CHINESE ACTIVITIES IN GUATEMALA

S E C R E T SECTION 01 OF 03 GUATEMALA 002050

SIPDIS

EAP KAYE LEE, WHA/PPC JEFF BISCHOFF AND WHA/EPSC LAWRENCE
GUMBINER

E.O. 12958: DECL: 08/25/2015
TAGS: ECON PREL ETRD ETTC EINV ENRG EAGR EFIN EMIN PINS PGOV KCOR CH TW GT ESENV
SUBJECT: CHINESE ACTIVITIES IN GUATEMALA

REF: A. SECSTATE 138041

B. GUATEMALA 01959

Classified By: EconOff Tom Palaia for reasons 1.5 (d).


1. (S) Summary: Guatemala does not maintain substantial
public or private sector ties with PRC China. Taiwanese
influence in political and military affairs effectively
blocks Chinese access. That influence has been maintained
through direct assistance and bribes to government officials
and is supported by a general ideological affinity. China
has recently renewed offers of expanded assistance and trade
opportunities in exchange for political recognition.
However, as with past attempts, Taiwan has bettered these
offers and again closed the door on China. China is not a
major trading partner and its influence on the Guatemalan
economy is limited to secondary effects stemming from
international market phenomena. Any future attempts to
expand Chinese influence would likely be driven by Chinese
international political considerations rather than economic
interests. End summary.

Trade and Investment
--------------


2. (C) Talk of opening a Guatemalan trade office in China
comes and goes. Rumors flared up again over the last few
months culminating in a June 2005 trade mission to China, led
by Minister of Economy Marcio Cuevas. During the visit,
Chinese officials offered to increase purchases of Guatemalan
sugar and coffee, provide assistance with building roads, and
invest in Guatemala's energy sector, in exchange for
Guatemalan recognition of China and an abandonment of formal
ties with Taiwan. Press reports of Taiwanese concerns
following this trip led to GOG clarifications that their
interest was limited to opening an office in China to
facilitate trade, with no consideration of formal diplomatic
relations. GOG interest and press attention to a potential
Chinese trade deal have since withered following President
Berger's successful August 2005 trip to Taiwan, where he
secured commitments to increase assistance on key
infrastructure projects and initialed a quickly negotiated
free trade agreement. There has been private speculation
that the recent trade mission and talk of increasing economic
ties with China were construed to strengthen Guatemala's hand
in requesting increased trade and official assistance from
the Taiwanese as well as cooperation in a bribery case
involving the Taiwanese and former President Portillo (Para
7).


3. (SBU) Trade with mainland China represents less than 4
percent of overall Guatemalan trade and is not substantially
influenced by preferential trade schemes or Chinese
investments. Exports to China are almost exclusively sugar
while imports consist of a range of manufactured goods,
almost two-thirds of which are actually purchased from third
country suppliers. Hong Kong trade is measured separately
from mainland China in Guatemalan statistics and makes up
significantly less than 1 percent of total trade, about half
of which involved Hong Kong only as intermediary for third
country suppliers. There has been no substantial direct
investment by private or public Chinese interests. Directors
of the Guatemalan family-owned Multi Inversiones "Pollo
Campero" company have told EconOff that they are in
preliminary stages of exploring potential expansion of their
restaurant chain and chicken distribution into China.
However, the conservative family admits their discomfort with
mainland China politics and complains of how complicated the
Chinese market is to enter.


4. (U) Central Bank Trade Statistics

Exports from Guatemala to mainland China (USD):
19.3 million representing 0.7 percent of total exports
Composition: 94 percent sugar

Total Imports originating in mainland China (USD):
345 million representing 4.8 percent of total imports (of
which approximately 124 million or 36 percent is bought
directly from China with the remaining 64 percent purchased
from third country suppliers)

Composition of principal imports of Chinese made goods:
Mechanical machines and appliances - 10 percent
Vehicles - 9.6 percent
Apparel - 8.7 percent
Footwear - 8.2 percent
Games - 7.2 percent
Various manufactured goods - 5.7 percent

Hong Kong activity is separately measured by the Central Bank:
Exports from Guatemala to Hong Kong (USD):
0.8 million representing 0.03 percent of total exports
Composition: 94 percent fruit

Imports from Hong Kong (USD):
53.3 million representing 0.7 percent of total imports (of
which approximately 50 percent are produced in Hong Kong, the
remaining half is produced elsewhere and purchased from Hong
Kong suppliers)

Composition of principal imports:
Games - 18 percent
Mechanical machines and appliances - 9.4 percent
Plastic materials - 7.4 percent
Various manufactured goods - 6.6 percent


5. (C) Chinese economic activity is not sufficiently
important, nor in such sensitive areas as to have a major
impact on domestic cultural, economic, environmental or
political conditions. Press coverage and general talk of the
impact of Chinese growth on the Guatemalan economy, following
the lead of international news coverage, has mainly focused
on the effects of growing Chinese competition in the textile
and apparel markets and inflationary pressures on raw
materials thanks to China's booming demand. CAFTA has been
seen as the counterweight to Chinese competition in the
textile and apparel sectors. As for Chinese resource demand
driving up local prices, coverage is sporadic and some
officials privately acknowledge this is just a foreign
boogeyman on which to blame domestic economic problems.

