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Cablegate: U.S.-China Dialogue On Foreign Assistance: Your

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P 010553Z APR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 6212
INFO RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 04 BEIJING 001225

SIPDIS

SENSITIVE
SIPDIS

STATE FOR DFA HENRIETTA FORE
STATE FOR S/P DAVID GORDON AND JAMES GREEN
STATE FOR EAP/CM PETER SECOR AND JOSH CARTIN
STATE FOR EEB/IFD/ODF CHRIS WEBSTER
TOKYO FOR USAID AANENSON, ECON CEKUTA
STATE PASS TO USAID FOR NICHOLSON
PARIS FOR USOECD
NSC FOR SHRIER, TONG

E.O. 12958: N/A
TAGS: EAID ECON ETRD PREL PGOV EFIN CH
SUBJECT: U.S.-CHINA DIALOGUE ON FOREIGN ASSISTANCE: YOUR
MEETING WITH VICE MINISTER YI

SUMMARY
-------

1. (SBU) Your meeting with Ministry of Commerce Vice Minister
(VM) Yi Xiaozhun in Tokyo will be an excellent opportunity to
discuss the launch of the U.S.-China Dialogue on Foreign
Assistance, which was proposed by Deputy Secretary Negroponte
during his January meeting with Premier Wen Jiabao. We view
VM Yi's willingness to meet with you as a positive step in
our efforts to engage China and better understand its
development goals and strategies. The Ministry of Commerce
(MOFCOM) is China's lead agency on development issues within
an aid bureaucracy that is loosely tied together. China's
aid remains primarily targeted towards building commercial
ties overseas, extraction of natural resources, and
encouraging developing countries to shift their diplomatic
recognition from Taiwan to Beijing. It is difficult to
estimate the total amount of China's assistance overseas, as
aid is packaged in different ways, including soft loans,
political risk insurance, and membership in multilateral
development banks. The World Bank and many bilateral donors,
most notably the UK Department for International Development
(DFID), are encouraging China to improve development
coordination and meet internationally accepted standards for
deelopment assistance. China's most high profile id
projects have been in Africa, and China has had to fend off
allegations that its aid program props up dictators in Sudan
and Zimbabwe. As China's international standing rises in the
months leading up to the 2008 Beijing Olympics, your meeting
with VM Yi presents a unique opportunity to lay the
groundwork for our bilateral Dialogue on Foreign Assistance.
END SUMMARY.

2. (SBU) Comment: Post would like to take this opportunity
to note that there has been a wealth of outstanding reporting
from our Embassies in Africa, Latin America, and Asia on
China's aid program in those countries. These high-quality
cables -- too numerous to reference all of them here -- have
been a tremendous help to Embassy Beijing's efforts to better
understand China's aid program. End Comment.

China's Aid Bureaucracy
-----------------------

3. (SBU) Unlike the United States, China does not have a
centralized aid agency. China is proud of a long history of
delivering aid to its neighbors dating back to the Mao Zedong
era. Development assistance in the modern sense, however, is
a relatively new phenomenon in China, reflected by a
bureaucracy that is not designed around providing aid to
other countries. The Ministry of Commerce (MOFCOM)
Department of Aid to Foreign Countries is the lead agency for
foreign assistance, and it funds companies (many of them
state-owned) to deliver aid in developing countries,
primarily to build commercial ties. MOFCOM certainly is not
the only aid-related agency. The Ministry of Foreign Affairs
(MFA) plays an important aid coordination role, and the
Ministry of Finance (MOF) controls funding. In addition,
other ministries such as Health, Education, and Civil Affairs
have their own aid programs related to their function (ex.
the Ministry of Health is responsible for health projects in
other countries). China's humanitarian assistance programs
also have gained in stature in recent years, most notably
providing assistance to South Asia after the 2004 tsunami and
recent assistance to Africa.

4. (SBU) Liu Junfeng, a Director in MOFCOM's Department of
Aid to Foreign Countries, told Econoff that MOFCOM would be
the lead agency on the proposed Development Assistance
Dialogue. According to Liu, the MFA agrees with this
approach and has asked MOFCOM to take the lead on the
Dialogue. VM Yi's portfolio includes development assistance
and the Department of Aid to Foreign Countries falls under
his area of responsibilities. (Note: VM Wei Jianguo, who
previously held these responsibilities, has retired.) The
head of the Department of Aid to Foreign Countries is

BEIJING 00001225 002 OF 004


Director General Wang Shichun.

Commercial Ties, Resources, and Taiwan
--------------------------------------

5. (SBU) Chinese officials in Beijing state that China's
priorities for its aid program are to build commercial ties
and engender good relations with its neighbors. Numerous
media reports and other anecdotal information from developing
countries indicate that China also aims to: (1) secure
resources, especially energy resources, (2) encourage
developing countries to shift their official diplomatic
recognition from Taiwan to Beijing, and (3) extend China's
"soft power" influence, particularly in Southeast Asia. It
is difficult, however, to estimate the exact amount of
China's assistance overseas, as China does not publish
statistics on its aid program. Many multilateral and
bilateral donors have encouraged China to publish a White
Paper on its aid program. They also have urged China to
impose greater lending discipline so as not to undermine
assistance from Western donors and international financial
institutions by providing capital to poor countries with "no
strings attached."

