CHINA's ENGAGEMENT IN ANGOLA

UNCLAS LUANDA 000536


STATE FOR AF/S AND EAP/CM

E.O. 12958
TAGS: PGOV ECPS EFIN PREL SENV AO CM
SUBJECT: CHINA's ENGAGEMENT IN ANGOLA

Ref: A) State 41697; B) Luanda 30; C) 07 Luanda 1069; D) 07 Luanda
1015; E) 07Luanda 923; F) 07 Luanda 326; G) 07 Luanda 287; H) 07
Luanda 171


1.(SBU) Summary. China's engagement with Angola starts with oil
but does not end there. Publicly funded Chinese construction
projects and a growing private Chinese corporate presence ensure a
continuing commercial relationship. Chinese projects support
Angola's central economic policy of rebuilding transportation links
to catalyze the non-petroleum economy. Meanwhile, the Chinese and
U.S. Embassies hope to design a joint development project,
preferably in agriculture. End Summary.

Focus Areas of Chinese Engagement in Angola
--------------


2. (SBU) China's interest in Angola starts with oil: in 2006,
Sonangol-Sinopec International (SSI) offered two USD 1 billion
signing bonuses to invest in two petroleum exploration blocks. SSI
is the Angolan joint venture of two state-owned oil companies:
China's Sinopec and Angola's Sonangol. SSI is an investor here, not
an operator, but may bid to become an operator during Angola's
current round of bids on new blocs, which has been suspended until
after the September elections. Sinopec was originally to build a
refinery for Angola in Lobito, but Angola cancelled the deal when
Sinopec demanded that most of the output go to China. China's Ex-Im
Bank has opened oil-backed lines of credit worth USD 4.5 billion and
the GRA secured a reported additional USD 6 billion through the
private Hong Kong-based China International Fund. Angola continues
to request funding increases and China continues to oblige. In July
China's Ex-Im Bank increased its line by 127 million dollars,
according to Angola media sources.


3. (SBU) Throughout the country, Chinese financing builds and
restores roads, railroads, hospitals, schools and other public
buildings. Unpublished bilateral agreements give 70 percent of this
work to Chinese firms, the rest to Angolan firms. The opportunity
to employ excess capacity attracts Chinese State- and
provincially-owned construction companies. Angolan President Jose
Eduardo dos Santos publicly criticized the quality of Chinese-built
public works, but Deputy Prime Minister Aguinaldo Jaime concedes
that the GRA itself bears much of the blame for failing to conduct
adequate project supervision.


4. (SBU) Chinese construction crews are prominent in the
countryside and in the cities. The Chinese hire few Angolan
workers, although Emboffs on occasion have seen Angolans running
heavy equipment on Chinese projects. To avoid friction between
their employees and Angolans, companies keep their Chinese employees
either at work or out of sight in company housing. However, there
is friction among Chinese. On May 23, for example, a group of
Chinese workers standing in the back of a large truck came to Luanda
looking for their embassy to complain that their Chinese employer
had not paid or fed them.


5. (SBU) The Ministry of Finance claims construction projects
financed through China Ex-Im Bank proceeded smoothly through 2006
and 2007. However, something went wrong during 2007 with projects
financed through the China International Fund (CIF) and managed by
Angola's National Reconstruction Office (GRN). Construction on
several projects slowed; work on all three railroad projects came to
a halt; and the international airport project stalled in the design
stage. New domestic and Chinese financing announced in late 2007
appears to be alternative financing for those projects. By early
2008, work on all railroad projects resumed, but now with completion
dates years later than previously promised. Not surprisingly, CIF's
failure to deliver financing has eroded its status as confidante of
Angola's powerful. Difficulties in execution were not all on the
Chinese side. Chinese managers express surprise at the rapacity of
Angolan officials, who demand their cut from contractors. Also,
lengthy import delays have deprived Chinese projects of equipment
and supplies, putting them behind schedule.


6. (SBU) Private Chinese businessmen had already reached Angola by
the late 1980s and established restaurants, and, subsequently
construction companies; others import consumer goods, heavy
equipment, and most of Angola's imported cement. Chinese traders
now are part of the commercial landscape. As the economy (slowly)
diversifies, Chinese entrepreneurs seek new business activities
throughout the country. Small builders with a dozen tradesmen
restore older houses in Luanda. One large private Chinese firm is
building a tract of two-million dollar homes on Luanda's upscale
south side. The Chinese business community supports two chambers of
commerce, one for private businesses, the other for publicly-owned
companies which compete among themselves for contracts funded
through Chinese lines of credit. Well-established private firms
have learned how to survive Angola's difficult business climate and
profit from the nation's oil wealth. The public firms can learn
from them.

U.S. - China Cooperation
--------------


7. (SBU) The Chinese and U.S. Ambassadors have agreed to explore
possibilities for a joint development program, preferably in
agricultural. The U.S. will present a proposal to the Chinese
Ambassador soon. Potential areas for cooperation include combining
Chinese work in transportation with American projects to rebuild
agriculture.

Potential Areas for Increased Cooperation
--------------


8. (SBU) American expertise in transportation design could play an
important role as Angola turns from restoring colonial
transportation to extending the road and rail system. Seaports and
airports are another potential area for cooperation, although the
Japanese also have projects to improve ports. A Chinese company was
certain to win the contract to build a new international airport for
Luanda with Chinese financing. That outcome may now depend on the
source of financing. Private U.S. companies already are sharing
their experience in managing aviation. Success in this area could
lead to more U.S. presence in areas now reserved for the Chinese.

China - Angola Cooperation
--------------


9. (SBU) Comment. China's long history of cooperation in Africa is
short and complicated in Angola. Like the U.S., China had once
supported Savimbi and UNITA. By moving swiftly to provide financing
at the end of the civil war, China helped put its bilateral
relationship on solid footing. The new relationship has hit some
rough patches: the spat over the refinery, Angolans criticism of
1poor-quality Chinese construction, Chinese companies' employing few
Angolans, the Chinese failure to impart skills to Angolans, and
delays in GRN projects caused by funding problems. For perspective,
Angola's relationships with Portugal, the United States, France and
South Africa also mix warm friendship and sharp criticism from the
Angolan side. Despite problems with Chinese-built projects, Angolan
officials defend China's role in rebuilding the country as timely
and critical, especially given the perceived failure of the West to
step up to the plate to finance Angola's reconstruction.


MOZENA