IDEOLOGY, DESPERATION FUEL GOZ,S TIES TO CHINA

S E C R E T SECTION 01 OF 07 HARARE 001331

SIPDIS

NOFORN

AF/S FOR B. NEULING
AF/RSA FOR J. NAY
EAP/CM FOR B. CRANE
SENIOR AFRICA DIRECTOR C. COURVILLE
UECOM PLEASE PASS TO JAC MOLESWORTH RAF

SIPDIS

E.O. 12958: DECL: 09/23/2015
TAGS: ECON EMIN PGOV PHUM PREL ZI CH
SUBJECT: IDEOLOGY, DESPERATION FUEL GOZ,S TIES TO CHINA

REF: A. REF A: STATE 153199

B. REF B: HARARE 001088

C. REF C: USUN 001704

D. REF D: BEIJING 011949

Classified By: Ambassador Christopher Dell for reasons 1.5 b/d


1. (C) Summary: The ruling ZANU-PF party has long maintained
a close diplomatic and military relationship with China,
dating back to the liberation war in the 1970,s. In recent
years as the GOZ,s international isolation increased and the
local economy nosedived, Zimbabwe has placed growing
importance on this relationship, which forms one of the
principle pillars of Robert Mugabe,s &Look-East8 policy.
The GOZ publicly touts China as one of its most important
allies in the global community. Trade and investment from
China remain one of the Zimbabwean economy,s few bright
spots ) albeit in relative terms. Meanwhile, tourism from
China has failed to get off the ground. The
Chinese-Zimbabwean relationship is driven by Zimbabwe,s
commercial and military needs and China,s interest in
accessing Zimbabwean platinum and gold, while the only
apparent political connection is Chinese rhetorical support
for the isolated regime and the GOZ,s strict adherence to
the one China principle. Increasing Chinese influence in
Zimbabwe has been paralleled by a growing negative perception
of the Chinese and their commercial wares by the local
population and stiffer competition for the already struggling
local manufacturing sector. This cable is in reply to the
questions asked in ref A. End Summary.

-------------- --------------
Liberation War Ties Hardened by GOZ,s Pariah Status
-------------- --------------


2. (C) Beijing,s close ties to the ZANU-PF ruling party
were forged during the war for independence when the
communist country funneled arms, training and money to Robert
Mugabe,s Mozambique-based insurgency. (Moscow meanwhile
supported a rival insurgency based in Zambia.) More
recently, western criticism of the GOZ,s heavy-handed
policies and the economy,s related free-fall have created a
further impetus for the GOZ ) and an opening for Beijing -
to expand bilateral ties. China,s relatively modest
political engagement here is magnified by GOZ rhetoric, which
is eager to publicly tout Chinese assistance and demonstrate
that its &Look-East8 policy is sustaining the otherwise
moribund economy. The official media frequently showcase
evidence of Chinese-Zimbabwean fraternity and the Chinese are
uniformly portrayed as caring for the welfare of Zimbabweans
and in solidarity with them against neo-colonial imperialist
aggressors.


3. (C) Regular high-level visits between Zimbabwean and
Chinese government and party officials provide the most
public demonstration of this relationship. Mugabe has
visited China at least seven times since becoming Zimbabwe,s
leader in 1980. The most recent visit occurred in July 2005
when Mugabe met with President Hu Jintao, Premier Wen Jibao
and National People,s Congress Chairman Wu Bangguo (ref D).
According to local media, the Zimbabwean delegation secured a
number of commercial and loan agreements, including a $6
million grant to import maize. Numerous Chinese leaders have
visited Zimbabwe, including President Jiang Zemin (1996),
Foreign Minister Tang Jiaxuan (2000),and Chairman of the
Standing Committee of the Chinese National People,s Congress
Wu Bangguo (2004).


