VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #7009/01 3331532
ZNY CCCCC ZZH
R 291532Z NOV 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2760
INFO RUEHBJ/AMEMBASSY BEIJING 0137
RUEHMO/AMEMBASSY MOSCOW 0347

C O N F I D E N T I A L CAIRO 007009 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 11/28/2016 
TAGS: PREL ETRD EFIN MNUC EPET AA CH RU EG
SUBJECT: MUBARAK'S CHINA VISIT STRENGTHENS ECONOMIC, TRADE 
TIES 
 
REF: BEIJING 23548 
 
Classified by DCM Stuart Jones for reasons 1.4 (b) and (d). 
 
¶1.  (C  SUMMARY:  Egyptian President Mubarak and a delegation 
including most of his economic ministers visited Moscow and 
Beijing in early November.  While the visit played in the 
press as a rebuke to the US, the delegation did conduct some 
real business while visiting both countries, China in 
particular.  The GOE concluded a number of trade deals with 
the Chinese, and the two governments signed a 
mostly-ceremonial nuclear cooperation agreement.  Both the 
Russians and the Chinese are keen to work with Egypt on its 
proposed nuclear power plant, and are pushing their rail 
equipment as well.  Minister of Transport Mansour told 
Commercial attache the Chinese rail equipment prices offered 
Egypt are 47 percent lower than US companies.  Egypt would 
like to do more business with China; in 2005, Egypt had a 
$1.85 billion trade deficit with China, for which they were 
partially compensated with Suez Canal transit revenues.  END 
SUMMARY 
 
¶2.  (C) Egypt's President Mubarak took advantage of his 
participation in the Beijing Summit and Third Ministerial of 
the Forum for China-Africa Cooperation (FOCAC) November 3-5, 
staying on November 6-7 for his bilateral agenda.  He visited 
Moscow for three days en route to Beijing; the China trip 
seems to have netted more substantive results.  MFA Deputy 
Minister for East Asia Magdy Amer told poloff that one 
important aspect was to show Mubarak how China has developed 
economically in recent years; he last visited in 2002.  The 
delegation included all of Egypt's economic ministers, and 
so, Amer said, it was a good opportunity for them to see and 
learn from China's economic development experience. 
 
¶3.  (C) According to Amer, the two sides discussed Middle 
East regional issues, terrorism and cooperation.  Mubarak's 
meeting with his Chinese counterpart, which lasted ninety 
minutes, focused on economic and trade issues.  They also 
discussed North Korea's nuclear program, and agreed on the 
need to contain North Korea's nuclear ambitions.  Egypt 
solicited China's support for full implementation of the 
Non-Proliferation Treaty (ie., to include Israel).  Amer told 
poloff Egypt and China are in "full agreement" on 
nonproliferation and disarmament issues.  The GOE and China 
also discussed proposals to improve Egypt's rail system, 
although Egypt did not agree to buy any Chinese equipment. 
 
¶4.  (C) Egypt and China signed several agreements; most 
appear to have limited substantive content.  A 
government-to-government agreement granted China free market 
status, as part of its WTO accession.  The two countries 
signed an agreement on nuclear cooperation (see para 7).  The 
two Health Ministers signed an agreement on Avian Influenza; 
the GOE hopes to take advantage of Chinese expertise, 
including with poultry vaccines.  Egypt's GAFI signed an 
agreement with their Chinese counterparts on investment 
which, according to Amer, contained nothing concrete.  There 
was also an MOU between the Egyptian Social Fund for 
Development and a Chinese bank on microfinance. 
 
¶5.  (U) In terms of trade, on the IT side, Egypt's 
representative of the Kuwaiti-based Kharafi Group agreed to 
buy 80 percent of SITEX, a Chinese IT company, and use the 
acquisition to transfer Chinese IT technology to Egypt. 
Etilisat, the Emirati company that bought Egypt's third 
mobile license, signed an agreement with the Chinese IT firm 
Huawai, which will participate in building the new mobile 
network. 
 
Military Cooperation 
-------------------- 
¶6.  (C)   Military Cooperation:  Minister of Military 
Production Meshaal told poloff on November 9 that Egypt is 
considering Russian air defense systems.  (Note:  At present, 
the majority of Egypt's air defense is Russian-made.  End 
note.)  He said he visited Chinese military production 
facilities twice during his tenure as minister, but is not 
convinced China would be a good supplier. He confirmed that 
China had tabled an offer for fighter aircraft, but could not 
provide any detail.  (Note:  Reports indicate Egypt is 
considering buying JF-17s from China or upgraded F7s.  End 
note).  During a read-out on the China visit, MFA Deputy 
Assistant Minister Magdy Amer ducked a question about 
GOE-China mil-mil cooperation, but pointed out that Egyptian 
Minister of Defense Tantawi did not participate. 
 
