CHINA'S COMFORT LEVEL WITH OTHER AFRICA DONORS

C O N F I D E N T I A L SECTION 01 OF 05 BEIJING 000955 SENSITIVE SIPDIS STATE FOR EAP/CM, AF/ , S/P, EEB/ODF, EUR/ E.O. 12958: DECL: 04/02/2019 TAGS: EAID EINV PREL EFIN CH UK AU SENV SUBJECT: CHINA'S COMFORT LEVEL WITH OTHER AFRICA DONORS RISING GRADUALLY REF: (A) BEIJING 288 (B) LONDON 328 (C) PARTO 01 (D) BEIJING 527 (E) CRS 2/25/09 REPORT Classified By: Economic Minister Counselor Robert S. Luke. Reasons 1.4 (B and D). Summary -------------- ¶1. (SBU) China says it will keep expanding its aid to Africa, and though it is hard to measure, its aid level seems to be significant and growing. Beijing continues to proclaim that its aid has no political conditions attached, an implicit rebuke to Western donors. However, China's premier has called for cooperation with the United States and Britain in assisting very poor countries. Beijing has a clear preference for channeling assistance through bilateral channels, but it is engaging with other donors in knowledge-sharing activities and even joint project work, though China's different approach to aid projects presents obstacles to the latter. China has also expressed interest in participating in proposed regional infrastructure projects being touted by the Infrastructure Consortium for Africa (ICA). Beijing does not respond well to what it considers Western hectoring about "best practices" for overseas development assistance, but is more willing to listen to Africans themselves. Unfortunately, due to lack of African unanimity, winning Chinese support for the New Economic Partnership for African Development remains an uphill battle. Major Chinese meetings this year with the United States and Africa make the next few months promising for pushing China to engage on development assistance in Africa. Such engagement will require a sustained investment of political capital to break through bureaucratic logjams posed by the Ministries of Foreign Affairs and Commerce. End summary. ¶2. (C) In a press conference held after his January 2009 visit to various African nations (REF D),Commerce Minister Chen Deming underlined China's commitment to increasing its assistance to Africa, particularly in the areas of health, public works, education, and agriculture, despite the global economic crisis. He also reiterated that China's assistance came with no political conditions attached, a long-standing plank of China's non-interference policy and an implicit rebuke to Western and multilateral donors who do impose political conditions on aid to poor countries. According to African expert He Wenping of the Chinese Academy of Social Sciences, while there is little short-term prospect of China abandoning this rhetorical position, in many ways it is moving, however slowly, toward the rest of the international donor community. Wen's Cooperative Words Not Matched by MFA, MOFCOM Deeds -------------- -------------- ¶3. (C) During separate bilateral meetings with British Prime Minister Gordon Brown and Secretary Clinton early this year, Chinese Premier Wen Jiabao called for cooperation in helping lesser-developed countries (LDCs) reach the UN Millennium Development Goals (REFS B and C). UK diplomats Mark George and Gareth Ward told Econoffs they have been trying for several years to engage China on coordinating their development assistance programs in Africa. Working through the Ministries of Foreign Affairs (MFA) and Commerce (MOFCOM),the lead PRC agencies on international relations and overseas economic cooperation, respectively, has proved frustrating. The UK's Department for International Development (DfID) and Foreign Office held two rounds of dialogue with the MFA in 2007 and 2008 that MOFCOM did not even attend, and separate efforts to engage MOFCOM's Department of Foreign Assistance were "a total dead-end," though other PRC agencies have demonstrated more willingness to cooperate in Africa. The British attributed much of the difficulty with the MFA and MOFCOM to lack of inter-agency (and even intra-agency) communication. They cited as an example the UK desire to highlight its support for the China-Africa Business Council during Wen Jiabao's visit. The Council, which provides advisory services to PRC companies investing in Africa (REF A),is in fact a joint initiative between the UN Development Program and MOFCOM's Multilateral Department. However, other parts of MOFCOM had not even heard of the Council, let alone British support for it, and consequently it was not mentioned in the Brown-Wen meeting. Another possible self-inflicted wound, according to George and Ward, was the failure to include ODA cooperation in the agenda of the UK-China Economic and Financial Dialogue, BEIJING 00000955 002 OF 005 chaired by Vice Premier Wang Qishan on the Chinese side. This might have sent an unintended contrary signal. PRC Aid to Africa Rising, Probably -------------- ¶4. (U) MOFCOM is also reluctant to share data on aid flows. At the FOCAC summit held in Beijing in 2006, President Hu promised that Chinese assistance to Africa would double by the end of 2009, and during his February trip to several African nations, he echoed Minister Chen's promise that the global economic crisis would not slow China's increased assistance (REF D). But there are no official aggregate numbers for Chinese aid to Africa, making it difficult to measure progress toward the FOCAC goal. The varying forms