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OO RUEHWEB

DE RUEHAE #0492/01 1581429
ZNY CCCCC ZZH
O 071429Z JUN 06
FM AMEMBASSY ASMARA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8213
INFO RUEHDS/AMEMBASSY ADDIS ABABA PRIORITY 5902
RUEHDJ/AMEMBASSY DJIBOUTI 2806
RUEHLO/AMEMBASSY LONDON 1149
RUEHFR/AMEMBASSY PARIS 1322
RUEHBS/USEU BRUSSELS
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RUEKDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RHMFISS/CJTF HOA

C O N F I D E N T I A L ASMARA 000492 
 
SIPDIS 
 
SIPDIS 
 
LONDON FOR AFRICA WATCHERS 
PARIS FOR AFRICA WATCHERS 
 
E.O. 12958: DECL: 06/07/2016 
TAGS: ECON PREL PGOV PINR CH ER
SUBJECT: CHINESE COMMERICIAL ACTIVITIES IN ERITREA: GSE 
RULES FRUSTRATE EVEN ITS CLOSEST PARTNER 
 
REFTEL: 05 ASMARA 923 
 
CLASSIFIED BY:  AMB Scott H. DeLisi, for reasons 
1.4 (b) and (d). 
 
1.(C) Chinese influence in Eritrea may begin to erode as 
Chinese business operations in Eritrea, restricted by GSE 
financial policies, vote with their feet and scale back 
on large scale investments in Eritrea.  On June 6, Sun 
Jiliang, Deputy Chief of Mission of the Embassy of the 
People's Republic of China, discussed with Poloff the 
general state of affairs for Chinese businesses in 
Eritrea.  Sun shared the frustrations of the Chinese 
businesses at the strict GSE limitations on the export of 
foreign currency.  For the businesses, the foreign 
exchange policies are eating away at the profitability of 
doing business iQEritrea.  Some Chinese businesses have 
paid as high as a 20% tax or fee on currency conversion 
in order to remove hard currency from Eritrea.  The GSE 
foreign exchange policies and the lack of infrastructure 
and basic inputs, such as electricity, water and gas, 
serve as disincentives for Chinese businesses to initiate 
operations in Eritrea. 
 
¶2. (C)  Another constraint for Chinese businesses here is 
that most of their projects are outside of Asmara where 
limited infrastructure and the lack of basic inputs make 
it tough to operate effectively and as profitably as they 
would like.  In addition, the new GSE travel restrictions 
for all foreigners may affect efficiency as businesses 
must apply for permits one trip at a time.  Upon the 
GSE's issuance of its new restrictions, Sun stated the 
Chinese Embassy notified all of the businesses.  As of 
Jun 6, none had reported any difficulties, however, he 
did not know if any had requested permission to travel. 
He did not anticipate that the Chinese businesses would 
encounter difficulties in receiving approval.  (Note: He 
was unconcerned by the GSE's new restrictions and 
seemingly dismissive.  Rather, he affirmed the GSE's 
right to do whatever they wanted in this regard - a point 
we accept in regard to restricting foreign nationals 
generally but not diplomatic personnel  End note.) 
 
¶3. (C) According to Sun, approximately 10 Chinese owned 
businesses operate in Eritrea.  The majority are 
construction companies, two are telecommunications 
companies and there are a handful of physicians working 
in Eritrea. (REFTEL)  None of these businesses function 
solely in the private market, rather they have contracts 
with the Government of Eritrea and with the People's 
Front for Democracy and Justice(PFDJ) - the government's 
political arm and the only political party in Eritrea. 
Nearly all of the projects are infrastructure related, 
such as upgrading phone service for Eritel and 
constructing roads, bridges, dams and wells, including 
several projects funded by World Bank. 
 
¶4. (C) With seemingly better than access to high level 
government officials than enjoyed by other diplomatic 
missions there exists the widely held perception that 
China has special  influence in Eritrea.  That influence, 
however, may be largely restricted to commercial 
enterprises rather than political issues.  The newly 
arrived British Ambassador, Nick Astbury, shared with 
Poloff parts of his initial call on the Chinese 
Ambassador, Shu Zhan during which Shu maintained that the 
Chinese had minimal political influence on the GSE. 
While they may have access to the President, Shu 
explained, this access is limited primarily to matters 
related to commercial and financial projects and little 
policy or ideology is discussed. 
 
¶5. (C) Comment:  The GSE sponsored English language 
newspaper frequently spotlights the GSE - PRC 
relationship, including on military cooperation and, with 
that as the backdrop, Post continues to explore the full 
extent of the Chinese - Eritrea bilateral relationship. 
Given President Isaias' personal ties to China (he 
received military training in the late 1960s), he 
maintains strongly positive feelings for the Chinese and 
an unfortunate attachment to a Maoist ideology that still 
seems to guide his views on governance.  Substantively, 
however, the relationship may be less than it appears on 
the surface, at least in regard to military support which 
evidence suggests exists only a small scale. 
 
¶6.  (C) Comment con't:  China does continue to be 
Eritrea's predominant commercial partner but, as noted, 
even that "special" relationship has not kept Chinese 
businesses, like others, from struggling under the burden 
of the GSE's onerous and restrictive financial 
requirements.  The inability of Chinese businesses to 
repatriate their profits from Eritrea may result in fewer 
and fewer Chinese businesses entering the Eritrean 
market.  Given the GSE's reliance on Chinese-managed 
infrastructure projects it will be of interest to see if 
the GSE readily accepts a gradual exodus of Chinese 
companies or will amend its rules or find a way to make 
exceptions for the Chinese.  End Comment. 
 
DeLisi