VZCZCXRO2906
PP RUEHDE RUEHDH RUEHDIR
DE RUEHKU #0478/01 1330659
ZNR UUUUU ZZH
P 130659Z MAY 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 3320
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0501
RUEHHK/AMCONSUL HONG KONG PRIORITY 0070
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KUWAIT 000478 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ARP, EEB, EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EPET ETRD CH KU
SUBJECT: AMIR'S CHINA VISIT - BUILDING THE NEW SILK ROAD 
 
REF: A. KUWAIT 452 
     ¶B. KUWAIT 438 
 
¶1. (U) This report contains business proprietary information. 
 Not for internet distribution. 
 
¶2. (SBU) Summary: On May 12, Kuwait's Amir completed his 
state visit to China.  Kuwaiti investors and oil executives 
are cautiously optimistic that his visit helped Kuwaiti 
investment opportunities in China, including "unsticking" the 
Kuwaiti-Chinese refinery joint venture and facilitating KIA's 
efforts to increase its investments in China.  Kuwait is 
looking to significantly expand its oil exports to China and 
its government investments in "the second or third" largest 
economy in the world.   End summary. 
 
¶3. (SBU) Kuwaiti Amir Shaykh Sabah Al-Ahmad Al-Sabah wrapped 
up what appears to have been a successful visit to Hong Kong 
and mainland China on May 12.  The Kuwaitis publicly played 
up the visit as strengthening the economic and commercial 
ties between Kuwait and China.  The two parties signed 5 
agreements during the visit.  More importantly, from the 
Kuwaiti perspective, however, the Amir's visit appears to 
have "unstuck" the Kuwaiti - Chinese joint venture to build a 
multi-billion dollar refinery in China and opened up more 
investment opportunities for the Kuwait Investment Authority. 
 China-Kuwait bilateral trade is growing, reaching $6.78 
billion last year, and Kuwait's stated goal is to expand its 
oil sales to China from the current 130,000-140,000 barrels 
per day to 500,000 barrels per-day by 2015. (Note: By way of 
comparison, last year the U.S. imported an average of 210,000 
barrels per day from Kuwait.  End note.) 
 
Oil Cooperation 
--------------- 
 
¶4. (SBU) According to the Kuwaiti press, Kuwait's Minister of 
Oil Sheikh Ahmad Abdullah Al-Sabah signed an agreed minute 
related to oil and gas cooperation with the Chairman of 
China's National Energy Administration.  The Managing 
Director of International Marketing for Kuwait Petroleum 
Company Al-Houti told Econoff that this merely ratified an 
earlier agreement that was essentially a broad statement of 
intent to cooperate in the energy sector. 
 
¶5. (SBU) More importantly, Shaykh Ahmad also signed an 
agreement to construct a refinery and petrochemical complex 
in China.  This $9 billion joint venture is billed as the 
largest Sino-foreign joint venture in China.  The project, 
scheduled to be operational by 2013, would include a 
refinery, designed to process 240,000-300,000 barrels per day 
of Kuwaiti crude, and a petrochemical processing component. 
Shaykh Ahmed told the press that Sinopec will own a 50% stake 
in the joint venture, Kuwait will own a 30% stake, Royal 
Dutch Shell and Dow Chemical Company will each own 10% (see 
also ref b). 
 
¶6. (SBU) This project, originally entered into in 2005, was 
officially held up by Chinese environmental concerns about 
the refinery's impact on a densely populated area in 
Guangdong Province.  Post's contacts in the petrochemical 
industry have told us that the refinery's location would be 
changed to near the city of Zhangjiagian.  According to one 
industry executive, internal Chinese politics had probably 
played a bigger role in the decision than pure environmental 
concerns.  The Guangdong region already has a large 
petrochemical industry and the Chinese authorities reportedly 
believed that economic development opportunities were needed 
elsewhere.  So far, observers are cautiously optimistic that 
the program will move forward. 
 
Kuwait Investment Authority 
--------------------------- 
 
¶7. (SBU) KIA Managing Director Bader Al-Saad told the press 
that the Chinese Prime Minister had pledged to the Amir that 
KIA would be able to trade in the Yuan as a domestic trader, 
which would "give a robust boost to our investments in 
China," which had previously been restricted to the Hong Kong 
Stock Exchange.  A senior KIA official confirmed to Econcouns 
that the story was accurate.  He explained that Kuwait had 
been working for over a year to become a qualified foreign 
institutional investor in China, but that the Chinese were 
"very bureaucratic."  He expressed his hope that the Amir's 
visit had indeed helped facilitate this process.  Currently, 
he explained, KIA cannot invest in the Yuan directly, but 
 
KUWAIT 00000478  002 OF 002 
 
 
needs to work through a third party and invest in dollars, 
increasing cost and currency risk.  Given the size of China's 
economy, he noted, KIA is "significantly underweight" in the 
country and is interested in increasing its investments in 
China.  As an aside, he also noted that KIA remained 
significantly overweight in the U.S. based on its share of 
world GDP.  He stressed that KIA was not planning to cut its 
holdings in the U.S. but that as new funds came in, it wanted 
to allocate more of them to underweight markets. 
 
Kuwaiti Assistance to China Continues 
------------------------------------ 
 
¶8.  (U) The Managing Director of The Kuwait Fund for Arab 
Economic Development (Kuwait's development agency) signed a 
loan agreement with China's Vice Finance Minister to provide 
a KD 6.8 million ($23.26 million) loan agreement to help 
finance the Lake Bosten River Basin Environment Protection 
and Development Project in the Muslim-majority Xinjiang 
region.  The Kuwait Fund will cover about 24% of the cost of 
the project in a 25-year loan.  This will bring the total 
number of Kuwait Fund loans to China to 33 since 1982, with a 
total loan value of $831.6 million. 
 
Other agreements 
---------------- 
 
¶9. (U) The Kuwaitis and Chinese also signed a MOU on 
infrastructure cooperation for highways and water channels, a 
cooperation agreement on higher education, and a sports 
cooperation agreement. 
 
Comment 
-------- 
 
¶10. (SBU) This is the Amir's second visit to China, and his 
first as Amir.  He visited China in 2004 as Prime Minister. 
Although Kuwait and China have had diplomatic ties since 1971 
and the public statements included the obligatory statements 
on political cooperation, this visit was clearly focused on 
economic issues.  Kuwaiti investors and businesspeople are 
increasingly focusing on the growth potential in China -- and 
the rest of Asia.  For their part, the Chinese are likely to 
want to strengthen their ties to an important energy 
supplier.  Should the refinery project succeed, it will 
cement increasing Sino-Kuwaiti energy ties.  Kuwaiti oil 
executives have already complained that Kuwait's tender 
system pressures them to "buy (lower cost) Chinese" products. 
 As Kuwait increasingly looks to China for its oil exports 
and investment opportunities, other business connections are 
likely to follow, which could present challenges to U.S. 
businesses.  End Comment. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES