Wednesday, March 31, 2010

China: Not the Rogue Dam Builder We Feared It would Be? | International Rivers

Peter Bosshard, policy director at the advocacy group International Rivers, has been working hard and very constructively to engage China's emerging overseas financiers and corporations on responsible practice in building hydropower dams in other developing countries. See his account of International Rivers' experience and his assessment of the results of six years of advocacy and "constructive engagement" in
China: Not the Rogue Dam Builder We Feared It would Be? | International Rivers
What other examples do we have of the evolution of corporate social responsibility in China's "going global" effort? Is this self-interested window dressing, or a true shift of consciousness, as we saw earlier with the World Bank/IFC? Comments welcome.

Tuesday, March 30, 2010

China and the Congo Copper Deal

In 2008, the Chinese began to implement the first phase of the first tranche of $3 billion worth of reconstruction projects in the controversial resource-backed infrastructure loan that was held up by IMF concerns about debt sustainability. Apparently the first phase of infrastructure -- $350 million -- went rolling ahead while all the negotiations were going on. A Congolese colleague sent me a link to a French language story on the Radio Okapi website. A dozen new contracts for the second phase -- $400 million -- are up to be signed today, March 30, 2010, in Kinshasa. Congolese are pressing to evaluate the value-for-money so far in the first phase, which is still ongoing. According to early versions of the contract, external firms and independent engineers are supposed to assist in this effort. I'll be looking into whether this is actually happening. (Here's a link to an important 2008 speech by Minister of Infrastructure Lumbi, in English, outlining the parameters of this deal, and another link to a website hosting one version of the contract, in French).

The background of the controversial deal was expertly laid out recently by the always interesting Peter Lee, writing for Asia Times. Lee introduces more of the geopolitics, and his take on the role of the US, behind the resistance to the Sicomines deal, is fascinating. He notes something I have also been told numerous times, with regard to the attraction of the resource-backed infrastructure deals: "You can't put a highway in your Swiss bank account," goes a popular saying in the Congo." As I argue in The Dragon's Gift, these package deals can be an agency of restraint for countries subject to the resource curse, allowing at least some of their natural wealth to be hived off and pre-committed to development expenditures.

I highly recommend Lee's article, although I doubt the concerns laid out so well by Lee have any chance of derailing this deal. A hat tip to Science-Po grad student Solange Chatelard for this source.

Tuesday, March 23, 2010

Dragon's Gift Book Events

I will be doing book talks and signing for The Dragon's Gift at several places over the next couple of weeks. On Thursday, March 25, I'll be at New York University at 12:30pm.  Sunday, March 28, at 1pm I'll be speaking at Politics & Prose in Washington, DC. Wednesday, March 31, I'll be speaking at Stanford University, Thursday, April 1, at noon at UC Berkeley, and Friday, April 2 at noon, UC Davis, Shields Library. On Wednesday, April 7, I will be speaking at Georgetown University, from 4-5:30pm, in the Mortara Center Conference Room. If you happen to work at the GAO in Washington, DC, I will be doing a brown bag lunch seminar on April 8th at noon!

I'll also be speaking on panels at several conferences: at Harvard University's Kennedy School of Government, Cambridge, MA, on April 10th at 11:10; at the American Association of Geographers, Washington, DC, Thursday April 15th at 2:10, and at St. Andrews University in Scotland, Saturday April 24, at 11am.

