Chinese were smuggling cash through embassy diplomatic pouch

Former Glen Norah legislator Priscilla Misihairabwi-Mushonga said Chinese merchants were fuelling the currency black market and were using the Chinese embassy’s diplomatic pouch to send their earnings back home.  

She told United States ambassador to Zimbabwe Christopher Dell that the Chinese sold goods on the local market, converted their earnings into United States dollars on the parallel market and then remitted their earnings back to China through the embassy’s diplomatic pouch.

Dell said at the time that relations between China and Zimbabwe were merely a marriage of convenience.

Full cable:

Viewing cable 05HARARE1331, IDEOLOGY, DESPERATION FUEL GOZ,S TIES TO CHINA

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S E C R E T SECTION 01 OF 07 HARARE 001331

SIPDIS

NOFORN

AF/S FOR B. NEULING

AF/RSA FOR J. NAY

EAP/CM FOR B. CRANE

SENIOR AFRICA DIRECTOR C. COURVILLE

UECOM PLEASE PASS TO JAC MOLESWORTH RAF

SIPDIS

E.O. 12958: DECL: 09/23/2015

TAGS: ECON EMIN PGOV PHUM PREL ZI CH

SUBJECT: IDEOLOGY, DESPERATION FUEL GOZ,S TIES TO CHINA

REF: A. REF A: STATE 153199

¶B. REF B: HARARE 001088

¶C. REF C: USUN 001704

¶D. REF D: BEIJING 011949

Classified By: Ambassador Christopher Dell for reasons 1.5 b/d

¶1. (C) Summary: The ruling ZANU-PF party has long maintained

a close diplomatic and military relationship with China,

dating back to the liberation war in the 1970,s. In recent

years as the GOZ,s international isolation increased and the

local economy nosedived, Zimbabwe has placed growing

importance on this relationship, which forms one of the

principle pillars of Robert Mugabe,s &Look-East8 policy.

The GOZ publicly touts China as one of its most important

allies in the global community. Trade and investment from

China remain one of the Zimbabwean economy,s few bright

spots ) albeit in relative terms. Meanwhile, tourism from

China has failed to get off the ground. The

Chinese-Zimbabwean relationship is driven by Zimbabwe,s

commercial and military needs and China,s interest in

accessing Zimbabwean platinum and gold, while the only

apparent political connection is Chinese rhetorical support

for the isolated regime and the GOZ,s strict adherence to

the one China principle. Increasing Chinese influence in

Zimbabwe has been paralleled by a growing negative perception

of the Chinese and their commercial wares by the local

population and stiffer competition for the already struggling

local manufacturing sector. This cable is in reply to the

questions asked in ref A. End Summary.

——————————————— ——

Liberation War Ties Hardened by GOZ,s Pariah Status

——————————————— ——

¶2. (C) Beijing,s close ties to the ZANU-PF ruling party

were forged during the war for independence when the

communist country funneled arms, training and money to Robert

Mugabe,s Mozambique-based insurgency. (Moscow meanwhile

supported a rival insurgency based in Zambia.) More

recently, western criticism of the GOZ,s heavy-handed

policies and the economy,s related free-fall have created a

further impetus for the GOZ ) and an opening for Beijing –

to expand bilateral ties. China,s relatively modest

political engagement here is magnified by GOZ rhetoric, which

is eager to publicly tout Chinese assistance and demonstrate

that its &Look-East8 policy is sustaining the otherwise

moribund economy. The official media frequently showcase

evidence of Chinese-Zimbabwean fraternity and the Chinese are

uniformly portrayed as caring for the welfare of Zimbabweans

and in solidarity with them against neo-colonial imperialist

aggressors.

¶3. (C) Regular high-level visits between Zimbabwean and

Chinese government and party officials provide the most

public demonstration of this relationship. Mugabe has

visited China at least seven times since becoming Zimbabwe,s

leader in 1980. The most recent visit occurred in July 2005

when Mugabe met with President Hu Jintao, Premier Wen Jibao

and National People,s Congress Chairman Wu Bangguo (ref D).

