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Cablegate: Chinese Ambassador Discusses His Priorities,

VZCZCXRO6869
RR RUEHCN RUEHRG RUESLE
DE RUEHBR #0048/01 0081301
ZNY CCCCC ZZH
R 081301Z JAN 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0808
INFO RUEHAC/AMEMBASSY ASUNCION 6508
RUEHBJ/AMEMBASSY BEIJING 0359
RUEHBU/AMEMBASSY BUENOS AIRES 5231
RUEHMN/AMEMBASSY MONTEVIDEO 7171
RUEHSG/AMEMBASSY SANTIAGO 0095
RUEHCN/AMCONSUL CHENGDU
RUEHGZ/AMCONSUL GUANGZHOU 0030
RUEHHK/AMCONSUL HONG KONG 0072
RUEHRG/AMCONSUL RECIFE 7584
RUEHRI/AMCONSUL RIO DE JANEIRO 5666
RUEHSO/AMCONSUL SAO PAULO 1442
RUESLE/AMCONSUL SHANGHAI 0039
RUEHSH/AMCONSUL SHENYANG 0025
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC
RUEHIN/AIT TAIPEI 0041

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 000048

SIPDIS

SIPDIS

E FOR TOM PIERCE; EPSC FOR LISA KUBISKE

E.O. 12958: DECL: 01/07/2018
TAGS: ETRD EINV PREL BR CH
SUBJECT: CHINESE AMBASSADOR DISCUSSES HIS PRIORITIES,
BRAZILIAN ASPIRATIONS

REF: A. STATE 164790

B. SAO PAULO 718
C. BRASILIA 918
D. RIO DE JANEIRO 598
E. BRASILIA 990

Classified By: Ambassador Clifford Sobel, reasons 1.4 b and d.

1. (C) Summary. Chen Duqing, Chinese Ambassador to Brazil,
told Ambassador Sobel on October 19 that his top priorities
are to create a more favorable environment for economic
relations and to promote Chinese interests in the Brazilian
Congress. Ambassador Chen described an economic relationship
of growing bilateral trade and investment characterized by an
unbalanced exchange of finished industrial goods from China
for Brazilian raw materials, and said Brazilian political
international ambitions exceed Brazil's political weight.
End summary.

2. (C) Chen told Ambassador Sobel that he travels
extensively throughout Brazil in pursuit of his top priority
of creating favorable conditions to increase the trade
relationship, mainly to Rio de Janeiro and Sao Paulo, but
also to northern states such as Para. He is increasing his
ability to pursue his other top priority by adding a
counselor to his staff to work full-time on congressional
engagement.

"Brazil Must Open Its Mind More"
- - - - - - - - - - - - - - - - -

3. (C) Sino-Brazilian relations are getting to be quite
good, he explained, even if the only important Chinese
visitor this year was the then-Deputy Foreign Minister (now
Foreign Minister). But an outdated view of the Chinese
political system blurs Brazil's perception of China and
"Brazil must open its mind more," he said. The Chinese
Communist Party was now taking historic steps at its National
Congress, as President Hu noted when he said that China must
be more open, and Brazil needed to understand this change,
Chen stated. (Note: The 17th National Congress of the
Communist Party of China took place October 15-21, 2007. End
note.)

Trade and Investment
- - - - - - - - - - -

4. (C) China would soon pass Argentina and Germany to
become Brazil's number two trading partner, after the U.S.,
Chen noted, offering a figure of two-way Chinese trade with
Brazil at USD 20 billion in 2006. (Note: Chinese Foreign
Ministry officials cited the same bilateral trade figure at
the U.S.-China Sub-Dialogue on Latin America in late
November, as reported ref A. According to the Sao Paulo
State Federation of Industries, total bilateral trade in 2006
was USD 16.4 billion, as reported ref B. End note.) China's
exports to Brazil are mainly finished goods, especially
electronics; Ambassador Chen said Brazil complains of
dumping, but Chen added that "this is part of our process of
increasing our relationship," implying Brazilian dumping
accusations are a natural part of a growing trade
relationship.

