P 130734Z JUL 08
FM AMEMBASSY LUANDA
TO SECSTATE WASHDC PRIORITY 4885
INFO SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS LUANDA 000536 
 
 
STATE FOR AF/S AND EAP/CM 
 
E.O. 12958 
TAGS: PGOV ECPS EFIN PREL SENV AO CM
SUBJECT:  CHINA's ENGAGEMENT IN ANGOLA 
 
Ref:  A) State 41697; B) Luanda 30; C) 07 Luanda 1069; D) 07 Luanda 
1015; E) 07Luanda 923; F) 07 Luanda 326; G) 07 Luanda 287; H) 07 
Luanda 171 
 
 
1.(SBU)  Summary.  China's engagement with Angola starts with oil 
but does not end there.  Publicly funded Chinese construction 
projects and a growing private Chinese corporate presence ensure a 
continuing commercial relationship.  Chinese projects support 
Angola's central economic policy of rebuilding transportation links 
to catalyze the non-petroleum economy.  Meanwhile, the Chinese and 
U.S. Embassies hope to design a joint development project, 
preferably in agriculture.  End Summary. 
 
Focus Areas of Chinese Engagement in Angola 
--------------------------------------- 
 
¶2. (SBU)  China's interest in Angola starts with oil:  in 2006, 
Sonangol-Sinopec International (SSI) offered two USD 1 billion 
signing bonuses to invest in two petroleum exploration blocks.  SSI 
is the Angolan joint venture of two state-owned oil companies: 
China's Sinopec and Angola's Sonangol.  SSI is an investor here, not 
an operator, but may bid to become an operator during Angola's 
current round of bids on new blocs, which has been suspended until 
after the September elections.  Sinopec was originally to build a 
refinery for Angola in Lobito, but Angola cancelled the deal when 
Sinopec demanded that most of the output go to China.  China's Ex-Im 
Bank has opened oil-backed lines of credit worth USD 4.5 billion and 
the GRA secured a reported additional USD 6 billion through the 
private Hong Kong-based China International Fund.  Angola continues 
to request funding increases and China continues to oblige.  In July 
China's Ex-Im Bank increased its line by 127 million dollars, 
according to Angola media sources. 
 
¶3. (SBU)  Throughout the country, Chinese financing builds and 
restores roads, railroads, hospitals, schools and other public 
buildings.  Unpublished bilateral agreements give 70 percent of this 
work to Chinese firms, the rest to Angolan firms.  The opportunity 
to employ excess capacity attracts Chinese State- and 
provincially-owned construction companies.  Angolan President Jose 
Eduardo dos Santos publicly criticized the quality of Chinese-built 
public works, but Deputy Prime Minister Aguinaldo Jaime concedes 
that the GRA itself bears much of the blame for failing to conduct 
adequate project supervision. 
 
¶4. (SBU)  Chinese construction crews are prominent in the 
countryside and in the cities.  The Chinese hire few Angolan 
workers, although Emboffs on occasion have seen Angolans running 
heavy equipment on Chinese projects.  To avoid friction between 
their employees and Angolans, companies keep their Chinese employees 
either at work or out of sight in company housing.  However, there 
is friction among Chinese.  On May 23, for example, a group of 
Chinese workers standing in the back of a large truck came to Luanda 
looking for their embassy to complain that their Chinese employer 
had not paid or fed them. 
 
¶5. (SBU)  The Ministry of Finance claims construction projects 
financed through China Ex-Im Bank proceeded smoothly through 2006 
and 2007.  However, something went wrong during 2007 with projects 
financed through the China International Fund (CIF) and managed by 
Angola's National Reconstruction Office (GRN).  Construction on 
several projects slowed; work on all three railroad projects came to 
a halt; and the international airport project stalled in the design 
stage.  New domestic and Chinese financing announced in late 2007 
appears to be alternative financing for those projects.  By early 
2008, work on all railroad projects resumed, but now with completion 
dates years later than previously promised.  Not surprisingly, CIF's 
failure to deliver financing has eroded its status as confidante of 
Angola's powerful. Difficulties in execution were not all on the 
Chinese side.  Chinese managers express surprise at the rapacity of 
Angolan officials, who demand their cut from contractors.  Also, 
lengthy import delays have deprived Chinese projects of equipment 
and supplies, putting them behind schedule. 
 
¶6. (SBU)  Private Chinese businessmen had already reached Angola by 
the late 1980s and established restaurants, and, subsequently 
construction companies; others import consumer goods, heavy 
equipment, and most of Angola's imported cement.  Chinese traders 
now are part of the commercial landscape.  As the economy (slowly) 
diversifies, Chinese entrepreneurs seek new business activities 
throughout the country.  Small builders with a dozen tradesmen 
restore older houses in Luanda.  One large private Chinese firm is 
building a tract of two-million dollar homes on Luanda's upscale 
south side.  The Chinese business community supports two chambers of 
commerce, one for private businesses, the other for publicly-owned 
companies which compete among themselves for contracts funded 
through Chinese lines of credit.  Well-established private firms 
have learned how to survive Angola's difficult business climate and 
profit from the nation's oil wealth.  The public firms can learn 
from them. 
 
U.S. - China Cooperation 
------------------------ 
 
¶7. (SBU)  The Chinese and U.S. Ambassadors have agreed to explore 
possibilities for a joint development program, preferably in 
agricultural.  The U.S. will present a proposal to the Chinese 
Ambassador soon.  Potential areas for cooperation include combining 
Chinese work in transportation with American projects to rebuild 
agriculture. 
 
Potential Areas for Increased Cooperation 
----------------------------------------- 
 
¶8. (SBU)  American expertise in transportation design could play an 
important role as Angola turns from restoring colonial 
transportation to extending the road and rail system.  Seaports and 
airports are another potential area for cooperation, although the 
Japanese also have projects to improve ports.  A Chinese company was 
certain to win the contract to build a new international airport for 
Luanda with Chinese financing.  That outcome may now depend on the 
source of financing.  Private U.S. companies already are sharing 
their experience in managing aviation.  Success in this area could 
lead to more U.S. presence in areas now reserved for the Chinese. 
 
China - Angola Cooperation 
-------------------------- 
 
¶9. (SBU)  Comment.  China's long history of cooperation in Africa is 
short and complicated in Angola.  Like the U.S., China had once 
supported Savimbi and UNITA.  By moving swiftly to provide financing 
at the end of the civil war, China helped put its bilateral 
relationship on solid footing.  The new relationship has hit some 
rough patches:  the spat over the refinery, Angolans criticism of 
1poor-quality Chinese construction, Chinese companies' employing few 
Angolans, the Chinese failure to impart skills to Angolans, and 
delays in GRN projects caused by funding problems.  For perspective, 
Angola's relationships with Portugal, the United States, France and 
South Africa also mix warm friendship and sharp criticism from the 
Angolan side.  Despite problems with Chinese-built projects, Angolan 
officials defend China's role in rebuilding the country as timely 
and critical, especially given the perceived failure of the West to 
step up to the plate to finance Angola's reconstruction. 
 
 
MOZENA