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<<201778>>
04.10.2009 01:32
09SHANGHAI160
Consulate Shanghai
CONFIDENTIAL
06BEIJING23548|08SHANGHAI283|09SHANGHAI5|09SHANGHAI80
VZCZCXRO4847
RR RUEHCN RUEHDU RUEHGH RUEHJO
DE RUEHGH #0160/01 1000132
ZNY CCCCC ZZH
R 100132Z APR 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7813
INFO RUEHSA/AMEMBASSY PRETORIA 0004
RUEHJO/AMCONSUL JOHANNESBURG 0001
RUEHTN/AMCONSUL CAPE TOWN 0001
RUEHDU/AMCONSUL DURBAN 0001
RUEHDS/AMEMBASSY ADDIS ABABA 0001
AMEMBASSY ABIDJAN 0001
RUEHOR/AMEMBASSY GABORONE 0011
RUEHLS/AMEMBASSY LUSAKA 0001
RUEHKI/AMEMBASSY KINSHASA 0005
RHEHAAA/NSC WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 0065
RUEHGH/AMCONSUL SHANGHAI 8452
RUEHBJ/AMEMBASSY BEIJING 2678
RUEHIN/AIT TAIPEI 1676
RUEHHK/AMCONSUL HONG KONG 2056
RUEHSH/AMCONSUL SHENYANG 1880
RUEHCN/AMCONSUL CHENGDU 1889
RUEHGZ/AMCONSUL GUANGZHOU 0345
RUEHEG/AMEMBASSY CAIRO 0001
RUEHKH/AMEMBASSY KHARTOUM 0004
RUEHUJA/AMEMBASSY ABUJA 0001
RUEHOS/AMCONSUL LAGOS 0001
TAGS: PREL ETRD EINV CH XA TW
SUBJECT: CHINA AND AFRICA: SHANGHAI VIEWS ON EXPANDING TRADE AND 
REF: A) SHANGHAI 80; B) 06 BEIJING 23548; C) 08 SHANGHAI 283


C o n f i d e n t i a l section 01 of 06 shanghai 000160

Sipdis

Dept for af/e, af/c, af/w, af/s, af/eps
usdoc for ita mac das kasoff, melcher, szymanski
nsc for loi

E.o. 12958: decl: 4/9/2024
Tags: prel, etrd, einv, ch, xa, tw
Subject: china and africa: shanghai views on expanding trade and
investment ties

Ref: a) shanghai 80; b) 06 beijing 23548; c) 08 shanghai 283

CLASSIFIED BY: Christopher Beede, Pol/Econ Section Chief, U.S.
Consulate, Shanghai, U.S. Department of State.
REASON: 1.4 (b), (d), (e)



¶1. (C) Summary: During March 2009 meetings with four
Shanghai-based Africa scholars, the largest Chinese investor in
Africa, and officials from the Egyptian and South African
Consulates General in Shanghai, Congenoffs examined the evolving
state of China-Africa relations. The upcoming Forum on
China-Africa Cooperation in Egypt, on which the Shanghai
Institutes for International Studies (SIIS) is an advisor, will
showcase rapid progress in bilateral economic relations. Though
private Chinese investors have made significant headway
expanding exports to Africa, resource and commodity extraction
remains dominated by large state-owned enterprises (SOEs). Lack
of communication between the Chinese Ministry of Commerce
(MOFCOM) and Ministry of Foreign Affairs (MFA) makes it
difficult to keep track of Chinese private investment in Africa,
said one interlocutor. Scholars believe that while the Chinese
Government is increasingly concerned about its image, government
policy will continue to be driven by core economic and political
interests, including securing access to natural resources,
developing markets for Chinese exports, and achieving greater
influence in international institutions. Egypt and South Africa
are concerned about the growing "imbalance" in their bilateral
trade with China. End Summary.


