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Cablegate: Export Growth Rate Plunging Says Shanghai Customs

VZCZCXRO7573
RR RUEHCN RUEHVC
DE RUEHGH #0510/01 3290523
ZNR UUUUU ZZH
R 240523Z NOV 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7356
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEFHLC/DEPT OF HOMELAND SECURITY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 0419
RUEHGH/AMCONSUL SHANGHAI 7958

UNCLAS SECTION 01 OF 03 SHANGHAI 000510

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND EB
STATE PASS USTR FOR STRATFORD/WINTER/KATZ
USDOC FOR ITA DAS KASOFF, MELCHER, OCEA-SZYMANSKI
TREASURY FOR OASIA - DOHNER/HAARSAGER/CUSHMAN
NSC FOR SHRIER, LOI
TREASURY FOR OASIA - CUSHMAN, WINSHIP
DEPT FOR DOE HQ FORRESTAL NNSA FOR BSHORTER PASS TO WTOBEY AND
DHUIZENGA

E.O. 12958: N/A
TAGS: ETRD EWWT PGOV ECON BEXP CH
SUBJECT: EXPORT GROWTH RATE PLUNGING SAYS SHANGHAI CUSTOMS

SHANGHAI 00000510 001.2 OF 003


1. (SBU) Summary: Shanghai Customs Director General Sun Yibiao
and Consul General (CG) discussed trade trends, the Megaports
initiative, the Container Security Initiative (CSI), and
opportunities for further cooperation during an October 31
courtesy call. According to Sun, the growth rate of exports to
the United States has halved since the beginning of 2008
although the total volume continues to increase. To cope with
limited resources, Shanghai Customs relies on risk management
and coordination with other Customs units in the Yangzte River
Delta. Sun said Shanghai Customs remains committed to strong
cooperation with the Consulate, including such projects as CSI,
Megaports, and possible future training opportunities. On
resumption of the Megaports project, suspended because of "U.S.
arms sales to Taiwan," Sun avoided predicting when collaboration
would continue but assured the project will resume as soon as
Beijing gives the green light. End summary.

Growth Rate in Exports Steeply Declining
----------------------------------------

2. (SBU) DG Sun said the rate of export growth has markedly
declined since the beginning of 2008; however, the total volume
of exports continues to climb. From January through September,
Shanghai Customs processed a total export and import volume of
USD 1.96 trillion worth of goods, and container throughput was
roughly 20 million TEU. (Note: As a point of comparison, total
container throughput for 2007 was 26.15 million TEU. End note.)
Part of the total trade volume processed by Shanghai Customs
includes the city of Shanghai's total trade volume, which
reached approximately USD 400 billion during the first nine
months of 2008. Shanghai Customs tariff revenue for the period
amounted to RMB 147.7 billion (USD 21.7 billion).

3. (SBU) The rate of export growth to the United States has
been particularly hard hit, DG Sun said. The current growth
rate of exports to the United States is 11.6 percent, compared
with 22 percent from the same period in 2007. The growth rate
of imports from the United States continues to rise; it
currently stands at 15 percent, compared with an 11.6 percent
growth rate during the same period in 2007. Shanghai Customs
processed a total trade volume of USD 40.9 billion with the
United States over the first nine months of this year. Total
exports were USD 28.3 billion, and total imports were USD 12.5
billion.

4. (SBU) Sun added that these numbers do not yet fully reflect
the impact of the financial crisis, which is bound to have an
even heavier toll on global trade. He estimated that although
the rate of import growth is much higher than that of exports,
the growth of imports into China will also slow as Chinese
consumers and companies begin to feel the pinch. There is
already a decline in the component parts being imported for
assembly. Overall decrease in demand for imports will be "next
year's problem" said Sun. Sun also noted a sharp increase in
shipments returned to China because companies on the receiving
end had gone bankrupt.

Building on a Strong Relationship
---------------------------------

5. (SBU) Sun noted the strength of ties between Shanghai
Customs and the Consulate and said he hopes to build on the
already strong relationship. Shanghai Customs values input from
the U.S. business community and U.S. Consulate on how to improve
its operations. In addition, Shanghai Customs appreciates
opportunities for formal training opportunities, noting the
success of the TDA-funded IP training that took place during
three separate sessions at Shanghai Customs College between
November 2006 and August 2008.

