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Cablegate: Gateway or Speed-Bump? Northern Thailand and The

VZCZCXRO9389
PP RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHCHI #0166/01 2880915
ZNR UUUUU ZZH
P 150915Z OCT 07
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0579
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCHI/AMCONSUL CHIANG MAI 0630

UNCLAS SECTION 01 OF 03 CHIANG MAI 000166

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ETRD ECON PREL CH TH
SUBJECT: GATEWAY OR SPEED-BUMP? NORTHERN THAILAND AND THE
KUNMING-BANGKOK CORRIDOR

REF: 06 CHIANG MAI 217 - PROSPECTS OF INCREASED CHINA TRADE BRING BOTH ANTICIPATION AND FEAR

CHIANG MAI 00000166 001.2 OF 003


-----------
Summary
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1. The Greater Mekong Subregion's North-South Corridor links
southern China to Bangkok and foreign markets further afield.
The route passes through northern Thailand, which aspires to be
inner China's "golden gateway" and thereby develop its
transportation and logistics sectors and expand its trade and
tourism income. Business and government officials along
Thailand's northern border are skeptical, however. In their
view, high overland transportation costs and the predominance of
agricultural (vice manufactured) exports coming out of southern
China could relegate northern Thailand to mere speed-bump status
on the global trade highway. End Summary.

--------------------------------------------- ----
The Mekong is China's "Gift from God"
--------------------------------------------- ----

2. Econoff and EconLES recently traveled to Chiang Rai
province's border cities of Chiang Saen, Chiang Khong and Mae
Sai to examine trade flows between northern Thailand and
southern China (via transit through Laos or Burma). We found
that, despite recent and large-scale investment in bridges and
highways that connect China's Yunnan province to northern
Thailand, the Mekong River remains the primary mode of trade in
this region. Over 90% of goods traded along the North-South
Corridor flow down the Mekong River from Yunnan, then along the
Laos-Burma border, before being off-loaded in the river port
city of Chiang Saen. Currently, Chiang Saen houses one public
port, which receives about half of the Mekong River trade, and
12 private ports, which collectively receive the other half.

3. Eighty to 90% of Thailand's imports through Chiang Saen are
Chinese agricultural goods, including fresh fruits, vegetables,
and flowers, most of which are destined for markets in Bangkok.
According to Chiang Saen Port Manager Paiboon Photidee, the
Mekong is a "gift from God" for the Chinese because its
naturally low temperatures allow them to ship these perishable
goods by day from Gaun Lei port in Yunnan to Chiang Saen, a
12-hour trip. The goods are then transferred to trucks and
driven overnight for another 12 hours to the Talad Tai wholesale
market in Bangkok. Thus in less than 24 hours, southern China's
agricultural exports move from Yunnan to Bangkok's markets.

4. The capacity of the Chiang Saen public port has expanded in
recent years to accommodate ships 130-feet long weighing 300
tons. In addition, Chiang Saen is expecting a second public
port to be built and ready for use by 2011, though the 1.97
billion baht ($57.9 million) budget is still pending in the
Marine Department, according to Water Transportation Office
Chief Apisit Kampiro. Long-term plans developed by the former
Thaksin government envision eleven ports for commercial boats
and four service ports by 2018, as well as an additional eight
container ports in a second phase that begins in 2019.

--------------------------------------------- --------------
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The Road Less Traveled: R3B Highway Via Burma
--------------------------------------------- --------------
---------

5. Along the western edge of the North-South Corridor, the R3B
highway connects Yunnan province to northern Thailand via Burma.
Though completed with a new bridge and semi-finished Thai
customs house, officials expect the R3B will be the least-used
route for China-Thailand trade, because:

-- the Chinese government has partially closed the China-Burma
border crossing to keep Chinese from gambling at casinos in
Burma, according to Mae Sai Customs Officer Kiatchai Pokprapai;
and

-- Burmese officials have unhelpfully burdened the R3B highway
with eight separate checkpoints.

6. Kiatchai therefore believes the R3B is a costly route for
traders and remains an option only because Burma is a GMS
member. The more frequently used western route is for Chinese
goods to enter Mae Sai by Mekong shipment and a short overland
hop through Burma. Goods are shipped from Jing Hong port in
Yunnan to Ban Pong port in Burma, and then transported by truck
to Tha Khi Lek, which is just across the border from Mae Sai.
The Mae Sai Customs House reported that women's apparel and fake
CDs and DVDs are the primary Chinese imports entering Mae Sai,
typically for consumption by Thai tourists in local northern
markets.

