Cablegate: Yunnan's Border Trade: Hekou and Mohan Gear Up for Increased

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DE RUEHCN #0046/01 0570808
ZNR UUUUU ZZH
P R 260808Z FEB 10
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC PRIORITY 3771
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4497

UNCLAS SECTION 01 OF 04 CHENGDU 000046

SENSITIVE
SIPDIS

STATE FOR EAP DASES DAVID SHEAR, SCOT MARCIEL

E.O. 12958: N/A
TAGS: ECON ETRD PREL KTIP CH VM LA BM
SUBJECT: YUNNAN'S BORDER TRADE: HEKOU AND MOHAN GEAR UP FOR INCREASED
YUNNAN TRADE WITH SOUTHEAST ASIA

REF: A) CHENGDU 044, B) 07 CHENGDU 124 C) FBS20100226266416

CHENGDU 00000046 001.2 OF 004

1. (U) This cable contains sensitive but unclassified
information - not for distribution on the Internet.

2. (U) Summary: Yunnan's main land ports with Vietnam and Laos
-- Hekou and Mohan -- are both preparing for significant
increases in trade and travel flows with the January 1, 2010
entry-into-force of the China-ASEAN Free Trade Agreement
(CAFTA). With the building of major new highways, travel to
these crossing points has become much faster and more reliable
over the last two years, and both have invested in expanding
their port facilities and other infrastructure. Hekou, already
a well-established and moderately busy port, appears more likely
to benefit quickly from expanding trade. While Mohan's
officials are enthusiastically encouraging extensive
infrastructure expansion, trade on the China-Lao border remains
very sparse. Photos from the port visits can be viewed at
tinyurl.com/YunnanPorts. End Summary.

3. (U) Consul General and PolEconoffs made a week-long, January
17-23 road trip to Kunming, Yunnan's capital, and to areas of
Yunnan Province bordering Vietnam and Laos. Ref A discusses
Yunnan's overall trade with ASEAN, especially in light of the
January 1 CAFTA launch. This cable describes visits to two of
the main land ports through which Yunnan's trade with ASEAN
flows: Hekou on the Vietnam border, and Mohan on the border with
Laos and on the main land route to Thailand. (The third main
land port for Yunnan is Ruili, on the border with Burma.)

--------------------------------------------- --------------
I. Hekou: Border Town on the Red River With Frontier Flavor
--------------------------------------------- --------------

4. (U) Hekou sits on the banks of the Red River (Hong He),
across from the Vietnamese town of Lao Cai, which was one of
three main entry points for China's invasion during the 1979 war
between the two countries. Trade has steadily increased since
the border was formally reopened in 1993, but as late as 2007
visiting Congenoffs were awoken by strains of "The East is Red"
being blasted across the border toward Lao Cai, from whence, in
turn, patriotic Vietnamese songs were broadcast into Hekou (Ref
B. During our January travel the loudspeakers were not to be
heard, perhaps reflecting warmer, more pragmatic ties between
Beijing and Hanoi.)

5. (U) This trip on the new highway from Mengzi, the capital of
Honghe Hani and Yi Autonomous Prefecture, 128 kilometers north,
can now be done in about two hours, less than half of the travel
time required before. However, though intended as a main
transport artery for the flow of increasing trade between China
and its Southeast Asian neighbors, the new road remains sparsely
used. Traffic in both directions was light: a mix of passenger
sedans, buses, and cargo trucks. The old road remains open and
continues to be used by locals travelling between points in
between. A few kilometers outside of Hekou, looking across the
river into Vietnam from our route, we could see parallel
construction of a new road underway there.

6. (U) Hekou today is clearly a town oriented around a
well-established, bustling cross-border trade, and something of
a Chinese-Vietnamese hybrid. Most signs -- on business and
government buildings -- were written in both languages. Plenty
of stores sold a range of standard cheap Chinese goods, while
the central covered market was filled with low-quality
Vietnamese goods -- baskets, ornate knives, kitchen supplies,
and miscellaneous decorative items. Also on sale were plenty of
tropical fruit and various other food items from Vietnam. Most
of the sellers in the market were from Vietnam and mostly unable
(or unwilling) to converse in Mandarin. One seller, in halting
and basic Mandarin, explained that she had come to Hekou from
Vietnam three years ago with her family of four to try to make a
better living -- they had not been able to return so far, though
it was not clear whether this was due to illegal migrant status
of lack of economic means.