of Chinese aid are different from the commonly accepted OECD definition of overseas development assistance, consisting of a combination of grants, concessional loans, government-supported private investment (REF A),and debt cancellation. (Note: A promising sign on this front is MOFCOM's decision to send one of its officials on temporary duty to the OECD to learn about accepted international definitions of ODA. End note.) According to a 2008 study by NYU's Wagner School of Public Policy cited in a February Congressional Research Service report on China's foreign aid (REF D),a broad interpretation of Chinese "aid" to Africa 2002-2007 (including large amounts of what we would call investment) totaled around USD 33 billion, with big spikes in 2006 (approximately 9 billion) and 2007 (18 billion). The study's numbers come from adding up announcements of individual projects, and are far from precise, according to the authors. Slightly more than half these funds relate to infrastructure or other public works, almost 30 percent relates to natural resources, 2.5 percent to humanitarian activities (perhaps most similar to what we would consider development assistance),and 15 percent is unspecified. While these numbers lack accuracy and are not a useful basis for comparison to Western aid levels, they do point to a consistent upward trendline that means China should be in relatively good shape to meet its FOCAC aid goal. Comment: The lack of transparency on aid levels could reflect a number of political considerations by Beijing, including a desire to avoid giving African capitals information they could use to lobby for comparatively bigger slices of the Chinese aid pie, a desire to avoid criticism by domestic audiences for spending money on the poor overseas rather than China's own large poor population, and discomfort with being seen as a major donor country, which could impact China's own status as an ODA recipient and raise expectations. End comment. ¶5. (C) MOFCOM Deputy Division Director for West Asian and African Affairs Lin Pei told EconOffs that China is working hard to fulfill its FOCAC commitments by the end of this year. He did not share any aggregate aid numbers (colleagues from MOFCOM's Foreign Assistance Department declined our meeting request),though he did note China's progress on more easily measured FOCAC goals such as: removing import tariffs on a total of 466 goods from 31 African LDCs; building 30 hospitals, 100 rural schools, and 10 agricultural technology demonstration centers across the Continent; establishing three economic and trade zones (in Zambia, Nigeria, and Mauritius); and providing training for 15,000 African professionals. Lin said China has put in place a FOCAC "follow-up commission" consisting of 20 different ministries to ensure China can report "mission accomplished" on its 2006 FOCAC commitments at the FOCAC ministerial to be held in Cairo this fall. World Bank Info Exchange Going Well -------------- ¶6. (C) According to World Bank Country Director for China David Dollar, China is becoming more comfortable dealing with other donors and increasingly heeds at least some international standards in its foreign assistance. In 2007 the World Bank signed an MOU on cooperation in third countries with China's EXIM Bank -- the sole conduit for Chinese export credit and concessional loans and a major provider of project finance as well -- and has begun training EXIM officials. According to Xu Yan, EXIM's Deputy General Manager for International Business, EXIM has detailed two officials to the World Bank in Washington, where they are working in Africa-related offices. Ms. Xu said that EXIM is planning a similar program with the Africa Development Bank (AfDB) headquartered in Tunis, something that visiting AfDB officials confirmed (para 9). Dollar said (and Ms. Xu BEIJING 00000955 003 OF 005 separately confirmed) that EXIM now frequently uses reputable international consulting firms to perform environmental impact assessments for projects in developing countries like the Democratic Republic of Congo. (Note: EXIM's growing sensitivity to environmental issues mirrors that of the China-Africa Development Fund and other central government agencies, as per REF A. End note.) Dollar also pointed out that, to his surprise, the World Bank's January 2009 decision to debar several Chinese construction firms from bidding on World Bank projects for up to eight years due to involvement in collusion on a Bank-funded Philippines road project had generated not a single protest from the Chinese government. He attributed China's equanimity to its growing acceptance of the way international financial institutions operate in general and the World Bank's tough but impartial internal integrity mechanisms in particular. But Project Cooperation with EXIM Stalled -------------- ¶7. (C) According to Dollar, the World Bank has worked well with China on information exchanges, i.e., facilitating the sharing of Chinese experience with African peers in areas like agriculture. Trying to identify actual projects that the World Bank could jointly implement with EXIM has proven much harder. In theory, the two bring complementary strengths to the table. EXIM funds much of China's prodigious infrastructure work in Africa and other parts of the developing world, while the World Bank has expertise in making sure that new infrastructure projects fit well with