Upcoming Forum on China-Africa Cooperation (FOCAC)
--------------------------------------------- ------
¶2. (C) Currently planned for November 2009 in Cairo, Egypt, the
4th Ministerial Conference of FOCAC will be led by Chinese
President Hu Jintao and the political leaders of 49 African
nations. On this visit to Africa, his seventh in the past 10
years, Hu will attempt to deepen China's relationship with all
African countries while exploring further investment
opportunities, according to xxxxxxxxxxxx. Hu will also
try to counter media perceptions that China is only interested
in the resource-rich nations of Africa, and one topic for
discussion will be evaluating progress in the China-Africa
relationship since the 3rd FOCAC Ministerial Conference hosted
by Beijing in 2006. Since then, trade between China and Africa
has increased sharply, with total trade volume rising 32 percent
in 2007 and an estimated 50 percent in 2008, to over USD 106.8
billion, indicating that the goal proposed by the 2006 summit
"to push China-Africa trade volume to USD 100 billion by 2010"
was realized two years ahead of schedule. (Note: According to
Ministry of Commerce (MOFCOM) trade statistics, Africa maintains
a slight overall surplus due to strong commodity exports in oil,
minerals, wood, cotton, iron-ore, diamonds, and copper, among
others. China's exports to Africa consist largely of light
industrial products, textiles, electronics, and consumer goods.
MOFCOM statistics, however, indicate that bilateral trade is not
equitably balanced throughout the continent. In 2008, just five
countries (Angola, South Africa, Sudan, Nigeria, and Egypt)
accounted for 61 percent of total bilateral trade. End note.)

3.xxxxxxxxxxxx 
-------------------------------
¶4. (C) Shanghai scholars expect that of Africa's 53 nations,
only the four that maintain diplomatic relations with Taiwan
(Burkina Faso, Gambia, Sao Tome and Principe, and Swaziland)
will not attend the 2009 FOCAC, said the scholars. Forty-eight
nations attended the 2006 3rd Ministerial Conference of FOCAC.
Malawi has since switched diplomatic relations from Taiwan to
the People's Republic of China (PRC). xxxxxxxxxxxx
diplomatic relations with China could attend the upcoming
summit. (Note: African countries with diplomatic relations with
Taiwan were invited as observers to the 2006 FOCAC in Beijing
but elected not to attend. xxxxxxxxxxxx was not clear whether the four
African nations currently maintaining diplomatic ties with
Taiwan will be invited to attend as observers this year. See
Ref B. End note). xxxxxxxxxxxx also noted that Senegal was
specifically chosen for Hu Jintao's most recent Africa visit
because it had recently (2005) dropped diplomatic relations with
Taiwan and established ties with the PRC. However xxxxxxxxxxxx stated that the
PRC and Taiwan currently have an unwritten agreement to cease
the practice of distributing millions of dollars in aid to
African nations in an attempt to gain diplomatic recognition.


Educational Exchanges: Confucian Institutes in Africa
--------------------------------------------- ---------
¶5. (C) Another focus of the 4th Ministerial of FOCAC will be to
increase educational exchanges. xxxxxxxxxxxx noted that currently there
are "well under 1,000" total African students in Chinese
institutions in Shanghai, and that a strong push must be made to
increase this number. However, significant numbers of Chinese
students are traveling to Africa for the pursuit of advanced
degrees, and the number of visiting scholars from China has
increased by double digits each year. xxxxxxxxxxxx
pointed out that China has already opened ten Confucius
Institutes throughout Africa, and plans to construct ten more.
China has also doubled the number of national scholarships
offered to Chinese students and professors wishing to study or
research in Africa to 4,000 per year. xxxxxxxxxxxx. Confucius
Institutes are designed to spread knowledge and understanding of
the Chinese language and culture. They also serve as
educational centers for family members of Chinese employees in
Africa, and offer Chinese language instruction to both African
and Chinese nationals. xxxxxxxxxxxx said Chinese President Hu will
make it clear to all conference participants that Chinese aid
and involvement in Africa, including cultural exchanges, will
continue to deepen, despite the current difficult economic
situation. xxxxxxxxxxxx stressed that future bilateral cooperation
will revolve around natural resources, education, cultural
exchanges, infrastructure, agriculture, and energy.


"Incredible Opportunity" for Private Investment in Africa
--------------------------------------------- -------------

Shanghai 00000160 003 of 006


¶6. xxxxxxxxxxxx


¶7. (C) xxxxxxxxxxxx, who currently has xxxxxxxxxxxx employees in Shanghai
and more than xxxxxxxxxxxx in Africa, said that Africa "reminds him of
China 30 years ago," and represents an incredible growth
opportunity, as Africa's consumer markets continue to mature.
When asked why he currently does not invest in extracting raw
materials in Africa, he responded that Chinese raw materials
investments are primarily controlled by large SOEs. His company
is completely private, and all of his financing is arranged
through private sources. xxxxxxxxxxxx is currently examining the
possibility of expanding into resource extraction in Africa, but
has found the process to be incredibly time consuming and
difficult. While China recently pledged an additional USD 2
billion to its China-African Development Fund, xxxxxxxxxxxx said this
money is completely "off-limits" to private investors. xxxxxxxxxxxx, 
his investments are not seen as "strategic"
by the Central Government, and thus not a priority for the
Development Fund.


