VZCZCXYZ0000
RR RUEHWEB

DE RUEHAN #0072/01 0430514
ZNR UUUUU ZZH
R 120514Z FEB 10
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 3297
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHBJ/AMEMBASSY BEIJING 0027

UNCLAS ANTANANARIVO 000072 
 
SENSITIVE 
SIPDIS 
 
STATE FOR AF/E - JLIDDLE 
STATE FOR AF/RSA - LMAZEL, LGRIESMER, RBOWLES 
TREASURY FOR FBOYE 
COMMERCE FOR RTELCHIN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EAGR EAID CH CN MA
SUBJECT: CHINESE ENGAGEMENT IN MADAGASCAR AND COMOROS 
 
REF: STATE 10152 
 
¶1. (SBU) Summary: Chinese investment stock, detailed below, reached 
USD 39 million in 2008 in Madagascar, while Chinese investment 
remains limited in the Comoros.  No USG collaboration on development 
programs has been undertaken to date with the Chinese in either 
island nation.  The best opportunity for partnering in Madagascar 
would likely be in food security, given that both the Chinese and 
the USG are already working in that area.  Funding limitations in 
the Comoros would make significant collaboration with the Chinese 
difficult there.  End summary. 
 
Chinese Investment in Madagascar 
-------------------------------- 
¶2. (SBU) Madagascar and China signed a bilateral investment treaty 
in 2005.  In 2008, the stock of Chinese investment in Madagascar 
reached 39 million, according to Central Bank statistics. 
Investments are mainly in the oil, mining, cement, garment, and 
banking sectors, while Chinese contractors have been active in the 
construction and sugar industries.  Known Chinese investments are 
detailed below: 
 
- The Hong Kong company Sino Union Energy Investment Corp. (Sunpec) 
controls four oil exploration blocks in Madagascar, two near Majunga 
and two near Tulear.  Sino Union, together with mainland Chinese 
company Shaanxi Yanchang Petroleum and Hong Kong and China Gas Co., 
agreed to a joint venture in 2008 to develop and operate Sino 
Union's block 3113 near Tulear.  They contracted with another 
mainland company Yunnan Kaiyuan Oil and Gas to conduct exploratory 
drilling.  Sino Union announced the discovery of light oil in block 
3113 in November 2009.  In January 2010, Yanchang bought 15 percent 
of Sino Union.  Kaiyuan then acquired five percent of Sino Union 
shares in February 2010.  Blocks 3113 and 2104 have estimated oil 
reserves of 5.6 billion barrels and natural gas reserves of 66 
billion cubic meters, according to a statement issued by Sunpec.  In 
November 2009, Rajoelina's father, Colonel Yves-Roger, was named as 
a senior consultant for Sunpec, arousing suspicions of corruption. 
 
 
- A large, new Chinese Embassy compound opened in Antananarivo in 
January 2010.  The previous embassy facility was turned over to the 
Malagasy government. 
 
- Chinese contractors have been heavily involved in rehabilitating 
parts of the national road system and many Chinese workers have come 
to Madagascar for road construction.  Due to the increased passenger 
demand, Air Madagascar began regular service to Guangzhou, China in 
¶2009. 
 
- In preparation for the AU summit that was to have been held in 
Madagascar in June 2009, the Chinese Exim Bank loaned the GOM USD 50 
million to construct a convention center, five-star hotel, and 54 
luxury villas.  The buildings were constructed by a Chinese 
contractor.  The convention center was turned over to the GOM, but 
the construction company is holding the hotel until disputes about 
cost overruns are settled.  Sheraton had a deal with the GOM to 
manage the hotel, but has been blocked from entering Madagascar by 
the HAT Land Minister Hajo Andrianarivelo.  According to an Embassy 
contact, a local business (SIPROMAD), known to support the HAT, 
brought a delegation from the Four Seasons Saudi Arabia to visit the 
Chinese hotel.  The delegation pledged to build a cancer hospital in 
Madagascar and expressed interest in running the Chinese hotel and 
acquiring a small island in the North.  After being informed of the 
pre-existing deal with Sheraton, the Four Seasons said they would 
not proceed until the HAT sorted out legal issues with Sheraton. 
 
- Small investors are established around the country purchasing 
gemstones and exploiting ore reserves.  Mainland Mining Ltd. began 
exploiting ilmenite in Analanjirofo in 2006 and had its first 
shipment in December 2007.  The company was granted an environmental 
permit in April 2009. 
 
- MALOCI, the second largest cement factory in Madagascar, was built 
in 2007 and began operations in August 2008. 
 
- There are a few mainland Chinese companies involved in the garment 
industry, and many firms from Hong Kong.  The factories that were 
focused on exporting to the U.S. market are in the process of 
downsizing and closing following the suspension of Madagascar's 
African Growth and Opportunity Act trade benefits. 
 
- A Hong Kong investor holds 70 percent of the BICM bank (Banque 
Industrielle et Commerciale de Madagascar).  Hui Chi Ming, the 
chairman of the board, is also the largest shareholder of Sino 
Union. 
 
