China's Africa Aid Aims to Achieve

UNCLAS SECTION 01 OF 04 BEIJING 001311

STATE PASS USTR
STATE FOR EAP/CM FLATT AND THOMAS
STATE FOR S/P CHOLLET AND GREEN
STATE FOR EEB/TPP/BA, EAP/EP, AF/EPS
STATE PASS USAID FOR ALONZO FULGHAM

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PREL ECON EAID EINV CH

SUBJECT: China's Africa Aid Aims to Achieve
Political Goals

REF: BEIJING 955

This cable is Sensitive but Unclassified (SBU) and
for official use only. Not for transmission outside
USG channels.


1. (SBU) Summary. China has a distinct approach to
Africa development assistance and is open to
exchanging views with the United States. Ministry
of Commerce (MOFCOM) officials provided an overview
to Emboffs of their African aid priorities, but
skimped on budget and project details. They
acknowledged shortcomings in their evaluation of
aid's effectiveness, recognized China has much to
learn from the international donor community, and
want to focus more on capacity building. Chinese
scholars separately told Emboffs China wants to
exchange aid to Africa for access to resources.
They downplayed concerns that aid recipients would
default on loans, arguing China was prepared to
write off the debts. The scholars said China was
reluctant to join multilateral aid organizations in
which China does not have a strong voice but was
willing to consider "gradual, small-scale"
collaboration with the United States on concrete
projects. End Summary.

China "Open to Exchanging Views" on Development
-------------- --


2. (SBU) On April 27, USAID Counselor and Econoffs
met MOFCOM Department of Aid to Foreign Countries
International Cooperation Division Director LU Feng
to discuss African development assistance. The
International Cooperation Division, which was
established this year and has only three staff,
appears to be MOFCOM's foreign liaison office on
overseas development assistance (ODA). Director Lu
opened by explaining that China does not consider
itself a new Africa donor because it has a half
century history of assistance to African countries,
noting the 1955 Bandung Conference of Asian and
African leaders as key to launching South-South
economic cooperation. China started to diversify
its international aid after its economic opening in

1979. Lu said China is now very open to discussions
and exchanges on international development.

MOFCOM Aid: Structure and Funding
--------------


3. (SBU) Director Lu explained that Chinese
development assistance is very centralized.
Programs are managed from Beijing and MOFCOM relies
heavily on the economic/commercial officers at
Chinese Embassies to oversee in-country projects.
The economic/commercial officer positions are
staffed by MOFCOM and cover aid as well as trade and
investment. Lu stressed that Chinese aid is viewed
more as a commercial transaction than development
assistance is viewed in the West.


4. (SBU) Lu explained that assistance budgets are
drafted by MOFCOM and approved by the Ministry of
Finance. MOFCOM typically provides 95% of funds for
bilateral foreign aid, but other ministries, like
the Ministry of Health, also have some separate
funds for specific projects. MOFCOM usually manages
bilateral assistance, while the Ministry of Finance
handles contributions to multilateral and regional
organizations. (Note: other Chinese agencies have
told us their assistance budgets are much higher
than the 5% figure Lu relayed. End Note.)


5. (SBU) Asia and Africa are the biggest recipients
of China's assistance but Pacific, Caribbean and
Latin American countries also receive assistance.
In contrast to USAID's large budget and extended
number of programs, Lu described China's foreign aid
program as smaller and less extensive. He portrayed

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the Chinese approach as more "balanced" than the U.S.
system, citing China's even distribution of aid
throughout Africa. However, this even distribution
limits resources for each individual project.
Therefore, unlike U.S. foreign aid, which is "more
targeted on problems," China does not have broad
initiatives that focus on particular issues. Lu
characterized Chinese aid as small and more
technical with very "clear" goals like the
commitment to build 30 hospitals and 100 schools in
Africa. After funds have been allocated, China asks
recipient countries to submit project requests.
China then conducts feasibility studies and
determines which requests to approve. This
recipient-directed process has been the norm, Lu
said, and reflects "the spirit of South-South
cooperation." However, China has on occasion been
more proactive in determining how it would spend its
aid money, as in the aforementioned case of schools
and hospitals, which were not requested by African
governments.

China Needs Improved Assistance Evaluation
--------------


6. (SBU) Director Lu explained that MOFCOM only does
technical evaluations of whether a particular road
or building was built to specification and on
schedule. MOFCOM does not usually evaluate the
impact of Chinese aid projects on the recipient
country's economic development because it lacks the
resources. MOFCOM currently has only 70 people
working in its Department of Aid to Foreign
Countries. However, Lu said MOFCOM is beginning to
realize the importance of such evaluations and would
like to do more.

Interest in Capacity Building
--------------


7. (SBU) Lu acknowledged that China has a lot to
learn from the international aid community. In
particular, he mentioned that the Chinese government
is slowly moving towards providing more capacity
building, as opposed to brick and mortar-type
projects. He gave the example that for some
development projects, they are now sending
consultants instead of technicians.