According to local media, the Zimbabwean delegation secured a

number of commercial and loan agreements, including a $6

million grant to import maize. Numerous Chinese leaders have

visited Zimbabwe, including President Jiang Zemin (1996),

Foreign Minister Tang Jiaxuan (2000), and Chairman of the

Standing Committee of the Chinese National People,s Congress

Wu Bangguo (2004).

¶4. (C) Political ties to China are an important source of

international legitimacy and respect for the GOZ, which is

increasingly isolated from the international donor community

and, recently, even by African criticism over its human

rights record. Zimbabwe strictly adheres to the &One China

Policy8 and forbids the establishment of an official

Taiwanese presence in Zimbabwe. Most recently, the GOZ bowed

to Chinese pressure in February 2005 and barred Miss Tibet

from competing in a Miss Tourism World Pageant held in

Zimbabwe. Meanwhile, China,s general preoccupation with

issues of national sovereignty prompt its leaders to publicly

criticized western sanctions against regime leaders.

¶5. (C) Chinese patronage in the UN has helped to lessen

international criticism of the GOZ,s Operation Restore

Order, which has displaced some 700,000 people, according to

UN tallies. The Chinese delegation to the UN Security

Council in July unsuccessfully attempted to prevent the

Council from addressing the issue, saying that it is not the

role of the Council to disccuss domestic issues and that the

GOZ can handle its own internal affairs (ref C). During his

Heroes Day address on August 8, Mugabe publicly thanked China

for its support in the Security Council.

¶6. (C) China maintains one of the largest diplomatic

missions in Harare, with 26 diplomats on the diplomatic list,

including six officers in the economic/commercial section.

There are also three military officers serving in the Defense

Attache,s Office. The official Chinese community is highly

insular, with all diplomats residing in apartments attached

to its chancellery downtown and rarely mingling in Harare,s

diplomatic circles with western officials.   According to the

Chinese Embassy,s webpage, eleven Zimbabwean students were

studying in China as of November 2004. More recently, Duan

Schaohua, a third secretary (economic and commercial) of the

Embassy of the People,s Republic of China, told poloff on

September 8 that the Embassy receives multiple inquires a

week from Zimbabwean students eager to study in China.

During Mugabe,s recent trip to China, Beijing reportedly

increased the number of scholarships offered to Zimbabwean

students by eight. Meanwhile, according to the Chinese

Embassy,s webpage, China had three teachers and nine medical

personal in Zimbabwe as of last November.

Uncharacteristically, the Chinese Embassy has recently begun

attending humanitarian coordination meetings called by the

UN.

¶7. (C) In contrast to most other foreign communities in

Zimbabwe, the Chinese population has grown substantially in

recent years. Duan reported that the number of Chinese

citizens registered with the Embassy has jumped from about

3,000 in 2003 to a current figure of between 4 and 5,000.

Private Chinese citizens are chiefly engaged in commercial

retail and light manufacturing for both the domestic and

export market, as well as operating restaurants and some

financial services. Confederation of Zimbabwean Industries

Vice President Florence Sachikonye on September 19 claimed to

econoff that the size of the resident Chinese population was

however misleading, as many use Zimbabwe primarily as an

agreeable base from which to do business throughout the

southern African region.

——————————————

Military Assistance, Gifts Sweeten the Pot

——————————————

¶8. (S//NF) Our Defense Attache reports that China has

invested a significant amount of military resources in

Zimbabwe. The delivery in October 2004 of six K-8 training

aircraft from China is the most noted recent sale, but Harare

since independence has purchased large quantities of military

hardware from China, including aircraft, vehicles, air

defense radars, and medical equipment. When a UK Military

Advisory and Training Team departed circa 2002, the Chinese

immediately sent instructors to the Zimbabwe National Army

Command and General Staff College as well as technical

advisors to individual units. China has been benefiting from

Zimbabwe,s &Look-East8 program through military arms

sales. We have no concrete numbers on the amount of sales in

recent years. With limited foreign currency availability,

the Zimbabwe Defense Forces cannot afford any western

military sales, only the mass produced eastern arms. The

military leadership is embracing Chinese ideology, according

to the Defense Attache, leading them to take an anti-western

approach and to look at western governments with suspicion.

