Viewing cable 09LUANDA51, NEW CHINA CREDIT LINE UNDER CONSIDERATION

P 270751Z JAN 09
FM AMEMBASSY LUANDA
TO SECSTATE WASHDC PRIORITY 5295
INFO SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
AMEMBASSY BEIJING

C O N F I D E N T I A L LUANDA 000051 


E.O. 12958: DECL: 01/27/2014 
TAGS: PREL ETRD EFIN EAID CH AO
SUBJECT: NEW CHINA CREDIT LINE UNDER CONSIDERATION 

Classified By: Ambassador Dan Mozena for Reasons 1.4 (b) and (d). 

¶1. (C) Summary: During a January 23 call by Ambassador 
Mozena, Chinese Ambassador Bolum Zhang said negotiations will 
soon begin between China and Angola for a new loan package 
valued in the USD "multiple single digit billions." Zhang 
said the new agreement will not be backed by oil, but should 
receive a sovereign guarantee from the GRA. Zhang distanced 
himself from the "private" China International Fund, which 
has weak management and poor leadership in Angola, despite 
its close links to the Angolan presidency. Zhang expressed 
considerable interest in working with the USG on a bilateral 
development assistance project in Angola. End Summary. 

¶2. (C) Background: In a wide ranging and open conversation 
with Ambassador Mozena, Ambassador Zhang said President Dos 
Santos's December visit to China opened new channels for 
political dialogue to build mutual trust and understanding. 
Zhang said China supports Angola's reconstruction efforts and 
is providing technology, equipment, and communications 
infrastructure through government-to-government oil-backed 
loans, some grants, and company-to-country business deals. 
In discussions with Chinese leaders, including Ambassador 
Zhang, senior GRA officials have made clear that Angola 
requires over USD 12 billion in additional loans to meet its 
short term development goals. Zhang said a 2003 decision by 
the GOC to cap the value of Chinese loans to Africa at USD 10 
billion likely means China will be unable to meet the GRA 
requests, as Chinese Ex-Im debt in Angola alone is USD 4.5 
billion (2.5 billion expended, 2 billion still available). 
Zhang said China's rights to Angolan oil (as a result of the 
oil-backed loans extended to the GRA) represented less than 
200 million barrels of oil in 2008, with most of the crude 
coming from a Block 18 contract among the CIF, Sinopec, and 
BP. Zhang said Sinopec ships Block 18 oil directly to China, 
rather than trading it on the open market, though China pays 
the prevailing market price. 

-------------------------------------- 
Negotiations Toward a New Loan Package 
-------------------------------------- 

¶3. (C) Zhang said Dos Santos discussed a new loan package for 
Angola during his December 16-19 trip to China. Zhang said 
that while negotiations have not yet begun, it was clear that 
these loans would not be backed by Angola's oil reserves as 
that would be "too humiliating" for the Angolans. Zhang said 
that while the Chinese Ex-Im Bank is taking the lead on 
negotiations with Angola on the loan package, the funds would 
be made available through credit extended by private Chinese 
banks, similar to a government-coordinated investment fund. 
Zhang said the structure of the loans and the interest rate 
would be the key points in negotiations. He added that he 
hoped Angola would offer a sovereign guarantee to help make 
the loans more appealing to investors. When asked the total 
value of the proposed package, Zhang said it would be in the 
USD "multiple single digit billions." Zhang said few details 
would be released about the plan during the bilateral 
negotiations, but the program would be completely transparent 
when finished and announced to the press. Zhang said it is 
likely that most of the funds will be used by Angola to 
secure Chinese goods and services in support of GRA 
reconstruction priorities, such as the new airport in Luanda, 
new roads, and the rehabilitation of Angola's railroads and 
port facilities. 

---------------- 
Ex-Im versus CIF 
---------------- 

¶4. (C) When asked to clarify the relationship between the USD 
4.5 billion Ex-Im loan and Angola's relationship with the 
China International Fund (CIF), Zhang was unable or unwilling 
to go too far into specifics, especially concerning the value 
of the relationship, which some independent press sources 
place at near USD 10 billion since 2002. Zhang did say the 
CIF made many promises to Angola, and that while the company 
has a large presence in Angola, its weak management and lack 
of leadership have stalled many of the projects. Zhang said 
that as the CIF is a "private company," the Chinese embassy 
does not actively participate or monitor its relationship 
with Angola. He added that CIF continues to benefit from the 
Hong Kong-based owner's "close relationship" with President 
Dos Santos. Zhang said that while many of the bilateral 
projects were begun by the CIF, currently many of the CIF's 
subcontractors are dealing directly with the various 
ministries of the GRA. 

---------------- 
The Path Forward 
---------------- 

¶5. (C) Zhang said the bilateral discussions during President 
Dos Santos' China visit focused on Angola's plan for 
reconstruction and economic development. Zhang said Angola 
has many plans, but lacks the available capital to place them 
in motion. Zhang mentioned projects such as the new Luanda 
airport (which will cost USD 2 billion and take 3-4 years to 
build), highway construction, railroad construction, the 
refurbishing of the Lobito port and the construction of new 
maritime facilities near Luanda and Soyo. He said those 
projects alone could cost up to USD 8 billion, adding that 
China will not be able to offer sufficient loans to meet 
Angola's needs. He expressed concern that GRA leaders are 
misreading the severity of the current global economic crisis 
and its effect on China's ability to raise private funds for 
projects in Angola. 

--------------------------------------------- -- 
Agriculture and Joint Cooperation with the U.S. 
--------------------------------------------- -- 

¶6. (C) Zhang said China is promoting a "model farm" program 
in Africa to help developing countries learn agribusiness 
skills so they can become self-sufficient in production and 
add value to the export chain of agricultural products. 
Despite China's broad relationship with the GRA, Angola is 
only on the second tier of proposed country projects. 
Ambassador Mozena raised the possibility of a joint 
U.S.-China assistance project focused on agriculture or 
health - symbolic of our shared goals toward a more peaceful, 
prosperous, secure, and healthy Angola. Zhang was very 
supportive of the initiative and said Chinese companies, 
already under contract with Ex-Im, would be pleased to 
support such a project. Both Ambassadors undertook to 
develop proposals for further consideration. 

------- 
Comment 
------- 

¶7. (C) The conversation with Zhang was surprising in its rich 
content and constructive, collaborative tone. While Zhang 
was careful not to go into much detail concerning the 
activities of the CIF, it is clear he wants to distance the 
Embassy and the Government of China from what he appears to 
consider a less than fully transparent and successful 
relationship between the CIF and the GRA. He was positive 
and pragmatic about the forthcoming negotiations toward a new 
commercial line of credit for Angola. We look forward to 
working with Zhang in the near future toward a joint 
bilateral development project. It is important that Angolans 
and other Africa watchers view how our two countries can 
cooperate toward a shared vision of a better Angola. End 
Comment. 


MOZENA