VZCZCXRO7063
RR RUEHKN
DE RUEHKN #0177/01 3380745
ZNY CCCCC ZZH
R 030745Z DEC 08
FM AMEMBASSY KOLONIA
TO RUEHC/SECSTATE WASHDC 2158
INFO RUEHKN/AMEMBASSY KOLONIA 2518
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHMFISS/CDR USPACOM HONOLULU HI
RUEHBJ/AMEMBASSY BEIJING 0072
RUEHKO/AMEMBASSY TOKYO 0067
RUEHBY/AMEMBASSY CANBERRA 0084

C O N F I D E N T I A L SECTION 01 OF 02 KOLONIA 000177 
 
SIPDIS 
 
E.O. 12958: DECL:  12/3/2018 
TAGS: PREL EAID FM CH JA
SUBJECT: CHINA TO BID U.S. COMPACT INFRASTRUCTURE PROJECTS IN 
MICRONESIA 
 
REF: KOLONIA 152 
 
CLASSIFIED BY: Miriam K. Hughes, Ambassador, Amembassy Kolonia, 
State. 
REASON: 1.4 (b), (d) 
 
 
 
¶1.  (C)  Summary.  In the Federated States of Micronesia (FSM), 
the Chinese Ambassador has exercised broad authority from 
Beijing to initiate significant construction and other aid 
projects.  The other three chiefs of mission from Japan, 
Australia and the United States use the limited resources at 
their disposal creatively.  China announced it will bid major 
U.S. Compact infrastructure projects in the FSM that the other 
embassies did not previously know about.  If so, China may be 
the sole or the most competitive bidder.  End Summary. 
 
¶2.  (C)  In her role as dean of the Federated States of 
Micronesia's (FSM) small diplomatic corps and in response to a 
suggestion of the U.S., China's Ambassador Liu Fei recently 
hosted a dinner in her embassy for her counterparts from Japan, 
Australia and the U.S.  The four ambassadors shared information 
on their respective aid programs in the FSM.  Ambassador Liu 
clearly enjoyed the broadest scope of ambassadorial authority to 
identify and undertake significant projects.  PRC 
Government-sponsored builders continue to work seven days a week 
on erection of a Pohnpei State Government office complex, which 
will be the largest building in the FSM and the first to feature 
an elevator.  Ambassador Liu also announced at dinner that China 
had just conducted a groundbreaking ceremony for a new high 
school in Kosrae.  (Note: The Kosrae Education Director had 
complained to Embassy officers that FSM President Mori had 
compelled the state to demolish an existing high school that 
already functioned well on the same site.  The state paid for 
the demolition.  High school students have been relocated. 
Reftel) 
 
¶3.  (C)  In Chuuk State, Ambassador Liu noted that a Chinese 
company, Jiang-su, had won a U.S. Federal Aviation 
Administration (FAA) Airport Improvement Project (AIP) USD $5 
million contract to construct buildings to shelter two airport 
rescue and fire fighting vehicles that the FAA had donated. 
(Note:  The FAA advised the Embassy that China was the sole 
bidder on this project in a formidable environment that is not 
attractive to competitors.  Chuuk lacks electricity, 
construction materials, skilled labor, clean water and sewage. 
Chuuk's airport manager has nevertheless complained that the 
performance of Jiang-su has been fraught with its own 
difficulties arising from substandard Chinese construction 
material, poor workmanship and inability to communicate in 
English.  All these shortcomings have supposedly delayed 
schedules.) 
 
¶4.  (C)  Nevertheless, Chinese construction workers are now a 
significant work force element within the FSM.  To take further 
advantage of this on-site labor pool, Ambassador Liu said that 
China intended to compete for all the U.S. Compact 
infrastructure projects that are now supposedly open to bidders. 
 By drawing upon Chinese workers who are already based in 
country, Ambassador Liu opined that China was likely to be the 
most competitive bidder, particularly on a USD $30 million Chuuk 
road repair project. 
 
¶5.  (SBU)  Post is now contacting local interlocutors to confirm 
Compact bidding announcements and China's possible bids.  The 
only website located so far is that of the GMP Company in 
Hawaii, which features unofficial information on Compact 
projects. 
 
¶6.  (C)  At dinner, the Japanese and Australian ambassadors 
expressed polite skepticism about Compact infrastructure. 
Australian Ambassador Susan Cox was generally critical of U.S. 
Compact implementation, which she alleged had provided a 
comfortable cushion for dysfunctional FSM governments, while 
failing to stimulate Micronesian initiative or to move the 
nation ahead toward sustainable development.  Ambassador Cox 
observed that she worked closely with an AusAid officer in her 
Mission to administer a small amount of some USD $2.6 million 
worth of discretionary funds.  She described trips to 
dilapidated schools in Chuuk - all funded with Compact money - 
where few teachers and students came to class or spoke English. 
On the island of Udot, she described a poignant incident in 
which one English-speaking teacher broke down and cried over 
deplorable conditions.  "Our children have no future," she 
reportedly wept.  Ambassador Cox said she promptly designated 
Australian aid for English languages tapes and tape recorders. 
 
¶7.  (C)  Japanese Ambassador Shoji Sato highlighted Japan's USD 
 
KOLONIA 00000177  002 OF 002 
 
 
$20 million project now underway to extend the Pohnpei airport 
by 800 feet.  However, he wryly admitted that he personally 
doubted the runway expansion would bring in future jet loads of 
tourists, as Pohnpei remains underdeveloped and hostile to 
foreign investment.  He noted the more effective role he was 
able to play with a relatively modest aid program of some USD 
$10 million.  He said he was particularly targeting potential 
business projects that would serve Japanese interests while also 
stimulating Micronesian entrepreneurship. 
 
¶8.  (C)  U.S. Ambassador Hughes alluded to the magnanimous 
breadth of Compact grant assistance, which exceeds $115 million 
and funds some 60 percent of FSM government budgets.  The 
Chinese and Japanese ambassadors praised the Compact for 
providing a stable base for their own activities.  Ambassador 
Liu said that although the Compact did not work well, it was a 
vital anchor that enabled other donors to contribute what they 
could.  At the same time, she gently chided Ambassador Hughes, 
"You have the hardest job of any of us because you have no 
discretion whatsoever on how all your aid money is spent." 
While acknowledging that improving Compact results was a major 
challenge, particularly for the U.S. Department of the Interior, 
Ambassador asserted that there was really no basis for 
comparison and the United States was not engaged in aid 
competition.  Finally, Ambassador Hughes praised the collegial 
exchange of views that she had called for among the small 
diplomatic corps and urged that they continue to share insights 
and information. 
HUGHES