Saturday, March 20, 2010

China and Rio Tinto in Guinea: A Wild Courtship

Yesterday we heard from the BBC and others that Chinalco, the Chinese aluminium giant, is likely to partner with Anglo-Australian giant Rio Tinto in the Simandou iron ore mining venture. The deal was announced just weeks after the Guinean opposition joined the post-coup junta government, with elections on the horizon. What are we to make of this announcement? Several things are significant:
  • It was announced by Rio Tinto, which noted that the well-financed Chinese firm will make an "in kind" investment of $1.35 billion in mining-related infrastructure. Chinalco will be a junior partner in the investment, a reflection of a growing trend for Chinese multinationals to partner with more experienced firms. Chinalco already owns 9% of Rio Tinto; this is not a "first date". Also, Rio Tinto specifically notes that this is a "non-binding memorandum of understanding (MOU)." In other words: they're engaged, but not married.
  • It's been a wild courtship so far. As I noted in my March 5 posting, before he died, Guinea's former president Conte had tried to take half of Rio Tinto's concession away and give it to Chinalco, which refused the deal. Rumors that he had given it instead to Israeli tycoon Beny Steinmetz may have been just that: rumors. Rio Tinto is acting as though they still have control over the full Simandou concession and they are making the decisions. But did they conclude this deal under pressure? 
  • On the other hand, the deal seems more strategic than simply caving in. Remember that Chinalco holds 9% of Rio Tinto's shares. These two are hardly strangers. If the Guineans were putting pressure on Rio Tinto, wouldn't the end result be something that shifted benefits to Guinea? The Guinean state still has no ownership shares in the Simandou mine.  
  • Estimates of the cost of developing Simandou have usually cited a figure of $10 billion. But with an investment of only $1.3 billion, Chinalco will have almost half of the stake in the mine.There's something odd about the math here, unless the $1.3 billion is just a starting point.
Finally, it is also significant that Rio Tinto's partner is not the murky, upstart, Hong Kong-based "China International Fund" but a well-established Beijing-based company with an international reputation to keep up. This news also flies in the face of allegations that Western companies were "paralyzed" in Guinea, that China International Fund was buying up the whole country, or even the rumor (reported by the BBC in October 2009) that China International Fund "would be a 'strategic partner' in all mining deals (emphasis added)". Mainstream Chinese companies that have been actively exploring and negotiating deals in Guinea over the past few years appear to still be well-positioned for business. Just like their counterparts from the West. Whether all of this will benefit ordinary Guineans much is another question.

Friday, March 19, 2010

Chinese Telecoms Giant ZTE: Agribusiness in Sudan?

Peter Bosshard just sent me this news story about Chinese telecoms company ZTE's interest in agribusiness in Sudan. The company apparently has been given 10,000 hectares to grow maize and wheat on a commercial basis, and has also signed an MOU for cultivation of industrial fuel oil seeds in White Nile state. A few thoughts:
  •  The size of the project -- 10,000 hectares -- is in line with a careful 2009 study conducted by researchers from the IIED, FAO, and IFAD, which found no confirmed accounts of Chinese "land grabs" above 50,000 hectares in Africa where deals had actually been concluded and implemented.
  • Will the maize and wheat be for local consumption or export? Sudan used to be the breadbasket of Africa, and has potential to resume that role, according to the World Food Program. Yet an earlier NYTimes article on Sudan's agribusiness pointed out how these policies can marginalize local people.
  • The oil seed MOU adds more evidence to the conclusion of my March 12 post:  ZTE -- having set up an agribusiness subsidiary and arranged to build a refinery in the Chinese province of Tianjin -- is clearly interested in industrial bio-fuels. But does the interest in Sudan help explain why the proposed project in the DRC has not moved forward? Or is this additional?
As with any of the many stories on the internet, this one has to be confirmed. To my eyes, however, it looks plausible. The amount of land is relatively modest. ZTE has an agribusiness subsidiary. Sudan used to be the breadbasket of Africa. I just wonder which other folks considered those 10,000 hectares to be theirs, and what kind of compensation, if any, will be arranged for them. Sudan's track record in this regard hardly inspires confidence.

keywords: China and Africa, land grab, Sudan, ZTE, agribusiness, investment

The Dragon's Gift: "Author Hits 'Reset' on Story of China in Africa"

Peter Wood, in Asian Review of Books (March 2, 2010):
This is an important addition to the already considerable literature on China-Africa. Policy makers and journalists should read it, and in particular those who run the foreign desks of leading western newspapers and who seem to be peculiarly willing to sacrifice reality to a good headline.
Peter Bosshard, on Huffington Post (March 17, 2010):
Based on her intimate knowledge of China and Africa, Brautigam is able to shatter many prejudices ... her thoughtful and well researched book ... offers surprising insights and challenges us to take a new look at Africa's development.
Stephen Marks, in Pambazuka, "China in Africa: Realism Conquers Myth," (March 18, 2010):
an account at once scholarly and accessible, combining the puncturing of prevalent myths with a realist approach that does not rely on rosy assumptions [and] ...  documents a number of ‘urban myths’, which her own painstaking research has managed to explode.
Angilee Shah, in Zocalo: Public Square "How Does China Help Africa?" (March 9, 2010):
If the headlines are any indication, it’s time for a proper China scare ... But Deborah Brautigam’s exhaustive account of Chinese aid and investment in the continent is by no means part of this trend. ...  the book is the culmination of some 30 years of research and experience in both places ... As Brautigam moves us beyond assumptions of exploitation and control of natural resources, a more complex story emerges.
One of my favorite comments so far comes from the title of a story published after I spoke at UCLA:  "Author hits 'reset' on story of China in Africa" (January 27, 2010).