¶9. (C) The Chinese have also heaped lavish gifts on their

Zimbabwean counterparts. In addition to helping build

Harare,s soccer stadium, Beijing supplied the now-infamous

blue tiles for the roof of Mugabe,s new US$13 million home

outside Harare. Earlier this year, China also reportedly

donated one MA60 passenger airplane to Zimbabwe, in addition

to two aircraft that were purchased.

¶10. (C) The GOZ has repeatedly used Chinese assistance to

undercut its opponents. For instance, the Chinese earlier

this year reportedly provided the GOZ with technology and

equipment that could be used to disrupt independent radio

broadcasts outside the country from being received in

Zimbabwe. In the run-up to the March parliamentary election,

Beijing reportedly gave ZANU-PF crates of T-shirts and

bicycles to distribute to supporters. More recently, there

have been rumors that China has given the GOZ financing to

undermine the country,s independent trade unions.

——————————————–

Benefiting from Zimbabwe,s Fire Sale, Barely

——————————————–

¶11. (C) As local and western investors have fled the country

in droves, Chinese investors have made major inroads into

several sectors of the Zimbabwean economy, chiefly

construction, energy production, and transport. According to

Duan, the largest Chinese investment in Zimbabwe thus far is

Sino Cement, a $50 million building materials maker

inaugurated by Mugabe in October 2001. Chinese investors

have also opened a steel mill, which buys scrap metal locally

for fabrication into pipes and sheets for export to China.

According to local media reports, the China National

Aero-Technology Corporation (CATIC) has agreed to help

Zimbabwe,s struggling energy parastatal, Zimbabwe

Electricity Supply Authority (ZESA), expand the Hwange power

station, and revive local coal mining. Meanwhile, Huawei

Technologies last year reportedly signed contracts worth more

than $300 million with Zimbabwe,s state-owned fixed-line and

mobile telephone companies. Local representatives of Cisco

Systems told poloff September 13 that some of the

telecommunication systems installed by Huawei appear to be

counterfeit Cisco technology. The most visible indicator of

Chinese-Zimbabwean commercial ties is the 50 commuter buses,

reportedly worth more than $2 million, supplied earlier this

year by FAW to the Harare public transport system. (N.B.

These buses show that politically-motivated Chinese aid is

often at odds with local needs; despite the pressing need for

transport in the rural areas, the buses can only be used in

Harare due to low ground clearance.)

¶12. (C) The contraction of Zimbabwe,s large-scale tobacco

industry, the sharp decline in product quality, and

consequent departure of many international buyers have left

the Chinese as the main buyer of Zimbabwean tobacco,

according to Richard Tate, a consultant for Zimbabwe,s

largest tobacco auction floor. Tate told poloff on September

1 that about half of all Zimbabwean tobacco production now

goes to Asia, chiefly China. Data from Zimbabwe,s Central

Statistics Office (CSO) show that China last year imported

almost a quarter of Zimbabwe,s total tobacco exports. Tate

noted that China remained the only major consumer of auction

tobacco as other major buyers have left the country in recent

years in favor of competitors, such as Brazil. Andrew

Engelbrecht, an executive of Zimbabwe Leaf Tobacco, owned by

Virginia-based Universal, told econoff September 14 the

Chinese were highly valued customers who paid promptly and

well. Press accounts indicate that Chinese tobacco buyers

have signed long-term contracts directly with large and

medium-sized farmers. Under these contracts, the Chinese

supply most inputs, such as seed and fertilizer, and in

return receive the bulk of the tobacco yield. Engelbrecht

said that his company had partnered with ZESA and the Chinese

in a local tobacco production project as a means for ZESA to

source foreign exchange to finance capital improvements. One

unsubstantiated newspaper article said that as much as a

quarter of Zimbabwean exports were mortgaged to China in one

form or another.

