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Cablegate: Cvrd Executives Lament Increasing Chinese Influence Over

VZCZCXRO3855
RR RUEHRG
DE RUEHBR #0918/01 1431042
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R 231042Z MAY 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 8993
INFO RUEHSO/AMCONSUL SAO PAULO 9915
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RUEHRI/AMCONSUL RIO DE JANEIRO 4425
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RUEHLP/AMEMBASSY LA PAZ 5360
RUEHBJ/AMEMBASSY BEIJING 0326
RUEHLU/AMEMBASSY LUANDA 0132
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E.O. 12958: N/A
TAGS: ETRD EIND EINV BR CH
SUBJECT: CVRD EXECUTIVES LAMENT INCREASING CHINESE INFLUENCE OVER
LATIN AMERICAN NATURAL RESOURCES

1. (SBU) Summary. During a May 18 office call on the Ambassador,
CVRD executives expressed their concern about increasing Chinese
influence over both natural resources and the
distribution/transportation infrastructure needed to export these
resources to distant markets. In the future, they warned, the USG
would need to pay greater attention to where its raw materials would
come from as China hoped to lock up both South America and Africa as
its suppliers. The Ambassador queried our interlocutors regarding
what steps they were taking to ameliorate Brazil's infrastructure
deficit. He noted that the key question were how can both the USG
and the U.S. private sector best be of use and what was the GOB
willing to do, adding that this issue would certainly be on the
agenda during the upcoming early July visit of Treasury Secretary
Paulson to Brazil. End Summary.

2. (U) On May 18, Ambassador met with Roger Agnelli and Tito
Martins, CEO and Executive Director, respectively, of the Brazilian
multinational minerals giant Companhia Valle do Rio Doce (CVRD).
CVRD is a global mining company and world's largest producer of iron
ore. Agnelli became Chairman of CVRD's Board of Directors in 2000
and was named CEO a year later. Formerly a GOB parastatal but
privatized in 1997, CVRD currently has a presence in 14 Brazilian
states and 5 continents (the Americas, Europe, Africa, Asia and
Australasia) and is part of the emerging class of Brazilian
industrial giants which are now investing overseas.

3. (SBU) Agnelli noted the strategic importance of both Brazil and
Latin America in terms of the world resources. Brazil, he observed,
had large quantities of uranium, oil, gas, and iron oil (30 percent
of the world's supply of the latter), while its neighbors were rich
in natural resources as well. Venezuela had vast reserves of oil,
Peru was a key producer of tin and gold, and Bolivia and Argentina
were rich with gas. Even Cuba was important as it, along with New
Caledonia, had one of the two key international deposits of nickel.


4. (SBU) For this reason, he said, China was eagerly looking at
South American commodity reserves as potential raw material to fuel
its future industrial expansion. The Chinese plan, he continued,
was to eventually control not only the continent's mineral deposits
but the distribution/transportation networks and the port
infrastructure as well. China's efforts to woo both the Chavez
regime in Venezuela and the Castro government in Cuba were all part
of Beijing's long-range plan to increase its influence over Latin
American countries and its access to their mineral resources.
Comment. As CVRD derives much of its record profit from sales of
iron ore to China, in many ways it is a willing partner. Indeed,
Martins is a Director of the Brazil-China Business Council and
Agnelli himself sits on that organization's Consultative Committee.
End Comment.


5. (SBU) Agnelli pointed to Africa as an example of what could
happen when the Chinese gained excessive influence. CVRD had lost
contracts in Gabon and Angola, and was fighting a fierce battle to
retain markets in Mozambique and South Africa. If China locked up
African reserves, he said, this would create imbalances in the
international market as the remaining customers in the U.S. and
Europe would have to pay high prices as key stocks would effectively
be off the market. The USG need to think seriously, he declared, as
to what would happen if the Chinese won the struggle for access to
commodities. The PRC already had a leg up, he noted, as in China
such decisions were made by government while in the U.S. private
sector buyers looked at the issue in a much more decentralized
fashion.

6. (SBU) Shifted gears, the Ambassador turned to the subject of
the infrastructure deficit in Brazil. The difficulty in getting
product from mine to market contributed greatly to "custo Brazil,"

BRASILIA 00000918 002 OF 002


i.e., the high cost of business associated with doing business here.
He queried Agnelli whether CVRD was working to help build the
country's rail network so as to improve the situation. Agnelli
noted that while CVRD had one rail project on the books, Brazil's
real need was improvements in its port infrastructure. The private
sector was helping to close the infrastructure deficit through
concessions, but the Brazilian government was failing to do its part
as it because it had so little available funds to invest, he said.
Agnelli concluded that the multilateral development banks, and
specifically the World Bank, needed to provide greater financing for
public infrastructure projects in Brazil.

7. (SBU) In response, the Ambassador asked about other sources of
funding alternative to the World Bank. For instance, he noted that
OPIC was a potential financing sources and that U.S. companies would
like to find a way offer their services. The key questions were how
can both the USG and the U.S. private sector best be of use and what
was the GOB willing to do, adding that this issue would certainly be
on the agenda during the upcoming visit of Treasury Secretary
Paulson to Brazil.

Sobel

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