Monday, March 15, 2010

China and the African "land grab": The DRC Oil Palm Deal

China often figures as exhibit Number One in articles about the "great African land grab." The other day I stumbled across a report on the website of CBS news: "China's Africa Play" that said: "It has been widely reported that China recently purchased half the farm land under cultivation in the Congo." But what do we really know about Chinese "land grabs" in Africa?

Let's look today at the Congo claims. While I haven't actually seen any reports that "China" has purchased half of Congo's cultivated farm land (was the author mixing up China/Congo with the story of Korean firm Daewoo in Madagascar?) there is a lot out there about a "3 million hectare" Chinese oil palm plantation alleged by many to be underway in the Democratic Republic of the Congo (DRC). Beneath the hyperbole, there actually is something to the ZTE plantation story.

In May 2007, Digital Congo reported that ZTE, one of China's premier telecoms equipment and services companies, with investments in the DRC going back at least to 2000, planned to invest "un milliard" (one billion) dollars in a joint oil palm biofuels venture estimated to cover 3 million hectares. This would have been an enormous concession. And the project was a reality. But was it really 3,000,000 hectares? Or 300,000? Or 100,000? Or 250? And why would a telecoms company be investing in oil palm?

As the story spread around the internet, the mystery deepened.

In August 2007, the DRC Council of Ministers approved the proposed project, at 100,000 hectares. A November 3, 2007 report in La Prospérité said that the project would be 100,000 hectares when fully developed. However, in a January 14, 2008 interview with Le Potential, the Chinese ambassador in the DRC said that the ZTE project would cover "300,000 hectares" of oil palm. In May 2008, an Associated Press report gave a figure of 2.8 million hectares.

Here's a solid fact:  ZTE is definitely interested in supplies of industrial oil palm. And it has established a subsidiary to pursue this interest. In May 2009, in Tianjin, China, ZTE's Agribusiness Corporation signed a deal with TEDA to jointly establish ZTE Agribusiness Tianjin Edible Oil and Bio-energy Industrial Base in Nangang Industrial Park. Over the next five years, the story said, ZTE Agribusiness planned "to invest 880 million dollars ... on 200,000-hectare land abroad" with the plan of expanding to "one million-hectare overseas agricultural land in ten years". Other reports mentioned ZTE investments in the DRC, Indonesia, and Laos. The industrial processing would apparently all be done in Tianjin: this does not bode well for the transfer of industrial expertise to the DRC.

In a July 2009 interview with China's news agency Xinhua, ZTE's regional manager Zhang Peng said that the planned project in the DRC would be 1 million hectares and provide thousands of local jobs. The project was still being described in the future tense.

But in February 2010, Africa-Asia Confidential reported that in 2008, Congo had offered the modest sum of 250 hectares to ZTE. Delegations from ZTE seem to have visited Congo's Ministry of Agriculture at least twice to discuss the project, but "three years after the MOU nothing has been done and according to the Ministry of Agriculture 'nobody talks about it anymore'."

So what's the real story in the DRC?  Stay tuned. And if you know more, please comment!

This is, so far, the only really large Chinese land investment in Africa for which there is robust evidence. As I wrote in The Dragon's Gift, the figure of 100,000 hectares seems most plausible, with a possibility of expansion. This is big, but it's not 3 million hectares. And it still might not go anywhere. Comments and additional evidence welcome.

Saturday, March 13, 2010

Here's an interesting YouTube link to a 3 minute DRC news bulletin on Chinese infrastructure projects being funded under the controversial $3 billion Eximbank loan (originally this was supposed to be two tranches of $3 billion each). Although the report is in Lingala (and a bit of French), the pictures speak volumes. Who is working on these sites? What role do Chinese and Congolese appear to have? 
A tip of the hat to Cornell University Ph.D. student Dunia Prince Zongwe, who forwarded this link to me, with the explanation below:
"Briefly, the news report, which was posted on March 1, 2010, recounts the visit of the newly appointed Infrastructure Minister Mr. Fridolin Kasweshi to the various construction sites where Chinese and Congolese workers are working. The new Infrastructure Minister Kasweshi is not new to the job as he was the provincial infrastructure minister in Katanga where he is credited with several achievements in the infrastructure sector.