¶8. (C) xxxxxxxxxxxx also expressed a strong preference for hiring
local African employees for his projects in Africa, xxxxxxxxxxxx 
explained that Chinese employees are
significantly more costly, and that with proper training,
African employees perform just as well. xxxxxxxxxxxx said he sends his
managers to xxxxxxxxxxxx,
and several universities in South Africa on annual recruiting
missions. xxxxxxxxxxxx disagrees with scholars such as xxxxxxxxxxxx, who
feel that Chinese investors usually prefer importing Chinese
laborers to Africa because of a perception that they are more
hardworking and easier to train and manage than their African
counterparts. xxxxxxxxxxxx," travels to Africa
to manage his investments xxxxxxxxxxxx, and has also
received acclaim from the Nigerian government for bringing in
over 100 other Chinese investors to open businesses in the
country. Finally, he noted that while corruption and
mismanagement is a constant concern, most African nations have
adopted free market systems, and he finds it relatively easy to

Shanghai 00000160 004 of 006


conduct business there.


Shanghai Scholars See Expanded China-Africa Ties
--------------------------------------------- -----
¶9. (C) When asked why President Hu Jintao visited countries
that do not have extensive natural resource holdings during his
most recent visit to Africa, xxxxxxxxxxxx stated
that China's interests are broad, and its leaders seek good
relations with the entire continent, not only specific
countries. xxxxxxxxxxxx said Africa has recently moved forward with
democratic reforms in some countries, but countries such as
Kenya, Madagascar, and Burkina Faso have struggled with
political reforms. xxxxxxxxxxxx stated that China's core focus will
remain peace, stability, and development in Africa in order to
create an environment conducive to further trade and investment
from China. xxxxxxxxxxxx, who frequently travels to Africa and
was a visiting scholar in Zambia in 2008, agreed that China's
main goal for Africa is the pursuit of "win-win cooperation,"
especially on the economic front. He believes China will
continue to increase investments in Africa's energy, raw
material, and resource industries while developing its
infrastructure and helping Africa acquire advanced technologies.
He stated that since 1995, Africa's economy has outperformed
the rest of the world, and China hopes to deepen its foothold in
this growing market.


¶10. (C) xxxxxxxxxxxx, stated that,
despite the Chinese Government's longstanding position not to
interfere in the domestic affairs of other nations, China's
leaders are increasingly sensitive to external criticism of its
Africa policies and have made greater effort to address
humanitarian issues, such as the ethnic violence in Sudan.
China feels greater "responsibility" for Africa's development
than other regions such as Latin America, which Chinese
officials view as "in the United States' backyard, and therefore
their (the United States') responsibility." Because of China's
long history with Africa dating back to the 1950s and the
influence China seeks to cultivate in the continent, African
development and poverty reduction are major Chinese concerns,
said xxxxxxxxxxxx. Additionally, xxxxxxxxxxxx foresees the China-Africa
relationship evolving to where, in another 10 years, a
significant number of Chinese corporations move some of their
manufacturing operations to Africa because of rising wages and
costs in China. However, in order to make this possible, China
will have to continue escalating investments in infrastructure,
education, and training, and increase technology transfers to
Africa.


Lack of Coordination Between Chinese Government Ministries
--------------------------------------------- --------------
¶11. (C) In light of the global financial crisis and the
resulting decline in commodity prices, international media have
recently reported cases of Chinese investors abandoning copper
mines in Congo and Zambia, leaving local workers with unpaid
back wages. When asked about these reports, xxxxxxxxxxxx stated
that the Chinese Government expressly forbids the abandonment of
investment without paying back wages and meeting other
obligations, as it causes a "loss of face." xxxxxxxxxxxx
agreed that such cases represent a small percentage of total
Chinese investment in Central Africa, and that it was only
private investors who had fled. They reiterated that China has

Shanghai 00000160 005 of 006


a long-term commitment to African development, and that SOEs
would never be allowed to abandon assets or obligations to local
employees.