¶13. (C) China is also widely seen to covet access to

Zimbabwe,s platinum reserves ) the 5th largest in the

world. To date, however, no Chinese firms have taken up

platinum concessions. Zimbabwe Platinum Mines (Zimplats) CEO

Greg Sebborn told Post on July 29 the Chinese were eyeing

greenfield sites north of Harare, which would require a

substantial investment to become operational (ref B). China

had promised the GOZ to build a platinum refinery in return

for a share of the deposit, but Sebborn said such investment

was unlikely because the Chinese lacked sufficient technical

expertise. Instead, Sebborn assessed China could build

another base metal refinery similar to the one that Zimplats

had already built.

¶14. (U) Trade statistics from CSO show a balance of trade

heavily in Zimbabwe,s favor. Duan reported that bilateral

trade has been in the African country,s favor ever since

independence. According to CSO data, total bilateral trade

reached Z$834.2 billion last year. (N.B. The IMF reported

that the official exchange rate for 2004 averaged

Z$4,131:US$.) By comparison, bilateral trade with the U.S.

was only Z$408.0 in 2004.

Zimbabwean trade with China, 2004

Billion Zimbabwean Dollars

China Hong Kong Taiwan

Total Exports           546.8 24.6     105.0

Tobacco (HTS 2401)     471.0 20.7     13.8

Total Imports           287.4 42.0     59.2

Source: Central Statistics Office.

¶15. (C) Zimbabwe,s economic hardships, however, have not

left Chinese investors untouched, despite favorable GOZ

concessions. According to Duan, Chinese manufacturers and

investors often complain about the critical lack of foreign

exchange, skyrocketing inflation (now officially 265

percent), shortages of basic inputs from abroad and declining

infrastructure and labor standards. Even China,s flagship

investment, Sino Cement, has been forced to scale-back

production because of shortages. In light of these

hardships, Duan suggested that Chinese investors were

beginning to look elsewhere in the region. Duan also noted

that the local Chinese community has not been immune from

Zimbabwe,s worsening crime and suggested this too was having

a dampening impact on business. The new Chinese Embassy

Counselor, Ma Deyun, on September 21 paid a courtesy call on

the acting DCM and echoed Duan,s comments by noting that

private Chinese ventures in Zimbabwe had yet been able to

turn a profit. Both Duan and Deyun inquired about the extent

of US sanctions and appeared extremely interested to learn

that the USG had only imposed targeted travel and financial

sanctions against specific individuals, and did not have

general economic sanctions against the country.

¶16. (C) Chinese tourists have largely failed to flock to

Zimbabwe, despite the GOZ,s encouragement and Beijing,s

designation of Zimbabwe as a sponsored travel destination in

June 2004. Visitors from China and Hong Kong comprised only

4 percent of overseas tourists ) excluding travelers from

other parts of Africa – who came to Zimbabwe in the first

half of 2005, according to the Zimbabwe Tourism Authority.

Moreover, the economic impact of Chinese visitors is even

smaller since they tend to spend less than western tourists.

Despite Zimbabwe,s abysmal international image, traditional

overseas tourists still dominate; in the first six months of

this year, 28 percent of overseas visitors came from the UK

and 14 percent came from the U.S. Duan suggested that Air

Zimbabwe,s introduction of direct flights between Harare and

Beijing in November 2004, which currently costs less than

$450 at the parallel market rate, gave only a transitory

boost to the numbers of Chinese tourist arrivals. Instead,

Duan reported that wealthier Zimbabweans eager to shop in

China primarily book the flights, which have been granted

import duty concessions by the GOZ.

————————————–

Friend or Foe: The Inevitable Backlash

————————————–

¶17. (C) The increasing Chinese influence in Zimbabwe has

been paralleled by an increase in the negative perception of

the Chinese by the local population. Zimbabweans often

complain that the Chinese consumer goods that dominate the

shelves of local stores, especially in poorer neighborhoods,

are of shoddy quality. They have even coined the term

&zhing-zhong8 to refer to inferior Chinese goods that

appear to have been dumped on Zimbabwe. For instance,

following the recent procurement of Chinese commuter

airplanes, Zimbabweans joked that the cheap planes would

probably fall out of the sky. Local independent press and

the opposition have played up this criticism. They caution

that China is known for exploiting its weaker economic

partners by dumping inexpensive, poor-quality products on

them ) a theme that appears to be resonating among

businesses and consumers alike. Earlier this year, rumors

were rife throughout Harare that Operation Restore Order,

which targeted the country,s thriving informal sector, had

been launched by the GOZ at the request of Chinese

businessmen who wanted to undercut their competition.

