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C O N F I D E N T I A L SECTION 01 OF 03 SHENYANG 000007 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EAP/CM, EAP/K 
MOSCOW PASS VLADIVOSTOK 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: PREL PINR PGOV ECON KN KS CH
SUBJECT: PRC-DPRK: TRILATERAL RAILWAY HANG-UPS; MUSAN 
OUTPUT DROP; 2007 TRADE AND PORT MODERNIZATION; SINUIJU 
MARKET 
 
Classified By: CONSUL GENERAL STEPHEN B. WICKMAN. 
REASONS: 1.4(b)/(d). 
 
¶1. (C) SUMMARY: Unreported DPRK-related obstacles appear 
likely to delay the implementation of a late December PRC- 
DPRK-Russian agreement that aims to link the Greater Tumen 
region by railway; Chinese contacts are pessimistic that 
the new Tumen-Tumangang-Khasan cargo-transport corridor, 
even if realized, will add much momentum to the long- 
stalled Tumen River Area Development Programme.  Exports 
from the DPRK's Musan Iron Mine dropped by up to 200,000 
tons in 2007 as a result of energy shortages, according to 
one Chinese official, who claimed that overall PRC-DPRK 
trade levels in a key border region also fell as result. 
On the good news front, progress by PRC border authorities 
on a port-modernization program is slowly becoming visible. 
Farther south along the border, negotiations are under way 
for the establishment of a joint PRC-DPRK market near 
Sinuiju, where first-year revenues are estimated to be USD 
4-5 million.  END SUMMARY. 
 
¶2. (C) Poloff traveled January 7-11 to Changchun, capital 
of Jilin Province; Yanji, seat of the Yanbian Korean 
Autonomous Prefecture; Tumen, which borders the DPRK's 
Namyang; and Nanping, across from the Musan Iron Mine. 
This is the first in a two-part update on the PRC-DPRK 
border in late 2007/early 2008. 
 
PRC-DPRK-RUSSIA RAIL AGREEMENT: OBSTACLES REMAIN 
--------------------------------------------- --- 
¶3. (C) PRC media reports hailed the late December inking of 
a new trilateral PRC-DPRK-Russian agreement that will, if 
realized, facilitate the transport of railway cargo in the 
Greater Tumen region, directly linking the PRC's Tumen (via 
Namyang, just across the Tumen River) with Tumangang (in 
Rajin-Sonbong, DPRK) and Khasan, Russia (directly across 
the Tumen River via rail bridge).  Local Chinese officials 
hope the Tumen-Tumangang-Khasan rail accord will offer 
Yanbian an important rail link to Russia, cut cross-border 
transport costs and, as some Chinese press reports eagerly 
claim, leverage borderland Jilin as a transport hub. 
Poloff on January 8 met with Tumen Foreign Affairs Office 
Director CUI Zhenglong (strictly protect), who was 
intimately involved in the negotiations.  Cui sounded 
cautiously optimistic on the accord but offered that a 
number of obstacles remain, unreported in the sunny 
domestic PRC coverage of the agreement. 
 
¶4. (C) One shorter-term roadblock stems from an unresolved 
agreement over transport fees for cargo transshipped 
through the DPRK.  The PRC has apparently pressed North 
Korea for a standard per-kilometer fee per international 
practice, but Cui noted that local DPRK authorities have 
yet to secure Pyongyang's authorization.  Another obstacle 
concerns different track gauges between Russia, on the one 
hand, and the PRC and DPRK, on the other.  More important 
is another structural difficulty: the poor quality and 
reliability of North Korea's rail network.  (One academic 
contact in Yanji assessed this as the most salient problem, 
arguing that the North Korean tracks in their present 
condition are unsustainable over for safe, reliable cargo- 
shipping.  He recalled in detail, for instance, the shoddy 
maintenance and deplorable state of the tracks during an 
uncomfortable train ride he took last year from Yanbian to 
Rajin.)  Asked about prospects for possible PRC investment 
in refurbishing the North Korean tracks, Cui did not sound 
optimistic.  Tumen Vice Mayor YAN Zhihong (strictly 
protect) nevertheless expected that the trilateral deal 
could likely be implemented this year, claiming it would 
boost Tumen's beleaguered economy. 
 