NUCLEAR COOPERATION 
------------------- 
¶7.  (C) According to the MFA's Amer, the two groups discussed 
Egypt's nuclear program in general terms and signed an 
 
agreement pledging to strengthen cooperation in the 
development of peaceful nuclear energy.  Embassy contacts 
indicate the agreement was non-specific, and that Egypt will 
work with all partners.  Local press commentary welcomed the 
news, however, offering China as a positive alternative to 
cooperation with the US.  Mubarak also raised Egypt's nuclear 
plans furing his Nov 1-3 trip to Moscow.  The Russians are 
also interested in working on the proposed Egyptian nuclear 
plant project. 
 
Frequent flyers 
--------------- 
¶8.  (U) Mubarak's trip follows a series of ministerial-level 
visits to China since the summer.  Minster of Petroleum (MoP) 
Sameh Fahmy was in China earlier this year, and signed 
agreements for oil services equipment as well as exploration. 
 The first agreement, signed between the MoP and the China 
Petroleum and Chemical Corporation (Sinopec), established a 
new joint Sino-Egyptian company to specialize in the 
construction of oil rigs in Egypt.  The new company, 
Sino-Tharwa, will deliver three rigs in 2007 and 20 rigs by 
¶2010.  Fahmy also signed agreements with China's Sinoc to 
cooperate on international tenders in Egypt for exploration 
and discovery, and to expand Sinopec's activities, including 
increasing the number of rigs it operates here from two to 
seven by 2008. 
 
¶9. (C) Minister of Transport Mohamed Mansour visited China in 
October to discuss railway equipment procurement among other 
issues; but the GOE has not yet decided who will supply its 
needs.  Mansour (please protect) has told U.S. Embassy 
Cairo's Commercial Attache that the Chinese rail equipment 
prices offered to Egypt are 47 percent lower than U.S. 
companies but added that he recognizes U.S. advantages in 
service and maintenance.  Minister Rachid's recent trip, also 
in October, netted deals which he expects will increase 
bilateral trade to over $5 billion over the next several 
years.  The agreements include an industrial zone in Cairo 
for textile, footwear and pharmaceutical investments.  There 
is a deal to build an $800 million aluminum smelter, with a 
projected capacity of 270,000 tons, presumably to exploit 
Egypt's subsidized electricity prices.   A third agreement 
established three private-sector-operated technology service 
centers, two for textiles and one to transfer Chinese 
expertise in marble and granite stonework.  In July 2005, the 
China Textile Machinery Group (CTMC) began construction of a 
$12.5 million non-woven fabric project in the north-west Suez 
free trade zone. 
 
¶10.  (U) After returning from his October trip China, 
Minister of Investment Mahmoud Moheildin said the Chinese are 
interested in investing in the northwest Port Suez zone, and 
signed a contract for polyester production there.  The 
Chinese, he said, had also financed the construction of a $10 
million "one stop" investment office in Assiyut governorate. 
The Chinese Embassy in Cairo reports 35 Chinese investments 
in Egypt, mainly in textiles, chemicals, engineering, food 
process and leather. 
 
Trade 
----- 
¶11.  (U) One of the big topics on the trip was trade, which 
at this point is one-sided:  in 2005, the Chinese exported $2 
billion to Egypt, while the Egyptians sold only $150 million 
to the Chinese.  Egypt does earn significant Suez Canal 
revenues on Chinese exports to Europe.  According to Rachid, 
sixty percent of China's exports to Europe pass through the 
canal.  Egypt is seeking to increase this business, he said. 
 
¶12.  (U) In 2000, China and Egypt agreed to make Port Said a 
distribution center for Chinese containers in the Middle 
East.  Since then, Chinese inroads into the sector have 
increased with the formation of an Egyptian-Chinese committee 
for transportation, and the two countries have signed 
additional agreements for container handling in Port Said. 
Hutchinson Whampoa has a 25-year deal with the Alexandria 
Port Authority to operate two new container terminals at 
Alexandria and Dekheila, and with increased Chinese container 
traffic through the Suez we expect further expansion of their 
presence in Egypt's ports. 
 
¶13.  (C) COMMENT:  One important reason for President 
Mubarak's recent trip to Moscow and Beijing was to send a 
signal to the U.S. that Egypt has other friends.  The notion 
of Egypt's adopting China's growing economic role has 
political resonance on the Egyptian "street."  At the same 
time, Egypt conducted serious business in both countries, 
including nuclear cooperation and rail equipment.  In both 
private conversations and in the press, Egyptian comments 
reflect a general expectation the U.S. will be annoyed by 
closer Egypt-China economic ties.  END COMMENT. 
 
RICCIARDONE