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PP RUEHCN RUEHGH RUEHVC
DE RUEHSH #0136/01 2700506
ZNY CCCCC ZZH
P 260506Z SEP 08
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8508
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 0815
RUEAIIA/CIA WASHDC PRIORITY 0145
RUEAHLC/HOMELAND SECURITY CENTER WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000136 
 
SIPDIS 
 
E.O. 12958: DECL: 03/30/2017 
TAGS: CH ECON ETRD EWWT PGOV PREL
SUBJECT: DALIAN PORT GROUP EXPANDS REACH THROUGHOUT 
NORTHEAST CHINA 
 
REF: A. A) SHENYANG 2007-0056 
     ¶B. B) SHENYANG 2007-0171 
 
Classified By: CONSUL GENERAL STEPHEN WICKMAN  Reasons 1.4 B and D 
 
¶1. (U) Summary. The "Five Points One Line" development plan, 
devised by former Liaoning Party Secretary and current 
Executive Vice-Premier Li Keqiang, is virtually co-extensive 
with the expansion of Dalian Port Group, which continues to 
broaden its reach throughout Northeast China (Ref A).  In 
addition to controlling Dalian Harbor, Dalian Airport, and 
the Dalian Sea Passenger Terminal, the Group is the largest 
investor in the Changxing Island Development Area, as well as 
the Suifenhe Land and River Ports along the Chinese-Russian 
border.  The Group has entered into a joint venture with 
Denver-based ProLogis to establish a logistics service center 
in Shenyang's Hunnan Development Zone.  The logistics 
operation will service primarily the Hunnan Development Zone 
and the newly-established Aviation Industrial Zone. End 
Summary. 
 
¶2. (U) The Changxing Island Development Area is comprised of 
five islands west of the Dalian Development zone.  Named for 
the largest island, the development covers 330 square 
kilometers.  Although construction began just over a year 
ago, the development is already home to South Korea's STX 
Shipbuilding Company and twenty-two small factories which 
manufacture ship fittings and accessories.  The vast majority 
of the factories are wholly-owned South Korean enterprises. 
Raw materials for all of these operations are brought in by 
ship from other points in China. 
 
¶3. (U) The ships are processed at the newly-opened Changxing 
Harbor facility.  The facility opened three bulk cargo berths 
in April of this year and has handled 270,000 tons of cargo 
to date.  Construction continues on the bulk cargo facility, 
which will eventually afford a dozen berths.  The ambitious 
development plans also includes a large deep-water petroleum 
facility.  The island has excellent offshore depths of 20 to 
30 meters and the planned facility will be able to handle 
even the largest tanker vessels. 
 
¶4. (U) Unlike the petroleum facility at Dalian Harbor, which 
serves primarily the strategic petroleum reserve facility, 
Changxing Harbor will support a planned petrochemical 
industrial complex.  According to Wang Yi, General Manager of 
Dalian Port Group,s Oil and Liquefied Chemicals Division, 
the petrochemical complex, devised and operated by 
PetroChina, will incorporate the full range of petroleum 
processing, from refining to manugacturing high-end petroleum 
products.  Each stage of petroleum processing will be linked 
to the subsequent stage by underground pipelines, eliminating 
both the costs and the hazards of surface shipping. 
 
¶5. (U) Dalian Port Group is also the major investor in the 
large residential development on Changxing Island, providing 
basic infrastructure and overall direction for the project, 
primarily developers from Hong Kong and Shanghai.  As with 
the shipbuilding industrial zone the housing area targets a 
prinarily South Korean market.  All promotional billboards 
and literature are printed in Chinese and Korean.  The 
housing covers a broad economic spectrum from low-end housing 
for factory and shipyard workers, to high-end villas for 
those seeking refuge from the hustle and bustle of Dalian. 
Prices range from RMB 2000 to RMB 4000 per square meter. 
 
¶6. (U) The island, which had a population of less than twenty 
thousand at the start of development, expects to expand to a 
total population of about five hundred thousand within the 
next three years.  At present, nearly all of the labor force 
is bused in from Dalian and bused back at the end of the 
workday.  The trip, made on STX-chartered buses, takes one 
and half hours in each direction.  Company managers say that 
once the housing is completed, they expect it to fill 
rapidly.  While it is unlikely that workers will buy housing, 
company managers expect the housing to be bought up by 
investors and then rented to the laborers. 
 