existing networks, as well as with projects being funded by other donors. However, to date the cultural differences between the Bank and EXIM have loomed larger than any theoretical complementarity. EXIM and the Chinese construction companies it supports move much faster than the Bank can from signing an agreement to actually starting and completing work. The Bank empowers its country officers in the field (few of whom relish the additional hassles that working with Beijing would entail),while EXIM has a highly centralized management structure based in Beijing. EXIM focuses more on the commercial viability of projects, whereas the Bank's first concern is the developmental impact. This in turn affects the respective views of when concessional-rate finance is appropriate. Finally, in any particular aid-receiving country, China is prickly about joining the extant donor group and thus "giving up" its right to speak for itself with the host government. CASS' He Wenping reinforced this point, saying Beijing has a long-standing preference to operate in bilateral channels. The Chinese bureaucracy is used to operating this way, and it allows Beijing to take full credit for (and extract maximum leverage from) every dime it spends. Despite this catalogue of differences, Dollar said the Bank and EXIM are considering joint action on an agricultural project in Rwanda, where China has posted a particularly forward-leaning Ambassador. Ms. Xu, with whom EconOffs spoke more recently, said a road project in Ghana was also a possibility. Dollar asserted that however slow the progress, the MOU was helping move EXIM in the right direction. He noted that the Bank's desire to sign a similar MOU with the China Development Bank (CDB) was rebuffed by the Ministry of Finance. CDB, which used to be a policy bank like EXIM, was recently converted into a "commercial" bank, though it is still state-owned and appears to receive substantial "policy guidance" from the central government. According to EXIM's Ms. Xu, CDB does not offer concessional financing, but over the last several years has become increasingly active in supporting Chinese companies overseas. Technical Agencies More Receptive to Africa Cooperation -------------- -------------- ¶8. (C) The UK Embassy's George and Ward echoed Dollar's appraisal of slow but steady progress in moving China toward the rest of the international donor community engaged in Africa. Despite the obstacles encountered in trying to work via MFA and MOFCOM (para 3),DfID has had more success in working with the Ministries of Agriculture and Water Resources. With the former, DfID did a knowledge exchange on food security that brought a number of African officials to China. With the latter, DfID hopes to do a similar program aimed at disseminating lessons learned on China's arid loess plateau about efficient water use. George commented that these projects are small bore, but make Chinese officials increasingly comfortable discussing their work in Africa with others. Similarly, we succeeded in reaching agreement with BEIJING 00000955 004 OF 005 the State Forestry Administration at the December 2008 meeting of the Strategic Economic Dialogue (SED) to undertake a joint training project on fuel wood alternatives, with the United States providing funding for Chinese experts to travel to Africa to share China's experience in this area. Infrastructure Consortium for Africa -------------- ¶9. (C) In mid-February 2009, Mandla Gantsho, the Vice President for Infrastructure of the African Development Bank (AfDB),led a mission on behalf of the Infrastructure Consortium for Africa (ICA) to China to drum up PRC support for ICA projects and enlist China as an ICA member, especially as private sector investment in Africa dries up due to the financial crisis. The ICA was created after the 2005 G8 Summit. It is made up of the G8 bilateral donors and multilateral agencies, which have donated $12.4 billion to date, and is housed at the AfDB headquarters in Tunis. Its mission is to accelerate development of Africa's regional infrastructure, linking together multiple countries in economically rational ways. After meetings with MOFCOM, EXIM, CDB, the China-Africa Development Fund, the People's Bank of China, and China's leading state-owned construction companies, Mr. Gantsho debriefed G8 embassies and multilateral development bank representatives. He said the Chinese had all emphasized the government's commitment to African development, regardless of the global economic crisis, and in fact had predicted that new targets to be set at the Cairo FOCAC ministerial this fall would surpass those made by Hu Jintao in Beijing in 2006. They declined to join the ICA, given their preference for working bilaterally and their aversion to being lumped together with Western donors, but were happy with their observer status and welcomed collaboration with ICA members using the Consortium as a platform. Gantsho acknowledged that information exchange with China was already in the works, noting the plan for EXIM officials to be detailed to AfDB (para 6) and CADF's eagerness to compare notes with the AfDB Chief Economist's office. ICA, AfDB Lobby Beijing to Support Regional Projects -------------- -------------- ¶10. (C) With regard to project cooperation, Gantsho said he had lobbied vigorously for Beijing to concentrate more on Africa's regional needs, rather than on purely