CHINESE EMBASSY READOUT ON ECONOMIC ENGAGEMENT IN

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001181

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/15/2033
TAGS: ENRG EPET ETRD PREL PINR CN IZ
SUBJECT: CHINESE EMBASSY READOUT ON ECONOMIC ENGAGEMENT IN
IRAQ

REF: BEIJING 1374

BAGHDAD 00001181 001.2 OF 002


Classified By: Classified by: Economic Minister Counselor Charles P. Ri
es for reasons 1.4(b) and (d).


1. (C) Summary: According to Chinese Embassy Economic and
Trade Counselor Hu Yaowu in Baghdad, two Chinese-Iraqi energy
projects, a 1,300 MW electric power plant and an oil field
development project both located in Wasit Province, are on
hold pending an improvement in security conditions. The
Chinese Government has not yet received official notification
of or an invitation to participate in the upcoming May 29
International Compact with Iraq summit in Stockholm. Hu
expects that Chinese Foreign Minister Yang Jiechi would be
interested in attending should an invitation be made. In
January 2008 the Chinese Government donated two X-ray
machines for use on shipping containers at the Umm Qasr Port.
The Iraqis are expected to purchase an additional thirty of
these USD 3 million a piece devices. China and Iraq are
currently negotiating a further debt-forgiveness agreement
and China has trained 250 Iraqi government employees in China
since 2004. Security concerns continue to limit Chinese
investment interest in Iraq, though five companies have
opened for business in the Kurdish Regional Government area.
End summary.


2. (C) Econoff met with Chinese Embassy Economic and Trade
Counseler Hu Yaowu at the Chinese Embassy in Baghdad on April

15. The meeting was held at the Chinese Embassy, in the
al-Mansour Hotel. Bio notes and information about the
Chinese Embassy are below.

-------------- --------------
Electricity/Oil Deals in Wasit: Waiting for Security
-------------- --------------


3. (C) Hu said that the Shanghai Electric Power Company
(SEPC) has finalized its negotiations and signed a contract
to build a 1,300 MW power plant near al-Zubaydiyah, Wasit
Province. (Note: News reports place the value for this
contract at USD 750 million, although JP Morgan contacted us
to say that SEPC is preparing a letter of credit worth USD
924 million. End note) This plant will be designed to burn
crude oil from the nearby Ahdab oil field that is to be
developed by the China National Petroleum Company. The power
plant is to be built in four stages and should take four
years from start to completion. The development plan calls
for Chinese engineers and managers to run the project,
utilizing local labor. The Chinese and Iraqis had been
discussing the building of the power plant and the oil field
development project since 1997. Contract negotiations were
suspended in 2003, but finalized earlier this year. Neither
of the projects has actually started due to Chinese concerns
that the areas are not yet secure enough to allow their
workers to come to Iraq.

--------------
ICI: China Waiting for an Invite
--------------


4. (C) Hu noted that the Chinese have not received any formal
notification of or invitation to the upcoming May 29
International Compact with Iraq meeting in Stockholm. He was
interested to know if Secretary Rice was likely to attend.
Hu said that Foreign Minister Yang Jiechi would likely attend
if an invitation was received.

-------------- -
Debt Forgiveness: Ongoing Discussions For More
-------------- -


5. (C) According to Hu, Iraq and China are engaged in
discussions to further reduce the amount of debt that Iraq
owes China. Hu expected that this will have a "good outcome"
for Iraq soon. (Comment: We understand that there was an MOU
on commercial issues that was signed concomitantly with their
debt forgiveness agreement. We have been unable to obtain
further details on this MOU as yet and are not sure if this
agreement complies with the terms of the Paris Club
Agreement. We will continue to pursue more information on
this. According to reftel, further debt forgiveness is tied
to Iraqi passage of its Hydrocarbon legislation. End
comment.)


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-------------- -
China-Donated Port Security Equipment:
Container X-Ray Equipment In Place at Umm Qasr
-------------- -


6. (C) In January 2008, China gave Iraq two large X-ray
scanning machines for inspecting shipping containers to
increase port security at Umm Qasr. (Note: Hu said that
these machines had a "4 inch" resolution. End note.) Each
of the machines is worth about USD 3 million. These
container security inspection machines are installed and
currently being used at the port, according to Hu. Iraq
reportedly plans to purchase 30 more of these machines.

--------------
China Training Iraqi Government Officials
--------------


7. (C) Since 2004, China has sent a total of about 250 Iraqi
government employees from the Ministries of Trade, Oil and
Foreign Affairs to Beijing for training programs. These
programs were conducted in English and Arabic.

--------------
Chinese Business Opportunities in Iraq
--------------


8. (C) Hu said that security concerns continue to be the main
obstacle to increased Chinese investment and business in
Iraq. He noted that five Chinese companies have opened in
the Kurdish Regional Government area, one of them a
joint-venture with a Norwegian company. Hu also noted that
the Chinese Embassy had assisted 50 Iraqi businessmen so that
they could attend the Canton Trade Fair currently underway in
Guangzhou.

--------------
Life at the Chinese Embassy in Iraq
--------------


9. (C) The Chinese Embassy is located on the third floor of
the al-Mansour Hotel, situated outside of the International
Zone. Elevators on the third floor are shut down and access
to the Embassy is via the stair case from the second floor.
Econoff observed four different Chinese military guards.
Accompanying RSOs were allowed access to the Embassy lobby
area at the top of the stairs. Hu noted that security in the
Embassy facilities was good, but that a bomb had gone off in
the first lobby of the hotel in June 2007. Hu said that he
had traveled around Iraq, with a security detail, but had not
been able to travel around Baghdad due to security concerns.

--------------
BIO Notes: Hu Yaowu
--------------


10. (C) Hu Yaowu appears to be in his mid- to-late fifties.
He is from Nanjing, but attended university in Beijing. He
claims to be an employee of the Chinese Ministry of Commerce.
After graduation from college he spent two years in Shanghai
studying Arabic and then 4 years, in the early 1980s,
studying Arabic at the University of Damascus. His wife
lives in Jordan and he sees her there every 3 months. He has
been here for two years and has about 4-5 months left. Prior
to coming here he was in Jordan. His daughter is studying
Finance at Griffiths University in Brisbane, Australia and is
about to graduate. He is planning on attending the
graduation. He does not speak English -- but has good, but
heavily accented Arabic. His Iraqna phone number is (964)
079-0191-2304; email address is: huyaowu2002@yahoo.com.cn.


BUTENIS