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C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000964 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR H.SERVIN-BAEZ 
SENIOR AFRICA DIRECTOR C. COURVILLE 
 
E.O. 12958: DECL: 07/25/2015 
TAGS: PGOV PREL ECON ZI CH
SUBJECT: GOZ HYPING CHINA'S ROLE IN ZIMBABWE,S ECONOMY 
 
Classified By: Charge d'affaires Michael Raynor under Section 1.4 b/d 
 
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Summary 
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¶1.  (C) Despite GOZ attempts to hype supposed dividends from 
its relationship with China including the June visit of Vice 
President Joyce Mujuru to Beijing, business sector contacts 
tell us that promised Chinese investments have largely failed 
to materialize.  The only major industry in which Chinese 
investors appear to hold sway is in tobacco, where Chinese 
buyers consume a third of national output, according to 
industry contacts.  Instead, Chinese investors, like many 
others, appear to have become disenchanted with Zimbabwe's 
abysmal business environment and economic mismanagement.  In 
addition, a popular backlash against the perceived influx of 
substandard Chinese products has emerged.  End Summary. 
 
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Desperately Seeking(Anyone 
-------------------------- 
 
¶2.  (C) Following up on President Robert Mugabe's pilgrimage 
to Beijing a year ago, Mujuru visited Beijing in early June 
in an attempt to encourage investment and drum up support for 
the GOZ's latest economic turnaround plan.  (N.B. Perhaps 
showing the lopsided nature of this courtship, Chinese 
Premier Wen sidestepped Zimbabwe on his seven African nation 
tour also in June.)  According to state-controlled media, 
Mujuru signed two investment contracts with Chinese firms in 
exchange for chrome sales from Zimbabwe's parastatal Mining 
Development Corporation (ZMDC).  In a deal ostensibly valued 
at US$1.3 billion, China National Machinery and Equipment 
Import and Export Corporation reportedly agreed to develop 
three thermal power stations in blackout-prone Zimbabwe. 
Additionally, Star Communications of China reportedly inked a 
US$60 million contract to provide radio and television 
equipment to Zimbabwe's state broadcaster. 
 
¶3.  (C) Mujuru's state-media-grabbing visit coincided with 
the visit of several relatively unremarkable Chinese 
delegations that have received front-page coverage in the 
GOZ's papers.  Portrayed as evidence of the success of the 
GOZ's "Look East" policy, the local media have hyped the 
recent visits of a delegation seeking to establish more 
"sister city" relationships, a team exploring potential 
methane gas reserves in Matabeleland, and representatives of 
the China Aero Technology Import and Export Company who 
followed up on the sale of three MA60 passenger planes to Air 
Zimbabwe last year. 
 
¶4.  (C) Opposition MP and pro-Senate faction of the MDC 
foreign affairs secretary Moses Mzila Ndlovu told poloff on 
June 22 that the GOZ's emphasis on relatively small gestures 
from China is an indication of how desperate for 
international support ZANU-PF has become.  Ndlovu said that 
Mugabe had resorted to "political prostitution." In the 
absence of personal ties between GOZ and Chinese leaders, a 
common liberation war history and anti-colonialist ideology 
were the only binding ties.  According to Ndlovu, the 
Chinese, however, were increasingly looking for profitable 
business deals, often putting them at loggerheads with the 
hand-out seeking GOZ. 
 
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Coming Back Empty Handed 
------------------------ 
 
¶5.  (C) Business sector contacts caution us that the deals 
 
HARARE 00000964  002 OF 003 
 
 
that Mujuru signed were merely MOUs and not actual business 
contracts.  As such, they were only the first of many steps 
necessary before actual investment flowed into Zimbabwe. 
Local economic commentator Eric Bloch told poloff on June 23 
the GOZ was hyping the agreements in an effort to demonstrate 
foreign confidence in the Zimbabwean economy and to show 
dividends from the government's latest economic revival 
scheme.  Bloch added that the Chinese were well aware of what 
has happened to other foreign investors in Zimbabwe and are 
seeking iron-clad, internationally arbitrated agreements to 
prevent the GOZ from seizing assets. 
 
¶6.  (C) Tongai Muzenda, the commercial director of 
ferrochrome-maker Zimbabwe Alloys, told poloff on June 22 
that the recent chrome-backed MOUs signed by Mujuru were 
largely smoke and mirrors.  ZMDC owned only 10 percent of the 
chrome fields in Zimbabwe and was not currently producing any 
of the mineral.  Investors from China, the world's fastest 
growing market for chrome, already operated one small chrome 
mine and basic processing plant in Mashonaland West. 
Muzenda, however, assessed that there was little new acreage 
for the GOZ to offer the Chinese, since the two largest 
chrome producers are indigenous firms and as such not subject 
to proposed legislation that would nationalize foreign mining 
companies. 
 
