SHANGHAI ACADEMICS COMMENT ON CHINA'S RELATIONS WITH LATIN

C O N F I D E N T I A L SECTION 01 OF 03 SHANGHAI 000428

SIPDIS

STATE FOR EAP/CM
NSC FOR LOI

E.O. 12958: DECL: 9/29/2033
TAGS: PREL ENRG ETRD CH VE BR TW XM
SUBJECT: SHANGHAI ACADEMICS COMMENT ON CHINA'S RELATIONS WITH LATIN
AMERICA: CHAVEZ VISIT, TAIWAN, INVESTMENT CLIMATE

REF: A) SHANGHAI 397; B) BEIJING 3760

CLASSIFIED BY: CHRISTOPHER BEEDE, POL/ECON CHIEF, US CONSULATE
SHANGHAI, DEPT OF STATE.
REASON: 1.4 (b),(d)



(U) CLASSIFIED BY POL/ECON SECTION CHIEF CHRISTOPHER BEEDE FOR
REASONS 1.4 (B) and (D).




1. (C) Summary: China's strategy in Latin America is shaped by
its desire for natural resources and not by any geopolitical
ambitions, according to Shanghai scholars, and China does not
want to raise U.S. suspicion about China's motives in the
region. Political competition with Taiwan in Latin America has
dissipated, and China is more interested in establishing
pragmatic economic relations with Latin American countries
rather than continuing the "cash diplomacy" of the past.
Venezuelan President Hugo Chavez is actively courting China as a
potential political and economic ally, but China is taking a
cautious approach, mainly out of consideration for its relations
with the United States. The scholars thought the Chinese media
was more low-key about the visit than expected. China's
relations with other Latin American countries have been mixed,
as Chinese investment has been short of recipient countries'
expectations. Chinese companies are cautious about investing in
Latin America due to concerns over political instability, rising
nationalism, and strong trade unions. Many Chinese companies
find it easier to invest in Africa. End summary.




2. (C) Poloff met with Niu Haibin, Deputy Director of the
Center for Latin America Studies, Shanghai Institute for
International Studies (SIIS),and Zhang Jiazhe, Director of the
Center for Developing Countries Studies, Shanghai Academy of
Social Sciences (SASS) in late September to discuss China's
relations with Latin America.


Strategic Interests on Both Sides
--------------

3. (C) China is primarily interested in accessing Latin
America's natural resources - oil, minerals (especially copper
and iron),and agricultural products (primarily soy) - according
to Niu and Zhang. Bilateral trade increased from about US$70
billion in 2006 to over US$100 billion in 2007. The growing
focus on Latin America is part of China's overall goal to secure
natural resources from diverse parts of the world. Latin
American countries are also looking to diversify their economic
ties and reduce their dependence on the United States. They see
China as a potential source of investment, especially in
infrastructure, said Niu.


4. (C) China's actions in Latin America must be viewed within
the context of China's relations with the United States,
according to the scholars. China acknowledges U.S. strategic
interests in the region and will avoid doing anything that would
raise U.S. suspicions about China's motives. Unlike Russia,
China harbors no geopolitical ambitions in the region, they
stated.

Pragmatic Approach to Taiwan Issue
--------------

5. (C) Taiwan President Ma Ying-jeou's "diplomatic truce"
initiative helped dissipate some of the political competition
between the PRC and Taiwan in Latin America. Both scholars
believe the "cash diplomacy" of the past benefited neither side,
and the PRC wants to take a more pragmatic approach in building
economic relations with Latin American countries, even those
with which it has no official relations.


6. (C) Paraguay's desire to switch recognition presents China
with a conundrum, but China has been very "cautious" in its
response, said both scholars. Zhang mentioned how China did not
officially respond to the Paraguayan President's request to
attend the Beijing Olympics in August out of consideration for
Taiwan. Having one or two countries switch recognition is "not
a significant thing" for the PRC. Rather, Zhang thinks

SHANGHAI 00000428 002 OF 003


maintaining the current momentum of positive cross-Strait
relations is of greater importance to the PRC (Ref A).