The news report is from Journal Televise en Lingala Facile (JTLF) (website: JTLF is one of the 50 plus television channels in the Congo. It is a very small channel in the Congo but it has the
advantage of being in Lingala and thus being accessible to almost everybody in Kinshasa, at least those who have both a TV set and electricity.

Friday, March 5, 2010

Was Guinea Bought by Beijing?

Earlier this week, Chatham House, the British think-tank, published a briefing by Daniel Balint-Kurti entitled "Guinea: Bought by Beijing." Balint-Kirti notes that to the surprise of many, after taking control in a coup and then violently suppressing civil society demonstrators in a stadium massacre, Guinea's military junta formed a transitional government with the opposition, and have scheduled elections for June.

However, Balint-Kirti says, Chinese interests "have come close to taking over Guinea's economy entirely" through, among other things, a reported $7 billion resources-for-infrastructure deal with China International Fund. Other investors are "paralyzed", and he worries that China's engagement in Guinea might yet spoil the transition to democracy.

Several things surprised me about this Chatham House briefing.

(1) The title: "Guinea: Bought by Beijing"
(2) No mention of Hong Kong or Angolan interests, despite evidence that both are at the center of the rumored $7 billion deal.
(3) The contrast between what I've been seeing in reports from Guinea, and what Balint-Kurti has been seeing

Here's what I've been seeing.

Guinea is a terribly poor, unstable country that has barely escaped the wars that have rocked its next-door neighbors Sierra Leone and Liberia. The one time I came close to Conakry (stopping only in the airport, at night, on a rickety Nigerian plane hopping up the coast) there were barely any lights marking the city. US (and now Canadian) multinationals (Alcoa and Alcan) have for nearly 30 years held a majority share of a joint venture company with rights to exploit the world's most productive bauxite mine.

The Australian company Rio Tinto also controls half of an iron ore concession (Simandou) worth an estimated $6 billion, and Russia's giant aluminium conglomerate RusAl has a valuable bauxite concession (the terms of both of these latter concessions have recently been contested by the Guinean government). Mitsubishi, BHP Billiton, Anglo Aluminium, and others have investments in Guinea or hold recent exploration licenses. Just a few weeks ago, on February 18, Anglo Aluminium issued a bullish press release announcing the results of its recent bauxite explorations. For some of these firms, it seems to be business as usual.

Chinese companies have also been negotiating and/or exploring major investments in Guinea for some years, but have not yet invested on any noticeable scale. In November 2005, China Aluminium Corporation (Chinalco) was granted several 3-year bauxite prospecting licenses in Guinea; it began prospecting in May 2006. A Chinese consortium from Henan province, also secured bauxite exploration licenses in Guinea in 2007.

China's huge engineering company Sinohydro was interested in building the 750 megawat Souapiti Dam (processing bauxite into alumina is highly energy intensive). A Chinese resource-backed infrastructure loan was under discussion, This probably would have created a resource-backed infrastructure package that would have financed the dam, and the development of the Chinese bauxite interests. However, a October 2008 report from Africa-Asia Confidential suggested that China Eximbank declined to finance the project out of concerns with political instability, and because Guinea could not guarantee access to the high quality bauxite concessions Eximbank required to secure the project.

The next players to step up were China Development Bank, and Beijing-based China Power Investment (CPI). In February 2008, CPI signed an MOU for a joint venture with Russia's RusAl to build an alumina processing plant in Guinea. In September, CPI was awarded exploration permits for bauxite. It looked as though China Development Bank might finance the plant, or even a large package. A CDB team came to Guinea in July 2008, but then Guinea's long-term president, Lansana Conté, became ill, and in December 2008, he died. Within days, a military junta took power.

Visiting Guinea after the coup, Lydia Polgreen, a New York Times reporter, filed a March 26, 2009 story that ran with the headline: "As Chinese Investment in Africa Drops, Hope Sinks":
China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability. "The political situation is not very stable," Huo Zhengde, the Chinese ambassador here, said in an interview, explaining the country’s hesitation to invest billions in Guinea, where a junta seized power after the death of the longtime president in December. "The international markets are not favorable." ... China has backed away from what Guinean officials portrayed as a done deal to build a much-needed $1 billion hydroelectric dam. "The dam is not a gift; it is an investment," said Mr. Huo, the Chinese ambassador. "That is what win-win means."
Indeed, in April 2009, Chinalco's overseas acquisitions head told an Australian newspaper that before he died, Conté had offered to give all or part of Rio Tinto's Simandou iron ore mine to Chinalco, but that they had delined the offer as it was "not professional". ) Conté then handed half of Rio Tinto's concession to an Israeli diamond dealer, Beny Steinmetz, who ranks #296 on Forbes' list of billionaires.