¶5. (C) The Tumen-Tumangang-Khasan rail agreement, at least 
in the overcooked PRC domestic reporting on the issue, is 
being cast as a triumph for the Tumen River Area 
Development Programme (TRADP), which has largely stalled 
for years.  Contacts throughout Yanbian, including 
government officials directly involved with the TRADP, 
 
SHENYANG 00000007  002 OF 003 
 
 
remain pessimistic about progress overall, and similarly so 
when asked if the rail agreement would push the TRADP 
forward.  One official in Yanji currently involved in TRADP 
affairs observed that local Yanbian leaders, particularly 
in Tumen, generally come into office eager to revitalize 
the TRADP.  But their plans eventually run aground after 
encountering the reality of the larger, thorny politico- 
strategic problems that continue to stunt the development 
scheme.  His familiar litany of well-known obstacles 
included territorial disputes among TRADP members, 
differing political systems, as well as cultural and 
historical differences, inter alia.  Real progress in the 
TRADP, he maintained, requires tackling national-level 
problems that are simply unsolvable at the local level. 
And while many local officials take TRADP seriously, they 
report that the program is not on Beijing's radar screen in 
a consistently appreciable way. 
 
MUSAN IRON MINE: 2007 PRODUCTION PROBLEMS, SAYS OFFICIAL 
--------------------------------------------- ----------- 
¶6. (C) MUSAN OUTPUT DROP.  Musan's exports of iron ore 
through Nanping Land Port to the Yanbian Tianchi Company 
decreased approximately 200,000 tons in 2007, to a year-end 
total of 600,000 tons (down from 800,000 in 2006), 
according to a knowledgeable senior official in the office 
responsible for all of Yanbian's land ports.  The official 
on January 8 told Poloff that the North Koreans cited 
energy problems--a lack of electricity (e.g., difficulties 
in hydroelectric power generation) and fuel for generators- 
-as reasons for the drop.  Press reports in the PRC 
borderland newspapers, though, pointed to increases in 
Chinese imports of North Korean iron ore through other 
Chinese land ports south of Yanbian in 2007. 
 
¶7. (C) NANPING LAND PORT.  During a thirty-five minute 
observation between 1240 and 1315 in Nanping on January 9, 
Poloff found an eerily--and uncharacteristically--quiet 
Nanping Land Port.  Both directly across the Tumen River in 
Musan (where loaded trucks have queued at similar times 
during previous visits) and on the PRC side, Poloff saw no 
trace of the usually omnipresent red Yanbian Tianchi Co. 
trucks hauling iron ore from Musan into Nanping, nor of a 
major security presence, save for one People's Armed Police 
officer who demanded that Poloff leave the facility.  Smoke 
issued out of the Yanbian Tianchi's nearby processing 
facility, but Poloff saw few other signs of life. 
 
2007 CROSS-BORDER TRADE: YANBIAN, TUMEN 
--------------------------------------- 
¶8. (C) Overall Yanbian-DPRK trade dipped just slightly in 
2007 due to the drop-off in Musan's exports through 
Nanping, according to the senior Yanbian port official.  He 
reported that Quanhe and Nanping remained Yanbian's most 
critical ports for cross-border PRC-DPRK trade, but he 
added that Tumen Land Port also saw a relatively robust 
trade volume because of the aid and other commodities 
transported to the DPRK via the railroad port.  He said the 
trade composition remained roughly the same, though he 
noted that another consequence of chronic DPRK fuel 
shortages over the past year was a decline in North Korea's 
seafood trade with Yanbian.  The official noted that this 
was evident, too, in the seafood trade between North Korea 
and Japan; North Korean fishing ships frequently no longer 
had sufficient fuel to motor out into international waters 
to trade with Japanese ships, as they typically did in the 
past. 
 