4. (C) Political ties to China are an important source of
international legitimacy and respect for the GOZ, which is
increasingly isolated from the international donor community
and, recently, even by African criticism over its human
rights record. Zimbabwe strictly adheres to the &One China
Policy8 and forbids the establishment of an official
Taiwanese presence in Zimbabwe. Most recently, the GOZ bowed
to Chinese pressure in February 2005 and barred Miss Tibet
from competing in a Miss Tourism World Pageant held in
Zimbabwe. Meanwhile, China,s general preoccupation with
issues of national sovereignty prompt its leaders to publicly
criticized western sanctions against regime leaders.


5. (C) Chinese patronage in the UN has helped to lessen
international criticism of the GOZ,s Operation Restore
Order, which has displaced some 700,000 people, according to
UN tallies. The Chinese delegation to the UN Security
Council in July unsuccessfully attempted to prevent the
Council from addressing the issue, saying that it is not the
role of the Council to disccuss domestic issues and that the
GOZ can handle its own internal affairs (ref C). During his
Heroes Day address on August 8, Mugabe publicly thanked China
for its support in the Security Council.


6. (C) China maintains one of the largest diplomatic
missions in Harare, with 26 diplomats on the diplomatic list,
including six officers in the economic/commercial section.
There are also three military officers serving in the Defense
Attache,s Office. The official Chinese community is highly
insular, with all diplomats residing in apartments attached
to its chancellery downtown and rarely mingling in Harare,s
diplomatic circles with western officials. According to the
Chinese Embassy,s webpage, eleven Zimbabwean students were
studying in China as of November 2004. More recently, Duan
Schaohua, a third secretary (economic and commercial) of the
Embassy of the People,s Republic of China, told poloff on
September 8 that the Embassy receives multiple inquires a
week from Zimbabwean students eager to study in China.
During Mugabe,s recent trip to China, Beijing reportedly
increased the number of scholarships offered to Zimbabwean
students by eight. Meanwhile, according to the Chinese
Embassy,s webpage, China had three teachers and nine medical
personal in Zimbabwe as of last November.
Uncharacteristically, the Chinese Embassy has recently begun
attending humanitarian coordination meetings called by the
UN.


7. (C) In contrast to most other foreign communities in
Zimbabwe, the Chinese population has grown substantially in
recent years. Duan reported that the number of Chinese
citizens registered with the Embassy has jumped from about
3,000 in 2003 to a current figure of between 4 and 5,000.
Private Chinese citizens are chiefly engaged in commercial
retail and light manufacturing for both the domestic and
export market, as well as operating restaurants and some
financial services. Confederation of Zimbabwean Industries
Vice President Florence Sachikonye on September 19 claimed to
econoff that the size of the resident Chinese population was
however misleading, as many use Zimbabwe primarily as an
agreeable base from which to do business throughout the
southern African region.

--------------
Military Assistance, Gifts Sweeten the Pot
--------------


8. (S//NF) Our Defense Attache reports that China has
invested a significant amount of military resources in
Zimbabwe. The delivery in October 2004 of six K-8 training
aircraft from China is the most noted recent sale, but Harare
since independence has purchased large quantities of military
hardware from China, including aircraft, vehicles, air
defense radars, and medical equipment. When a UK Military
Advisory and Training Team departed circa 2002, the Chinese
immediately sent instructors to the Zimbabwe National Army
Command and General Staff College as well as technical
advisors to individual units. China has been benefiting from
Zimbabwe,s &Look-East8 program through military arms
sales. We have no concrete numbers on the amount of sales in
recent years. With limited foreign currency availability,
the Zimbabwe Defense Forces cannot afford any western
military sales, only the mass produced eastern arms. The
military leadership is embracing Chinese ideology, according
to the Defense Attache, leading them to take an anti-western
approach and to look at western governments with suspicion.


9. (C) The Chinese have also heaped lavish gifts on their
Zimbabwean counterparts. In addition to helping build
Harare,s soccer stadium, Beijing supplied the now-infamous
blue tiles for the roof of Mugabe,s new US$13 million home
outside Harare. Earlier this year, China also reportedly
donated one MA60 passenger airplane to Zimbabwe, in addition
to two aircraft that were purchased.


