CHINA'S LIMITED TIES TO COLOMBIA

UNCLAS SECTION 01 OF 04 BOGOTA 010993

SIPDIS

EAP/CM, WHA/PPC, WHA/FO, WHA/AND, WHA/EPSC

E.O. 12958: N/A
TAGS: ECON PREL ETRD ETTC EINV ENRG EAGR EFIN PGOV
SUBJECT: CHINA'S LIMITED TIES TO COLOMBIA

REF: A. BEIJING 18953


B. BOGOTA 9143

C. STATE 138041


1. Summary. Ties between China and Colombia are based on a
modest economic relationship with minimal interaction on
political issues. The level of Chinese investment in
Colombia has been very small compared to other countries, but
2005 will show a slight increase from past levels. China
views trade ties with Colombia opportunistically; some
sectors such as telecommunications or textiles show promise
for further investment, but PRC officials assert China has no
desire to compete for a dominate market share with the United
States. On the other hand, Colombian business owners,
especially in the textile sector, are concerned about
increases in cheap Chinese imports that may affect their
ability to compete domestically. Similarly, while political
ties have existed at low levels since diplomatic relations
were established in 1980, President Uribe led a state visit
to Beijing in April 2005 that generated a series of
cooperative agreements, the majority of which were focused on
increasing bilateral trade and investment. The PRC is
supportive of the justice and peace process in Colombia but
does not plan financial or programmatic support in adherence
with its principle of non-interference. End Summary.

Mid-Level Trading Partner at Best
--------------

2. China and Colombia share a modest but growing trading
partnership. In 2004, China imported USD 132 million in
Colombian products and exported USD 376.6 million in Chinese
goods for an overall two-way trade of USD 509.5 million,
ranking China as Colombia,s 14th largest trading partner.
Colombia traditionally runs a trade deficit with China; in
2004 the trade deficit was USD 243.7 million.

Colombian Trade with China, Venezuela, and the United States
(Millions of USD)

Colombian Exports to:
2002 2003 2004
U.S. 5,159.7 5,797.6 6,504.4
Venezuela 1,123.3 694.3 1,603.5
China 29.8 82.2 132.9

Colombian Imports from:
2002 2003 2004
U.S. 4,020.1 4,081.2 4,838.1
Venezuela 788.0 727.4 1,081.8
China 157.5 208.3 376.6

Source: Ministry of Commerce



3. Exports from Colombia to China increased marginally from
2003 to 2004. The types of exports are diverse but only a
few items are exported in significant quantities. In 2004,
ferronickel was the leading export (57 percent of the total)
while copper and aluminum scrap accounted for the next
largest category. Fuel oils are a small percentage of
exports to China, but there was a significant increase in
this category in 2004, compared to previous years, according
to the Ministry of Commerce.

Recent Growth in Chinese-supplied Imports
--------------

4. Imports to Colombia from China have increased in recent
years. From January-September 2005, China was the
third-leading supplier of Colombian imports at 7.3 percent of
in-bound trade behind Mexico (7.7) and the United States
(29.1),displacing Venezuela. In 2004, leading Chinese
exports to Colombia included crane equipment, video and sound
recording equipment, telecommunications equipment, and
footwear materials. Preliminary data from DANE for the
Jan.-Sept. 2005 period show that the 2005 increase in
Chinese-produced imports came mainly from increased trade for
sound and recording equipment, vehicles and parts, and
boilers/machinery equipment.

2004 Export/Import Data, Colombia and China (in USD millions)

Products Exported to China
2004 Percentage
Ferronickel 76.45 57.5
Copper Scrap 24.31 18.3
Aluminum Scrap 8.0 6.0
Fuel oils 6.4 4.8
Leather goods 6.3 4.7
Other 11.5 8.7
Total 132.9 100.0

Products Imported from China
2004 Percentage
Crane Equipment 21.3 5.6
Video and Sound Recording Equip. 17.0 4.5
Telecommunication Equip. 7.0 1.9
Broadcast Receivers 6.8 1.8
Footwear Materials 6.2 1.7
Other 318.4 84.5
Total 376.7 100.0

Source: Ministry of Commerce

Not Much Chinese Investment But Some Increases Are Likely
-------------- --------------

6. In recent years, Chinese investment in Colombia has
remained relatively stable and limited, ranging from USD 1
million in 2001 to USD 1.2 million in 2004. China,s
cumulative investment stock of USD 13.7 million from
1994-2004 ranks it in 39th place behind Ecuador (14) or Costa
Rica (23). The United States was the number one investor
from 2001-2004.

Foreign Direct Investment in Colombia (in USD millions)

2004 Percentage
U.S. 874.2 45.4
Venezuela 62.3 4.5
China 1.2 0.1


Source: Central Bank, Proexport


7. Chinese companies Huawei Technologies and ZTE started
operations recently in Colombia and are interested in
increasing investment as part of a general expansion strategy
in Latin America. For example, in 2005, ZTE announced it was
contracted by Colombian Emcali to build an Internet protocol
network in the Cali region for USD 10 million. Chinese
telecommunications companies believe they offer low-cost,
high-quality infrastructure products and intend to compete
heavily in the sector. Traditional U.S. suppliers such as
Nortel and Lucent have communicated concerns to the
Commercial Counselor that the Chinese strategy is to sell
their products at heavily reduced prices to gain market share
and lock out competition.