China Wants to Trade Infrastructure Development for
Resources
-------------- --------------


8. (SBU) In a separate meeting, Chinese Institute of
Contemporary International Relations (CICIR)
Institute of Asian and African Studies scholars XU
Weizhong and ZENG Qiang told Emboffs China's "new
way of economic engagement," which seeks to exchange
infrastructure development for natural resources,
was appealing to African countries, pointing out
Angola and the Democratic Republic of Congo (DRC) as
examples. He said that China was not overly
concerned about African countries defaulting on
loans. At the 2006 Forum of China-Africa
Cooperation (FOCAC) summit, China wrote off 10
billion RMB of loans and is prepared to write off
more in the upcoming FOCAC Ministerial in Egypt. He
said that as this is a new type of international
cooperation, China does not know what the results
will be and is expecting to learn from the process.
Xu said China offered Africans an alternative to
Western countries' assistance model, commenting that
African countries have the right to choose between
the two.

China Reluctant to Join Some Multilateral
Development Bodies
-------------- --------------


9. (SBU) Xu said China was reluctant to cooperate

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with multilateral development organizations in which
China does not have sufficient representation. In
particular, he cited Chinese aversion to closer
cooperation with the Organization for Economic
Cooperation and Development (OECD) Development
Assistance Committee (DAC),which he said would not
give China a real voice. He acknowledged China has
begun cooperating more with international donor
organizations and can learn from Western countries
about development assistance, however.

Collaboration on Concrete Projects, Starting Small
-------------- --------------


10. (SBU) Xu emphasized the need for the United
States and international donors to give China
concrete proposals for collaboration. He suggested
China and the United States start by collaborating
on small projects and working gradually towards
larger projects. He explained that this is the
Chinese way.

Categories of Foreign Aid
--------------


11. (SBU) In the meeting with MOFCOM, Director Lu
outlined nine categories of Chinese foreign aid --

a. Infrastructure projects: The Chinese government
completes a whole project, from funding to design to
construction, in a recipient country.

b. Provision of Goods: China will grant, or enable
the recipient country to acquire, materials
necessary for projects or production. For example,
China will provide tractors or construction
materials to a country that has the capability to
complete a particular construction project on its
own.

c. Technical Cooperation: China will send technical
experts, e.g., agronomists, to countries in need.
At the 2006 meeting in Beijing of the Forum on
China-Africa Cooperation (FOCAC),China committed to
setting up 10 demonstration farms throughout Africa.

d. Emergency Aid: China provides emergency aid in
the case of a disaster. For example, China gave
emergency aid to Mali and to the United States after
Hurricane Katrina.

e. Human resources development program: China
provides technical and managerial training for up to
10,000 people yearly (approximately 3000 from
Africa),mainly in China. Lu added that China was
committed to increase training to support African
efforts to reach the Millennium Development Goals
(MDG) goals.

f. Preferential loans: These loans are provided by
banks but the interest rates are subsidized by the
Chinese government. Of China's commitment to provide
RMB 5 billion in soft loans to Africa, 2 billion is
through MOFCOM-managed preferential loans and 3
billion is through EXIM Bank-type concessional loans.

g. Chinese medical assistance: China sends medical
teams that provide services, medicine and equipment.

h. Youth Volunteers: Chinese Youth League sends
volunteers to developing countries to provide
technical assistance, teach Chinese, teach martial
arts, etc. This program exists in Africa but the
number of volunteers is very limited.

i. Cash Aid: In limited cases, China provides cash
aid to recipient countries, usually in cases of
emergencies.

Presentation of USG development priorities

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--------------


12. (SBU) Embassy Beijing USAID Counselor presented
USG development priorities and briefed on current
USAID projects in Africa. She highlighted the
overall increase in assistance to Africa over the
last decade, noting that an increasing number of U.S.
development resources come from the private sector,
including a U.S. oil project in Angola. In response,
Lu explained that China had developed a fund for
projects in Angola in exchange for oil which is
managed by MOFCOM's West Africa Division and which
is supported by the China Development Bank (CDB) and
Export-Import Bank (EXIM). USAID Counselor focused
on a few development areas where the Chinese
government might be particularly interested in
exchanging ideas or working together, such as non-
emergency food aid, child survival, malaria
initiatives, and trade and investment facilitation -
- all areas in which China has previously offered
assistance in Africa. As an example of how to
combine efforts, she mentioned the existing
collaboration between USAID and China's State
Forestry Administration, which are working together
on a project in Congo as part of the U.S.-China
Strategic Economic Dialogue.

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


13. (SBU) Chinese officials have long been wary of
discussions with the international ODA donor
community, but recently have become more open to
exchanging experiences and collaborating on targeted
projects on an equal footing. The formation of a
foreign liaison division within MOFCOM's Department
for Aid to Foreign Countries is a manifestation of
this trend, which was also reported reftel. As we
engage China on development assistance, we should
keep in mind China's preference for incremental
changes to policy and the political goals of Chinese
aid. End comment.

PICCUTA

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