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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