- The Government of China financed construction of a sugar refinery 
in Morondava, SUCOMA, which was turned over to the GOM, but is now 
run by the Chinese firm Complant under management contract signed in 
1997 and expiring in 2012.  Complant has also run two decrepit 
state-owned sugar refineries, called SUCOCOMA, in Ambilobe and 
Namakia since 2008 under a twenty-year management contract. 
 
¶3. (SBU) Like other investors, the Chinese have been concerned about 
signing deals with the de facto authorities given the current 
political instability.  They were openly courted by ousted President 
Ravalomanana and are disgruntled about the coup which ended that 
favorable relationship.  In mid-November, following a promising 
breakthrough on the implementation of a unity government at 
negotiations in Addis Ababa, the Chinese Ambassador paid a courtesy 
call on the Ravalomanana-appointed co-president, now defunct, to 
express support for the unity government and reportedly discussed 
possible Chinese investment plans.  However, given the failure of 
the unity government, large investments are on hold. 
 
Chinese Trade with Madagascar 
----------------------------- 
¶4. (SBU) China was the leading supplier of imports into Madagascar 
in 2009.  Imports from China, valued at USD 802 million in 2008, 
consisted mainly of fabric for transformation and re-export, but 
also included machinery, appliances, and other products. 
 
¶5. (SBU) Madagascar exports little to China; however, Chinese buyers 
are known to be the main purchasers of illegally-felled precious 
rosewood and other tropical hardwoods.  Some rosewood and rosewood 
products are then re-exported to the U.S., according to a report by 
the NGO "Global Witness".  Local press reports have mentioned a 
network of Chinese based in Antananarivo that are involved in 
illicit export of rosewood from the Northeast. 
 
Chinese Development Programs in Madagascar 
---------------------------- 
¶6. (SBU) The Chinese are involved in education, agriculture, health, 
and disaster relief.  They do not generally attend donor 
coordination meetings.  In education, they are providing support for 
the construction of primary schools in Antananarivo, Tamatave and 
Fianarantsoa.  This project started in Dec 2008 and will end in 
April 2010.  In 2009 through 2010, they are providing five to six 
tons of hybrid rice and have also provided the agriculture ministry 
with technical assistance in the production of rice and maize, 
seeking to improve crop yields. 
 
¶7. (SBU) The Chinese are very interested in malaria eradication. 
However, the activities they have undertaken over the past few years 
have not been coordinated with the Roll Back Malaria partnership, of 
which the USG is a leading member. In 2008 they provided the 
ministry of health with an ACT (Artemisinin Combination Therapy) 
malaria treatment that was not the standard ACT being used in the 
public sector.  The minister faced political pressure to take and 
distribute the drug, which caused confusion among health providers, 
who were confronted with two different treatments.  Also in 2008, 
the Chinese launched a program to provide mass administration of 
malaria treatment on the offshore island of Nosy Be.  Not only does 
the USG believe that this is not a proven strategy for fighting 
malaria, but the ACT they planned to use is not on the WHO-approved 
list.  This program was delayed by the coup and may not have been 
completed yet.  The Chinese have also established a designated 
malaria lab at Befelatanana Hospital, a large public teaching 
hospital in Antananarivo. 
 
Collaboration Possibilities in Madagascar 
--------------------------- 
¶8. (SBU) Relations between our two Embassies are amicable, but to 
date no "joint cooperation" has been undertaken.  USG aid programs 
are limited currently to humanitarian assistance in response to the 
March 2009 coup, pending a return to constitutional order.  The best 
opportunity for enhanced U.S.-China cooperation in Madagascar is in 
the area of food security, including possible future bilateral 
collaboration in the promotion of improved rice yields.  USAID 
launched a multi-year USD 85 million program in the South to improve 
livelihoods of food insecure households and increase food production 
and incomes from farm production in 2009.  USAID also funded teacher 
training previously, but due to the coup, the education program has 
been suspended.  For the reasons mentioned above, cooperation in the 
health sector would be difficult. 
 
China in the Comoros 
-------------------- 
¶9. (U) Chinese involvement in Comoros is limited, but appreciated by 
Comoran authorities.  The Chinese recently completed a new Embassy 
in Moroni, which is now the largest and most impressive diplomatic 
compound in town.  On 24 January, Chinese Vice Foreign Minister Zhai 
Zun was in Moroni to meet President Sambi.  An agreement was signed 
providing 30 million Yuan (USD 4.3 million) to the government of the 
Union of the Comoros.  The Comoran authorities will identify the 
specific projects that will benefit from this funding.  Discussions 
were also held on the possibility of cultural exchanges, and in 
particular, Chinese aid to the University of the Comoros and 
scholarships for Comoran students to study in China. 
 
¶10. (U) There are no examples of U.S.-China collaboration on the 
ground.  However, Emboff covering Comoros regularly meets with 
Chinese authorities during gatherings of the small international 
community in Moroni. 
 
¶11. (U) At the moment, our funding limitations in the Comoros make 
it difficult to envisage significant partnering with the Chinese 
there. 
 
MARQUARDT