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PP RUEHCN RUEHGH RUEHVC
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P 210210Z MAR 08
FM AMCONSUL SHENYANG
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INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 1784
RUEAIIA/CIA WASHDC 0098
RHMFISS/COMUSKOREA J2 SEOUL KOR
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0803
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RHHJJAA/JICPAC PEARL HARBOR HI 0035
RHEHAAA/NSC WASHDC
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RHMFISS/SACINCUNC SEOUL KOR
RUEHGV/USMISSION GENEVA 0537

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000037 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EAP/CM, EAP/K 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: PREL PINR PGOV ECON ETRD PREF KN KS CH
SUBJECT: NEW DEVELOPMENTS IN PRC-DPRK BORDER TRADE 
 
REF: A. (A) SHENYANG 30 
 
     ¶B. (B) SHENYANG 14 
 
Classified By: CONSUL GENERAL STEPHEN B. WICKMAN.  REASONS: 
1.4(b)/(d). 
 
¶1. (C) SUMMARY: New PRC export restrictions are 
complicating some PRC-DPRK trade and contractual 
relationships, according to more Chinese trade officials. 
North Korean businessmen have been sent abroad recently on 
grain "purchasing" missions, essentially requesting free 
"donations" in places like Thailand.  PRC borderland 
provinces recently enacted new measures aimed at capturing 
PRC-DPRK border trade transactions within the Chinese 
banking system, but the impact of the new rules remains 
unclear.  Chinese Korea specialists remain concerned about 
North Korea's food supply this year.  North Korean demand 
for more sophisticated Chinese electronics is growing, say 
Chinese trade officials.  END SUMMARY. 
 
PRC EXPORT STRICTURES RESHAPING PRC-DPRK TRADE 
--------------------------------------------- - 
¶2. (C) New PRC export restrictions (ref B) appear to be 
reshaping some PRC-DPRK trade and contractual 
relationships, according to Chinese trade officials. 
(These comments echo sentiments shared by other trade 
officials noted in ref A.)  Queried on how trade between 
Liaoning Province--home of Dandong, conduit for the 
majority of official PRC-DPRK bilateral trade--and 
neighboring North Korea is faring, provincial trade 
officials in Shenyang acknowledged stresses on DPRK-bound 
agricultural shipments.  However, the trade officials were 
quick to emphasize that the Chinese measures apply equally 
to all countries and do not specifically target North 
Korea.  SUN Su (STRICTLY PROTECT), Deputy Director of the 
Liaoning Provincial Foreign Trade and Economic Cooperation 
Bureau's Foreign Trade Promotion Division, told visiting 
INR/GGI analyst Mark Phelan on March 12 that the new export 
restrictions raise problems for some Chinese firms in 
carrying out existing contracts with North Korean partners. 
But Sun claimed no "special" exception or exemption would 
be made for DPRK-bound shipments.  (NOTE: Other trade 
officials told us privately in recent weeks that, concerned 
about border stability, Dandong and Liaoning officials are 
internally lobbying Beijing for an exemption for non-aid 
PRC-DPRK trade (ref A). END NOTE.) 
 
¶3. (C) Some North Korean businessmen have been sent abroad 
recently on grain "purchasing" missions in Southeast Asia, 
according to a Chinese DPRK specialist with North Korean 
contacts.  The specialist told Poloff that two destinations 
are Thailand and Vietnam, where the North Koreans are 
essentially requesting free "donations" from private 
producers (e.g., of rice) in a bid to supplement domestic 
supply, which he said has been constrained in part by 
China's new agricultural export regulations. 
 
¶4. (SBU) In China, meanwhile, several local reports 
recently indicated large surges in DPRK-bound grain exports 
at several key points along the PRC-DPRK border in 
January/February as shippers rushed to fill orders before 
their export permits expired.  In southern Jilin Province, 
for instance, the border city of Ji'an--opposite Manpo-- 
announced a 67 percent increase in corn exports to the DPRK 
in January/February 2008 compared to the same period last 
year.  The dominant shipper, according to an online report 
posted by the Ji'an government, was an out-of-province firm 
from Dandong rushing to ship before its export permit--and 
its entitlement to tax rebates--expired at the end of the 
month.  Farther north in the Yanbian Korean Autonomous 
Prefecture's Hunchun--home to the PRC land port closest to 
the DPRK's Rajin/Rason--one of several contradictory local 
press reports suggested a similarly-sized uptick in rice 
exports to the DPRK in January 2008 compared to the same 
period last year. 
 