¶18. (C) There is a widespread perception among locals that

the Chinese are fueling the parallel currency market by

purchasing large amounts of hard currency. MDC MP Priscilla

Misihairabwi-Mushonga told poloff on August 31 that Chinese

merchants were heavily involved in Zimbabwe,s thriving black

market. According to the MP, Chinese merchants sell Chinese

goods on the local market, convert their earnings to US

dollars on the parallel market ) which values the local

dollar at less than half of its official rate ) and then

remit their earnings back to China via the Chinese Embassy,s

diplomatic pouch.

¶19. (C) China,s emergence as a global economic powerhouse

poses some risks to the Zimbabwean economy, especially

small-scale manufacturing where cheaper Chinese-made goods

have displaced Zimbabwean producers on local shelves. This

threat is particularly evident in the apparel sector, where

) like other parts of Africa ) increased Chinese clothing

and textile exports over the past year have displaced local

producers and jobs. Jeremy Youmans, the finance director of

one of Zimbabwe,s largest apparel makers and chairman of the

Zimbabwe Clothing Manufacturers, Association, told poloff on

September 14 that local garment manufacturers cannot compete

with China on a cost basis. While Zimbabwean-made clothing

can compete on a quality basis with Chinese exports, Youmans

noted that Chinese government subsidies meant that Chinese

clothing exports were &sub-economic8 and could therefore

undercut virtually all competitors. The Zimbabwean industry,

according to Youmans, successfully lobbied the GOZ earlier

this year to enact higher apparel tariffs with an eye toward

leveling the playing field. Youmans speculated that Chinese

apparel producers had the ultimate goal of forcing all

competitors out of the global clothing market, giving them a

monopolistic position from which to raise prices in developed

country retail markets.

——-

Comment

——-

¶20. (C) Beijing,s ultimate objective in Zimbabwe is unknown.

From outward appearances, Chinese investors seem to be

buying up Zimbabwean firms and assets at fire sale prices,

but even at cut-rate prices and labor costs their

profitability is in question. Zimbabwe,s experience with

former Malaysian and Libyan patrons demonstrates that

sweetheart deals only go so far. Instead, Beijing may be

taking a longer-term view, assessing that its investors are

ideally placed to capitalize on a future economic turnaround.

If this view is true, then Beijing has a stake in economic

reforms. Even non-Chinese businessmen who profit from the

current environment tell us privately that their bottom lines

would be improved if the GOZ enacted economic and political

reforms. It is easy to see how Chinese support for Zimbabwe

can work at a cross current to our efforts. Nevertheless,

while China will probably never press its Zimbabwean comrades

into making political concessions, Chinese market sense )

even if driven by their own self-interest ) could

potentially be used as a lever to induce economic reforms.

¶21. (C) Zimbabwe,s ties to China are a marriage of

convenience founded on their mutual self-interest rather than

a sense of mutual affinity. The GOZ,s public pronouncements

of extensive ties are not borne out by concrete results;

Chinese investment in Zimbabwe, despite some high-profile

projects, is very limited, especially compared with other

parts of Africa. Embracing free market capitalism, Chinese

investors appear to have recognized the GOZ,s massive

economic policy failures and to have largely avoided Zimbabwe

in favor of other investor-friendly countries in Africa. The

GOZ,s fondness for China is also limited and Post has heard

from contacts in South Africa that Mugabe is furious at Blair

for having supposedly influenced the Chinese to limit its

support for Zimbabwe. The government,s &Look-East8 policy

is driven out of desperation caused by the downward spiraling

economy and the loss of prior patrons, Libya and Malaysia.

The GOZ has tempered China,s quest for resources and markets

in Zimbabwe, suggesting that the government, while eager to

reap benefits from China, is nonetheless wary of the

relationship. Policies such as the increased tariffs on

apparel indicate that, despite public perceptions, the GOZ is

not completely subservient to Beijing.

DELL

(55 VIEWS)