Cuba Looks to China for Help Jump-Starting Transit

Los Angeles Times

They were adversaries in the Cold War but their now-friendly ties enable soaring trade, including vehicles and port goods.

By Marc Frank, Financial Times

April 3, 2006

HAVANA — Buses plying Cuba's highways increasingly come from China's Yutong Bus Co. 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 the millions of Chinese domestic appliances that began arriving last year. Oil rigs along Cuba's northwest heavy oil belt boast Chinese flags. This is only the beginning, says Cuban President Fidel Castro.

Cuba is turning to Chinese rather than Western companies to modernize its crippled transportation system at a cost of more than $1 billion. China is Cuba's largest trading partner after Venezuela, which, like Havana, consistently opposes U.S. policy in the region.

More buses, trains, trucks and cars are on the way, enabled by Cuba's friendly ties with a government that is ready to resist U.S. pressure to isolate the island. Castro also points to the competitive prices and fuel efficiency of China's output.

Cuba's "maximum leader" announced recently that he was personally negotiating the purchase of 8,000 buses to be partially assembled in the Caribbean nation. Castro estimated the cost of the new vehicles and old ones fitted with new motors at more than $1 billion. In addition, there is a deal for 500 Chinese railway cars and thousands of trucks and cars.

China reported $777 million in trade between the two countries for the first 11 months of 2005, up 62.5% year over year. The increase was mainly due to $560 million in Chinese exports to Cuba, a 91% rise.

China has provided Cuba with about $500 million to develop communications and electronics. But direct investment between the countries amounts to only about $100 million. Plans to jointly produce nickel and cobalt have yet to materialize.

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."

The two countries were bitter foes during the era of the Sino-Soviet dispute. 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. More than 90% of the Cuban economy is in state hands.

Fifteen years after the demise of the Soviet Union plunged Cuba into crisis, passenger transport volume stands at 30% 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 gas-guzzling vehicles from the Soviet era.

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

Now Castro does have it, 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 more than 30%, or about $2.5 billion, last year, according to 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 PetroCaribe accord.