VZCZCXRO6916
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGZ #0504/01 2320917
ZNR UUUUU ZZH
R 200917Z AUG 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0864
INFO RUEHBJ/AMEMBASSY BEIJING 0673
RUEHHK/AMCONSUL HONG KONG 0236
RUEHGH/AMCONSUL SHANGHAI 0171
RUEHCN/AMCONSUL CHENGDU 0170
RUEHSH/AMCONSUL SHENYANG 0181
RUEHIN/AIT TAIPEI 0176
RUEHGZ/CHINA POSTS COLLECTIVE 0233
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0135
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0087
RUEAIIA/CIA WASHDC 0224
RUEKJCS/DIA WASHDC 0220

UNCLAS SECTION 01 OF 03 GUANGZHOU 000504 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP, EEB 
STATE PASS USTR 
 
E.O. 12958: DECL: N/A 
TAGS: ECON PREL EFIN ETRD EINV PGOV CH VM SN MY
SUBJECT: South China-Southeast Asia Relationship - Growing Closer, 
Still Dominated by Trade and Investment 
 
GUANGZHOU 00000504  001.2 OF 003 
 
 
¶1. (SBU) Summary and comment: Local governments and businesses in 
south China are using a range of tools to capitalize on the region's 
proximity with Southeast Asia to increase trade and attract 
investment.  Annual trade expos, special economic zones and 
infrastructure development are among the initiatives that have been 
employed to bring the two areas closer together economically. 
Cultural similarities, particularly in languages, and tourism are 
facilitating the effort.  Comments from local representatives of 
ASEAN countries suggest that while they are well aware of China's 
economic strengths and the advantages of a closer economic 
relationship, they also note its weaknesses and recognize their 
neighbor to the north as competitor as well as a partner.  End 
summary and comment. 
 
---------------- 
Showcasing Trade 
---------------- 
¶2. (SBU) The annual China-ASEAN Expo is perhaps the most prominent 
example of the efforts to highlight and strengthen south China's 
growing economic relationship with Southeast Asia.  In 2004, the 
Chinese Ministry of Commerce and the governments of the ten ASEAN 
nations (Burma, Brunei, Cambodia, Indonesia, Laos, Malaysia, the 
Philippines, Singapore, Thailand, and Vietnam) sponsored the first 
China-ASEAN Expo to promote trade.  The Expo has been held on an 
annual basis in Nanning, the capital of Guangxi Zhuang Autonomous 
Region, which borders Vietnam, ever since. 
¶3. (SBU) According to Professor Wang Juan of Guangxi University, the 
China-ASEAN Expo has been a success.  Participants and exhibits are 
increasing each year, and the nature of the products being exhibited 
is evolving too.  In the past, exhibits mainly focused on 
agriculture, garments, and shoes, she said.  Now, when you walk the 
Guangzhou and Shanghai halls, electrical and machine-based products 
are more visible.  While Laos and Vietnam promote aquaculture 
products, Malaysia publicizes education and Singapore touts its 
banking sector. 
----------------------------- 
Zones, Circles, and Corridors 
----------------------------- 
¶4. (SBU) Scholars in south China point out that the China-ASEAN Free 
Trade Area, which will be created in 2010 according to the 
China-ASEAN Comprehensive Economic Cooperation Framework (CACECF), 
will build on and facilitate localized efforts to develop trade and 
investment relations.  Professor Gu Xiaosong, Deputy Director of the 
Southeast Asian Studies Institute and Vice-President of the Guangxi 
Academy of Social Sciences, said that an agreement on goods and 
services, which has already been signed, and an agreement on 
investment expected later this year would only deepen the trade 
relationship between China and ASEAN.  Trade volume has grown 
annually at a rate of approximately 20%, he said, reaching US$230 
billion last year.  This growth exceeds growth in trade between China 
and the United States and also between China and Japan, he added. 
 
¶5. (SBU) Cooperation between south China and some ASEAN countries has 
already been strengthened under the CACECF.  According to Professor 
Li Xinguang, Deputy Director of the Southeast Asian Studies Center at 
Guangxi University, a Sino-Vietnam Economic Circle is one of the 
products of the agreement.  The Chinese government signed on to this 
Vietnamese proposal last year, leading to the development of two 
"economic corridors:" a western corridor, or highway, between Kunming 
and Hanoi, and an eastern corridor between Nanning and Hanoi.  A 
Nanning-Singapore Economic Corridor has also been proposed. 
According to Professor Gu Xiaosong, this corridor, originating in 
Nanning and passing through Vietnam, Laos, Cambodia, and Malaysia, 
would consist of 3,000 kilometers of public roads and railways to 
facilitate trade.  Although many of the roads and railways involved 
already exist, he said, the plan is to eventually connect them. 
¶6. (SBU) Construction projects are also underway to connect Guangxi's 
Fangchenggang port with the national railway network to allow it to 
handle petroleum and gas.  According to one professor at the 
Institute of Southeast Asian Studies at Sun Yat-sen University, 
Guangxi's port is poised to serve as "the gateway of southwestern 
China."  He pointed out that, in the past, cargo from this area was 
exported through Guangdong province, but the development of the 
Fangchenggang port would substantially shorten the transportation 
distance to Southeast Asia. 
¶7. (SBU) Aside from these proposed projects, China currently has two 
 