¶7.  (C) Alluding to the generalities of the ZMDC deal, 
economic analyst John Robertson told poloff on June 21 that 
this was the case for most of Zimbabwe's "contracts" with 
China.  Recounting nine deals supposedly agreed to a year 
ago, such as refurbishment of the railway, steel, and coal 
parastatals, Robertson noted that none of the projects had 
yet commenced.  In fact, deals with the national steel 
company and in the platinum industry that the Chinese had 
been eying have gone to investors from Russia and India. 
(N.B. Based on limited conversations with government 
officials and coverage in the state media, the GOZ appears to 
have shifted its hopes for support to these two countries.) 
Perhaps the only major deal to materialize is Sino-Cement, 
but Bloch noted that builders were essentially boycotting the 
company's overpriced and poor quality cement. 
 
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Tobacco Provides Only Vice 
-------------------------- 
 
¶8.  (C) In contrast to other sectors, Zimbabwe Tobacco 
Association President Andrew Ferreira told poloff on June 21 
that China has become the dominant foreign actor in the 
tobacco industry, purchasing roughly one-third of Zimbabwe's 
national output.  (N.B. Official Chinese trade data for 2005 
show that tobacco accounted for 81 percent of its imports 
from Zimbabwe.)  According to Ferreira, Chinese smokers have 
a preference for Zimbabwe tobacco despite declining quality 
in recent years. 
 
¶9.  (C) Ferreira told poloff that Chinese buyers were eager 
to guarantee their future access to Zimbabwean tobacco. 
Accordingly, two Chinese companies have entered into 
contracts with tobacco farmers in an effort to circumvent the 
more volatile auction floors.  Ferreira also said that the 
GOZ had allocated Chinese investors two tobacco farms in 
Mashonaland West, but could not provide additional details. 
Ultimately, he said, Chinese buyers hoped that Zimbabwe would 
revive output to about 180 million kilograms, as compared to 
the current output of circa 50 million kilograms. 
Recognizing that the lack of reliable power supplies is one 
of the chief obstacles to that goal, Ferreira said the 
Chinese had put pressure on the parastatal power company to 
guarantee a supply to their contract farmers. 
 
HARARE 00000964  003 OF 003 
 
 
 
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Honeymoon Coming to an End 
-------------------------- 
 
¶10.  (C) Robertson said that the Chinese had become 
disenchanted with the GOZ's failure to repay loans and to 
make payment on capital equipment, and with the ham-handed 
manner in which the bilateral relationship had been handled. 
This was especially true in light of the large-scale payments 
made to the IMF over the past year.  (N.B. Exemplifying this, 
an independent newspaper reported in May that six Chinese 
firms had abandoned projects in Zimbabwe due to non-payment.) 
 Chinese visitors were often embarrassed by the intense 
state-controlled media coverage and the GOZ's penchant for 
announcing deals before they were formally agreed upon. 
Robertson noted that this put Chinese investors in the 
awkward position of either accepting an ill-conceived 
proposal or backing away from high-profile "contracts." 
 
¶11.  (C) Smaller-scale Chinese merchants have also begun to 
lose interest in Zimbabwe, according to several of our retail 
industry contacts.  Robertson explained that many Chinese 
merchants flocked to Zimbabwe under the easy immigration 
procedures of the GOZ's "Look East" policy and brought with 
them the one allowed shipping container of duty-free 
merchandize, which they then sold at a substantial profit. 
The initial attraction, however, quickly wore off, according 
to Robertson, as sales dropped in line with the country's 
dwindling purchasing power.  Like their local competitors, 
many Chinese merchants have since closed shop due to the 
economic hardships. 
 
¶12.  (C) Moreover, the flood of sub-standard Chinese consumer 
products, or "zhing-zhong" as it is derisively called, has 
sparked popular resentment against the Chinese, according to 
several of our contacts.  Japanese diplomats tell us that 
they are often on the receiving end of criminal attacks and 
derogatory comments from Zimbabweans who mistake them for 
Chinese.  The resentment has even spread to Bulawayo, where 
civic leader Gordon Moyo told poloff on June 23 that despite 
the city's relatively small Chinese population the locals 
were was increasingly xenophobic.  Bulawayo Mayor Japhet 
Ndabeni Ncube on June 23 added that locals often blamed the 
business-savvy Chinese for creating and taking advantage of 
Zimbabwe's economic woes. 
 
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Comment 
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¶13.  (C) Chinese investors )like those from other countries 
- are eying Zimbabwe's natural abundance and economic 
potential with desire.  However, in contradiction to the 
state-controlled media, Chinese investors are not flocking to 
Zimbabwe as they are to other parts of Africa.  Despite the 
talk of shared ideology and comradeship, the Chinese appear 
to have made the business assessment that venturing into 
Zimbabwe is simply very risky and not likely to be 
profitable.  To this end, China joins the likes of Libya, 
Malaysia, and Iran in the growing list of the GOZ's 
disillusioned suitors. 
RAYNOR