NORTH AFRICAN DIPLOMATS ANGRY ABOUT "CHINA INC."

C O N F I D E N T I A L BEIJING 000913


STATE PASS USTR FOR STRATFORD
TREASURY FOR OASIA

E.O. 12958: DECL: 04/03/2034
TAGS: ETRD EINV EAID PREL CH AU
SUBJECT: NORTH AFRICAN DIPLOMATS ANGRY ABOUT "CHINA INC."

REF: A. BEIJING 721 (CORRECTED)

B. BEIJING 228

C. BEIJING 527

Classified By: Econ Mincouns Robert S. Luke, reasons 1.4 (b,d)


1. (C) SUMMARY: North African diplomats based in Beijing
told EconOff that China's relations with the region are under
stress caused by explosive growth in China's exports to the
region. China's trade with the five countries in the region
grew by 590 percent from 2001 to 2007. North African
countries compete with China in some sectors, and are unhappy
that China is unwilling to intervene in order to rebalance
trade with developing countries. END SUMMARY.

China's Trade with North Africa in Perspective
-------------- -


2. (U) China's total trade with North Africa is only one-half
of one percent of its global trade. In 2007, the total trade
with the five countries of northern Africa was around $14
billion, and China's exports accounted for 75 percent of the
total. In terms of total bilateral trade, China's main
partner in the region is Egypt, but China's biggest source of
imports is Libya. Several North African countries can
attribute a large part of their trade deficits to China:
Egypt (20 percent); Tunisia (15 percent); Morocco (10
percent).

China and Egypt
--------------


3. (SBU) Trade: Egypt is China's biggest trade partner in
the region, and of all the North African missions in Beijing,
only Egyptians project a positive image of trade relations
with China. Egyptian economic officer Fadel Yacoub confirmed
that bilateral trade volumes have grown by around 450 percent
since 2001, with China's exports growing twice as fast as
Egypt's. Bilateral trade with China, said Yacoub, will
likely surpass U.S.-Egypt trade in 2010. However, in 2008,
total trade rose to $5.3 billion, and Egypt exported only
$400 million worth of goods to China (less than 10 percent of
the total).


4. (C) Labor Competition: Egypt recognized China as a
"market economy" in 2006, and Yacoub said that Egypt regards
the trade imbalance as a structural problem caused by China's
labor advantage, not just the foreign exchange regime. Since
2001 China has pledged to work toward "balanced and
sustainable" trade with Egypt, but the imbalance has only
grown. Yacoub confirmed there is political pressure to
address this problem, but Egypt's primary policy approach is
to attract investment and to strengthen its own export
strategy.


5. (C) Investment: Yacoub said that Egypt is not interested
in opening up mining to China, so it needs to think
creatively. Egypt's "Suez Cooperation Zone" is a host to one
of China's five planned trade zones that officials wish to
establish as part of China's Forum on China-Africa
Cooperation (FOCAC) commitments made by President Hu Jintao
at the Beijing FOCAC meeting in 2006. Yacoub said that Egypt
hopes to become China's gateway for trade in Africa. The
zone hosts Chinese factories making motorcycles, textiles,
glass and tractors. Egypt will host this autumn,s meeting
of the FOCAC ministerial.

China and Algeria
--------------


6. (C) Trade: Algeria is China's second largest trade partner
in the region. Unlike its neighbors -- and due to a national
trade surplus -- Algerian diplomats in Beijing are less
alarmed about the trade deficit with China. In 2007, Algeria
exported about $1.2 billion in goods to China, roughly half
of the $2.7 billion Algeria purchased from China. In 2008,
total trade was $4.5 billion, an increase of around 18
percent. In 2008, however, Chinese exports surged to $3.9
billion and Algerian exports decreased to $850 million.


7. (C) Services: Algeria's large public works program makes
the country's service sector highly attractive to China's
state-owned enterprises (SOEs). In fact, there are Chinese
SOEs in Algeria with contracts that exceed the amount of
annual bilateral trade. For example, China's CITIC Group and
the China Railway Construction Corporation (a former Chinese
army enterprise) won a $6.2 billion contract to build part of
a new trans-national highway, which will be completed in

2010. Tens of thousands of Chinese workers are living in
Algeria to labor on this and other projects. A Chinese
company was even contracted to build Algeria's new foreign
ministry headquarters (REF A).

China and Libya
--------------


8. (U) Trade: Libya is China's third largest trade partner
in North Africa, and it is the only country in North Africa
that has a national trade surplus and also a bilateral
surplus with China, due largely to Chinese demand for its
oil. Total bilateral trade in 2007 was $2.4 billion, and
Libya's surplus totaled $686 million. Figures for 2008 are
not yet available.


9. (U) Investment: According to press reports, Libyan
officials announced in March that they would preclude a
proposed Chinese $400 million investment in a Libyan oil
field owned in part by Canada's Verenex Energy Incorporated.
To exercise its right to preempt the Chinese bid, Libya's
National Oil Corporation will be required to match the bid
placed by China National Petroleum Corporation (CNPC).

