MUBARAK'S CHINA VISIT STRENGTHENS ECONOMIC, TRADE

C O N F I D E N T I A L CAIRO 007009

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/28/2016
TAGS: PREL ETRD EFIN MNUC EPET AA CH RU EG
SUBJECT: MUBARAK'S CHINA VISIT STRENGTHENS ECONOMIC, TRADE
TIES

REF: BEIJING 23548

Classified by DCM Stuart Jones for reasons 1.4 (b) and (d).


1. (C SUMMARY: Egyptian President Mubarak and a delegation
including most of his economic ministers visited Moscow and
Beijing in early November. While the visit played in the
press as a rebuke to the US, the delegation did conduct some
real business while visiting both countries, China in
particular. The GOE concluded a number of trade deals with
the Chinese, and the two governments signed a
mostly-ceremonial nuclear cooperation agreement. Both the
Russians and the Chinese are keen to work with Egypt on its
proposed nuclear power plant, and are pushing their rail
equipment as well. Minister of Transport Mansour told
Commercial attache the Chinese rail equipment prices offered
Egypt are 47 percent lower than US companies. Egypt would
like to do more business with China; in 2005, Egypt had a
$1.85 billion trade deficit with China, for which they were
partially compensated with Suez Canal transit revenues. END
SUMMARY


2. (C) Egypt's President Mubarak took advantage of his
participation in the Beijing Summit and Third Ministerial of
the Forum for China-Africa Cooperation (FOCAC) November 3-5,
staying on November 6-7 for his bilateral agenda. He visited
Moscow for three days en route to Beijing; the China trip
seems to have netted more substantive results. MFA Deputy
Minister for East Asia Magdy Amer told poloff that one
important aspect was to show Mubarak how China has developed
economically in recent years; he last visited in 2002. The
delegation included all of Egypt's economic ministers, and
so, Amer said, it was a good opportunity for them to see and
learn from China's economic development experience.


3. (C) According to Amer, the two sides discussed Middle
East regional issues, terrorism and cooperation. Mubarak's
meeting with his Chinese counterpart, which lasted ninety
minutes, focused on economic and trade issues. They also
discussed North Korea's nuclear program, and agreed on the
need to contain North Korea's nuclear ambitions. Egypt
solicited China's support for full implementation of the
Non-Proliferation Treaty (ie., to include Israel). Amer told
poloff Egypt and China are in "full agreement" on
nonproliferation and disarmament issues. The GOE and China
also discussed proposals to improve Egypt's rail system,
although Egypt did not agree to buy any Chinese equipment.


4. (C) Egypt and China signed several agreements; most
appear to have limited substantive content. A
government-to-government agreement granted China free market
status, as part of its WTO accession. The two countries
signed an agreement on nuclear cooperation (see para 7). The
two Health Ministers signed an agreement on Avian Influenza;
the GOE hopes to take advantage of Chinese expertise,
including with poultry vaccines. Egypt's GAFI signed an
agreement with their Chinese counterparts on investment
which, according to Amer, contained nothing concrete. There
was also an MOU between the Egyptian Social Fund for
Development and a Chinese bank on microfinance.


5. (U) In terms of trade, on the IT side, Egypt's
representative of the Kuwaiti-based Kharafi Group agreed to
buy 80 percent of SITEX, a Chinese IT company, and use the
acquisition to transfer Chinese IT technology to Egypt.
Etilisat, the Emirati company that bought Egypt's third
mobile license, signed an agreement with the Chinese IT firm
Huawai, which will participate in building the new mobile
network.

Military Cooperation
--------------

6. (C) Military Cooperation: Minister of Military
Production Meshaal told poloff on November 9 that Egypt is
considering Russian air defense systems. (Note: At present,
the majority of Egypt's air defense is Russian-made. End
note.) He said he visited Chinese military production
facilities twice during his tenure as minister, but is not
convinced China would be a good supplier. He confirmed that
China had tabled an offer for fighter aircraft, but could not
provide any detail. (Note: Reports indicate Egypt is
considering buying JF-17s from China or upgraded F7s. End
note). During a read-out on the China visit, MFA Deputy
Assistant Minister Magdy Amer ducked a question about
GOE-China mil-mil cooperation, but pointed out that Egyptian
Minister of Defense Tantawi did not participate.