5. (C) Brazil's top exports to China are soy and iron ore.
Seventy million tons of iron ore and 11 million tons of soy a
year go to China, according to Chen, and China always runs a
trade deficit with Brazil, now at about USD 4 billion a year.
(Note: China buys about a third of Brazil's iron ore
exports, introducing "an obvious vulnerability" for Brazil,
according to the November 2007 issue of Brazil Focus,
published by Menas Associates, www.menas.co.uk. Ref C
reported Brazilian mining executives' concerns about China's
influence over Latin American natural resources. End note.)

BRASILIA 00000048 002 OF 003


Chen said that if you calculate undercounting on the
Brazilian side the deficit is even greater. His principal
concern about the economic relationship is that "Brazil has
not consolidated its basis for more development" because
"without more economic growth, it will not achieve greater
income distribution." He noted Brazil's poor infrastructure,
calling Santos the "world's worst port," and said China is
interested in railroad projects in Brazil. Chen said
Brazilian bureaucracy is "confused" and has no model, in
comparison with China's, where top bureaucrats must go
through the Central Committee Party School.

Major Steel Investment
- - - - - - - - - - - -

6. (C) Chen told Ambassador Sobel that China had signed a
major joint venture agreement on October 3 with the Companhia
Vale do Rio Doce (CVRD, now "Vale") to construct a steel
plant in Vitoria, Espirito Santo, making China a majority
partner in the Companhia Siderurgica de Vitoria (CSV) with an
investment of USD 5.5 billion (ref D). Chen said China would
like to make more such investments, but there is political
resistance in some circles in Brazil. (Note: Ref E reported
Brazilian fears of China. Nonetheless, Brazilian leaders
continue to court Chinese investment. Bahia governor Jaques
Wagner led a trade mission November 15-25 to China in search
of investment in tourism, ports, railroads, mining, ethanol,
and semiconductors. Also in November, Amazonas Governor
Eduardo Braga and a large entourage embarked on a 20-day
Asian trade and investment mission to Japan, China (including
Macau), Malaysia, and Indonesia. A Chinese trade and
investment mission to Amazonas in 2008 was announced during
Braga's visit to China. End note.) In the northeast of
Brazil, for example, Chen continued, there are many
opportunities, but China will limit itself to equipment
sales. Moreover, in spite of the large size of many
Brazilian firms, there is little money for equipment
purchases and Brazilian importation of Chinese goods became
somewhat more difficult after China increased the exchange
rate value of its currency 8.27 percent, he noted. China
cannot revalue its currency as fast as the U.S. would like
because it will produce a negative impact on the Chinese
economy, Chen added.

7. (SBU) China's domestic steel production accounts for the
majority of China's needs, but China must import certain
specialized steels. The trade with Brazil has not grown in
the last 20 years and remains at about 30 million dollars a
year, according to Chen. (Note: According to the Brazilian
Institute of Steel, 2006 Brazilian exports of steel and steel
products to China were USD 52.7 million (66,628 metric tons)
and have dropped significantly since 2005. Conversely,
Brazilian imports of Chinese steel have increased from USD
27.5 million in 2005 to USD 92.7 million in 2006. End note.)

Biofuels
- - - - -

8. (SBU) Asked about Chinese interest in Brazilian
biofuels, Chen replied that China produces its own biofuel
and does not buy any fuels from Brazil, only some heavy oil.

Brazilian Leadership Aspirations
- - - - - - - - - - - - - - - - -

9. (C) Ambassador Chen said he has observed the growth in
the U.S.-Brazilian bilateral relationship over the last year,
and understands that Brazil wants to be a leader, but it has
"no capacity or influence." Chen dismissed Brazil's UN
Security Council aspirations, saying it is not qualified, and
is "interested in only some areas, and not in peace and
security."


BRASILIA 00000048 003 OF 003


Biographical notes
- - - - - - - - - -

10. (SBU) Ambassador Chen said he has never been on an
official visit to the U.S. and has spent most of his career
in lusophone assignments. He began his career in Brazil in
1974, and returned in the period 1981-84. He was Ambassador
in Mozambique, and came to Brazil after a year and a half
assignment in East Timor. He said he is 60 years old, can
retire at any time, and will finish his career in Brazil. He
speaks English.

Sobel

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