What is Aid? Loans, Financing, and MDBs
----------------------------------------

6. (SBU) Further complicating efforts to encourage China to
go public with its aid statistics is that the definition of
"aid" in China is not necessarily the same as in western
countries. While other donor countries are shifting from
loans to grants, China often prefers to provide soft loans.
China finances many projects through the vehicles of the
China Development Bank (CDB) or the China Exim Bank.
SINOSURE, China's Export Credit Insurance Company, offers
political risk insurance to companies, even in high-risk
places such as Burma and Sudan. China has begun joining
multilateral development banks (MDBs) as a non-regional
member, and already has joined the African Development Bank
(AfDB) and has asked for U.S. support for its bid to join the
Inter-American Development Bank (IDB). It is one of the only
countries in the world to both receive aid from and provide
aid to MDBs. The terms of financing for China's aid projects
often are unclear. State-owned enterprises (SOEs) often are
subsidized by MOFCOM to deliver aid, and MOFCOM divides its
donor activities into four categories: technical assistance,
grants, interest-free loans, and preferential loans. China's
projects in the developing world, therefore, range in scope
from large agricultural projects to infrastructure
development to building national stadiums to dispatching
health teams. In short, it is difficult to estimate the
amount of China's aid because it is unclear how to categorize
China's aid.

International Coordination Efforts and the OECD
--------------------------------------------- --

7. (SBU) As a result, much of the international community's
focus is on encouraging China to abide by OECD Development
Assistance Committee (DAC) lending standards, and Richard
Manning was the first OECD DAC Chair to visit China in
February 2007. At that time, Manning said China is a top
priority for engaging on aid coordination because it has the
largest and most developed assistance program of any of the
Middle Income Countries. The World Bank continues to consult
with China on its transition from aid recipient to donor.
Arguably, the most successful bilateral development
coordination effort has been the UK Department for
International Development's China-Africa Dialogue. DFID
officials hope that they will be able to continue to engage
with China on bilateral development cooperation in Africa
even after DFID's aid program in China expires in 2011.

USG Outreach on Aid Coordination
--------------------------------


BEIJING 00001225 003 OF 004


8. (SBU) The U.S.-China Dialogue on Foreign Assistance will
build on previous outreach by U.S. officials on aid
coordination:

--State S/P Director David Gordon met with MOFCOM Deputy
Director General for American and Oceanian Affairs Wang
Hongbo in January 2008 on the margins of the Senior Dialogue
to deliver our proposal for the Dialogue.

--Charles Aanenson, Counselor for Development Cooperation at
Embassy Tokyo, met with Liu Junfeng in MOFCOM's Department of
Aid to Foreign Countries in August 2007. Liu said that China
and the United States should further explore possible
cooperation in Africa and begin to identify specific
cooperative projects in recipient countries.

--Kenneth Peel, Deputy Assistant Secretary of Treasury for
International Development Finance and Debt, had a successful
visit to Beijing, highlighted by a meeting with MOFCOM
Department of Aid to Foreign Countries Director General Wang
Shichun, in May 2007. (Note: DAS Peel is scheduled to
return to Beijing in late April for more discussions on
development finance.)

--USAID Director for Donor Coordination Norman Nicholson
presented U.S. views on aid programs and international
development coordination at the U.S.-China Global Issues
Forum and met separately with officials at MOFCOM and MFA in
August 2006.

--Steve Tvardek, Director of the Office of Trade Finance at
the Treasury Department, and Piper Starr from EXIM Bank met
with counterparts at MOFCOM, China EXIM, and SINOSURE in
Beijing in December 2005.

China's Engagement with Africa: The Sound . . .
--------------------------------------------- --

9. (SBU) The Forum on China-Africa Cooperation (FOCAC)
highlights China's engagement with Africa, and sheds light on
the overlap between politics and aid. During the third FOCAC
summit, held November 3-5, 2006 in Beijing, China announced
an eight-point plan for "new strategic partnership" with
Africa, to include a total of USD 3 billion in preferential
and interest-free loans to Africa. Chinese companies and
African Governments signed a total of 14 agreements worth USD
1.9 billion for infrastructure, energy and resource
development, technical and communication equipment and
financial and insurance assistance, and agreed to an "action
plan" for political and economic dialogue and cooperation,
joint medical and educational projects and future trade and
development cooperation. As a means of further building its
international reputation, the PRC invited massive numbers of
journalists to attend the FOCAC summit, even going so far as
to fund travel for some African journalists. Despite being
invited to attend as observers, none of the five African
nations which diplomatically recognized Taiwan at the time of
the Summit attended.

. . . And The Fury: The Sudan Example
-------------------------------------

10. (SBU) Critics claim that China's "no questions asked" aid
policies are actually an overt policy of "aid for oil."
Previous aid contributions to Sudan, China's fourth largest
supplier of oil, included an interest-free loan to Sudan for
President Bashir to build a new presidential palace; the
close economic ties between the two nations have led many to
accuse China of enabling the Sudanese Government's military
efforts in Darfur. The subsequent international fallout
(including Mia Farrow and the Save Darfur Coalition's efforts
to brand the 2008 Olympic Games the "Genocide" Olympics)
spurred China to send Special Envoy for Darfur Liu Guijin to
Sudan in late February 2008, to highlight past aid to Darfur
totaling RMB 80 million (approximately USD 11 million), and
to announce new aid projects, including education and water

BEIJING 00001225 004 OF 004


development.

Comment: A Unique Opportunity
------------------------------

11. (SBU) Your meeting with VM Yi will be the first
opportunity we have had to discuss development assistance
with the Chinese Government at the Vice Minister-level. As
noted in para 8, our engagement on foreign aid over the past
three years has been limited, and this meeting is an
opportunity for us to overcome China's long-standing
skepticism of our motives and to establish a collaborative
dialogue. As we encourage greater transparency in China's
assistance and urge China to abide by international lending
norms, we also must view China as an equal partner in our
efforts to promote development. As China's international
standing rises in the months leading up to the 2008 Beijing
Olympics, therefore, your meeting with VM Yi presents a
unique opportunity not only to discuss China's donor
coordination efforts but also to lay the groundwork for our
bilateral Dialogue on Foreign Assistance.
RANDT

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