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