VZCZCXRO7105
PP RUEHCN RUEHDBU RUEHGH RUEHLN RUEHSK RUEHVC RUEHVK RUEHYG
DE RUEHBJ #1543/01 1600650
ZNR UUUUU ZZH
P 090650Z JUN 09 ZDS
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 4401
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 001543 
 
SENSITIVE 
SIPDIS 
 
C O R R E C T E D  C O P Y (PARAGRAPH MARKINGS CORRECTED ) 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV ECON EIND ETRD CH RS
 
SUBJECT:  CHINA/RUSSIA: CROSS-BORDER TRADE SUFFERS FROM ECONOMIC 
DOWNTURN, RUSSIAN CRACKDOWN ON SHUTTLE TRADERS 
 
REF:  VLADIVOSTOK 051 
 
BEIJING 00001543  001.6 OF 002 
 
 
This cable is Sensitive but Unclassified (SBU) and for official use 
only.  Not for transmission outside USG channels. 
 
¶1. (SBU) SUMMARY:  China-Russia cross-border trade has dropped 
noticeably since October 2008, due largely to Russia's economic 
troubles and a Russian crackdown on Russian shuttle traders, 
according to Chinese officials in the border town of Suifenhe in 
Heilongjiang Province.  Suifenhe officials have adopted a number of 
measures to support the local timber industry and attract more 
Russian tourists, while at the same time seeking central government 
stimulus package funding for large-scale infrastructure projects and 
investment in the IT sector.  In spite of the region's proximity to 
Russia, relatively few Chinese students study Russian in school. 
The region has attracted some large-scale Russian investors, 
including one who bought a former state-owned cement factory and 
turned it profitable.  Concerned about the difficult job markets, 
some university students are looking to go to western China to find 
work.  Administrators at a local university canceled an Embassy 
official's presentation on U.S.-China relations, reflecting local 
concerns about discussing "sensitive" subjects in the lead-up to the 
20th anniversary of the Tiananmen Square massacre.  End Summary. 
 
¶2. (SBU) EconOff recently traveled to Suifenhe, a border town in 
Heilongjiang Province with a population of 160,000, as well as 
Mudanjiang, a city of 800,000 that is approximately 160 kilometers 
from the Russian city of Vladivostok. 
 
Cross-Border Trade Takes a Big Hit 
---------------------------------- 
 
¶3. (SBU) Cross-border trade between China and Russia has dropped 
noticeably since October 2008, according to Suifenhe's Vice Mayor 
Zhang Aizhong.  Zhang blamed the drop in trade on the global 
economic crisis, devaluation of the Russian ruble, inflation and 
Russian economic policy changes.  In particular, he mentioned 
Russia's increase in export tariffs on timber products and Russia's 
crackdown on "pomogaiki," Russian shuttle traders who had received 
subsidized trips to China from Russian retailers in return for 
carrying goods back for resale.  The "pomogaiki" were previously 
allowed to carry 35 kilograms of goods into Russia duty-free for 
"personal use."  The number of Russians crossing the border at 
Suifenhe has plummeted from 5000 a day in 2008 to approximately 1500 
a day now, a reflection of the dramatic drop in the number of 
shuttle traders. 
 
Chinese Border Town Responds to Downturn, Gets Stimulus Funding 
--------------------------------------------- --------- 
 
¶4. (SBU) Given the importance of cross-border trade to Suifenhe's 
economy, local authorities have adopted a number of measures to 
boost trade.  Vice Mayor Zhang said the city would support the 
timber industry by building new storage/processing facilities, 
reducing import duties to the 11-30 percent range, and reducing 
corporate income taxes levied on timber processors.  The city is 
encouraging timber industry restructuring to move away from sawmills 
to plywood production and thereby take advantage of lower Russian 
export duties on sawn wood.  To attract more Russian tourists, 
Suifenhe now allows Russians to cross the border visa-free for trips 
up to four days.  A local official complained that Russians were no 
longer crossing the border "because they have no money" but 
predicted the increase in the price of oil and recovery of the 
Russian economy would bring large numbers of Russians back to 
Suifenhe.  Zhang said the Suifenhe city government had also been 
lobbying to get stimulus package funding from the central and 
provincial governments, noting their success in receiving RMB 200 
million from the central government to build a high-speed rail from 
Suifenhe to Mudanjiang that had been in the planning phase for 
years. 
 