Chavez Courting China
--------------

7. (C) China has been deliberately cautious in its relations
with Venezuela, mainly out of consideration for the United
States, according to the scholars. On the other hand,
Venezuelan President Hugo Chavez has been actively courting
China, making his fifth visit to China this month. He wants to
form a political alliance and deepen economic ties, particularly
in the energy sector. (Note: Chinese President Hu Jintao and
Chavez announced on September 24 that they would further expand
their energy cooperation. End note.) However, the scholars
think there are still significant obstacles to increasing oil
supplies from Venezuela, such as the high cost of shipping and
difficulty in refining Venezuelan crude oil (Ref B).


8. (C) Zhang thought the local media coverage of Chavez's visit
this month was more "low-key" than expected, perhaps an
indication of the Chinese Government's reluctance to place a
spotlight on this relationship. Although China supports Chavez'
socialist ideas in principle, it is perturbed by some of his
actions internationally, especially towards the United States,
and shares some concerns with the United States on issues like
Chavez's calls for higher oil prices. Venezuela's military
cooperation with Russia also raises concerns, not so much
because it poses a direct threat to China, but because it is
"not helpful for regional harmony," said Zhang.

Mixed Relations with Individual Countries
--------------

9. (C) Many Latin American countries have mixed relations with
China, noted the scholars. Brazil, which is China's most
important bilateral partner in the region, exports a large
volume of agricultural products to China. The two countries
also cooperate in high-tech development of small planes and
satellites. However, Brazil is not happy with China's lack of
support for its bid for a permanent seat on the United Nations
Security Council, and it believes China should be investing more
in Brazil's infrastructure, according to Niu.


10. (C) Both scholars believe Argentina has good political
relations with China but is "disappointed" at the current level
of Chinese investment, especially in infrastructure. Niu thinks
China and Mexico have close political relations but are economic
competitors rather than partners. However, Zhang stated that
economic competition between China and Mexico has soured their
political relations. Cuba and China have good political
relations for ideological reasons, but the relationship is
becoming less important to China since there is little economic
benefit for China. The scholars are optimistic about relations
with Chile, which has become an increasingly important economic
partner for China. The two countries signed a Free Trade
Agreement in 2006, and China is now Chile's top trading partner.
Paraguay and China are developing closer economic ties, but the
lack of official relations is proving to be an obstacle for
China's desire for closer relations with MERCOSUR, said Zhang.

Chinese Companies Cautious
--------------

11. (C) Most of the Chinese companies (both private and
state-owned enterprises) invested in Latin America are involved
in the energy and natural resource sectors, according to the
scholars. The Bank of China also has a presence, but its
clients are mostly Chinese companies in the region. Aside from
these sectors, the scholars believe Chinese companies have been
cautious about investing in the region for various reasons.
Foremost are concerns about political stability. Chinese
companies are concerned that, since most Latin American
countries are democracies, investment policy could change when
administrations change. Rising nationalism in the region is
also a concern, as some key industries in Venezuela, Bolivia,
and other countries have been nationalized in recent years.
Zhang thinks that many Chinese companies find it easier to
invest in Africa. Both continents have natural resources that
China covets, but Africa is still willing to accept investments
without the difficulties associated with rising nationalistic
sentiment and strong labor unions, characteristics of a "more
developed" Latin America.


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

12. (C) There are very few academics in Shanghai who specialize
in Latin America issues. According to both Niu and Zhang, there
are only two or three in Shanghai. Niu noted that the SIIS
Latin America Studies Department was established only two years
ago. They have not yet found a "suitable" candidate to serve as
department director. Zhang of SASS lamented the lack of
up-and-coming young scholars in this field. According to him,
he is the only one at SASS who specializes in Latin America.
However, he has not been to Latin America in several years due
to the institution's tight budget and their lack of focus on
this area. Although SIIS will add a Latin America research
fellow next year, SASS has no plans to add new staff for Latin
America studies.
CAMP