VZCZCXRO3855
RR RUEHRG
DE RUEHBR #0918/01 1431042
ZNR UUUUU ZZH
R 231042Z MAY 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 8993
INFO RUEHSO/AMCONSUL SAO PAULO 9915
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UNCLAS SECTION 01 OF 02 BRASILIA 000918 
 
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E.O. 12958: N/A 
TAGS: ETRD EIND EINV BR CH
SUBJECT:  CVRD EXECUTIVES LAMENT INCREASING CHINESE INFLUENCE OVER 
LATIN AMERICAN NATURAL RESOURCES 
 
¶1. (SBU)  Summary.  During a May 18 office call on the Ambassador, 
CVRD executives expressed their concern about increasing Chinese 
influence over both natural resources and the 
distribution/transportation infrastructure needed to export these 
resources to distant markets.  In the future, they warned, the USG 
would need to pay greater attention to where its raw materials would 
come from as China hoped to lock up both South America and Africa as 
its suppliers.  The Ambassador queried our interlocutors regarding 
what steps they were taking to ameliorate Brazil's infrastructure 
deficit.  He noted that the key question were how can both the USG 
and the U.S. private sector best be of use and what was the GOB 
willing to do, adding that this issue would certainly be on the 
agenda during the upcoming early July visit of Treasury Secretary 
Paulson to Brazil.  End Summary. 
 
¶2.  (U)  On May 18, Ambassador met with Roger Agnelli and Tito 
Martins, CEO and Executive Director, respectively, of the Brazilian 
multinational minerals giant Companhia Valle do Rio Doce (CVRD). 
CVRD is a global mining company and world's largest producer of iron 
ore.  Agnelli became Chairman of CVRD's Board of Directors in 2000 
and was named CEO a year later.   Formerly a GOB parastatal but 
privatized in 1997, CVRD currently has a presence in 14 Brazilian 
states and 5 continents (the Americas, Europe, Africa, Asia and 
Australasia) and is part of the emerging class of Brazilian 
industrial giants which are now investing overseas. 
 
¶3.  (SBU)  Agnelli noted the strategic importance of both Brazil and 
Latin America in terms of the world resources.  Brazil, he observed, 
had large quantities of uranium, oil, gas, and iron oil (30 percent 
of the world's supply of the latter), while its neighbors were rich 
in natural resources as well.  Venezuela had vast reserves of oil, 
Peru was a key producer of tin and gold, and Bolivia and Argentina 
were rich with gas.  Even Cuba was important as it, along with New 
Caledonia, had one of the two key international deposits of nickel. 
 
 
¶4.  (SBU)  For this reason, he said, China was eagerly looking at 
South American commodity reserves as potential raw material to fuel 
its future industrial expansion.  The Chinese plan, he continued, 
was to eventually control not only the continent's mineral deposits 
but the distribution/transportation networks and the port 
infrastructure as well.  China's efforts to woo both the Chavez 
regime in Venezuela and the Castro government in Cuba were all part 
of Beijing's long-range plan to increase its influence over Latin 
American countries and its access to their mineral resources. 
Comment.  As CVRD derives much of its record profit from sales of 
iron ore to China, in many ways it is a willing partner.  Indeed, 
Martins is a Director of the Brazil-China Business Council and 
Agnelli himself sits on that organization's Consultative Committee. 
End Comment. 
 
 
¶5.  (SBU)  Agnelli pointed to Africa as an example of what could 
happen when the Chinese gained excessive influence.  CVRD had lost 
contracts in Gabon and Angola, and was fighting a fierce battle to 
retain markets in Mozambique and South Africa.  If China locked up 
African reserves, he said, this would create imbalances in the 
international market as the remaining customers in the U.S. and 
Europe would have to pay high prices as key stocks would effectively 
be off the market.  The USG need to think seriously, he declared, as 
to what would happen if the Chinese won the struggle for access to 
commodities.  The PRC already had a leg up, he noted, as in China 
such decisions were made by government while in the U.S. private 
sector buyers looked at the issue in a much more decentralized 
fashion. 
 
¶6.  (SBU)  Shifted gears, the Ambassador turned to the subject of 
the infrastructure deficit in Brazil.  The difficulty in getting 
product from mine to market contributed greatly to "custo Brazil," 
 
BRASILIA 00000918  002 OF 002 
 
 
i.e., the high cost of business associated with doing business here. 
 He queried Agnelli whether CVRD was working to help build the 
country's rail network so as to improve the situation.  Agnelli 
noted that while CVRD had one rail project on the books, Brazil's 
real need was improvements in its port infrastructure.  The private 
sector was helping to close the infrastructure deficit through 
concessions, but the Brazilian government was failing to do its part 
as it because it had so little available funds to invest, he said. 
Agnelli concluded that the multilateral development banks, and 
specifically the World Bank, needed to provide greater financing for 
public infrastructure projects in Brazil. 
 
¶7. (SBU)  In response, the Ambassador asked about other sources of 
funding alternative to the World Bank.  For instance, he noted that 
OPIC was a potential financing sources and that U.S. companies would 
like to find a way offer their services.  The key questions were how 
can both the USG and the U.S. private sector best be of use and what 
was the GOB willing to do, adding that this issue would certainly be 
on the agenda during the upcoming visit of Treasury Secretary 
Paulson to Brazil. 
 
Sobel