US embassy cable - 05BOGOTA10993

UNCLAS SECTION 01 OF 04 BOGOTA 010993 
 
SIPDIS 
 
EAP/CM, WHA/PPC, WHA/FO, WHA/AND, WHA/EPSC 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, ETRD, ETTC, EINV, ENRG, EAGR, EFIN, PGOV 
SUBJECT: CHINA'S LIMITED TIES TO COLOMBIA 
 
REF: A. BEIJING 18953 
 
     B. BOGOTA 9143 
     C. STATE 138041 
 
1.  Summary.  Ties between China and Colombia are based on a 
modest economic relationship with minimal interaction on 
political issues.  The level of Chinese investment in 
Colombia has been very small compared to other countries, but 
2005 will show a slight increase from past levels.  China 
views trade ties with Colombia opportunistically; some 
sectors such as telecommunications or textiles show promise 
for further investment, but PRC officials assert China has no 
desire to compete for a dominate market share with the United 
States.  On the other hand, Colombian business owners, 
especially in the textile sector, are concerned about 
increases in cheap Chinese imports that may affect their 
ability to compete domestically.  Similarly, while political 
ties have existed at low levels since diplomatic relations 
were established in 1980, President Uribe led a state visit 
to Beijing in April 2005 that generated a series of 
cooperative agreements, the majority of which were focused on 
increasing bilateral trade and investment.  The PRC is 
supportive of the justice and peace process in Colombia but 
does not plan financial or programmatic support in adherence 
with its principle of non-interference.  End Summary. 
 
Mid-Level Trading Partner at Best 
--------------------------------- 
2.  China and Colombia share a modest but growing trading 
partnership.  In 2004, China imported USD 132 million in 
Colombian products and exported USD 376.6 million in Chinese 
goods for an overall two-way trade of USD 509.5 million, 
ranking China as Colombia,s 14th largest trading partner. 
Colombia traditionally runs a trade deficit with China; in 
2004 the trade deficit was USD 243.7 million. 
 
Colombian Trade with China, Venezuela, and the United States 
(Millions of USD) 
 
Colombian Exports to: 
              2002      2003     2004 
U.S.          5,159.7   5,797.6  6,504.4 
Venezuela     1,123.3     694.3  1,603.5 
China            29.8      82.2    132.9 
 
Colombian Imports from: 
            2002      2003       2004 
U.S.        4,020.1   4,081.2    4,838.1 
Venezuela     788.0     727.4    1,081.8 
China         157.5     208.3      376.6 
 
Source:  Ministry of Commerce 
 
 
3.  Exports from Colombia to China increased marginally from 
2003 to 2004.  The types of exports are diverse but only a 
few items are exported in significant quantities.  In 2004, 
ferronickel was the leading export (57 percent of the total) 
while copper and aluminum scrap accounted for the next 
largest category.  Fuel oils are a small percentage of 
exports to China, but there was a significant increase in 
this category in 2004, compared to previous years, according 
to the Ministry of Commerce. 
 
Recent Growth in Chinese-supplied Imports 
----------------------------------------- 
4.  Imports to Colombia from China have increased in recent 
years.  From January-September 2005, China was the 
third-leading supplier of Colombian imports at 7.3 percent of 
in-bound trade behind Mexico (7.7) and the United States 
(29.1), displacing Venezuela.  In 2004, leading Chinese 
exports to Colombia included crane equipment, video and sound 
recording equipment, telecommunications equipment, and 
footwear materials.  Preliminary data from DANE for the 
Jan.-Sept. 2005 period show that the 2005 increase in 
Chinese-produced imports came mainly from increased trade for 
sound and recording equipment, vehicles and parts, and 
boilers/machinery equipment. 
 