8. While some Chinese companies have limited investments in
manufacturing, chemical, and oil exploration, larger Chinese
oil companies have stated they have no plans to bid on the
USD 800 million Cartagena refinery upgrade project and are
not interested in making large investments in the hydrocarbon
sector, according to officials at the Chinese embassy in
Bogota.

2005 Influx of New Chinese Products
--------------

9. Colombian consumers are seeing an influx of Chinese
products in the marketplace according to recent media
reports. For example, Chinese cars made their debut in the
Colombian market in 2005. Cinascar, a new local distributor
catering to taxi services, will sell light trucks, pickups,
and passenger vehicles made by Chinese manufacturers, SAIC GM
Wuling, BYD Auto, and Changhe. During the first year of
operations, Cinascar projects it will sell 3,000 vehicles.


10. Colombian producers are experiencing price pressure from
cheap Chinese imports. In a recent public example, Colombian
school notebook manufacturers expressed concern about a flood
of cheap Chinese produced notebooks entering the market in

2005. The average price for a Colombian produced notebook is
between 800 to 5,500 Colombian pesos but Chinese produced
notebooks are selling for less than 200 pesos. In 2005, 3.5
million Chinese notebooks have been imported through Panama
to Colombia compared to the normal Colombian national
production of 120 million and Colombian producers are
concerned the price differences will put them out of business
in the long run.

Textile Agreement - An Attempt at Flood Control
-------------- --

11. Illegal Chinese textiles have been pouring into the
Colombian market, and bilateral talks are underway to resolve
the issue through an agreement that would set a maximum
amount of Chinese textiles and apparel allowed into Colombia.
As reported reftel B, Colombian textile producers have been
forced to lower their prices in response to competition from
a growing contraband market, involving mostly Chinese
products smuggled into the country from Panama. Legal
imports have also grown rapidly from an approximate value of
USD 5 million in 2000 to USD 35 million in 2004 according to
the Ministry of Commerce. Colombian textile producers have
noted a nearly 10 percent decrease in orders from January to
June 2005. The GOC is implementing a variety of safeguards
to protect specific textile and apparel product categories
from Chinese imports but views negotiation of a comprehensive
textile agreement as the preferred method to address the
issue.

Beginnings of Expanded Political Relationship But Just A
Start For Now
-------------- --------------


12. In early April 2005, President Uribe made a State Visit
to China to mark the 25th anniversary of Colombia-China
diplomatic relations. The focus of the trip, according to
interviews Uribe granted before, during and after the visit,
was to increase Chinese direct investment in Colombia, as
well as to strengthen cultural and economic ties. Consistent
with these goals, Uribe was accompanied by 140 Colombian
business people, who pitched investment opportunities at
roundtables held in Beijing and Shanghai, and 30 university
rectors.


13. During the State Visit, representatives from both
governments signed four agreements calling for further
cooperation in the areas of information and
telecommunication, film exhibition, economy and technology.
According to the Chinese Embassy in Bogota, the agreement on
economic cooperation was really more of a development grant
from the PRC to Colombia. The agreement called for the PRC
to donate USD 1 million to the GOC for use in agricultural
development. Uribe and Hu Jintao signed a fifth agreement on
phytosanitary measures. According to the Chinese Embassy,
this is the only agreement that has real economic import.
Without this agreement on the proper handling of contagious
and parasitic diseases, there can be no plant or animal trade
items between the two countries. Despite the signing of the
phyto-sanitary agreement in April, there has been little
increase in trade in plants and animals, according to the
Chinese Embassy.

No Plans to Dominate Market Share in the U.S. Backyard
-------------- --------------

14. Officials from the PRC embassy in Bogota told emboffs
that Chinese commercial strategy in Colombia, and Latin
America in general, is opportunistic and depends on limited
sectoral advantages. Echoing comments made recently by
Chinese Ministry of Foreign Affairs officials in Beijing
(reftel A),PRC embassy officials asserted that Chinese
companies are not interested in competing with the United
States for a total dominant market share in Colombia but will
compete when market entry is easy and there is demand for
services like in the telecom sector. From China,s
perspective, the United States has the preeminent role as
Colombia,s most important political ally and trading partner
in Latin America. China views Latin America as an important
alternative market but the region is on a third tier of
importance in comparison with China's economic relationship
with the European Union and its relationship with the United
States and regional neighbors (India, Japan, North and South
Korea, and Russia).

China Supports Justice and Peace Process But Will Not
Contribute Aid
-------------- --------------

15. The Chinese Embassy stated the PRC supports the Justice
and Peace process in Colombia in principle but will not
provide monetary or other programmatic assistance based on
its long standing policy of non-interference in the internal
affairs of other countries. China recognizes that the United
States and European Union have multiple interests in
enhancing Colombia,s internal security including assisting
Colombia in addressing illegal drug cultivation and
production and ensuring protection of human rights. However,
China does not share these interests to the same degree given
the distance between China and Colombia. In general, Chinese
diplomats maintain a low profile in Bogota.

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

16. Chinese interest in Colombia is based, primarily, on a
modest trade relationship. Post sees further limited growth
of Chinese imports to Colombia and specific investment
interest focused in sectors such as telecommunications,
consumer electronics, and vehicles. In any case, the current
scale of bilateral trade and investment pales in comparison
to the United States. We also expect to see more bilateral
discussion and agreements that will foster the economic
relationship.
DRUCKER