10. (C) The GOZ has repeatedly used Chinese assistance to
undercut its opponents. For instance, the Chinese earlier
this year reportedly provided the GOZ with technology and
equipment that could be used to disrupt independent radio
broadcasts outside the country from being received in
Zimbabwe. In the run-up to the March parliamentary election,
Beijing reportedly gave ZANU-PF crates of T-shirts and
bicycles to distribute to supporters. More recently, there
have been rumors that China has given the GOZ financing to
undermine the country,s independent trade unions.

--------------
Benefiting from Zimbabwe,s Fire Sale, Barely
--------------


11. (C) As local and western investors have fled the country
in droves, Chinese investors have made major inroads into
several sectors of the Zimbabwean economy, chiefly
construction, energy production, and transport. According to
Duan, the largest Chinese investment in Zimbabwe thus far is
Sino Cement, a $50 million building materials maker
inaugurated by Mugabe in October 2001. Chinese investors
have also opened a steel mill, which buys scrap metal locally
for fabrication into pipes and sheets for export to China.
According to local media reports, the China National
Aero-Technology Corporation (CATIC) has agreed to help
Zimbabwe,s struggling energy parastatal, Zimbabwe
Electricity Supply Authority (ZESA),expand the Hwange power
station, and revive local coal mining. Meanwhile, Huawei
Technologies last year reportedly signed contracts worth more
than $300 million with Zimbabwe,s state-owned fixed-line and
mobile telephone companies. Local representatives of Cisco
Systems told poloff September 13 that some of the
telecommunication systems installed by Huawei appear to be
counterfeit Cisco technology. The most visible indicator of
Chinese-Zimbabwean commercial ties is the 50 commuter buses,
reportedly worth more than $2 million, supplied earlier this
year by FAW to the Harare public transport system. (N.B.
These buses show that politically-motivated Chinese aid is
often at odds with local needs; despite the pressing need for
transport in the rural areas, the buses can only be used in
Harare due to low ground clearance.)

12. (C) The contraction of Zimbabwe,s large-scale tobacco
industry, the sharp decline in product quality, and
consequent departure of many international buyers have left
the Chinese as the main buyer of Zimbabwean tobacco,
according to Richard Tate, a consultant for Zimbabwe,s
largest tobacco auction floor. Tate told poloff on September
1 that about half of all Zimbabwean tobacco production now
goes to Asia, chiefly China. Data from Zimbabwe,s Central
Statistics Office (CSO) show that China last year imported
almost a quarter of Zimbabwe,s total tobacco exports. Tate
noted that China remained the only major consumer of auction
tobacco as other major buyers have left the country in recent
years in favor of competitors, such as Brazil. Andrew
Engelbrecht, an executive of Zimbabwe Leaf Tobacco, owned by
Virginia-based Universal, told econoff September 14 the
Chinese were highly valued customers who paid promptly and
well. Press accounts indicate that Chinese tobacco buyers
have signed long-term contracts directly with large and
medium-sized farmers. Under these contracts, the Chinese
supply most inputs, such as seed and fertilizer, and in
return receive the bulk of the tobacco yield. Engelbrecht
said that his company had partnered with ZESA and the Chinese
in a local tobacco production project as a means for ZESA to
source foreign exchange to finance capital improvements. One
unsubstantiated newspaper article said that as much as a
quarter of Zimbabwean exports were mortgaged to China in one
form or another.


13. (C) China is also widely seen to covet access to
Zimbabwe,s platinum reserves ) the 5th largest in the
world. To date, however, no Chinese firms have taken up
platinum concessions. Zimbabwe Platinum Mines (Zimplats) CEO
Greg Sebborn told Post on July 29 the Chinese were eyeing
greenfield sites north of Harare, which would require a
substantial investment to become operational (ref B). China
had promised the GOZ to build a platinum refinery in return
for a share of the deposit, but Sebborn said such investment
was unlikely because the Chinese lacked sufficient technical
expertise. Instead, Sebborn assessed China could build
another base metal refinery similar to the one that Zimplats
had already built.


