800 Chinese State-owned enterprises active in Africa, covering every country

SPEARHEAD INTO AFRICA CNOOC's head office in Beijing

By: Keith Campbell

28 September 2007

In 1418, the prosperous coastal towns and cities of East Africa were visited by a tremendous fleet, spearheaded by the biggest sea-going ships ever built up to that time, from the mightiest ocean-going navy in the world – that of Imperial China. The fleet’s flagships were, by the standards of all cultures of the age, huge, and the total number of officers, officials, sailors, soldiers, medics and others embarked ran into the tens of thousands. It was the first direct contact between the Chinese State and African States, although indirect trade relations (through Arab and Indian middlemen) had already existed for centuries.

The 1418 fleet deployment to Africa was followed by two more, from 1421 to 1422 and 1431 to 1433. Fortunately for the Africans, on all three of these deployments, the Chinese sought ritual submission to their Emperor, and trade, not conquest and occupation. In the words of American historian Louise Levathes, “Africa was China’s El Dorado – the land of rare and precious things, mysterious and unfathomable.”

Then, for internal political reasons, China abandoned all direct contact with Africa. More than half a millennium would pass before the Chinese State again actively approached Africa.

The year was 1963, and this re-engagement was signalled by the unprecedented visit by then Chinese Prime Minister Zhou Enlai to Ghana, Guinea, Mali, Ethiopia, Sudan and Somalia (plus all the North African states, except Libya). With admirable understatement, Zhou, speaking in Mogadishu (one of the ports visited by the Chinese fleets 500 years earlier), said, “We feel that our present visit to Africa is somewhat belated. But after all we have arrived . . .”

This time, China’s interests were ideological, political, and diplomatic, to promote revolution in African countries still under colonial or white minority rule, to strengthen newly independent States, and to break out of the country’s then existing diplomatic isolation. The promotion of revolu-tion took the form of assistance to national liberation movements. For independent African States, China offered aid and assistance, and on generous terms. Between 1963 and 1983, China – still a poor communist economy – provided African countries with roughly $2-billion in very soft loans (usually interest-free and with very long repayment periods). A lot of practical assistance was also provided – by the early 1980s, some 150 000 Chinese technicians had served in Africa.

The flagship programme was the Tazara railway, linking Dar es Salaam with Lusaka. Funded by interest-free Chinese loans, built by 25 000 Chinese engineers, technicians, and workers, as well as 100 000 Africans, the 1 860-km-long railway, including 93 stations, 300 bridges, and some 10 km of tunnels, was started in 1970 and completed in five years – two years ahead of schedule.

But then, again, internal political developments in China (Mao Zedong died in 1976) saw that country dramatically reduce – although not, this time, terminate – its involvement with Africa.
Now, for the third time, China is back. Why?
“A key date is 1993,” highlights London School of Economics senior lecturer in international relations Dr Chris Alden.

“That year China ceased to be an oil exporting country and became an oil importing country. That’s when their economic growth outran their domestic resources and traditional imports.” MD of the specialist South African consultancy The Beijing Axis, Kobus van der Wath, points out that “this was the result of 15 years of change and reform in the Chinese economy, initiated by Deng Xiaoping”, who came to power in 1977. China became a communist State with a capitalist economy.

“ China has been growing since it opened its borders from 1978 to 1979, but it really accelerated in the late 1990s,” says South African Institute of International Affairs Development Through Trade Programme economist Philip Alves. “ China then developed a ‘going out’ strategy, encouraging Chinese companies to invest abroad, with the result that China’s economic footprint began to expand globally – it already had a global political footprint.”

“Deng’s reforms led to a significant influx of foreign direct investment (FDI) into China, which, in turn, resulted in the re-establishment of domestic consumer demand in the country, which has now reached levels not previously seen in modern Chinese history,” explains Van der Wath.

And this FDI continues, and will continue, to pour in. The Economist Intelligence Unit (EIU) forecasts that FDI into China over the five-year period from 2007 to 2012 will average $86,8-billion annually. Note that these figures exclude FDI into Hong Kong. This ranks China as number three in terms of attracting FDI – the US is number one, and the UK number two. Hong Kong ranks eighth, Russia thirteenth, Brazil and Singapore joint fourteenth, while India does not appear in the top 15. The EIU forecast for India for 2007 to 2012 is FDI inflows averaging $20,4-billion a year – only 23,5% of the figure for China.

“ China, with its rural migration to its cities, its booming industry, its gross investment: a gross domestic product ratio of 50%, has an enormous demand for resources,” avers Van der Wath. And this demand currently cannot be met from domestic sources – China is a poorly explored country. “So China began to look at resource supplies from abroad,” he adds. “It began to look strategically at resource pipelines, and in 1998 [then President] Jiang Zemin visited Africa – this marked the start of the new epoch.”

“ China definitely does have a strategic view concerning Africa,” confirms University of Stellenbosch Centre for Chinese Studies project director Lucy Corkin. “The Chinese government has a very long-term view, and they are looking to Africa as a strategic partner.” This is shown by the Forum on China-Africa Cooperation (FOCAC), launched as a Ministerial-level gathering in Beijing in 2000, attended by 80 Ministers from China and 44 African countries, and hosted by Jiang.

The second FOCAC was held in 2003, in Addis Ababa, with 70 Ministers from China and 44 African countries. This was accompanied by the First China-Africa Business Conference, attended by some 500 Chinese and African business people – cooperation agreements worth $1-billion were signed.

