CHINESE ENGAGEMENT IN ZAMBIA IS STRONG DESPITE

UNCLAS SECTION 01 OF 02 LUSAKA 000103 SIPDIS STATE FOR AF/RSA MAZEL, GRIESMER, AND BOWLES E.O. 12958: N/A TAGS: PREL EAID CN ZA SUBJECT: CHINESE ENGAGEMENT IN ZAMBIA IS STRONG DESPITE ITSELF REF: STATE 10152 ¶1. (SBU) The following information is in response to Ref A request for information regarding China's engagement with Zambia and whether there are areas of collaboration between the United States and China in the country. CHINA'S ENGAGEMENT IN ZAMBIA -------------- ¶2. (SBU) China is a leading source of foreign direct investment in Zambia. While data on Chinese investment in Zambia are incomplete, Chinese firms have invested substantial amounts in the country, primarily in the mining sector. Zambia signed an agreement in July 2009 with Zhonghui Mining Group, which committed to invest USD 3.5 billion in mining projects in the Copperbelt and Northwest provinces. Chinese-controlled copper output should increase as investments come on line, including at the Luanshya Copper Mine, which China Nonferrous Metal Mining Co. (CNMC) acquired in 2009 for USD 50 million after the mine's previous owners put it in suspended care and maintenance status. Also in 2009, a Chinese company acquired Albidon Nickel Mine in Mazabuka from its Australian owners. CNMC and another smaller Chinese copper firm signed a deal in 2006 to invest USD 220 million to build a 150,000-ton copper smelting plant, which became operational in 2008. Chinese-owned firm CBMI Construction was contracted by France's Lafarge to construct a USD 120 million expansion of its cement plant in Lusaka, which was commissioned in November 2008. The new plant produces 2,000 tons (80,000 50-kilogram bags) per day. ¶3. (SBU) China is setting up a USD 900 million Multi-Facility Economic Zone (MFEZ) in Chambishi, Copperbelt Province underwritten by the Chinese business community and the People's Republic of China. Zambia is the first African country to have a Chinese MFEZ. The Chambishi Copper Smelter (CCS),commissioned in October 2009 in the MFEZ, has a capacity of 150,000 tons of concentrates annually. Chinese developers plan to start construction on a 570 hectare MFEZ near Lusaka in 2010. The USD 350 million project will create an economic zone near the international airport to include residential areas and industrial and commercial activities. In early 2009, the Chinese Government signed agreements to loan and grant Zambia a further USD 67 million as part of the zone and other projects. ¶4. (SBU) In January 2010, China provided USD 39 million to TAZARA, the dilapidated railway China built from Kapiri Mposhi, in central Zambia, to Dar Es Salaam, Tanzania in the 1970s. The Zambian government reported that the capital injection was an interest free loan and that the Chinese government would also provide technical assistance to the troubled railway to improve operations. China is also active in road construction in Zambia and is engaged in "stadium diplomacy" by funding and building a new soccer stadium in the Copperbelt. ¶5. (SBU) There is plentiful criticism in Zambia of Chinese investment regarding how the deals are conducted, the quality of Chinese products, labor rights of workers in Chinese entities, and the use of Chinese imported laborers rather than locals. There are glaring examples of large government procurements from China that were not competed per procurement regulations. In the case of road projects, the Chinese-built road from a border point with Zimbabwe, the main artery for imports from South Africa, washed out just 18 months after construction. The Chinese owned Collum Colleries mine has been shut down repeatedly due to worker deaths but remains operational. Nevertheless, Chinese presence in Zambia is solidified by their cut rate prices and their willingness to do deals and to provide highly concessional financing. U.S.-CHINA COLLABORATION -------------- ¶6. (SBU) There is no U.S.-China collaboration in any sector of the Zambian economy or in economic or social development assistance here. When the Ambassador has suggested to his Chinese counterpart the possibility of coordinating assistance efforts either bilaterally or through multilateral donor coordination mechanisms that already exist and function well in Zambia, he has been politely rebuffed. Chinese embassy officials insist that the PRC is not engaged in economic and social development activities here but rather focuses exclusively on its commercial relationship with Zambia. LUSAKA 00000103 002 OF 002 BOOTH