Sex Trade and Drugs (Well, Moonshine Actually)
--------------------------------------------- -

7. (SBU) As previously observed in 2007, the town also appeared
to have a thriving sex industry. On the next level up from the
indoor market area, we saw rows of barely disguised brothels.
At the market below, there was the occasional sex toy for sale
incongruously displayed among miscellaneous daily use items. A
Public Security Bureau officer, during our official briefing,
confirmed that a number of women and girls from Vietnam --
mostly from the poorer mountainous areas -- are trafficked to
Yunnan each year, while others cross the border illegally

CHENGDU 00000046 002.2 OF 004

seeking jobs or marriage. He did not have detailed numbers, but
confirmed only that such cases occurred every year. He
emphasized good working relationships between police on both
sides of the border, citing in particular a joint
anti-Trafficking in Persons (TIP) liaison office set up in 2004.
On a day-to-day level, he said, Vietnamese police who receive
reports of missing Vietnamese girls will often send notes to the
police in Hekou requesting assistance, and the Hekou police then
send out officers to search for them.

8. (SBU) A more relaxed frontier sensibility was also displayed
by our hosts, who treated us to the most boisterous and informal
banquet of the many experienced on the trip. At our welcoming
lunch they already brought out the local corn liquor -- a more
caustic and volatile version of the traditional "baijiu" --
insisting on several rounds of toasts to kick off the afternoon.
The corn liquor flowed even more freely over dinner, where the
mayor's young pretty female "secretary" joined the group with
the apparent sole mission of encouraging overconsumption.

An Overview of the Port Economy: Increasingly
Large Scale, With Some Ocean Transshipment to Third Countries
--------------------------------------------- ----------------

9. (SBU) During our formal briefing by local officials, Vice
Mayor Wei Zhengfang provided an overview of Hekou's port
economy. He described it as an important border port, the
biggest in Yunnan, accounting for 80 percent of the value of the
province's trade with Vietnam. In both 2008 and 2009 a greater
volume of goods flowed through Hekou than any other land port in
Yunnan. (However, Ruili -- on the border with Burma --
continued to surpass it in the value of trade.) The balance of
trade going through the port has shifted considerably over the
years. Chinese exports outnumbered Vietnamese imports more than
ten to one in 2001, but this proportion has gone down to
approximately three to one at present, he said.

10. (SBU) The nature of the traders has also shifted over the
years, he continued. In the early 1990s all border trade
through Hekou was carried out by individuals, but by later in
that decade, larger players had started to participate. By
2001, about 65 companies were trading through Hekou, and today
there are 187 companies registered to conduct trade there.
While a majority of exports go to Vietnam, a portion of the
exports from China are now transshipped to a handful of
destinations beyond Vietnam, he reported, including the United
States, Japan, the United Kingdom and Germany. The main
commodities exported via the Hekou include building materials,
fertilizer, daily necessities, and produce; the main commodities
being imported include mineral ores, agricultural products, and
wood. Mr. Wei did not know what proportion of imports or
exports handled in Hekou were coming from or going to other
provinces outside of Yunnan.

Hekou Port: Two Old, Smaller
Rail/Road Bridges, Mix of Pedestrian and Truck Trade
--------------------------------------------- -------

11. (SBU) Currently a single bridge, able to accommodate both
foot and truck traffic, serves as the main conduit of goods
flowing between Hekou and Lao Cai. Additionally, several
hundred meters away, rail cargo between Kunming and Hanoi can
still cross over an old narrow gauge railway bridge, originally
built by the French about 100 years ago. At the traffic bridge,
a steady flow of traffic moved in both directions during our
visit -- a mix of cargo trucks, tricycles with platforms piled
so high with goods they often required several people to push
them slowly along, and miscellaneous individuals. Most of the
trucks we saw appeared to be carrying produce. The tricycle
exporters carried dried beans and fresh vegetables, household
goods, and various building materials-- mostly large ceramic
tiles. Current China-Vietnam border trade rules allow
tariff-free trade by individuals up to the amount of goods that
can be piled on a three-wheeled (non-motor-powered) bike,
officials told us.

12. (SBU) Lined up behind the Entry and Exit Inspection Center,
on a street off of the bridge entrance, were dozens of the
tricycles, piled with bags and boxes, waiting for inspection.
In a separate area, people were busily unloading and reloading
about half a dozen trucks filled with non-tropical fruit
(apples, pears, oranges) bound for Vietnam. Only Hekou-plated
trucks are allowed across the bridge, so trucks arriving with
goods from other parts of China had to transfer their loads
before entering Vietnam. We saw trucks from Shaanxi, Jiangsu,
Henan, and Sichuan either in the process of unloading or lined
up waiting to do so.

CHENGDU 00000046 003.2 OF 004

13. (SBU) Our Yunnan Province Foreign Affairs Office handler, Gu
Qiong (who accompanied us throughout out our entire Yunnan
journey) explained that all vehicles carrying goods in either
direction must go through two checkpoints, one on each side of
the border. Negotiations are underway that include discussion
of either establishing joint inspections or agreeing to mutually
recognize one another's inspections, but these are taking place
at the national level, she said, noting that neither Hekou nor
Yunnan officials were involved. She was uncertain regarding how
much progress had been made on these discussions, conveying her
impression that the difficulties mostly lay on the Vietnamese
side, where "too many departments" were involved.

