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Cablegate: Chinese Open Door On Development Finance...Maybe

VZCZCXRO8437
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3587/01 1490915
ZNR UUUUU ZZH
R 290915Z MAY 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 8366
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEHNSC/NSC WASHDC
RUEHFR/AMEMBASSY PARIS 4112
RUCNDT/USMISSION USUN NEW YORK 1728

UNCLAS SECTION 01 OF 02 BEIJING 003587

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND EB/IFD/OMA
STATE FOR EAP/EP, AF/EPS, NEA/RA, WHA/EPSC
TREASURY FOR DEPUTY CHIEF OF STAFF TAIYA SMITH AND OASIA/ISA
DOHNER/YANG/KOEPKE
STATE PASS TO USAID FOR NICHOLSON
BANGKOK FOR USAID/RDMA CARDUNER AND WHELDEN
PARIS FOR USOECD
MANILA FOR ADB USED
NSC FOR SHRIER, TONG

E.O. 12958: N/A
TAGS: ECON EFIN EAID CH
SUBJECT: CHINESE OPEN DOOR ON DEVELOPMENT FINANCE...MAYBE

REF: (A) BEIJING 1094

(B) BEIJING 408
(C) 06 BEIJING 17108
(D) 06 BEIJING 2948
(E) 06 BEIJING 1238
(F) 05 BEIJING 20921
(G) 05 BEIJING 16254

SUMMARY
-------

1. (SBU) In a possible indication of greater openness to talking
about development finance, officials from China's foreign aid
bureaucracy told a visiting Treasury official that they look forward
to more exchanges on the topic. Long reluctant to discuss foreign
aid-related issues (see reftels), the Chinese officials appeared to
welcome incorporating development finance into the Strategic
Economic Dialogue (SED) in the future. Our interlocutors, as well
as representatives of international aid organizations, said China's
foreign aid bureaucracy remains uncoordinated and lacks a long-term
development assistance strategy. Institutions such as the China
Development Bank (CDB), however, are aggressively supporting Chinese
commercial objectives overseas. END SUMMARY.

MOVING TOWARDS A DIALOGUE ON DEVELOPMENT FINANCE
--------------------------------------------- ---

2. (SBU) Kenneth Peel, Deputy Assistant Secretary of Treasury for
International Development Finance and Debt, encouraged Chinese
government officials to engage in a long-term constructive dialogue
with the United States on development finance under the SED and
heard views from the Beijing-based international donor community
during his May 8-9, 2007, visit. Wang Shichun, Director General of
the Ministry of Commerce (MOFCOM) Department of Aid to Foreign
Countries said he would welcome an exchange of ideas on the issue.
(Note: MOFCOM's Department of Aid to Foreign Countries has
routinely refused Embassy requests for meetings for the past two
years (reftels). The May 9 meeting, facilitated by the Ministry of
Finance as part of the SED process, was the first time we have met
Wang. End Note.)

CHINA'S AID INCREASING RAPIDLY
------------------------------

3. (SBU) International observers agreed that China's aid overseas --
supported by commercial outreach -- is increasingly rapidly.
Examples include:

--The China Development Bank (CDB) and China's Export-Import (EXIM)
Bank have a combined larger investment in the Philippines than ADB
and the World Bank put together;

--China's USD 610 million aid package to Cambodia is greater than
the UK's aid program of USD 600 million;

China's aid is politically driven but also focused on resource
acquisition, infrastructure, and export promotion, observers added.


PROVIDING ASSISTANCE WITHIN CHINA'S CAPACITY
--------------------------------------------

4. (SBU) According to MOFCOM's Wang, China's foreign aid objective
is to promote peaceful development and support the Millennium
Development Goals (MDGs). Assistance should be tangible, including
projects in infrastructure, education, and health and should teach
skills rather than simply giving away money, he said. Wang said he
just returned from Africa where China promised during last year's
China-Africa Forum (FOCAC) to commit an additional USD 5 billion in
aid by 2009. Wang, however, also reiterated that China remains a
low-income country and will therefore provide aid only within its
own capacity.

AID LACKS STRATEGY, BUSINESS MORE IMPORTANT
-------------------------------------------


BEIJING 00003587 002 OF 002


5. (SBU) China's foreign aid apparatus still lacks coordination
within the bureaucracy, and MOFCOM has not yet developed a foreign
aid strategy, international observers said. According to the Head
of the UK's Department for International Development (DFID) in
China, FOCAC exposed the weaknesses in China's development
assistance bureaucracy, as government agencies were caught off-guard
by the large-scale financial commitment made by President Hu Jintao
during the Summit, and the Chinese Government is now struggling with
how to deliver on that promise. Representatives from DFID and the
Asian Development Bank (ADB) emphasized, however, that while China's
foreign aid bureaucracy remains underdeveloped, the government
continues to aggressively promote commerce overseas. China-Africa
two-way trade has increased from USD 9 billion in 2001 to USD 56
billion last year, one observer said, and another pointed out that
China EXIM and CDB both exercise considerable influence.

CDB REACHING OUT OVERSEAS
-------------------------

6. (SBU) Speaking for CDB, Wang Weidong, Deputy Director General of
the CDB's International Finance Department, said most of CDB's loans
support infrastructure and construction projects domestically, but
in an effort to both mitigate risk and expand its cooperation with
large Chinese companies (such as Sinopec and CITIC), CDB now also
supports overseas projects, particularly in Latin America and Asia.
Approximately 10 percent of CDB's total assets are invested overseas
at roughly USD 30 billion.

7. (SBU) The delegation cleared this cable.

PICCUTA

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