2004 Export/Import Data, Colombia and China (in USD millions) 
 
Products Exported to China 
                  2004          Percentage 
Ferronickel        76.45         57.5 
Copper Scrap       24.31         18.3 
Aluminum Scrap      8.0           6.0 
Fuel oils           6.4           4.8 
Leather goods       6.3           4.7 
Other              11.5           8.7 
Total             132.9         100.0 
 
Products Imported from China 
                                   2004         Percentage 
Crane Equipment                     21.3          5.6 
Video and Sound Recording Equip.    17.0          4.5 
Telecommunication Equip.             7.0          1.9 
Broadcast Receivers                  6.8          1.8 
Footwear Materials                   6.2          1.7 
Other                              318.4         84.5 
Total                              376.7        100.0 
 
Source:  Ministry of Commerce 
 
Not Much Chinese Investment But Some Increases Are Likely 
--------------------------------------------- ------------ 
6.  In recent years, Chinese investment in Colombia has 
remained relatively stable and limited, ranging from USD 1 
million in 2001 to USD 1.2 million in 2004.  China,s 
cumulative investment stock of USD 13.7 million from 
1994-2004 ranks it in 39th place behind Ecuador (14) or Costa 
Rica (23).  The United States was the number one investor 
from 2001-2004. 
 
Foreign Direct Investment in Colombia (in USD millions) 
 
           2004         Percentage 
U.S.      874.2          45.4 
Venezuela  62.3           4.5 
China       1.2           0.1 
 
 
Source:  Central Bank, Proexport 
 
7.  Chinese companies Huawei Technologies and ZTE started 
operations recently in Colombia and are interested in 
increasing investment as part of a general expansion strategy 
in Latin America.  For example, in 2005, ZTE announced it was 
contracted by Colombian Emcali to build an Internet protocol 
network in the Cali region for USD 10 million.  Chinese 
telecommunications companies believe they offer low-cost, 
high-quality infrastructure products and intend to compete 
heavily in the sector.  Traditional U.S. suppliers such as 
Nortel and Lucent have communicated concerns to the 
Commercial Counselor that the Chinese strategy is to sell 
their products at heavily reduced prices to gain market share 
and lock out competition. 
 
8.  While some Chinese companies have limited investments in 
manufacturing, chemical, and oil exploration, larger Chinese 
oil companies have stated they have no plans to bid on the 
USD 800 million Cartagena refinery upgrade project and are 
not interested in making large investments in the hydrocarbon 
sector, according to officials at the Chinese embassy in 
Bogota. 
 
2005 Influx of New Chinese Products 
----------------------------------- 
9.  Colombian consumers are seeing an influx of Chinese 
products in the marketplace according to recent media 
reports.  For example, Chinese cars made their debut in the 
Colombian market in 2005.  Cinascar, a new local distributor 
catering to taxi services, will sell light trucks, pickups, 
and passenger vehicles made by Chinese manufacturers, SAIC GM 
Wuling, BYD Auto, and Changhe.  During the first year of 
operations, Cinascar projects it will sell 3,000 vehicles. 
 
10. Colombian producers are experiencing price pressure from 
cheap Chinese imports.  In a recent public example, Colombian 
school notebook manufacturers expressed concern about a flood 
of cheap Chinese produced notebooks entering the market in 
2005.  The average price for a Colombian produced notebook is 
between 800 to 5,500 Colombian pesos but Chinese produced 
notebooks are selling for less than 200 pesos.  In 2005, 3.5 
million Chinese notebooks have been imported through Panama 
to Colombia compared to the normal Colombian national 
production of 120 million and Colombian producers are 
concerned the price differences will put them out of business 
in the long run. 
 
Textile Agreement - An Attempt at Flood Control 
--------------------------------------------- -- 
11.  Illegal Chinese textiles have been pouring into the 
Colombian market, and bilateral talks are underway to resolve 
the issue through an agreement that would set a maximum 
amount of Chinese textiles and apparel allowed into Colombia. 
 As reported reftel B, Colombian textile producers have been 
forced to lower their prices in response to competition from 
a growing contraband market, involving mostly Chinese 
products smuggled into the country from Panama.  Legal 
imports have also grown rapidly from an approximate value of 
USD 5 million in 2000 to USD 35 million in 2004 according to 
the Ministry of Commerce.  Colombian textile producers have 
noted a nearly 10 percent decrease in orders from January to 
June 2005.  The GOC is implementing a variety of safeguards 
to protect specific textile and apparel product categories 
from Chinese imports but views negotiation of a comprehensive 
textile agreement as the preferred method to address the 
issue. 
 