Political Overtures - Taiwanese Exclude Chinese Access
-------------- --------------


6. (S) Taiwan has successfully restricted Chinese political
access and influence in Guatemala (REF B). Taiwanese
officials are active and enjoy broad access to the GOG, while
Chinese activity is extremely limited. Legitimate assistance
programs and alleged bribes to Guatemalan officials ensure
continued diplomatic recognition of Taiwan. The Berger
government is committed to a strong relationship with Taiwan,
a commitment generally shared by segments of the population
interested enough to have an opinion on an otherwise
uninteresting topic here. Guatemalan elite are also
notoriously conservative and suspicious of overactive
governments. In particular, the business community admires
Taiwan's development path and is suspicious of China's
controlling government. A limited free trade agreement was
recently signed with Taiwan while on-again-off-again public
speculation about increasing economic ties with China have
again fallen from view.


7. (C) Copies of several checks publicly resurfaced recently
causing a wrinkle in the otherwise cozy relationship with
Taiwan. Former President Alfonso Portillo received at least
three checks from the Taiwanese Embassy for USD 500 thousand
each, while his notoriously corrupt Private Secretary may
have received others. Copies of several of these checks,
including one cashed in the US several weeks before Portillo
assumed the Presidency have been available to authorities for
several years. Recent press coverage reflected negatively on
Taiwan for its role in the scandal but has since died down.
For a variety of reasons (Ref B),it is unlikely that this
scandal will have any long-term implications on the
GOG-Taiwan relationship. The government of Taiwan, which
insists the checks were "donations" for a book program, has
dodged requests from Guatemalan prosecutors for cooperation
to pursue corruption charges against Portillo.

Cultural/Educational Activities
--------------


8. (C) The Chinese government is not involved in any visible
cultural or educational activities. Their lack of access
within the GOG and the Guatemalan cultural elite would make
any such overtures difficult, particularly in light of
continuing Taiwanese assistance in these areas.

Military Activity and Weapons Sales
--------------


9. (C) Neither the Chinese government nor military have been
involved in direct weapons sales to any GOG security forces.
However, private gun dealers acknowledge occasionally looking
to China for supplies, in light of difficult US licensing
processes and competitive Chinese pricing. However, they
complain of quality, consistency and speed to market
difficulties in buying from Chinese suppliers.

10. (C) Post is not aware of any military to military
contact with Chinese officials. The Taiwanese attache
maintains excellent contacts within the Guatemalan military
community and actively fosters that relationship to the
exclusion of contact with Chinese counterparts (REF B).

Unofficial Chinese Activity - People Smuggling
-------------- -


11. (C) Chinese alien smugglers use Guatemala as a transit
point en route to the US. Post's best intelligence suggests
that Chinese organized crime uses intermediaries from
Guatemala or elsewhere in Latin America and is not locally
established. However, higher-end smuggling via air has
implicated Guatemalan immigration and foreign affairs
personnel in Guatemalan visa fraud. Evidence also suggests
that money is occasionally laundered directly from China into
Guatemala to support smuggling activity and pay these
intermediaries. Guatemalan law enforcement lacks the tools
to adequately track this smuggling to determine the extent of
involvement of Chinese organized crime in alien smuggling.
Officials are reluctant to attempt investigative coordination
with their Chinese counterparts due to a lack of trust and
understanding in addition to their lack of capacity for
large-scale international investigations. There are no
formal or informal mechanisms for sharing information with
Chinese law enforcement.

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


12. (C) The Chinese government, as evidenced by the July
trade mission, makes occasional attempts to establish itself
in Guatemala and steal formal recognition away from the
Taiwanese. So long as Taiwan maintains its aggressive
courtship of Guatemala and Central America, it is unlikely
the Chinese will be successful. Guatemala has not been an
attractive place for foreign direct investment from anywhere
and China is certainly no exception. Guatemala is not a
major commodity producer and is unlikely to attract serious
Chinese attention as an economic partner. China's future
influence here depends more on the value it places on
Guatemalan political recognition and its level of
aggressiveness in challenging the Taiwanese for influence in
Central America.
WHARTON