PRC OFFICIALS ON MORE NEW PRC-DPRK TRADE REGS 
--------------------------------------------- 
¶5. (SBU) Liaoning and Jilin provinces in late February 
announced new regulations aimed at standardizing the 
 
SHENYANG 00000037  002 OF 002 
 
 
settlement of PRC-DPRK border trade.  The impact of the new 
measures, touted in the northeastern Chinese press, remains 
unclear.  Sun Su, the Liaoning trade official, explained 
the new rules permit traders to use PRC trade banks to 
process payment and settle accounts through a variety of 
methods.  Although press reports claim the new measures 
will decrease transaction costs and minimize credit risk, 
Sun intimated that the purpose was more regulatory in 
nature: to capture border trade transactions within the 
banking system.  In the past, Sun noted, payment was 
usually handled outside banking channels--informally and 
often in cash. 
 
¶6. (C) Queried whether the new regulations would make 
border trade more difficult or cumbersome in the short 
term, Sun claimed only that the measures were "welcomed" by 
both sides and would promote the "healthy development" of 
PRC-DPRK trade.  He contended, however, that barter trade, 
already "very small" in value, might decrease because of 
the monetization of trade.  (NOTE: We find it unlikely that 
the new measures, at least in the near term, will play a 
major role in suddenly "standardizing" PRC-DPRK trade. 
While the new measures theoretically offer potential 
benefits, some mentioned above, the challenges are many. 
To name just one: a fair amount of border trade, especially 
farther north along the border, is small-volume and most 
easily conducted in cash without the cumbersome, time- 
consuming and perhaps profit-infringing resort to banking 
channels.  We also have yet to hear of an enforcement 
mechanism that will ensure most transactions occur, 
especially those of highest value, within the banking 
system.  END NOTE.) 
 
PRC-DPRK TRADE IN 2008 
---------------------- 
¶7. (C) Northeastern Chinese Korea experts remain concerned 
about North Korea's food supply this year, but when probed 
about recent PRC agricultural export restrictions, some 
suggest Chinese sympathy is not universal.  One government 
scholar, for instance, cautioned that the DPRK in recent 
years imposed its own set of restrictions on exports (e.g., 
lumber, iron ore) of great interest to the PRC.  For their 
part, Liaoning trade officials on March 12 actively skirted 
questions about what percentage agricultural products 
currently comprise of Liaoning's exports to the DPRK.  CHEN 
Deping (STRICTLY PROTECT), Director of the Liaoning 
Provincial Foreign Trade and Economic Cooperation Bureau's 
Foreign Trade Promotion Division, offered only that there 
was no major change in Liaoning's grain exports--primarily 
rice and corn--to the DPRK in 2007.  He contended that 
"most important" to North Korea were Chinese exports of 
machinery and oil. 
 
¶8. (C) On PRC-DPRK trade more broadly, Chen's deputy, Sun 
Su, noted that two-way PRC-DPRK trade in 2007 reached USD 
1.98 billion, approximately 70 percent of which transited 
Dandong.  Despite the increase over 2006 (when two-way 
trade was roughly USD 1.7 billion), PRC-DPRK trade growth 
lagged behind China's overall external trade growth of 
roughly twenty percent, according to Sun.  Asked to comment 
on ongoing and future trends, Chen claimed some limited 
economic improvement in the DPRK has spurred North Korean 
demand for more sophisticated Chinese electronics (e.g., 
USB drives, MP3 players, LCD televisions).  He projected-- 
without reference to United Nations Security Council 
Resolution 1718--that these products would fare well at 
Pyongyang's major trade expositions in May and September 
this year. 
 
WICKMAN