Plans for the Future:
A New Bridge and a Free Trade Border Zone
-----------------------------------------

14. (SBU) A few kilometers upstream, a new bridge stands still
empty, with a large and impressive looking port building. A
joint Chinese-Vietnamese project, construction began in June
2007 and was completed last year, explained Mayor Wei. The 295
meter long bridge will be put into operation "soon," he said,
and is primarily intended for heavy cargo truck traffic, with
the existing bridge focusing, in the future, on pedestrian,
bi/tri cycle, and small vehicle trade. A large truck parking
lot and a new railway connection hub are being built just next
to the new port building, which also lies closer to the highway.

15. (SBU) Wei also described a new China-Vietnam Free Trade
Border Zone that he said both governments have agreed to in
principle. It is to consist of two parts, he explained, one in
Bashan Development Zone in Hekou with an area of 25 square
kilometers, and the other in Laojie, Vietnam with an area of 160
hectares. Further detailed planning, construction and
management must still be worked out by both sides, however,
"which will take a long time."

--------------------------------------------- ----
II. Mohan: Gateway to Future Trade with Thailand?
--------------------------------------------- ----

16. (U) The Chinese land port of Mohan straddles the new
Kunming-Bangkok Highway as it enters Laos. While China-Lao
trade remains limited, the road's importance as a potential
gateway for China-Thailand trade is indisputable. However, this
remains a matter of future potential rather than present
reality.

17. (U) Travelling to Mohan took two and a half hours from
Jinhong, the capital of Xishuangbanna Dai Autonomous Prefecture,
along the new Kunming-Bangkok Highway, more than halving the
previous driving time. Traffic along this route was even
sparser than the Mengzi to Hekou route, with much of the road
flanked by banana and rubber tree plantations. (Note: Our
drivers told us that the Lao-Thai border could be reached with
another three hours' drive. End Note.) Despite a flurry of
recent building projects, we found that Mohan still remains a
sleepy, small town.

18. (SBU) Our official meeting with Zheng Biwu, Mohan's Vice
Party Secretary, was arguably the most content-free in our
Yunnan travels. He gave a general overview of Mohan's port
history: the port was set up in 1993, the border market in 2001,
and the economic development zone in 2006. Previously a mere
town, Mohan has been upgraded to a "special county-level
district" directly under the government of Xishuangbanna. He
explained that the China-Thailand trade flowing through the
Mohan port remains small -- about USD 20 million in 2009 -- but
has increased by about 10 percent annually over the last five
years. (Note: According to official numbers published by the
Yunnan Department of Commerce, Yunnan-Thai trade was down by 6.2
percent in 2009. It is, however, possible that trade continued
to increase via Mohan despite the overall decrease. End Note.)

At the Port: One Truck, One Bus, and Not Much Else
--------------------------------------------- ----

19. (SBU) Proceeding to the border, we were shown a very new,
clean, and modern port facility. While noting that it was a
Saturday, and that there may be more activity during weekdays,
it was a remarkably quiet border crossing. During a half-hour
visit, we saw about a dozen people going through the immigration
processing, along with one truck and one bus coming into China.
Party Secretary Zheng was notably unhelpful, presenting various
excuses to not let us speak with any PSB officials there -- the

CHENGDU 00000046 004.2 OF 004

least credible being simply that they were "too busy." When we
asked whether we could walk further up toward the actual border,
he proclaimed that the "police will stop you." (We particularly
noted the contrast to Hekou, where local officials arranged on
short notice both to include a PSB officer in our official
briefing and for a walk "across the border" and a few meters
into Vietnamese territory by walking out to the center and
beyond of both the old and new road bridges and the railway
bridge, with no objection whatsoever from police on either side
of the border.)

If You Build It:
Large Developments Reflect Mohan's Hopes for the Future
--------------------------------------------- ---------

20. (SBU) Although a dramatic increase of traffic along the
Kunming-Bangkok highway has not yet materialized, Mohan appears
to be intent on being prepared when it does. The stretch of
road heading into the town and border crossing area was
scattered with several large-scale construction zones, including
a massive long-distance bus station, a logistics center, and a
rather extravagant new government building. The bus station is
an investment by a company from Pu'er (a mid-sized town further
North, named for Yunnan's famous tea) that runs the
long-distance station there, Zheng told us. In addition, he
said, private investors are planning to build several new
hotels. When asked where the business would come from to use
such a bus station and fill the new hotels, he said investors
are expecting a new flow of Chinese (and perhaps Thai) tourists
taking advantage of new roads and improved infrastructure to
travel between China and Thailand.

21. (U) Photos of both ports are posted at
tinyurl.com/YunnanPorts or see Ref C.
BROWN

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