VZCZCXYZ0319
PP RUEHWEB

DE RUEHSH #0030/01 0630600
ZNY CCCCC ZZH
P 030600Z MAR 08
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8362
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAIIA/CIA WASHDC 0094
RHMFISS/COMUSKOREA J2 SEOUL KOR
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0798
RUEKJCS/DIA WASHDC 0069
RHHJJAA/JICPAC PEARL HARBOR HI 0033
RUCGEVC/JOINT STAFF WASHDC 0044
RHEHAAA/NSC WASHDC
RHMFISS/SACINCUNC SEOUL KOR
RUEKJCS/SECDEF WASHDC 0091
RUENAAA/SECNAV WASHDC 0004

C O N F I D E N T I A L SHENYANG 000030 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EAP/CM, EAP/K, PRM 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: PREL PINR PGOV ECON ETRD KN KS CH
SUBJECT: PRC/DPRK: IMPACT OF PRC EXPORT RESTRICTIONS; 
DEADLOCK OVER NEW TRADE BRIDGE; INTER-KOREAN TRADE NEAR 
DANDONG 
 
REF: SHENYANG 14 
 
CLASSIFIED BY: CONSUL GENERAL STEPHEN B. WICKMAN. 
REASONS: 1.4(B)/(D). 
 
¶1. (C) SUMMARY:  NEW PRC EXPORT RESTRICTIONS ARE DELAYING, 
IN SOME CASES BY MANY WEEKS, SHIPMENTS OF KEY CHINESE 
COMMODITIES TO NORTH KOREA VIA DANDONG.  IN LIMITED CASES, 
BEIJING IS GRANTING TEMPORARY WAIVERS FOR PRC FIRMS WITH 
LARGE, PREEXISTING CONTRACTS IN THE DPRK.  PYONGYANG IS 
DISPLEASED, AND DANDONG OFFICIALS EXPECT A MORE ACUTE NORTH 
KOREAN REACTION IN LATE SPRING.  UNEASY LIAONING OFFICIALS 
ARE CURRENTLY LOBBYING BEIJING TO WAIVE THE NEW 
RESTRICTIONS FOR NON-AID, DPRK-BOUND SHIPMENTS IN THE 
INTEREST OF BORDER STABILITY.  A FUNDING DISPUTE DEADLOCKS 
BILATERAL TALKS OVER A NEW PRC-DPRK TRADE BRIDGE NEAR 
DANDONG.  NORTH KOREAN CARGO SHIPS WEEKLY HAUL COPPER, IRON 
ORE AND OTHER RAW MATERIALS TO DANDONG'S DADONG PORT, WHERE 
SOUTH KOREAN FIRMS NEARBY CREATIVELY TRADE WITH NORTH 
KOREAN ENTERPRISES THROUGH CHINESE INTERMEDIARIES.  END 
SUMMARY. 
 
¶2. (C) POLOFF TRAVELED FEBRUARY 25-27 TO THE SOUTHERN END 
OF THE PRC-DPRK BORDER.  SITES VISITED INCLUDE DANDONG, THE 
STRATEGIC THOROUGHFARE OPPOSITE SINUIJU THROUGH WHICH THE 
MAJORITY OF PRC-DPRK TRADE FLOWS; DONGGANG, SITUATED 
ROUGHLY 60 KILOMETERS SOUTH OF DANDONG NEAR THE YELLOW SEA; 
AND QIANYANG, A SHORT DRIVE FROM DONGGANG. 
 
PRC, DPRK RESPONSES TO SLOWDOWNS IN CROSS-BORDER TRADE 
--------------------------------------------- --------- 
¶3. (C) NEW PRC RESTRICTIONS ON CERTAIN AGRICULTURAL EXPORTS 
LIKE GRAIN (REF A), ACCOMPLISHED VARIOUSLY THROUGH 
INCREASES IN EXPORT TARIFFS, THE CANCELLATION OF EXPORT 
REBATES AND/OR THE "CAPTURE" OF CERTAIN COMMODITIES BY A 
NATIONAL EXPORT-QUOTA REGIME, ARE GENERATING PRC-DPRK TRADE 
FRICTIONS AND CONCERN IN THE DANDONG-SINUIJU AREA, 
ACCORDING TO YANG WENJIA (STRICTLY PROTECT), CHIEF OF THE 
FOREIGN TRADE ADMINISTRATION SECTION OF DANDONG'S FOREIGN 
TRADE AND ECONOMIC COOPERATION BUREAU.  YANG PRIVATELY TOLD 
POLOFF ON FEBRUARY 26 THAT AS A RESULT OF THE NEW EXPORT 
RESTRICTIONS, THE MINISTRY OF COMMERCE (MOFCOM) HAS BEEN 
INUNDATED WITH EXPORT-PERMISSION APPLICATIONS LEADING TO 
DELAYS--IN SOME CASES OF MANY WEEKS--BEFORE CHINESE FIRMS 
RECEIVE APPROVAL FOR THEIR INTENDED SHIPMENTS FROM DANDONG 
TO NORTH KOREA. 
 