bilateral projects, noting the inherent imbalance in all of China's bilateral relationships with individual African countries as well as the clear economic benefits of more closely tying together the markets of neighboring African nations. For China to play in this game, closer coordination with the international donor community was required. The Chinese, he said, showed some receptivity to this argument. He then told them that the African Union had concentrated on regional infrastructure at its February 2009 summit and had drawn up a short list of critical cross-border projects to address gaps that were holding up investment. He said the Chinese (especially from EXIM) had asked the ICA to identify two or three pilot projects from this list where Chinese participation would be most welcome, which he took as a very positive signal. Parallel financing, as opposed to co-financing, was the likeliest mode of Chinese involvement. Gantsho said the ICA hoped the Chinese would provide concessional financing for any such projects they eventually agreed to participate in, but he had not raised that issue with his interlocutors during this visit. A number of the donors being briefed asked about the possible impact of commercial Chinese loans on the balance sheets of heavily-indebted poor countries that had undertaken commitments in return for debt relief from traditional donors. Gantsho said that would have to be handled on a case-by-case basis. He assessed that China's ICA observership and potential collaboration on specific projects was an excellent entry point into the multilateral donor community's engagement with Africa, and noted the importance of African capitals presenting a unified front vis-a-vis China via organizations like the African Union and the AfDB. Several of the donor country representatives at the briefing asserted the importance of the AfDB taking the lead on the ICA, remarking that China would listen to Africans speaking on behalf of African institutions but not to G8 countries that tried to do the same. PRC Support for NEPAD an Uphill Battle -------------- BEIJING 00000955 005 OF 005 ¶11. (C) Another potential pan-African forum for engaging China on African development issues is the New Partnership for African Development (NEPAD),an initiative launched and championed by former Nigerian and South African Presidents Obasanjo and Mbeki and intended to guide the continent's relationship with aid donors according to principles of sustainability and good governance, an approach somewhat incongruent with Beijing's professed allegiance to non-interference and unconditional aid. Gantsho ruefully opined that NEPAD had lost significant steam since Obasanjo and Mbeki had left the political stage. In a separate meeting, South African Embassy Minister (and former head of the NEPAD Secretariat's Office of International Cooperation) David Malcomson told PolOff his country still wanted NEPAD to be the "focal point" of the AU-China assistance relationship, rather than China's preferred bilateral approach, but that gaining support for the AU development program was "an uphill battle." China has been hesitant to support NEPAD because four AU members - Swaziland, Gambia, Burkina-Faso and Sao Tome and Principe - recognized Taiwan rather than the PRC. Another "stumbling block" was the lack of unanimity among AU members. Malcomson said the Southern Africa Development Community (SADC),East African nations, and Nigeria were all pushing for greater Chinese buy-in to NEPAD. However, the countries of North Africa (except Algeria) "are ambivalent" and west African and central African countries preferred to deal with China bilaterally in hopes of getting greater assistance. Despite the difficulty, Malcomson said NEPAD would be on the agenda of this year's FOCAC ministerial. In a similar vein, our UK diplomatic colleagues told EconOffs that London encourages African leaders to use FOCAC as a lever to mold Chinese engagement to better meet African needs as embodied by pan-African initiatives like NEPAD. Malcomson noted that officials from the NEPAD Secretariat and Business Foundation would visit Beijing later this year to discuss concrete projects to promote NEPAD's goal of AU regional integration. Regarding the Africa Partnership Forum (APF), Malcomson said "it makes sense" to invite a large donor nation like China to join but argued that some G8 countries were resistant to expanding the APF to include China. Advice from a PRC Africa Expert, and the Cousins -------------- --- ¶12. (C) Comment: The overall trend line is clear. China is slowly easing its way toward the rest of the international donor community in its approach to development aid. He Wenping from CASS told EconOff there was ample overlap between U.S. and Chinese interests in Africa to justify cooperating on assistance in areas like energy, infrastructure, and trade facilitation. As we consider pressing for stronger engagement with China on our assistance programs in Africa and elsewhere, we should be aware that sentiments expressed by Premier Wen do not automatically translate into corresponding commitment by the rest of the Chinese bureaucracy. To expand from scattered cooperation on narrow technical areas to a more comprehensive dialogue on this subject, we need to make it a leading agenda item of the Strategic and Economic Dialogue and the relevant regional sub-dialogues. End comment. WEINSTEIN