Customs Committed to Container Security Initiative
--------------------------------------------- -----

6. (SBU) Sun emphasized that Shanghai Customs is committed to
continued cooperation on the Container Security Initiative
(CSI), which targets high risk containers bound for the United
States. Since the inception of the program in 2005, Shanghai

SHANGHAI 00000510 002.2 OF 003


Customs has received approximately 750 requests for inspection
from DHS. Of the total number of requests, Shanghai Customs has
carried out 530 inspections (roughly 70 percent). Sun added
that Shanghai Customs endeavors to respond to each request, but
some containers have already left port by the time the request
is received. In Sun's view, the current system works well and
is a symbol of the good cooperation between the two sides.

Megaports - Waiting on the Green Light from Beijing
--------------------------------------------- ------

7. (SBU) CG pressed Sun on the resumption of the Megaports
initiative in Shanghai, which had been put on hold in October
because of "U.S. arms sales to Taiwan." Sun acknowledged the
importance of the project in Shanghai as the pilot project for
China; however, he is waiting for approval from the General
Administration of China Customs (GACC) before the project can
get underway again. Sun gave no further indication of when the
project could resume. (Note: The initiative began its
implementation phase in January 2008, and there have already
been three meetings between Shanghai Customs/GACC and DOE
officials. The October meeting, which had been postponed once
already due to the Summer Olympics, was set to finalize details
on installation of radiation detection equipment. End note.)

6 Percent of GACC Staff for 25 Percent of China Exports
--------------------------------------------- ----------

8. (SBU) Sun emphasized Shanghai's significant role in China's
trade with the outside world, processing over 25 percent of
China's imports and exports. Not only does it handle trade for
the greater Shanghai metropolitan area, but also the entire
Yangzte River Delta. It is also China's largest customs
operation with 46 sections and 3,000 officers, which constitutes
about 6 percent of GACC's total staff. To maximize the
effectiveness of limited resources, Sun said Shanghai Customs is
pushing for greater integration with other Customs units,
particularly in the Yangtze River Delta. Key to this effort is
the e-clearance system, allowing exporters to clear goods at
other Customs units in the Delta region before they reach
Shanghai for shipment. Shanghai Customs is also one of the
oldest Customs units in China, dating back 325 years.

Transparency and Trade Facilitation Highest Priority
--------------------------------------------- -------

9. (SBU) Sun emphasized that Shanghai Customs works to be
transparent in the implementation of all its rules, regulations
and procedures, as well as follows WTO guidelines. It also
conducts risk management according to international best
practices and employs a risk classification system for companies
that export and import. The focus of the system is both on
companies and commodities, both of which are classified
according to risk. Companies are divided into three categories
according to their "credibility". Those that are deemed to have
the highest degree of credibility are given a higher degree of
"trade facilitation." Sun emphasized the effectiveness of the
system, noting that from January to September, Shanghai Customs
investigated over 2,000 smuggling cases, valued at approximately
USD 450 million.

10. (SBU) Part of its efforts to be transparent and improve
services includes cooperation with such non-governmental
agencies as AmCham Shanghai. Shanghai Customs makes an extra
effort to communicate with exporters and importers and maintain
consistency between all transactions. (Comment: The U.S.
business community consistently applauds Shanghai Customs for
its outreach efforts but note risk management efforts still lag
somewhat behind international norms. Shanghai Customs is also
known for being one of the most consistent customs units in
China for its implementation of valuation and clearance
procedures. End Comment.)

11. (SBU) Sun also took pride in Shanghai Custom's trial run
with a paperless clearance system. Sun said the trial run had
been approved by Beijing and was currently used only on outbound
air and sea freight on a limited basis. This new system has

SHANGHAI 00000510 003.2 OF 003


thus far been successful in streamlining the clearance system
and is now being considered for import clearance as well. Once
Beijing deems the test on paperless clearance for exports
successful, it will be expanded to include imports. The
paperless clearance system is part of Shanghai Customs goals of
better trade facilitation, Sun said.
CAMP

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