Chinese imports in northern Thailand enter the 
country via Bangkok because the sea route is more cost-effective 
from China's coastal manufacturing hubs.  Local merchants at a 
large Chinese goods market in Mae Sai told us that a large 
portion of the Chinese goods they sell, such as toys and dried 
mushrooms, enter Thailand via Lamchabang seaport near Bangkok - 
a route that not only is more cost-effective, but also brings 
higher-quality goods that are produced in coastal China. 
Similarly, Thai traders of dried longan fruit, a primary 
northern Thai export, prefer the sea route through Bangkok as a 
cheaper and faster way to export goods to Chinese markets. 
 
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Northern Thailand's Gains from North-South Corridor Remain 
Unclear 
--------------------------------------------- -------------- 
--------------------------- 
 
¶10. Chiang Rai Chamber of Commerce and Customs officials view 
northern Thailand's future role in the North-South Corridor as a 
middleman between China and foreign markets.  They believe 
northern Thailand will gain from the development of logistics 
and transportation sectors, though some doubt that a Thai 
logistics sector would develop because of high costs.  Another 
local concern is that Thailand's gains from the North-South 
Corridor will go to Bangkok-based businessmen only. 
 
¶11. Further doubts about the Corridor's benefits to northern 
Thailand are harbored by National Economic and Social 
Development Board Northern Office Director Wilawan Tanratanakul. 
 She spoke with us after attending an October 4 Asian 
Development Bank-sponsored meeting on the Corridor.  Unlike 
coastal China, she said, Yunnan is not a manufacturing hub for 
Chinese export goods.  She does not expect Chinese investment to 
expand in northern Thailand's manufacturing sector, and predicts 
agricultural goods from Yunnan will continue to dominate 
Chinese-Thai North-South Corridor trade. 
 
¶12. Some observers question even the possible tourist benefit 
the Corridor could bring to northern Thailand.   Rumors around 
Chiang Saen are that Chinese investors have signed a 90-year 
lease for about 20,000 acres of land across the border in Ban 
Ton Pung, Laos, where they will build a tourist city with 
casino, hotels, and an industrial estate.  In addition, local 
officials fear Thais are more likely to use the new roads for 
tourism travel into China than Yunnanese will for tourism into 
northern Thailand. 
 
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Comment 
------------ 
 
¶13. Although the three ports of entry along Thailand's northern 
border (Mae Sai, Chiang Saen, and Chiang Khong) are key 
locations in the Greater Mekong Subregion's North-South 
 
CHIANG MAI 00000166  003.2 OF 003 
 
 
Corridor, doubts remain about whether northern Thailand can 
benefit significantly from the development of this 
transportation network.  In any case, the network - in part a 
result of former Prime Minister Thaksin's push for closer 
economic links with China -  has created projects that continue 
to churn forward.  The challenge for northern Thailand will be 
whether it can leverage itself into being a key beneficiary in 
the Greater Mekong Subregion or simply serve as an expressway 
for southern China's access to foreign markets. 
MORROW