S E C R E T SECTION 01 OF 02 ABUJA 001925

SIPDIS

NOFORN

DEPT FOR EAP/CM BILL CRANE
DEPT FOR AF/RSA JOHN NAY

E.O. 12958: DECL: 08/31/2015
TAGS: EAID ECON PREL MASS EMIN ENRG ETRD AF CH
SUBJECT: CHINA'S INFLUENCE IN NIGERIA

REF: A. STATE 153199

B. 04 ABUJA 2051

C. ABUJA 1338

D. 04 ABUJA 149

Classified By: Ambassador John Campbell for Reasons 1.4 (b) & (d).


1. Summary. (U) The People's Republic of China (hereafter
China) has been for some time expanding its economic and
business activity in Nigeria. Trade, energy, telecoms, and
agriculture are the main areas of activity. Military
cooperation is also an important area of engagement, both
with Nigeria and with the sub-regional organization ECOWAS.
End Summary.

ECONOMIC AND TRADE RELATIONS
--------------


2. (SBU) Chinese goods are entering and dominating some
segments of the consumer market. The two countries estimate
their bilateral trade at $2 billion, with Nigeria importing
$1.42 billion of Chinese goods in 2004, with Nigeria as
China's second largest market on the continent. This is
reportedly a five-fold increase in the last four years.
Though China does little manufacturing in Nigeria, there is
anecdotal evidence that Chinese firms are manufacturing
pirated music and movie products in Nigeria, using Chinese
labor. The U.S. Mission has reported in detail Chinese
activity in Nigeria's booming telecommunications sector.
China is participating in some joint agricultural projects,
though so far they are mainly small pilot projects.


3. (SBU) The energy sector has seen most activity with
Chinese firms becoming involved in developing oil blocks, and
pledging investment in refining. In July 2005, the Chinese
state-owned PetroChina company signed an $800 million
agreement with the Nigerian National Petroleum Corp. to
import 30,000 barrels of oil per day for five years. Firms
have expressed intent to explore opportunities in power

generation, coal processing and petrochemicals. China is
clearly interested in developing Nigeria as an energy
supplier, and to some extent is willing to pay a premium,
often in the form of agreeing to make additional investments
in less attractive areas. It is not clear whether in the end
those investments will actually materialize. There may be a
limit to that premium. Chinese firms did not place any
winning bids in the last oil block bid round, possibly, like
Western oil majors, determining that the prices were too high
for the presumed return. There is little reason for China to
pay a premium for general oil supplies. Oil is a commodity
that in most circumstances can be acquired on the market at
the prevailing price. With its extreme dependence on imports,
however, China probably would be willing to pay a significant
premium to secure supplies that would reliably be available
in case the oil markets ceased to function normally. For now,
Nigerian sources would seem to be of questionable
deliverability in case of a global supply interruption.


4. (C) In pursuing its economic interest here, China is free
to ignore human rights, democracy, and other issues which
complicate the U.S. relationship. Still, while Chinese firms
might have some advantages over western firms in terms of
business practices, safety standards, and responsibility to
shareholders, nonetheless they will be active here only to
extent that there is an advantage. In fact, Chinese firms
face most of the same problems as others in doing business in
Nigeria. The Standards Office of Nigeria recently said 90%
of Chinese electrical goods failed to meet standards, and
starting in October would be impounded upon import. Kaduna
refinery workers this month denied access to representatives
of the company's new management, the China National Petroleum
Company, citing labor issues. A Chinese company that won a
contract to rehabilitate the Nigerian railway system has
stopped work for some time, because it failed to receive a $
20 million payment.


5. (U) In reflecting China's growing commercial ties with
Nigeria, the "West African United Business Weekly," Nigeria's
first Chinese-language newspaper, began publication in August

2005. The newspaper is published in Lagos, Nigeria's
commercial capital. The newspaper's president said the
publication will publish daily "when conditions are ripe."
The number of Chinese residing in Nigeria has risen from
10,000 "several years ago" to more than 50,000.

Political and Military Relations
--------------

6. (U) Visits from senior Chinese officials to Nigeria, and
of senior Nigerian officials (including President Obasanjo)
to China occur on a regular basis. Press reporting indicates
that these visits focus mostly on economic and development
assistance issues. In October 2004, the Chinese announced
that they would fund almost 600 boreholes in Nigeria (Ref B)
following the visit of the Nigerian Minister of Water
Resources to China. (Note this compares to approximately 50
boreholes funded by Mission per year. End Note.) On
September 30, at a reception for Chinese National Day,
Nigeria's Minister for the Federal Capital Territory
characterized China as Africa's "most important partner."

7. (C) ECOWAS: The Chinese Ambassador to Nigeria is
accredited as an Observer to ECOWAS, and has been for some
time (long before the US sought accreditation). The Chinese
have offered to provide support to a signal unit in the
ECOWAS Standby Force (ESF). Though they were invited to the
recent Defense and Security donor coordination meeting at
ECOWAS, they failed to send a representative. The Chinese
DATT has approached ECOWAS regarding support to the planned
logistics depot, but has not yet given a specific commitment
of support. In his questions to ECOWAS, the DATT seemed most
concerned about support pledged by other Asian nations and
how China would fit into that mosaic.


8. (C) United Nations: The Chinese Ambassador to Nigeria
engaged the GON on UN Reform during the summer of 2005. He
shared some of his experiences with the US Ambassador (Ref
C), and seemed open to cooperation with the USG, especially
in light of Nigeria's position in the African Union.


9. (S/NF) Military: The Chinese have 2 Brigadier
General-level Defense Attaches in their Embassy in Abuja, and
a Major-level assistant. These are the senior, by rank,
DATTs in Abuja. China suspended its cooperation with DICON
(Defense Industries Corporation of Nigeria) in 2004 (Ref D)
after the GON failed to provide agreed upon funding. Recent
reports have emerged about Chinese plans to sell F-7 or F-8
fighters to Nigeria to replace Nigeria's aging and
non-operational fleet of MiG-21s. Outside observers believe
that Nigeria has chosen to buy new aircraft from China
instead of rehabilitating the old aircraft because the
opportunities for graft are far greater in buying new,
especially from China.

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


11. (C) Chinese trade and investment overall is probably a
net plus to Nigeria, which desperately needs to expand both
to develop its economy. Economic and business success, could
however, transfer to increased political and military
influence, that might not support U.S. goals here.
CAMPBELL