CHINA'S PRESIDENT HU VISITS KENYA

C O N F I D E N T I A L NAIROBI 001951

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/04/2026
TAGS: EAID EAIR ECIN ECON EFIN ELAB EINV ETRD PREL
CH, KE
SUBJECT: CHINA'S PRESIDENT HU VISITS KENYA

REF: A. BEIJING 7092

B. 05 NAIROBI 3600

Classified By: Political Counselor Michael J. Fitzpatrick for reasons 1
.4 (b,d)


1. (C) SUMMARY: Chinese President Hu Jintao's late April
visit to Nairobi further strengthens the bilateral economic
relationship between the two countries through several
economic, technical, and financial assistance agreements.
While the balance of the economic relationship is heavily
tipped in China's favor, Kenya views China as an increasingly
attractive partner for the economic benefits likely to arise
from closer ties with the rising Asian powerhouse. China is
also perceived by many in government here as a less demanding
development partner, in contrast to more critical Western
donors, one whose assistance comes with fewer strings
attached. Despite the generous extension of economic and
development assistance, the new agreements are likely to do
little to offset the one-sided nature of the Kenyan-China
trade relationship. END SUMMARY.


2. (U) Concluding his five-nation tour, which took him to
the U.S., Saudi Arabia, Morocco, and Nigeria, Chinese
President Hu Jintao paid a State Visit to Nairobi, Kenya
April 27-29. Hu,s visit reciprocates Kenyan President Mwai
Kibaki's August 2005 State Visit to China, and seeks to
further strengthen bilateral economic ties between the two
countries. Hu also visited the United Nations Human
Settlements Program (UN-HABITAT) and the United Nations
Environment Program (UNEP) headquarters housed in the UN's
compound located across the street from the U.S. Embassy, the
largest UN presence in the third world. Hu met with the
Executive Directors of both UNEP and UN-HABITAT to discuss
expanding areas of cooperation. Hu also extended an
invitation to all African Heads of State to visit China for a
meeting in September. Hu's visit concluded with the issuance
of a joint communiqu, detailing the assistance and economic
and technical cooperative agreements reached between the two
countries. The Chinese promised additional aid, while Kenya
affirmed its support for the one-China policy. The full text
of the joint communiqu can be found at
www.statehousekenya.go.ke/index.htm.

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Chinese Offer Some Aid
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3. (SBU) Trade and economic development issues formed the
centerpiece of Hu's visit. As noted in the joint communiqu,
the Chinese delegation offered a number of assistance goodies
to Kenya, including an unspecified RMB 60 million (USD 7.5
million) grant under the Agreement on Economic and Technical
Cooperation, plus much smaller amounts of aid for
anti-malarial medicine, donated rice, rehabilitation of a
sports complex, and repair of roads in Nairobi.

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Kenya Wants to Reduce Trade Imbalance
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4. (C) For Kenya, however, these amounts, while not
insignificant, are secondary to concerns about trade and
investment. As noted ref B, Kenya's exports to China, while
growing, are a fraction of what Kenya imports from China, and
these imports are also growing rapidly, putting many Kenyan
manufacturing sectors and their jobs at risk. Kenya's
Permanent Secretary of Industry and Trade, David Nalo, told
Econ/C May 2 that in an April 28 meeting between Kenyan Trade
Minister Mukhisa Kituyi and his Chinese counterpart, Bo
Xilai, the two sides discussed three ways in which the
towering trade imbalance could be addressed:

-- Expand flight frequencies under the air services agreement
inked during the visit by President Kibaki to China in 2005
(ref B) as a way to encourage more tourism from China to
Kenya. (Note: Kenya Airways has three flights a week via
Dubai to the southern port city of Guangzhou; over nine
thousand Chinese tourists visited Kenya in 2004. End note).

-- Concessional credits by the Chinese government to Chinese
companies to encourage them to invest in agro-processing or
other manufacturing sectors whose products might be exported
back to China.

-- Oil exploration by Chinese firms, which could in theory
lead to oil exports from Kenya to China in the future.


5. (SBU) In his meeting with Bo Xilai, Trade Minister
Kituyi, speaking as the Chair of the African Union Trade
Ministers group, also urged China to abandon its opposition
to the WTO waiver granting preferential access to the U.S.
market for eligible African countries under the U.S. Africa
Growth and Opportunity Act (AGOA). This request comes in the
context of the displacement of African exports, especially
textiles and apparel, by Chinese products following the
elimination of quota restrictions under the Multi-Fiber
Agreement in 2005.

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Mutual Interests in Natural Resources
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6. (U) According to press reports, the two countries reached
an agreement which grants oil and gas exploration rights to
state-owned China National Offshore Oil Corporation (CNOOC)
for six on- and off-shore blocks in the north and south of
Kenya. Exploratory drilling is likely not imminent pending
the results of a test well scheduled to be drilled later this
year by an Australian energy firm, however. Separate from
the Hu visit, but at the same time, a Chinese firm is
reportedly taking a 15 percent share in Tiomin, a
newly-opened Canadian-owned titanium mine south of the
coastal city of Mombasa.


7. (C) On a closely related note, Nalo said President Kibaki
asked President Hu to consider supporting peace efforts in
the region by making a "major investment" in a rail link
between Southern Sudan and the port of Mombasa or Lamu. Such
a rail link would facilitate the export through Kenya of oil
and other natural resources from Sudan and enhance regional
economic development generally.

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And What Did the Chinese Get?
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8. (SBU) For China, the bottom line from Hu's visit to Kenya
is spelled out in the joint communiqu, in which Kenya
pledged it support for the one-China policy and "expressed
its opposition to 'Taiwan' independence in any form." But
beyond this, the visit served to solidify bilateral relations
for China with a key African country. Even if the promise of
oil and gas discoveries do not pan out, China is well served
by strengthening its ties by throwing a bit of aid to Kenya
given the country's strategic location as the best entry
point to all of the export and natural resource markets of
East Africa.

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Comment
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9. (C) China's policy of engaging Kenya and other African
nations on an "equal footing" with "mutual respect" to
promote "win-win" relationships will continue to appeal to
elements within the Kenyan government (and general public).
China is particularly attractive to those who are frustrated
with what they perceive to be "Western" interference and
disrespect for national sovereignty in its calls for good
governance, respect for human rights, and reduced corruption.
As such, Kenya will continue to accept Chinese flattery and
largesse because Third World solidarity, even if only
superficial, feels good. The real pain, however, will come
with grappling with an overwhelmingly one-sided economic
relationship. The measures being pushed by the Kenyan
government -- like boosting services exports through tourism,
or hoping Chinese companies will invest in manufacturing in
Kenya and then re-export goods to China -- are feeble
defenses at best. Unless Kenya strikes oil and sells it all
to China (not likely soon),we see no end to a trade
imbalance that threatens to annihilate Kenya's notoriously
uncompetitive manufacturing sectors.
BELLAMY