¶4. (C) IN CERTAIN CASES INVOLVING DPRK-BOUND SHIPMENTS, 
MOFCOM IS TEMPORARILY WAIVING RESTRICTIONS FOR PRC FIRMS 
HAVING LARGE, LONGSTANDING CONTRACTS WITH NORTH KOREAN 
COUNTERPARTS.  THE AIM, YANG SAID, IS TO MITIGATE, AS MUCH 
AS POSSIBLE, POTENTIAL DAMAGE TO EXISTING PARTNERSHIPS AND 
THE "IMAGE OF CHINESE FIRMS ABROAD."  ONCE THE CONTRACTS 
EXPIRE, HOWEVER, CONTINUED EXEMPTIONS ARE NOT GUARANTEED. 
ASKED HOW PRC FIRMS IN THE DANDONG AREA ARE RESPONDING TO 
THE RESTRICTIONS, YANG REPLIED THAT MOST ARE FOCUSING ON 
OTHER, COMPARATIVELY MORE HASSLE-FREE COMMODITIES.  YANG 
CLAIMED NORTH KOREAN FIRMS IN JANUARY INITIALLY REFUSED TO 
BUY CHINESE COMMODITIES AT THE HIGHER PRICES WROUGHT BY PRC 
DOMESTIC INFLATION AND THE NEW EXPORT RESTRICTIONS.  BUT 
MOST HAVE SINCE RELENTED, IN PART BECAUSE THEY NOW 
UNDERSTAND THE ECONOMIC LOGIC, AND IN PART BECAUSE THEY 
RECOGNIZE THEY HAVE NO CHOICE BUT TO "EAT A LOSS" (CHI KUI) 
TO PROCURE CRITICAL COMMODITIES.  YANG SAID HE EXPECTS A 
FULLER NORTH KOREAN REACTION IN THE APRIL-MAY TIMEFRAME, BY 
WHICH TIME MORE CONTRACTS WILL EXPIRE AND POTENTIAL PRC 
GOVERNMENT-SANCTIONED PRICE HIKES IN CHINA MIGHT LEAD TO A 
MORE ACUTE CRUNCH FOR THE DPRK. 
 
DANDONG CONCERNED, LOBBYING BEIJING FOR PRC-DPRK WAIVER 
--------------------------------------------- ---------- 
¶5. (C) LOCAL DANDONG AND PROVINCIAL LIAONING OFFICIALS 
EXPRESS PRIVATE CONCERN ABOUT THE SITUATION AND ARE 
INTERNALLY LOBBYING BEIJING TO WAIVE THE EXPORT 
RESTRICTIONS FOR RELEVANT COMMODITIES IN PRC-DPRK TRADE, 
YANG SAID.  THEIR ARGUMENT: GRAIN AND OTHER AGRICULTURAL 
EXPORTS TRANSITING DANDONG, WHETHER IN DOLLAR TERMS OR BY 
VOLUME, ACCOUNT FOR A RELATIVELY MINOR PORTION OF 
 
 
LIAONING'S AND THE PRC'S OVERALL EXPORTS.  BECAUSE OF THIS- 
-AND THE VIEW THAT NON-AID CHINESE AGRICULTURAL EXPORTS ARE 
CRITICAL TO SUSTAINING THE DPRK, THEREBY SHORING UP 
LIAONING'S BORDER STABILITY--LIAONING OFFICIALS BELIEVE 
PRC-DPRK TRADE NEEDS TO BE GRANTED SPECIAL CONSIDERATION. 
 
 
PRC-DPRK DEADLOCKED ON NEW BRIDGE ACROSS THE YALU 
--------------------------------------------- ---- 
¶6. (C) ON ANOTHER TOPIC IN PRC-DPRK RELATIONS, YANG 
DOWNPLAYED A RECENT PRESS REPORT CLAIMING THE PRC IS 
"ACCELERATING" PLANS FOR A NEW BRIDGE CONNECTING DANDONG 
WITH SINUIJU ACROSS THE YALU RIVER.  AT PRESENT, A SINGLE, 
TWO-LANE BRIDGE DATING BACK TO THE JAPANESE OCCUPATION 
LINKS THE TWO CITIES.  A RAILROAD OCCUPIES ONE LANE, WHILE 
THE OTHER, INITIALLY INTENDED AS A LANE FOR TRAIN-TRACK 
REPAIR VEHICLES, IS USED FOR CROSS-BORDER TRAFFIC. 
CAPACITY IS FAR FROM OPTIMAL, AND SINCE PRC-DPRK CARGO 
TRAFFIC CAN TRANSIT ONLY ONE WAY AT A TIME, SHIPPING IS 
SLOW AND BOTH THE DANDONG AND SINUIJU LAND PORTS REGULARLY 
SUFFER FROM UNNECESSARY BOTTLENECKS.  BOTH BEIJING AND 
PYONGYANG HAVE BEEN TALKING AT THE STATE-TO-STATE LEVEL 
"FOR A WHILE NOW" ABOUT A NEW BRIDGE, BUT TALKS ARE HUNG-UP 
OVER FUNDING.  YANG SAID THE DPRK IS DEMANDING PRC FUNDING 
FOR THE BRIDGE AND ITS FUTURE MAINTENANCE IN THE FORM OF 
IRREGULAR AID, SOMETHING TO WHICH BEIJING HAS NOT WARMED. 
YANG, WHO CONTINUES TO RAISE THE ISSUE WITH VISITING NORTH 
KOREAN COUNTERPARTS, BELIEVES A RESOLUTION IS UNLIKELY IN 
THE NEAR TERM, THOUGH A NEW, MODERN BRIDGE WITH SUFFICIENT 
CAPACITY FOR CROSS-BORDER CARGO TRAFFIC WOULD YIELD 
CONCRETE BENEFITS FOR BOTH SIDES.  (WHILE DANDONG 
FORMULATED A DETAILED PLAN FOR THE BRIDGE, BOTH THE 
LOCATION AND FORMAL APPROVAL REMAIN ELUSIVE, YANG SAID.) 
 