GUANGZHOU 00000504  002.2 OF 003 
 
 
other major economic cooperation programs with Southeast Asia.  One 
is the Pan-Beibu Development Zone that covers south China, including 
Guangdong, Guangxi, Hainan, Hunan, and Hubei in addition to Vietnam, 
Laos, Burma, and Cambodia.  The other is the Sub-Regional Cooperation 
Program of the Mekong River that promotes exchanges between China's 
southwestern provinces and Indonesia, Malaysia, Thailand, Laos, 
Cambodia, and Burma, according to Professor Yuan Ding at Sun Yat-sen 
University. 
--------------------------------------- 
Vietnam Trade and Investment Taking-Off 
--------------------------------------- 
¶8. (SBU) Vietnam, in particular, has seen economic relations with 
south China grow dramatically even in the face of the global economic 
downturn.  According to Tran Viet Thai of the Vietnamese Consulate in 
Guangzhou, in the first four months of 2009, exports between 
Guangdong Province and Vietnam totaled more than US$798 million, an 
increase of 13.1% from 2008.  Although trade in agricultural products 
decreased 15%, exports of electrical products increased 26%, and 
exports of hi-tech products more than doubled.  Imports from Vietnam 
totaled US$363.5 million, an increase of 43.4%.  Investment is 
growing as well.  As of December 2008, Guangdong investment in 
Vietnam totaled 40 projects, mostly related to infrastructure, worth 
US$310 million, and Vietnamese investment in Guangdong totaled 6 
projects worth more than US$3 million.  According to Tran, Guangdong 
Party Secretary Wang Yang visited Vietnam in September 2008 and 
signed agreements on 22 projects worth US$1.57 billion. 
-------------------------------- 
Cultural Ties Offer an Advantage 
-------------------------------- 
¶9. (SBU) Many of our contacts underscored the presence of overseas 
Chinese in Southeast Asia and other cultural ties as key factors in 
the growing relationship.  According to Zhuang Guotu, President of 
the Nanyang Research Institute of Xiamen University, there are about 
44 million overseas Chinese throughout the world, and 32 million, or 
about 70%, are living in Southeast Asia.  Shawn Sim, Trade Consul at 
the Malaysian Consulate in Guangzhou, said that 30% of Malaysia's 
population is Chinese, and 70% of Singaporeans are of Chinese 
ancestry, according to Kenneth Teo, Trade Consul at the Consulate of 
Singapore.  As a result, for Southeast Asians to do business in 
China, language often is not an issue.  Moreover, the dialect of the 
Zhuang minority in Guangxi shares similarities with Vietnamese, Lao, 
and Thai, said Professor Gu Xiaosong, making it easy for all sides to 
learn each other's language. 
¶10. (SBU) Local educational institutions are taking steps to further 
enhance these cultural advantages.  The Guangxi Dongfang Foreign 
Language College offers three-year language training in a variety of 
Southeast Asian languages.  According to Professor Liang Yihua, the 
school opened in 2004 with an enrollment of 200 students.  Expected 
enrollment for the upcoming semester is a whopping 10,000 students. 
The College has ties with universities in Thailand and Vietnam, 
including student and teacher exchanges as well as cultural programs. 
 
¶11. (SBU) Increased tourism between China and Southeast Asia has also 
promoted trade.  According to Professor Yuan Ding, ASEAN has been the 
top choice for Guangdong tourists in recent years.  Furthermore, 
statistics from China's State Tourism Bureau indicate 5-10% 
year-on-year growth in tourists from Malaysia, Singapore, the 
Philippines, Thailand, and Indonesia.  While several Southeast Asian 
countries offer visa-on-arrival for Chinese tourists, ASEAN hopes to 
eventually implement a no-visa tourism circle with China. 
-------------------------------- 
Dealing with China in the Future 
-------------------------------- 
 
¶12. (SBU) Southeast Asian Consulate representatives in Guangzhou also 
raised some cautionary notes regarding the expansion of economic 
relations between their countries and China.  Most prominent, they 
expressed concern about China's "infamous" food safety and sanitary 
issues.  They also called on China to stimulate its domestic demand 
to help deal with the global financial crisis, expressing a desire to 
serve that market. 
¶13. (SBU) China as a competitor was another important concern.  Sim 
from the Malaysian Consulate said that Malaysia used to design 
furniture for export but because "China copies well" and Malaysian 
designers could not keep up, Malaysia is now the top supplier of raw 
wood to China, and China is the number one import source of furniture 
 
GUANGZHOU 00000504  003.2 OF 003 
 
 
for Malaysia.  Tran from the Vietnamese Consulate described the 
"threat" of the Chinese economy: "China is just too big."  Vietnam 
will need to produce "better products and better services to 
compete," he said. 
GOLDBECK