Last year, for its third edition, the FOCAC was upgraded to summit status, with President Hu Jintao hosting 48 African Heads of State in Beijing. Held in parallel was the Second China-Africa Business Conference, which saw the conclusion of trade deals totalling $1,9-billion.

At this FOCAC summit, Jintao announced that China was increasing the number of items it imported tariff-free from least-developed African countries from 190 to 440, and that his country was cancelling the debts owed to it by heavily indebted African countries . He also promised to double China’s aid to Africa by 2009, build 100 rural schools and 30 hospitals, and grant $37,5-million to combat malaria. China, he said, would provide $3-billion in preferential loans and $2-billion in export credits to Africa over the next three years, and create a special $5-billion fund to facilitate Chinese investment in Africa.

The country would also train 15 000 African professionals, send 100 senior agricultural experts to the continent, and set up ten specialised agricultural technology centres in Africa over the next three years.

“ China is offering Africa a diplomatic and commercial package as sophisticated as anything you’d expect from an established industrial power,” states Alves. “This is wrapped in cotton-wool rhetoric which makes China seem more appealing to African governments than Europe, the US, or Japan.”

Significantly, Chinese involvement and investment in Africa is being led and, currently, dominated, by State-owned enterprises (SoEs) such as the China National Offshore Oil Company (CNOOC), Sinopec, China Minmetals, and China Non-Ferrous Metals Company. These are being supported by other, service sector, SoEs in the banking and logistics sectors, such as the China Overseas Shipping Company.

“ China’s thrust is for commodities and oil,” affirms Alden. “It’s about purchasing and extracting resources.”
“ China’s focus is minerals and resources, which it needs to fuel its economy,” agrees Corkin. “But China came to this stage of development late, and needed to look for regions where there are not already strongly entrenched interests, and Africa, especially with regard to oil, still has space for the Chinese.

“There seems to be an emerging pattern. China offers African states soft loans and technical assistance to develop infrastructure and, in return, China gets access to minerals,” she highlights. “These projects generally involve several different Chinese SoEs from different sectors, such as banking, construction, and petroleum or mining.”

A key institution in this regard is the China Export-Import Bank (Eximbank). “A China Eximbank loan of $4-billion to Angola spearheaded the entry of Chinese construction firms into that country – while 50% of Eximbank loans must, in principle, be spent on buying goods and/or services from Chinese companies, 70% of the construction contracts financed by these concessional loans must go to Chinese com-panies,” she cites. Since 2000, Chinese companies have built eight middle- and large-scale power stations, more than 6 000 km of road in Africa, as well as refurbishing railway lines.

It is estimated that some 800 Chinese SoEs are active in Africa today, covering every country, although this figure includes provincially owned as well as nationally owned companies, as well as companies that are trading, not investing, and companies whose activities have nothing to do with natural resources or China’s strategy for obtaining these resources.

And Chinese private-sector companies are now also beginning to invest in Africa. “ China is not as monolithic as people think,” cautions Corkin.

“China is trying to move from being subject to price and supply risk takers on international markets to owning, operating, and refining the resource, thereby gaining some price and supply security,” emphasises Van der Wath. Chinese investments in Africa amounted to $46,3-billion by the end of last year, in sectors such as agriculture, communications, energy, and manufacturing.

Chinese imports from Africa totalled $28,8- billion in 2006, a 37% increase over 2005 (Chinese exports to Africa in 2006 were worth $26,7-billion, up 43% on 2005 – Africa is also important to China as a market). China is Africa’s third-largest trading partner.

“If you look at the trade and investment patterns, the intensity of Chinese involvement is primarily in commodities, especially energy commodities,” says Alden. “ China’s main objectives are oil, iron-ore, copper – all industrial metals, and any kind of raw material required by industry, in fact,” asserts Corkin.

“Oil is the big story,” affirms Alves, “but equally important is the range of metals and minerals which are needed as inputs into Chinese industry, such as cobalt, bauxite, copper, zinc, nickel, iron-ore and precious metals – Chinese mining companies are interested in anything Africa has.”

In 2005, oil accounted for 70% of all African exports to China.
“African oil countries have received the biggest Chinese investments – Angola, Nigeria, Sudan,” points out Corkin. “Outside oil, the biggest recipients of Chinese investment have been Zambia (copper) and Gabon (iron-ore).”

“In energy, the Chinese are doing two things – in countries like Angola, where oil production is well established, the Chinese are buyers; in places like Sudan, where oil production is not established, they are investing in getting the oil out of the ground, refining it, and then shipping it to China,” explains Alden. “Their investment is totally geared to supplying the Chinese market.”

“ China has invested in the Angolan oil sector, but Angola doesn’t allow any single country or company to dominate its oil, and China is a junior player in that country,” elucidates Alves. “But China entered Sudan in the mid-1990s, when Western companies left, and China now dominates the Sudanese oil sector.”

African governments have generally welcomed China’s latest approach to Africa – the country is providing appreciated aid, trade, and especially investment, without seeking to influence or alter their domestic policies and behaviour, as most other major investor countries now do.

But Chinese investment has been accom-panied by the creation of Chinese communities across the continent, and the establishment of small Chinese businesses which are competing with local small enterprises, and signs of popular resentment against the Chinese have been emerging, most notably in Zambia where, in the 2006 Presidential elections, the opposition candidate ran on an explicitly xenophobic anti-Chinese ticket.

Edited by: Martin Zhuwakinyu

Source: Mining Weekly