Trade With China Primes Cuba’s Engine for Change

Cuba is turning to Chinese companies rather than western ones to modernize its crippled transportation system at a cost of more than $1bn, continuing a trend of favoring the fellow Communist country that has made Beijing Cuba’s second trading partner after Venezuela.

Buses plying Cuba’s highways increasingly come from the Yutong Bus Company and railway locomotives from the 7th of February works on Beijing’s outskirts. Cuba’s ports are being revamped with Chinese equipment, in part, to handle millions of Chinese domestic appliances that began arriving last year. Oil rigs along Cuba’s northwest heavy oil belt boast Chinese flags, and this is only the beginning, says Fidel Castro, Cuban president.

Enabled by friendly ties with a government that is ready to resist US pressure, trade cover insuring low-cost credit and what Mr. Castro says are competitive prices and fuel efficiency, more buses, locomotives, train cars, trucks and cars are on the way.

Cuba’s “maximum leader” announced last month he was negotiating personally the purchase of 8,000 buses to be partially assembled on the island. Mr Castro estimated that the cost of the new vehicles and old ones fitted with new motors would exceed $1bn (€840m, £575m). In addition, was a deal for 500 Chinese railway cars and thousands of trucks and cars.

China reported 2005 bilateral trade between the two countries up to November was $777m, up 62.5 per cent year-on-year. The increase was mainly due to $560m in Chinese exports to Cuba, up 91 per cent.

China has provided Cuba with about $500m in trade cover to develop communications and electronics. But direct investment between the countries is only about $100m. Plans jointly to produce nickel and cobalt have yet to materialise.

But the budding commercial relations are still far removed from past ties with the Soviet Union, says Cuban economist Omar Everleny. “You can’t say our relations are like those with the Soviets. They are strictly commercial, though with very low interest, and behind that political relations are excellent,” he said.

The two countries were bitter foes during the Sino-Soviet dispute. And even today China and Cuba appear to be heading in different directions, with the former adopting market economics and the latter clinging to a command economy that frowns on entrepreneurship and where more than 90 per cent of the economy is in state hands.

Fifteen years after the demise of the Soviet Union plunged Cuba into crisis, passenger transport numbers stand at 30 per cent of the 1989 level in a country where few own cars. Internal freight traffic is only now beginning to recover and the truck and heavy machinery stock consists mainly of old petrol-guzzling vehicles from the Soviet era.

Western companies such as Volvo, Mercedes-Benz, Alstom, Toyota and Fiat, entered the Cuban market through representative and subsidiary companies in the 1990s with an eye to supplying the growing tourist industry and replacing Soviet equipment if Havana ever had the cash.

Now Mr. Castro does have, but it is China that is benefiting, although Havana still imports large volumes of agricultural goods and medical equipment from other countries, as well as fuel from Venezuela.

Cuba’s foreign exchange earnings increased by more than 30 percent, or about $2.5bn, last year, according to senior central bank officials and the country had a current account surplus for the second consecutive year.

Most of the new income came from a direct payment from Venezuela for medical services and indirectly from other Caribbean and Latin America countries under preferentially financed oil agreements, such as the 13-member PetroCaribe accord.

Mr. Castro was micro- managing the budding trade relationship with the Asian giant thousands of miles away, in part because it was related to his campaign to save on subsidized energy and fuel through greater efficiency, government sources said.

The first 1,000 buses, plus spare parts, cost $100m, to be paid over four years at 5 per cent interest, Mr Castro said at a ceremony where they were symbolically received.

The deal, along with others for locomotives, re-equipping ports and other transport projects, was guaranteed by $400m in Chinese government trade cover, the sources said, overcoming whatever fears Chinese companies might have about doing business with the Caribbean island.

“The government has a firm position to develop trade co-operation between our countries . . . the policy, the orientation, has been determined. What’s left is the work to complete our plans,” China’s ambassador to Cuba, Zhao Rongxian, said at the ceremony.