14. (U) Trade statistics from CSO show a balance of trade
heavily in Zimbabwe,s favor. Duan reported that bilateral
trade has been in the African country,s favor ever since
independence. According to CSO data, total bilateral trade
reached Z$834.2 billion last year. (N.B. The IMF reported
that the official exchange rate for 2004 averaged
Z$4,131:US$.) By comparison, bilateral trade with the U.S.
was only Z$408.0 in 2004.

Zimbabwean trade with China, 2004
Billion Zimbabwean Dollars

China Hong Kong Taiwan

Total Exports 546.8 24.6 105.0
Tobacco (HTS 2401) 471.0 20.7 13.8

Total Imports 287.4 42.0 59.2

Source: Central Statistics Office.


15. (C) Zimbabwe,s economic hardships, however, have not
left Chinese investors untouched, despite favorable GOZ
concessions. According to Duan, Chinese manufacturers and
investors often complain about the critical lack of foreign
exchange, skyrocketing inflation (now officially 265
percent),shortages of basic inputs from abroad and declining
infrastructure and labor standards. Even China,s flagship
investment, Sino Cement, has been forced to scale-back
production because of shortages. In light of these
hardships, Duan suggested that Chinese investors were
beginning to look elsewhere in the region. Duan also noted
that the local Chinese community has not been immune from
Zimbabwe,s worsening crime and suggested this too was having
a dampening impact on business. The new Chinese Embassy
Counselor, Ma Deyun, on September 21 paid a courtesy call on
the acting DCM and echoed Duan,s comments by noting that
private Chinese ventures in Zimbabwe had yet been able to
turn a profit. Both Duan and Deyun inquired about the extent
of US sanctions and appeared extremely interested to learn
that the USG had only imposed targeted travel and financial
sanctions against specific individuals, and did not have
general economic sanctions against the country.


16. (C) Chinese tourists have largely failed to flock to
Zimbabwe, despite the GOZ,s encouragement and Beijing,s
designation of Zimbabwe as a sponsored travel destination in
June 2004. Visitors from China and Hong Kong comprised only
4 percent of overseas tourists ) excluding travelers from
other parts of Africa - who came to Zimbabwe in the first
half of 2005, according to the Zimbabwe Tourism Authority.
Moreover, the economic impact of Chinese visitors is even
smaller since they tend to spend less than western tourists.
Despite Zimbabwe,s abysmal international image, traditional
overseas tourists still dominate; in the first six months of
this year, 28 percent of overseas visitors came from the UK
and 14 percent came from the U.S. Duan suggested that Air
Zimbabwe,s introduction of direct flights between Harare and
Beijing in November 2004, which currently costs less than
$450 at the parallel market rate, gave only a transitory
boost to the numbers of Chinese tourist arrivals. Instead,
Duan reported that wealthier Zimbabweans eager to shop in
China primarily book the flights, which have been granted
import duty concessions by the GOZ.

--------------
Friend or Foe: The Inevitable Backlash
--------------


17. (C) The increasing Chinese influence in Zimbabwe has
been paralleled by an increase in the negative perception of
the Chinese by the local population. Zimbabweans often
complain that the Chinese consumer goods that dominate the
shelves of local stores, especially in poorer neighborhoods,
are of shoddy quality. They have even coined the term
&zhing-zhong8 to refer to inferior Chinese goods that
appear to have been dumped on Zimbabwe. For instance,
following the recent procurement of Chinese commuter
airplanes, Zimbabweans joked that the cheap planes would
probably fall out of the sky. Local independent press and
the opposition have played up this criticism. They caution
that China is known for exploiting its weaker economic
partners by dumping inexpensive, poor-quality products on
them ) a theme that appears to be resonating among
businesses and consumers alike. Earlier this year, rumors
were rife throughout Harare that Operation Restore Order,
which targeted the country,s thriving informal sector, had
been launched by the GOZ at the request of Chinese
businessmen who wanted to undercut their competition.