Suifenhe:  E-city of the Future? 
------------------------------- 
 
¶5. (SBU) Suifenhe has also adopted plans to transform the city into 
a high-tech, digitized city, Vice Mayor Zhang told EmbOffs while 
showing off a futuristic exhibition on "Suifenhe: Digitized City." 
Parts of the plan have already been implemented, such as digitized 
port and customs facilities and a network of more than 300 security 
cameras that provide a continuous, live feed to a centralized 
control room and allow city officials "to maintain social order." 
Zhang said the city was in talks with Microsoft and other software 
companies in an effort to develop e-government, digitize city 
services and health records, and promote the use of energy-saving 
technology such as smart meters for utilities. 
 
 
BEIJING 00001543  002.3 OF 002 
 
 
Russian Investment Turns Former SOE Profitable 
--------------------------------------------- - 
 
¶6. (SBU) Heilongjiang Province has attracted a number of large-scale 
Russian investors in recent years.  One example is the Mudanjiang 
Jianxin Cement Group, a former state-owned enterprise that went 
bankrupt in 2008 and was bought by a private Russian investor in 
August 2008.  The Russian CEO told EmbOffs May 14 that the cement 
factory retained 1300 of the factory's previous 4000 workers.  He 
said the factory was now profitable, crediting the company's 
investment in newer and more energy efficient technology and growing 
demand for cement needed for major infrastructure projects in the 
region.  The same investor plans to invest in a "Russian culture 
street" in Mudanjiang. 
 
Russian Language Study: Even Near Border, Few Study Russian 
--------------------------------------------- --------- 
 
¶7. (SBU) In spite of Mudanjiang's relative proximity to the Russian 
border, the school's largest high school eliminated its Russian 
language program several years ago.  While showing off the school's 
English language program, the school principal told EconOff that few 
students now wanted to study Russian because only a small number of 
Chinese universities offered Russian language as a major.  One of 
those universities is the local Mudanjiang University, where 
approximately 300 of the university's 7000 students study Russian. 
Two hours away in the border town of Suifenhe, about 30 percent of 
school students study Russian while 70 percent study English, 
according to a local official.  The official lamented the declining 
interest in the Russian language among the city's youth, commenting 
that "even here on the border, most parents prefer that their 
children learn English in school." 
 
Graduates Looking West, Administrators Looking to Avoid Trouble 
--------------------------------------------- ---------- 
 
¶8. (SBU) During EconOff's visit to Mudanjiang University, students 
expressed concern about the difficult job market.  Several students 
said they planned to go west to Xinjiang or Tibet after graduation 
to teach but hoped to return to the relatively prosperous east coast 
after a few years to find work in the private sector.  A university 
professor said that his best students would likely find jobs after 
graduation but the weaker students would face a period of 
unemployment or be forced to settle for low-paying jobs unrelated to 
their majors.   EconOff had planned to deliver a PowerPoint 
presentation to the students on U.S.-China relations but was not 
allowed to deliver the presentation because of its "sensitive" 
content.  A local official expressed concern about one slide that 
mentioned U.S.-China relations reaching a low point in 1989 over 
human rights, commenting that "we don't discuss political issues at 
the local level."  (Note: A week later, EconOff was allowed to 
deliver the presentation to over 200 students at a private college 
near Qingdao in Shandong Province.  A contact at the college argued 
that, in spite of sensitivities about the 20th anniversary of the 
Tiananmen Square massacre, the presentation was not a problem 
because of Qingdao's relative openness and the fact that the private 
college was not required to get approval from the local Foreign 
Affairs Office.) 
 
PICCUTA