Beginnings of Expanded Political Relationship But Just A 
Start For Now 
--------------------------------------------- ------------- 
 
12.  In early April 2005, President Uribe made a State Visit 
to China to mark the 25th anniversary of Colombia-China 
diplomatic relations.  The focus of the trip, according to 
interviews Uribe granted before, during and after the visit, 
was to increase Chinese direct investment in Colombia, as 
well as to strengthen cultural and economic ties.  Consistent 
with these goals, Uribe was accompanied by 140 Colombian 
business people, who pitched investment opportunities at 
roundtables held in Beijing and Shanghai, and 30 university 
rectors. 
 
13.  During the State Visit, representatives from both 
governments signed four agreements calling for further 
cooperation in the areas of information and 
telecommunication, film exhibition, economy and technology. 
According to the Chinese Embassy in Bogota, the agreement on 
economic cooperation was really more of a development grant 
from the PRC to Colombia.  The agreement called for the PRC 
to donate USD 1 million to the GOC for use in agricultural 
development.  Uribe and Hu Jintao signed a fifth agreement on 
phytosanitary measures.  According to the Chinese Embassy, 
this is the only agreement that has real economic import. 
Without this agreement on the proper handling of contagious 
and parasitic diseases, there can be no plant or animal trade 
items between the two countries.  Despite the signing of the 
phyto-sanitary agreement in April, there has been little 
increase in trade in plants and animals, according to the 
Chinese Embassy. 
 
No Plans to Dominate Market Share in the U.S. Backyard 
--------------------------------------------- --------- 
14.  Officials from the PRC embassy in Bogota told emboffs 
that Chinese commercial strategy in Colombia, and Latin 
America in general, is opportunistic and depends on limited 
sectoral advantages.  Echoing comments made recently by 
Chinese Ministry of Foreign Affairs officials in Beijing 
(reftel A), PRC embassy officials asserted that Chinese 
companies are not interested in competing with the United 
States for a total dominant market share in Colombia but will 
compete when market entry is easy and there is demand for 
services like in the telecom sector.  From China,s 
perspective, the United States has the preeminent role as 
Colombia,s most important political ally and trading partner 
in Latin America.  China views Latin America as an important 
alternative market but the region is on a third tier of 
importance in comparison with China's economic relationship 
with the European Union and its relationship with the United 
States and regional neighbors (India, Japan, North and South 
Korea, and Russia). 
 
China Supports Justice and Peace Process But Will Not 
Contribute Aid 
--------------------------------------------- -------- 
15.  The Chinese Embassy stated the PRC supports the Justice 
and Peace process in Colombia in principle but will not 
provide monetary or other programmatic assistance based on 
its long standing policy of non-interference in the internal 
affairs of other countries.  China recognizes that the United 
States and European Union have multiple interests in 
enhancing Colombia,s internal security including assisting 
Colombia in addressing illegal drug cultivation and 
production and ensuring protection of human rights.  However, 
China does not share these interests to the same degree given 
the distance between China and Colombia.  In general, Chinese 
diplomats maintain a low profile in Bogota. 
 
Comment 
------- 
16.  Chinese interest in Colombia is based, primarily, on a 
modest trade relationship.  Post sees further limited growth 
of Chinese imports to Colombia and specific investment 
interest focused in sectors such as telecommunications, 
consumer electronics, and vehicles.  In any case, the current 
scale of bilateral trade and investment pales in comparison 
to the United States.  We also expect to see more bilateral 
discussion and agreements that will foster the economic 
relationship. 
DRUCKER