DANDONG LAND PORT: A SITREP 
--------------------------- 
¶7. (C) DURING A VERY BRIEF OBSERVATION AT THE DANDONG LAND 
PORT ON FEBRUARY 25, CROSS-BORDER CARGO TRAFFIC MIRRORED 
LEVELS OBSERVED DURING RECENT VISITS AT THE SAME TIME 
INTERVAL.  BETWEEN 1030 AND 1100, APPROXIMATELY 60-70 
MOSTLY LARGE, SEALED CHINESE CONTAINER TRUCKS HAVING PRE- 
CLEARANCE TAGS PASSED WITHOUT ADDITIONAL INSPECTION INTO 
SINUIJU.  FLATBED CHINESE TRUCKS HAULED A NUMBER OF DIESEL 
GENERATORS, PIECES OF INDUSTRIAL FARMING EQUIPMENT AND 
TRACTORS.  BOXES OF BANANAS, MEAT AND CLOTHING CHOKED MANY 
CHINESE DRIVERS' CABS.  A NUMBER OF NORTH KOREANS LOITERED 
IN THE PORT COMPLEX, MOSTLY STANDING BESIDE SHINY, LATE- 
MODEL JAPANESE SUVS AND PASSENGER BUSES WITH NORTH KOREAN 
PLATES. 
 
DADONG SEAPORT: INCOMING NK CARGO, INTER-KOREAN TRADE 
--------------------------------------------- -------- 
¶8. (C) NORTH KOREAN CARGO SHIPS, MANY ORIGINATING IN NAMPO, 
TRAVEL SEVERAL TIMES EACH WEEK TO DANDONG'S DADONG PORT IN 
DONGGANG, WHICH HUGS THE YELLOW SEA AND YALU RIVER.  ONCE 
UNLOADED, CARGO--MOSTLY RAW MATERIALS, INCLUDING COPPER AND 
IRON ORE--IS TYPICALLY PROCESSED AT FACTORIES WITHIN THE 
ADJACENT DONGGANG DEVELOPMENT ZONE AND THEN EXPORTED ABROAD 
OR ELSEWHERE IN CHINA, ACCORDING TO YU ZHENDONG (STRICTLY 
PROTECT), A VICE DIRECTOR OF THE DONGGANG ECONOMIC 
DEVELOPMENT ZONE'S ADMINISTRATIVE COMMITTEE.  YU AND JIANG 
HAIJUN (STRICTLY PROTECT), ANOTHER VICE DIRECTOR OF THE 
ZONE'S ADMINISTRATIVE COMMITTEE, NOTED THAT SOUTH KOREAN 
FIRMS INVESTED IN THE ZONE CONDUCT BUSINESS WITH THE DPRK 
THROUGH CHINESE INTERMEDIARIES.  TWO METHODS PREDOMINATE. 
THE FIRST INVOLVES CHINESE PARTNERS IMPORTING NORTH KOREAN 
RAW MATERIALS VIA DADONG HARBOR, WHEREUPON ROK FIRMS 
PROCESS THE INPUTS WITHIN THEIR NEARBY FACTORIES AND 
ULTIMATELY EXPORT THE GOODS ABROAD.  THE SECOND, PRIMARILY 
CENTERED ON GARMENTS/TEXTILES, INVOLVES SENDING INPUTS TO A 
NORTH KOREAN FIRM FOR LOW-COST PROCESSING; THE GOODS ARE 
THEN SUBSEQUENTLY SHIPPED THROUGH DADONG HARBOR AND 
ULTIMATELY EXPORTED BY THE SOUTH KOREAN FIRMS.  OVER TWENTY 
ROK FIRMS ARE CURRENTLY INVESTED IN THE DONGGANG ECONOMIC 
ZONE, THOUGH IT IS UNCLEAR HOW MANY ARE INVOLVED IN 
INDIRECT INTER-KOREAN TRADE. 
WICKMAN