¶7. (U) Development Area Business Development Director, Leon 
Wu, said that in order to regularize the island's rapidly 
growing population, workers from outside Dalian will be given 
six-month temporary resident permits.  At the end of the six 
months, the workers will then be able to transfer their 
residency to the development area and become permanent 
residents.  The island's original inhabitants were virtually 
all farmers, and although few have since taken jobs in the 
service sector, most have chosen to remain farmers.  Slightly 
less than ten thousand had to be relocated to facilitate the 
development.  They now live in new housing units in 
 
SHENYANG 00000136  002 OF 002 
 
 
newly-built high rise structures in the rapidly developing 
city center.  Another ten thousand remain in older farm 
housing on the north end of the island.  Conversations with 
several of the relocated persons indicated that they were 
satisfied with the move and did not mind commuting to the 
fields situated along the island's newly established public 
bus service. 
 
¶8. (U) Yet another aspect of Dalian Port Group's effort on 
the island is the development of a wood-products value-added 
processing center.  The center will begin production of 
plywood and chipboard for construction use, relying on raw 
materials from lumber imported from Russia via Suifenhe, in 
Heilongjiang Province.  Dalian Port Group is also the largest 
investor in the Suifenhe Port of Entry. 
 
¶9. (C) While the publicly-traded Dalian Port Group continues 
to expand its already huge network of logistics and real 
estate operations, the government arm, Dalian Port Authority, 
is beginning to resist what it sees as excessive levels of 
privatization in Dalian Harbor, insisting that new entities 
in the main harbor at Dayou Bay be at least partly government 
owned.  According to Luan Haitao, Director of Foreign 
Investment for the Bonded Port Area, this insistence has 
halted investment in the northern shore of Dayou Bay for the 
time being.  Dalian Port Group,s Hu Song said the Port Group 
is in no hurry to move forward on that portion of the 
development, since existing container capacity in the port is 
now three times current demand following the recent 
completion of the Number Two and Number Three container 
facilities on the south shore. 
 
¶10. (C) According to Luan, the north shore originally was 
planned to be developed for bulk cargo, but due to the 
problems with the Port Authority, Dalian Port Group shifted 
its bulk cargo development emphasis to the nearby Port of 
Yingkou.  Dalian Port Group is also Yingkou's largest 
investor and has made major investments in improving the bulk 
cargo handling capacity of that harbor, moving it well past 
100 million tons per year.  The Group's management explained 
that the Group has plenty of projects to keep it busy and 
that development of the north shore can wait until the Port 
Authority becomes more cooperative. 
 
¶11. (U) As in all the other harbors on the Liaoning coast, 
the Dalian Port Group is the driving force behind the rapid 
modernization of Jinzhou as well.  The strategy in Jinzhou is 
to develop enhanced bulk cargo facilities dedicated primarily 
to the shipment of coal mined in eastern Inner Mongolia to 
China's southern regions.  The port will also handle domestic 
shipments of bulk goods imported into Inner Mongolia from 
Russia, as well as shipments of grain and produce from 
western Liaoning, Jilin, and eastern Inner Mongolia to 
markets in southern China. 
 
¶12. (U) Dalian Port Group is at present a major investor in 
Jinzhou Harbor and Development Zone, and discussions are 
underway for the Dalian Port Group to purchase Jinzhou Harbor 
outright (Jinzhou is the only port that is fully listed on 
the Shanghai and Hong Kong stock exchanges). While there are 
plenty of opportunities for expansion within Liaoning at 
present, the high level of international cooperation and 
close relationship with Denver-based ProLogis and the Port of 
Singapore indicate that Dalian Port Group is positioning 
itself for expansion abroad. 
 
¶13.  (U) In addition to moving into real estate development, 
The Dalian Port Group is broadening the nature of its 
activities by entering the logistics servicing field in 
Shenyang,s Hunnan Development Zone.  A USD 50 million joint 
venture with ProLogis will serve the new Aviation Industrial 
Zone and will also focus heavily on serving FoxConn,s needs 
as FoxConn,s new nano-copper and magnesium alloy plants come 
on line (ref B).  The Port Group,s goal is to become an 
end-to-end supply chain manager for companies throughout 
Northeast China. 
SWICKMAN