China and Morocco
--------------


10. (C) Trade: Morocco's economic relationship with China is
based primarily on trade. Official data from China's
Ministry of Commerce (MOFCOM) indicates that from 2001-2007,
China's exports to Morocco increased by 620 percent. In
2007, China's exports ($2.1 billion) accounted for more than
80 percent of the total trade value ($2.5 billion). Moroccan
Deputy Chief of Mission in Beijing Mohamed Farahat is openly
bitter about economic relations with China, and says China's
trade advantage is "( simply not fair for a developing
country that is unable to sell anything in China." Farahat
scoffed at the Chinese central bank proposal for a new
international reserve currency, stating "China will never
play the role of a global leader if it treats its trade
partners so poorly."


11. (C) Services: Morocco has a conservative labor and
foreign contracting policy and has not awarded any major
service contracts to Chinese companies. Farahat said that
Morocco's hope is to mobilize its private sector to partner
with foreign companies that wish to invest in Africa.
Moroccan companies would act as consultants and
intermediaries. He conceded there is little interest in this
offer from foreign companies, and China does not seem to want
any third-party involvement for its commerce in Africa.


12. (C) Investment: Farahat stated that although investment
in Africa is always needed, Morocco is not directly
benefitting from the China-Africa Development Fund (CADF).
CADF, another Chinese deliverable from the 2006 FOCAC summit
in Beijing, is a government sponsored entity with a $1
billion endowment from the state-owned China Development Bank
(with more on the way) that supports Chinese companies
investing in Africa by contributing equity capital (REF B).
Farahat stated that China's November 2007 announcement
regarding CADF reflected one-sided planning and involved no
consultation with the region whatsoever. Farahat stated
plainly that, destined for failure in Africa, "China comes
with only money and machines." Similar to China's other
trade partners, Morocco is struggling to find a way to make
up for its bilateral trade deficit, and finds investment
insufficient. The Moroccan DCM stated that in light of the
existing trade deficit, Morocco is conflicted about whether
it even wants Chinese investment. Farahat said he has been
personally involved in shutting down Chinese factory
proposals that would not benefit Morocco.

China and Tunisia
--------------


13. (C) Trade: Tunisia is China's smallest trade partner in
the region. Mohamed Hedi Soltani, the Commercial counselor
at the Tunisian Embassy in Beijing openly expressed deep
cynicism about China's trade policy, recent buying missions
in Europe, and its development finance in Africa. Tunisian
officials have repeatedly asked MOFCOM for assistance in
managing the trade deficit, and they are unhappy that China
is indifferent to the imbalance. Official Chinese figures
indicate that in 2007, total trade volume was only $512
million, but Chinese exports accounted for around $485
million of the total (95 percent). The only bright spot
preventing more severe deterioration in its trade position is
Tunisia's exports of phosphates to China, which have
increased in value, said Soltani.


14. (C) Aid and Investment: As recently as 2006, Tunisia was
a top recipient of Chinese Export-Import Bank (EXIM) funds
and project assistance. Since the inauguration of the CADF,
designed to spur Chinese investment in Africa, Tunisia has
seen a sharp reduction in both EXIM funded projects and
investment from China. In this period, some foreign
manufacturers -- such as Technitrol -- shut down plants in
Tunisia and moved them to China. Soltani is doubtful that
large aid projects like CADF would extend any benefit to
Tunisia. Soltani explained that Tunisia has little to
attract Chinese investment: no petroleum; few mineral
resources; restrictions on foreign labor; and export quotas
for foreign-invested firms. At the same time, he said,
Tunisia does not want Chinese investment if it will only lead
to higher sales of Chinese goods. Tunisia prefers to attract
export-oriented firms, but Chinese companies usually come
with a sizable staff, which Tunisian law prohibits.

COMMENT
--------------


15. (C) China's economic relations with North Africa are
strained by the rapid and imbalanced growth in trade over the
last decade. The average value of bilateral trade for these
countries grew from a mere $365 million in 2001 to $2.8
billion by the end of 2007. Most countries in the region
have developed structural trade deficits, and trade with
export-oriented China has only exaggerated the trend. While
trade with China certainly offers benefits to consumers in
North Africa, diplomats from these countries view the rate
and shape of trade growth as destabilizing, and the trend may
result in increased friction between China and North Africa.
As reported in REFs B and C, Beijing is increasingly aware of
negative perceptions its economic might engenders in many
African countries. To date, its efforts (concrete and
symbolic) to reverse this image have been focused on
least-developed countries in sub-Saharan Africa. China could
face more pressure at the FOCAC ministerial (scheduled for
this fall in Cairo) to address the complaints these countries
have over the imbalanced growth in economic relations. END
COMMENT.


WEINSTEIN