18. (C) There is a widespread perception among locals that
the Chinese are fueling the parallel currency market by
purchasing large amounts of hard currency. MDC MP Priscilla
Misihairabwi-Mushonga told poloff on August 31 that Chinese
merchants were heavily involved in Zimbabwe,s thriving black
market. According to the MP, Chinese merchants sell Chinese
goods on the local market, convert their earnings to US
dollars on the parallel market ) which values the local
dollar at less than half of its official rate ) and then
remit their earnings back to China via the Chinese Embassy,s
diplomatic pouch.


19. (C) China,s emergence as a global economic powerhouse
poses some risks to the Zimbabwean economy, especially
small-scale manufacturing where cheaper Chinese-made goods
have displaced Zimbabwean producers on local shelves. This
threat is particularly evident in the apparel sector, where
) like other parts of Africa ) increased Chinese clothing
and textile exports over the past year have displaced local
producers and jobs. Jeremy Youmans, the finance director of
one of Zimbabwe,s largest apparel makers and chairman of the
Zimbabwe Clothing Manufacturers, Association, told poloff on
September 14 that local garment manufacturers cannot compete
with China on a cost basis. While Zimbabwean-made clothing
can compete on a quality basis with Chinese exports, Youmans
noted that Chinese government subsidies meant that Chinese
clothing exports were &sub-economic8 and could therefore
undercut virtually all competitors. The Zimbabwean industry,
according to Youmans, successfully lobbied the GOZ earlier
this year to enact higher apparel tariffs with an eye toward
leveling the playing field. Youmans speculated that Chinese
apparel producers had the ultimate goal of forcing all
competitors out of the global clothing market, giving them a
monopolistic position from which to raise prices in developed
country retail markets.

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


20. (C) Beijing,s ultimate objective in Zimbabwe is unknown.
From outward appearances, Chinese investors seem to be
buying up Zimbabwean firms and assets at fire sale prices,
but even at cut-rate prices and labor costs their
profitability is in question. Zimbabwe,s experience with
former Malaysian and Libyan patrons demonstrates that
sweetheart deals only go so far. Instead, Beijing may be
taking a longer-term view, assessing that its investors are
ideally placed to capitalize on a future economic turnaround.
If this view is true, then Beijing has a stake in economic
reforms. Even non-Chinese businessmen who profit from the
current environment tell us privately that their bottom lines
would be improved if the GOZ enacted economic and political
reforms. It is easy to see how Chinese support for Zimbabwe
can work at a cross current to our efforts. Nevertheless,
while China will probably never press its Zimbabwean comrades
into making political concessions, Chinese market sense )
even if driven by their own self-interest ) could
potentially be used as a lever to induce economic reforms.


21. (C) Zimbabwe,s ties to China are a marriage of
convenience founded on their mutual self-interest rather than
a sense of mutual affinity. The GOZ,s public pronouncements
of extensive ties are not borne out by concrete results;
Chinese investment in Zimbabwe, despite some high-profile
projects, is very limited, especially compared with other
parts of Africa. Embracing free market capitalism, Chinese
investors appear to have recognized the GOZ,s massive
economic policy failures and to have largely avoided Zimbabwe
in favor of other investor-friendly countries in Africa. The
GOZ,s fondness for China is also limited and Post has heard
from contacts in South Africa that Mugabe is furious at Blair
for having supposedly influenced the Chinese to limit its
support for Zimbabwe. The government,s &Look-East8 policy
is driven out of desperation caused by the downward spiraling
economy and the loss of prior patrons, Libya and Malaysia.
The GOZ has tempered China,s quest for resources and markets
in Zimbabwe, suggesting that the government, while eager to
reap benefits from China, is nonetheless wary of the
relationship. Policies such as the increased tariffs on
apparel indicate that, despite public perceptions, the GOZ is
not completely subservient to Beijing.
DELL