NUCLEAR COOPERATION
--------------

7. (C) According to the MFA's Amer, the two groups discussed
Egypt's nuclear program in general terms and signed an

agreement pledging to strengthen cooperation in the
development of peaceful nuclear energy. Embassy contacts
indicate the agreement was non-specific, and that Egypt will
work with all partners. Local press commentary welcomed the
news, however, offering China as a positive alternative to
cooperation with the US. Mubarak also raised Egypt's nuclear
plans furing his Nov 1-3 trip to Moscow. The Russians are
also interested in working on the proposed Egyptian nuclear
plant project.

Frequent flyers
--------------

8. (U) Mubarak's trip follows a series of ministerial-level
visits to China since the summer. Minster of Petroleum (MoP)
Sameh Fahmy was in China earlier this year, and signed
agreements for oil services equipment as well as exploration.
The first agreement, signed between the MoP and the China
Petroleum and Chemical Corporation (Sinopec),established a
new joint Sino-Egyptian company to specialize in the
construction of oil rigs in Egypt. The new company,
Sino-Tharwa, will deliver three rigs in 2007 and 20 rigs by

2010. Fahmy also signed agreements with China's Sinoc to
cooperate on international tenders in Egypt for exploration
and discovery, and to expand Sinopec's activities, including
increasing the number of rigs it operates here from two to
seven by 2008.


9. (C) Minister of Transport Mohamed Mansour visited China in
October to discuss railway equipment procurement among other
issues; but the GOE has not yet decided who will supply its
needs. Mansour (please protect) has told U.S. Embassy
Cairo's Commercial Attache that the Chinese rail equipment
prices offered to Egypt are 47 percent lower than U.S.
companies but added that he recognizes U.S. advantages in
service and maintenance. Minister Rachid's recent trip, also
in October, netted deals which he expects will increase
bilateral trade to over $5 billion over the next several
years. The agreements include an industrial zone in Cairo
for textile, footwear and pharmaceutical investments. There
is a deal to build an $800 million aluminum smelter, with a
projected capacity of 270,000 tons, presumably to exploit
Egypt's subsidized electricity prices. A third agreement
established three private-sector-operated technology service
centers, two for textiles and one to transfer Chinese
expertise in marble and granite stonework. In July 2005, the
China Textile Machinery Group (CTMC) began construction of a
$12.5 million non-woven fabric project in the north-west Suez
free trade zone.


10. (U) After returning from his October trip China,
Minister of Investment Mahmoud Moheildin said the Chinese are
interested in investing in the northwest Port Suez zone, and
signed a contract for polyester production there. The
Chinese, he said, had also financed the construction of a $10
million "one stop" investment office in Assiyut governorate.
The Chinese Embassy in Cairo reports 35 Chinese investments
in Egypt, mainly in textiles, chemicals, engineering, food
process and leather.

Trade
--------------

11. (U) One of the big topics on the trip was trade, which
at this point is one-sided: in 2005, the Chinese exported $2
billion to Egypt, while the Egyptians sold only $150 million
to the Chinese. Egypt does earn significant Suez Canal
revenues on Chinese exports to Europe. According to Rachid,
sixty percent of China's exports to Europe pass through the
canal. Egypt is seeking to increase this business, he said.


12. (U) In 2000, China and Egypt agreed to make Port Said a
distribution center for Chinese containers in the Middle
East. Since then, Chinese inroads into the sector have
increased with the formation of an Egyptian-Chinese committee
for transportation, and the two countries have signed
additional agreements for container handling in Port Said.
Hutchinson Whampoa has a 25-year deal with the Alexandria
Port Authority to operate two new container terminals at
Alexandria and Dekheila, and with increased Chinese container
traffic through the Suez we expect further expansion of their
presence in Egypt's ports.


13. (C) COMMENT: One important reason for President
Mubarak's recent trip to Moscow and Beijing was to send a
signal to the U.S. that Egypt has other friends. The notion
of Egypt's adopting China's growing economic role has
political resonance on the Egyptian "street." At the same
time, Egypt conducted serious business in both countries,
including nuclear cooperation and rail equipment. In both
private conversations and in the press, Egyptian comments
reflect a general expectation the U.S. will be annoyed by
closer Egypt-China economic ties. END COMMENT.

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