CHINESE SOLICIT PARTNERSHIP WITH U.S. FOLLOWING SHARM EL

					  UNCLAS SECTION 01 OF 02 MONROVIA 000844 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON EAGR LI
SUBJECT: CHINESE SOLICIT PARTNERSHIP WITH U.S. FOLLOWING SHARM EL 
SHEIKH CONFERENCE 
 
					

1. (SBU) SUMMARY: Following the Forum on China-Africa Cooperation,
and the attendant promises of new Chinese investment in Liberia, the
Chinese Embassy approached the USG to explore future possibilities
for greater U.S.-Chinese cooperation in foreign assistance. The
Chinese Embassy is particularly interested in exploring trilateral
means, whether public or private, to renovate the Mt. Coffee
Hydroelectric dam. Chinese promises at Sharm El Sheikh may be
warmly received by the GOL, but the credit crunch appears to be
hampering a key Chinese iron ore concession in Liberia, creating
unanticipated delays in revenue generation and job creation. END
SUMMARY.



2. (SBU) Econoffs met November 12 with the economic and commercial
section of the Chinese Embassy in Monrovia to exchange views on
Liberia's investment climate. The four officials included:
Counsellor Liu Yunbiao; First Secretary, Yang Xuhong; Attache Wang
Dong; and Economic Officer Xue Song. The Chinese, who initiated the
meeting, said they hoped to explore possibilities for greater
U.S.-Chinese economic and assistance coordination in Liberia.



3. (SBU) Discussion revolved around the fourth annual Forum on
China-Africa Cooperation, held in Sharm El Sheikh, Egypt, November
8-9. At the conference, Chinese Prime Minister Wen Jiabao promised
President Sirleaf USD 7 million for mutually agreeable assistance
projects. However, Liu acknowledged that the Chinese Embassy was
struggling to identify strong projects that would improve the
investment climate or create new jobs. He said he welcomed the
openness of the Ambassador and USAID Director to closer cooperation
between the U.S. and Chinese Embassies in Liberia. [Note: USAID and
the Chinese Embassy jointly constructed a "Center of Excellence" in
engineering at the University of Liberia's Fendell Campus, the first
U.S.-Chinese joint assistance project in Africa. End Note] Liu
praised this initial bilateral collaboration, and expressed his
belief that there are many more opportunities to accomplish shared
objectives, notably infrastructure and investment climate reforms
that make Liberia more hospitable for private sector development.



4. (SBU) Separately, USAID Mission Director in Liberia received a
similar message during a meeting with Gao Yuanyuan, deputy director
general of China's Department of Aid to Foreign Countries, on the
margins of an Organization for Economic Cooperation and Development
conference in Beijing. In the October 29 conversation, Gao told
USAID that China would be interested in exploring further tripartite
cooperation in Liberia.



5. (SBU) Liu expressed particular interest in potential cooperation
in the energy sector, where capital-intensive projects may require
investment from multiple public or private sector partners. Liu
said the Chinese Embassy believes affordable energy is the key to
economic growth in Liberia, and worries that Liberia's private
sector growth will remain limited as long as entrepreneurs must rely
upon expensive diesel-generated power. Liu said the Chinese Embassy
would be interested in exploring the possibility of a joint-venture
to renovate the Mt. Coffee hydroelectric dam. Sinohydro
Corporation, a Chinese firm, has taken an interest in the U.S. Trade
and Development Agency-funded feasibility study that explores
options for refurbishing Mt. Coffee. Liu explained that Stanley
Consultants, the U.S. engineering firm that produced the study, has
an office in Beijing, and has been in contact with Sinohydro. The
study estimated the cost to rehabilitate Mt. Coffee would be USD 400
to 500 million, which will likely require a consortium of
international investors and donors. Econoffs agreed to share this
message with the Ambassador and USAID.



6. (SBU) While the Chinese economic team noted Chinese companies
often find the lack of capacity within the GOL a hindrance to
investment, the Ministry of Finance suggested that the frustration
exists on both sides. In Sharm El Sheikh, President Sirleaf urged
PM Wen to help China Union move forward with the Bong Mine
concession, an iron ore extraction agreement valued at USD 2.6
billion over 25 years that constitutes the largest Chinese
investment in Liberia. Deputy Minister of Finance for Revenue
Elfreida Tamba told Econoff China Union owes the GOL USD 47 million
it is required to pay before it begins operations. Tamba said China
Union is struggling to raise the necessary capital, so the Chinese
Development Fund (a body similar to the Overseas Private Investment
Corporation) is trying to negotiate with the MOF to permit the CDF
to assume an 85% ownership stake in the concession. The CDF stake
would ensure China Union has access to financing to cover arrears
payments and future operational expenses. Tamba noted this is China
Union's third attempt to amend the concession agreement and likely
will delay the onset of operations by at least another six months.




7. (SBU) COMMENT: Among its bilateral relationships in Africa,
China's strategic interest in Liberia is perhaps unique. Because
China is heavily involved in the peace process through UNMIL, it

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uses its development assistance not only to secure investment in the
extractive industries, but also to maintain friendly ties with the
GOL. While China's donor assistance to Liberia remains modest,
foreign direct investment from Chinese companies contributes an
increasing share of GOL revenues (if paid, the China Union debt of
USD 47 million would comprise fully 15 percent of Liberia's total
annual revenues).



8. (SBU) Given the scope of Liberia's needs, further cooperation
with the Chinese Embassy might be welcome, provided we can identify
projects that meet USG foreign assistance objectives. However, it
remains to be seen whether China's interest in cooperation with the
Embassy may flag as global credit and commodity markets rebound. We
agree that the renovation of Mt. Coffee is key to Liberia's
development, but would need to ensure that the benefit goes beyond
powering Chinese projects. As indicated by problems with the China
Union deal, the Chinese Embassy's outreach to us may in part be
motivated by the global economic downturn and the diminished
capacity of Chinese firms to fully finance independent investment
opportunities.

THOMAS-GREENFIELD