CHINA'S MERCANTILIST AID TO ERITREA

C O N F I D E N T I A L ASMARA 000143 DEPARTMENT FOR AF/EX AND AF/E E.O. 12958: DECL: 05/04/2019 TAGS: EAID PREL ECON ER CH SUBJECT: CHINA'S MERCANTILIST AID TO ERITREA Classified By: Ambassador Ronald K. McMullen for reason 1.4(d) ¶1. (C) SUMMARY: China's foreign assistance to Eritrea consists in part of a multi-million dollar shopping spree for Chinese manufactured goods selected by a senior Eritrean official, according to the Chinese ambassador to Eritrea. End Summary. ¶2. (C) MULTI-MILLION DOLLAR GIFT CARD -------------- Ambassador Shu Zhan told the ambassador April 29 that Hagos Ghebrehiwet (economic boss of Eritrea's ruling party) was in China "buying things." He explained that Chinese assistance to Eritrea includes a process as follows: -- A Chinese delegation visits Eritrea and signs an agreement on economic development and commercial cooperation, listing several priority projects that China pledges to support with a specified amount of money. -- A senior Eritrean official flies to China with what amounts to a giant gift card, travels around China selecting things, and the chosen items are collected in a warehouse. -- A Ministry of Commerce official then visits the warehouse and tots up the price of the selected items, deducts that from the amount of money pledged in the bilateral agreement, and arranges the goods to be shipped on a Chinese ship to Eritrea. -- Once the goods arrive, another delegation or Chinese embassy representatives signs a document testifying that Chinese support for the priority cooperative projects has been successfully concluded. ¶3. (C) ACCOUNTABILITY? NO THANKS -------------- Ambassador Shu admitted this arrangement is rather unusual these days, but is still used in the case of Eritrea "and a few other countries." He said some Chinese officials worried that Hagos, also the chairman of the party-owned Red Sea Trading Corporation, would sell the Chinese manufactured items (which may or may not be directly related to the "priority projects") at a handsome profit. The Chinese government decided that once the items are given to Eritrea that Hagos or any other regime official can do whatever they want with the donated goods. ¶4. (C) INFRASTRUCTURE -------------- Regarding assistance for infrastructure like roads, dams, or buildings, Shu said China prefers to utilize Chinese designers, engineers, construction companies, and materials, if the host government permits. China has built a number of showcase facilities in Eritrea, such as vocational schools and hospitals. Post notes that a new addition to the Chinese "Commercial Office" that abuts (and now overlooks) the wall to the CMR is supposedly being built by an Eritrean construction company, but all the foremen and many of the technicians appear to be Chinese. ¶5. COMMENT: China's foreign aid to Eritrea seems designed to win friends (no questions asked) and support Chinese exports, with little regard to its impact on development, good governance, or badly needed economic reform. Totaling perhaps $12m to $17m per year, Chinese assistance is quite successful, as Isaias views China as one of Eritrea's most reliable friends. Shu also mentioned that Isaias frequently asks him for books on or by Chairman Mao (Isaias did his Political Commissar training in China in the depths of the Cultural Revolution). Shu sometimes suggests works about Deng Xiaoping, but Isaias does not seem interested in reformist literature. A senior Chinese Communist Party official (Wang Jiarui) will visit Eritrea May 5-6. END COMMENT. MCMULLEN