¶12. (C) xxxxxxxxxxxx agreed that it was likely private investors
who had fled, as "many private investors from Zhejiang Province
are operating small mines in Africa, and the Central Government
has little knowledge or control of events on the ground." He
explained that Chinese Government bureaucracy is often to blame,
with complaints of wrongdoing in Africa always going first to
the MFA, which often has no knowledge of individual investor
activities. MOFCOM receives information from local governments
in China but is often reluctant to share it with the MFA, he
said. xxxxxxxxxxxx such bureaucratic difficulties diminish
oversight and accountability, and it is almost impossible for
the government to track small-scale private investors. African
nations have recently begun to push back, requesting the MFA
notify them if investors with bad records in China or elsewhere
try to enter their countries.


Africa's View: Investment Welcomed, with Reservations
--------------------------------------------- -------------
¶13. (C) With an eye on Shanghai as China's commercial and
financial capital, two African countries, Egypt and South
Africa, have Consulates in the city, and Nigeria currently is in
the process of establishing a Consulate in Shanghai.xxxxxxxxxxxx, 
lamented that of the total USD 6.3 billion in annual
trade between Egypt and China, Egypt exports a mere USD 420
million to China. Of that amount, one product (marble)
constitutes 50 percent of Egypt's exports to China. When asked
if this imbalance or the growth of Chinese exports to Egypt have
generated any negative feelings in his country, xxxxxxxxxxxx responded
that a frequent source of irritation was the heavy use of
imported Chinese labor and the limited number of joint ventures
with local Egyptian companies. Egpyt opened its Consulate
General in Shanghai 5 years ago with the primary purpose of
finding opportunities for Egyptian businesses in China, but
xxxxxxxxxxxx acknowledged this effort has had limited success so far.
One recent sign of Egypt's rising interest in China was the 2008
opening of a branch of the National Bank of Egypt in Shanghai's
posh Pudong District, home to much of the international
financial services industry in China.xxxxxxxxxxxx hopes this bank
will help facilitate transactions for bilateral trade and
investment.


¶14. (C) xxxxxxxxxxxx,
relayed similar concerns about their nation's large trade
deficit with China. xxxxxxxxxxxx told Congenoff that South Africa's
primary imports from China include machinery, mining equipment,
industrial tools, textiles, electronics and footwear, while
exports are mainly raw materials and precious metals, such as
gold. South Africa hopes to significantly increase the number
of Chinese tourists to balance this deficit; however, this
effort is not progressing as quickly as hoped.xxxxxxxxxxxx noted
that Chinese investment is generally welcomed by African leaders
because, unlike other investors, China is willing to provide
money with "no strings attached" and invest in the
infrastructure necessary to extract and export resources.
xxxxxxxxxxxx cited Botswana, which obtains almost 70 percent of its
foreign exchange through diamond sales, and Angola, whose trade

Shanghai 00000160 006 of 006


with China accounts for one-fourth of China's trade with the
entire continent. Chinese SOEs are also willing to "build roads
and railways through the jungle to otherwise inaccessible areas
to extract resources," she said.


¶15. (C) xxxxxxxxxxxx, however, posited that investments of this
magnitude were riddled with corruption, and were "preferred by
African dictators as a way to line their pockets while avoiding
interference." In the past few years, xxxxxxxxxxxx has also noticed
a trend of African governments becoming more selective with
investments, and an increasing willingness to negotiate hard for
favorable terms, such as the employment of local labor, skills
development and training, as well as technology transfers. When
asked whether these advances were threatened by the global
financial crisis, xxxxxxxxxxxx responded that while Chinese
investments have yet to dry up (as Western investment has),
several major projects such as China's proposed USD 9 billion
investment in the Congo seem likely to unravel. He cited
falling commodity prices as the major cause, and the most
serious likely side effect for African economies could be the
bankruptcy of secondary industries. xxxxxxxxxxxx reiterated that
while Chinese investments in Africa have provided benefits for
both sides, the Chinese market remains difficult to penetrate
for African investors.

Comment
--------
¶16. (C) Congenoffs' meetings revealed a general optimism about
the future of Chinese investment in Africa. xxxxxxxxxxxx
believe that China has developed traction in
Africa, and that the economic relationship will continue to
expand despite the global financial crisis. In economically
focused Shanghai, which hosted the African Development Bank's
annual meeting in May 2007, businessmen, academics, and African
diplomats are increasingly interested in expanding China-Africa
trade and investment ties, and they see the 2009 FOCAC as a
means to further deepen China's relations with the continent.
Camp