At this point, we see "Beijing" sitting and waiting for political instability to subside. But something else is quietly going on behind this scene.

In June 2009, the mysterious Hong-Kong based China International Fund (CIF) and Manuel Vicente, the chairman of Sonangol, Angola's state-owned oil company, made a joint visit to Guinea. (CIF has been partnering with Sonangol in Angola since 2004. In a future post, I will pull together the threads of evidence out there about CIF and venture some observations on the nature of this mysterious company. Here, let's trace out the Guinea story.)

CIF and Sonangol pushed their own package combining mineral access -- especially the oil that everyone believes to be offshore -- and infrastructure. Aside from the intrepid Africa-Asia Confidential, which reported in September 2009 that a joint venture worth $1.6 billion was under discussion, little was said in the media about the CIF/Sonangol deal-making in Guinea.

Then, on September 28, 2009, the world recoiled from news that the Guinean government guards had massacred 150 unarmed opposition demonstrators. Just over a week later, the Guineans announced that they had signed a deal with CIF and Sonangol worth, they said, $7 billion. Although the Guineans said that their deal was with a private company, it was reported in The Economist as a deal with "China": "Don't Worry About Killing People: By Coddling Guinea's Dictator, China Again Mocks Human Rights in Africa."

Writing in Foreign Policy's blog, Elizabeth Dickinson raised questions about whether the Chinese government had anything to do with the deal. Some of Guinea's opposition figures also questioned the Chinese government's involvement. The Chinese foreign ministry, and Beijing's ambassador in Conakry denied any connection between the Chinese state (or its banks) and the CIF/Sonangol deal. This uncertainty is also mentioned in the Chatham House piece:
The role of the Chinese state in all this is unclear. While the Chinese government denies having anything to do with the China International Fund, a Chatham House report published last year, Thirst for African Oil, suggests it may have links to the Chinese security services.
The announcement a few weeks ago that the junta and the opposition had come together to form an inclusive government, with elections planned, was unexpected, and very welcome. Since then, we haven't heard much about the CIF deal.

I guess I'm just not a conspiracy theorist. And several things raise doubts in my mind that "China" or "Beijing" (i.e. the Chinese government) is behind the CIF/Sonangol deal.

(1) "Show me the Money". The venture between CIF, Sonangol, and the Guinea government has no visible financier, as opposed to the large Chinese government-backed infrastructure/resource ventures in Angola, Democratic Republic of Congo, Congo Brazzaville and elsewhere, which all appear so far to have been financed by China Eximbank, with China Development Bank also having shown interest in financing deals like this.

Guinean Mines Minister Mahmoud Thiam said vaguely that the deal would be financed through the same banks that had backed CIF's projects in Angola: "a combination of their own funds, private and Chinese state banks" and "international banks" as reported by Africa-Asia Confidential in October 2009. According to the Angolan government, CIF provided credit lines of $2.9 billion to Angola between 2004 and 2009. It's not clear where their financing came from in Angola, but some reports have named French bank Calyon as one of the CIF financiers. (Again, more about this in a subsequent post.)

(2) Intra-Chinese Competition. Given that Sinohydro, Chinalco, China International Power, the Henan province consortium, China Development Bank, China Eximbank, and other Chinese companies all spent a lot of time and resources to develop projects in Guinea, why would Beijing sweep these efforts of its national champions aside and support a Hong Kong/Angolan company's clearly rival venture? It doesn't make sense. If we were to start hearing that these more reputable firms have joined CIF/Sonangal in Guinea as partners, financiers, or contractors, I will buy into the "Beijing buys Guinea" conclusion. But if that doesn't happen, I will remain skeptical about the story line being pushed by Chatham House.

Monday, March 1, 2010

China, Copper, US, and Afghanistan

Just came across this article by Stephen Walt in Foreign Policy "Making the World Safe for Chinese Investment." It's mainly a critique of US foreign policy, but has observations on China's approach in Afghanistan, versus ours. Walt, drawing on a report in Time magazine, says:
While we've been running around playing whack-a-mole with the Taliban and "investing" billions each year in the corrupt Karzai government, China has been investing in things that might actually be of some value, like a big copper mine. 
... This isn't the 19th century and we can't just rewind the clock, but there's still a lot of wisdom in much more selective approach to the use of American power.  You know, sorta the way that Beijing seems to doing it."