--------------------------------------------- --------------

CHIANG MAI 00000166 002.2 OF 003


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Third Mekong Bridge To Connect Laos-Thailand Via R3A Highway
--------------------------------------------- --------------
-----------------------

7. The R3A highway runs along the eastern edge of the GMS
North-South Corridor. The R3A remains incomplete until a bridge
over the Mekong at Chiang Khong is completed in 2011. The Thai
and Chinese governments each fund half of this $31 million
bridge project, with the Thai government paying an additional $1
million for the survey and design. In addition, Thailand plans
to expand Chiang Khong's southbound highway from two lanes to
four to accommodate the Asian Development Bank's (ADB) estimate
of 400 Chinese trucks that will cross the bridge into Thailand
daily.

8. The R3A, also known as the Kunming-Bangkok Highway, is
expected to be the safer and more time-efficient land route
connecting China to Thailand. Local officials estimate that,
once the bridge is complete and improvements are made on the
Chinese portion of the highway, the total driving time from
Kunming to Lamchabang port near Bangkok would be reduced
markedly from the current 34 hours' driving time.

--------------------------------------------- ----------
Trade by Land Remains an Expensive Option
--------------------------------------------- ----------

9. Despite these investments in highway and bridge construction,
it is considerably less costly to transporting Chinese goods to
Thailand via the Mekong or via the sea route through Bangkok.
In a study by Chiang Mai University and Chiang Rai Rajabhat
University, the cost of transporting goods from Kunming to
Thailand via the Mekong was found to be $270 per ton, compared
to about $470 per ton via either the R3A or R3B highways.
Moreover, many Chinese imports in northern Thailand enter the
country via Bangkok because the sea route is more cost-effective
from China's coastal manufacturing hubs. Local merchants at a
large Chinese goods market in Mae Sai told us that a large
portion of the Chinese goods they sell, such as toys and dried
mushrooms, enter Thailand via Lamchabang seaport near Bangkok -
a route that not only is more cost-effective, but also brings
higher-quality goods that are produced in coastal China.
Similarly, Thai traders of dried longan fruit, a primary
northern Thai export, prefer the sea route through Bangkok as a
cheaper and faster way to export goods to Chinese markets.

--------------------------------------------- --------------
---------------------------
Northern Thailand's Gains from North-South Corridor Remain
Unclear
--------------------------------------------- --------------
---------------------------

10. Chiang Rai Chamber of Commerce and Customs officials view
northern Thailand's future role in the North-South Corridor as a
middleman between China and foreign markets. They believe
northern Thailand will gain from the development of logistics
and transportation sectors, though some doubt that a Thai
logistics sector would develop because of high costs. Another
local concern is that Thailand's gains from the North-South
Corridor will go to Bangkok-based businessmen only.

11. Further doubts about the Corridor's benefits to northern
Thailand are harbored by National Economic and Social
Development Board Northern Office Director Wilawan Tanratanakul.
She spoke with us after attending an October 4 Asian
Development Bank-sponsored meeting on the Corridor. Unlike
coastal China, she said, Yunnan is not a manufacturing hub for
Chinese export goods. She does not expect Chinese investment to
expand in northern Thailand's manufacturing sector, and predicts
agricultural goods from Yunnan will continue to dominate
Chinese-Thai North-South Corridor trade.

12. Some observers question even the possible tourist benefit
the Corridor could bring to northern Thailand. Rumors around
Chiang Saen are that Chinese investors have signed a 90-year
lease for about 20,000 acres of land across the border in Ban
Ton Pung, Laos, where they will build a tourist city with
casino, hotels, and an industrial estate. In addition, local
officials fear Thais are more likely to use the new roads for
tourism travel into China than Yunnanese will for tourism into
northern Thailand.

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Comment
------------

13. Although the three ports of entry along Thailand's northern
border (Mae Sai, Chiang Saen, and Chiang Khong) are key
locations in the Greater Mekong Subregion's North-South

CHIANG MAI 00000166 003.2 OF 003


Corridor, doubts remain about whether northern Thailand can
benefit significantly from the development of this
transportation network. In any case, the network - in part a
result of former Prime Minister Thaksin's push for closer
economic links with China - has created projects that continue
to churn forward. The challenge for northern Thailand will be
whether it can leverage itself into being a key beneficiary in
the Greater Mekong Subregion or simply serve as an expressway
for southern China's access to foreign markets.
MORROW

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