¶9. (C) Domestic commodity price inflation, especially for 
staples like pork and cooking oil, was a recurring theme in 
Yanbian, even though most of our contacts in Changchun and 
Yanbian suggested the likely impact on PRC-DRPK trade in 
early 2008 would be limited.  Yanbian University DPRK 
expert GAO Jingzhu (strictly protect), however, said the 
increase in PRC food prices may well translate into a 
decline in cross-border trade volume, as rising prices 
place a growing burden on North Korean efforts to import 
rice, grain, meats and other staples through regular trade 
 
SHENYANG 00000007  003 OF 003 
 
 
channels.  A Shenyang-based contact who travels to the DPRK 
monthly for business told Poloff that during a weeklong 
trip to Pyongyang and Sinuiju in December, he found almost 
no pork and far less meat in markets than he recalled 
seeing during his many previous visits.  (We cannot confirm 
a direct link to the rise in Chinese pork prices in recent 
months, but our contact, himself involved in cross-border 
trade, believed there was such a link.) 
 
PORT MODERNIZATION: YANJI, TUMEN, NANPING 
----------------------------------------- 
¶10. (C) Progress is slowly becoming visible as Yanbian 
gradually overhauls and modernizes its ports under the 
aegis of the Eleventh Five-Year Plan.  The focus thus far, 
according to the senior Yanbian port official, is on 
upgrading Yanji's airport, where officials are now planning 
to build a customs/quarantine warehouse for the many goods 
entering every week on regular South Korean flights into 
Yanbian.  No new PRC-DRPK land/railway ports are planned, 
however; rather, the emphasis is on streamlining, 
modernizing and standardizing existing ports.  He 
speculated that there may be some closures of second-tier 
or redundant land ports involved in PRC-DRPK interchange, 
like Chongshan (across from Samjang-ri, near 
Nanping/Musan). 
 
¶11. (C) Final construction on a modern new administration 
building at Tumen Land Port continues past its initial 
December deadline, though the finish line is near: Tumen 
FAO Director Cui Zhenglong expected March or April as the 
likely end date.  (The senior Yanbian port official added 
that there has been no expansion in staff size for the new 
facility.)  Poloff found evidence of modernization, too, at 
the Nanping Land Port on January 9: a large new archway at 
the mouth of the PRC entrance to the port's bridge into 
Musan, as well as a robust new exterior fence enclosing the 
port, both new additions since Poloff's previous visit 
during the summer.  Local governments are largely picking 
up the tab, though Beijing is apparently reimbursing the 
improvements.  In Tumen, for instance, Cui Zhenglong said 
he recently applied to the central government for RMB 3 
million (USD 415,000) in reimbursement for the new land- 
port building. 
 
SINUIJU: DETAILS ON PROPOSED NEW MARKET 
--------------------------------------- 
¶12. (C) Farther south along the border, negotiations are 
under way for establishing a joint PRC-DPRK market in 
Sinuiju, across the Yalu River from Dandong, Liaoning 
Province.  LIU Chensheng (strictly protect), a trade 
official-turned-businessman who facilitates PRC investment 
in North Korea via the Liaoning Civilian Entrepreneur 
Association's Korean Liaison Office, on December 14 
supplied Poloff with a feasibility study for the project, 
which he is negotiating on behalf of the Shenyang-based 
Wu'ai Group.  The proposal for the market, called the DPRK- 
China Friendship Commodity Distribution Center, initially 
envisions 100 Chinese businesses on site selling everything 
from garments and electrical appliances to office products 
and food.  The feasibility study estimates first-year 
revenues at USD 4-5 million, with the market's management 
office taking a cut of profits.  Liu claimed that Sinuiju 
officials have designated a site for the market on Bidan 
Island (Xitan Farm)--on the Yalu River between Sinuiju and 
Dandong--but also had to designate a temporary site for the 
market within Sinuiju proper because budgetary problems 
hindered their ability to build the necessary 
infrastructure at the Bidan Island site. 
WICKMAN