Friday, March 4, 2011

China and Libya: What's the Real Story?

Chinese evacuees in Malta. Dmitry Solovyov / NBC News
In recent days, the unrest in Libya and attacks on the many Chinese projects there, have raised questions about the impact this will have on China's quest for natural resources in unstable states. I think this focus is surprisingly off-track. What should we be learning about Chinese strategy from the Libyan engagement?

(1) China joins in United Nations sanctions. First, there has been relatively little comment about a rather extraordinary step: on February 26, the Chinese joined with other Security Council members at the UN in approving Security Council Resolution 1970 which imposed immediate sanctions on the government of Muammer Gaddafi. This move put into place an international arms embargo and targeted "smart sanctions" on key individuals, and refers the matter to the International Criminal Court for possible prosecution. Given Chinese reluctance to support intervention into "internal affairs" of other states, this move marks yet another step toward China's coming of age as a global power. It's something we can applaud.

(2) China's investment in Libyan oil is actually quite modest, while Western companies are major players. As William J. Hudson, acting deputy assistant secretary in the Bureau for Near Eastern Affairs, told Congress in 2009:  "I'm happy to report that US oil companies are the most active there, and Libyans are eager to use their technology. The Chinese are participating, but our countries [sic] are taking the lead" (Snow 2009).

ENI (Italy), Occidental (USA), and Petro-Canada and BP, Hess, Marathon, Conoco-Phillips, ChevronTexaco, and others have been key players in Libya. Italy, Germany, Spain, and France have been Libya's major markets for its oil. Although the US imposed sanctions on Libya after the Lockerbie airline bombing tragedy, not all European countries followed suit; US sanctions ended in 2004. Check out the Wikileaks website for the Libya cables and extensive discussion of all of this. (A good place to start is here.)

China's efforts to invest further in Libyan oil and gas were rebuffed in September 2009 when Libya vetoed CNPC's $US462 million bid for Verenex Energy, whose assets were Libya-dominated. Chinese oil and gas operations employed only around 400 Chinese nationals, another sign of their small size.

(3) For China, the problems posed by the popular uprising in Libya are far more about Chinese construction projects and their use of Chinese labor, than Chinese companies' oil investments. Over the past four years, China State Construction Engineering Corporation (CSCEC) has itself signed at least $2.67 billion of construction contracts in Libya.  In 2008 alone, Chinese companies signed US$10.05 billion in contracts for 180 construction, engineering and labor service projects in Libya (they also reported turnover of US$750 million, which suggests most of these projects started fairly recently). This was far larger than any other location in Africa.

Construction firms doing projects in telecoms, railways, and other infrastructure, seem to have employed some 36,000 Chinese workers. This was bound to raise resentment from Libya's unemployed youth. Despite high levels of unemployment, wages are also high in Libya, and few local workers speak foreign languages. Comments on a Tripoli Post story on this issue suggest that use of foreign workers is a widespread response by foreign companies in Libya. Despite this, many Libyans do find employment in this sector. The Economist Intelligence Unit's 2008 report on Libya cited the Monitor Group, a US consulting firm, which estimated in 2005 that some 600,000 to 800,000 people were employed in Libya's construction industry. It is likely that the vast majority of these people were Libyan. But the attacks on Chinese work camps in Libya bring home the risks of a business plan that relies on imported labor in repressive states with high unemployment.

References:

Nick Snow, "Local approaches may help US in oil-rich areas overseas," Oil & Gas Journal, July 27, 2009.

15 comments:

  1. The Jasmine Revolution showed once again how powerful the desire for freedom and democracy is in the Middle East and Africa.
    Time and again you see how great the enthusiasm for elections is in Africa.
    Thousands of Arabs are now risking their lives for the simple idea that they should be free to govern themselves.
    And this gives an idea of how potent the appeal of democracy is.They where no longer afraid of the feared security services in Tunesia, Egypt, Algeria, Bahrain , Jordan, Iran, Yemen and Soudan ... In some countries already with some success.
    It was not so much economic needs who were in the drivers seat, because many of these regimes had a more than respectable GDP growth and the present economic inequality was lower than in the U.S. or China for example ....
    But the local rulers claimed that their population was not ready for democracy and that without them "chaos" would prevail.
    But now, suddenly they all know the solution and promise their people more democracy. And it works too. For example, abolishing the state of emergency in Algeria did help to bring the rebellion under control!

    So much for the Jasmine Revolution in the Middle East. But something that was supposed to be a sideshow of this theme developed on some days into the main theme: is a Jasmine Revolution possible on the other side of the world in China?
    There appeared masses of articles that made interesting arguments for or against.
    Just as the fall of the Soviet bloc is one of the most studied events in China, the CCP is now studying the Jasmine Revolution "why and how did they do it?" And the CCP responds in a paranoid-like manner at the smallest display of solidarity with the Jasmine Revolution in the Middle East.
    But the last minute insight of the Arab dictators did not yet prevail in Beijing:
    the message from Beijing is still the same as the old one of the Arab potentates: democracy is not a solution, the population is culturally unsuitable or you are not mature enough for democracy, democracy will only bring chaos! We are your guarantee of prosperity and progress…. And this is on a daily basis in the news.
    This obviously applies to China but also to the entire Third World, and was in the world news recently, in response to the crisis in Kenya last year and now in the whole Middle East! Even now it is explicit in the Chinese newspapers in connection with Libya.

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  2. It goes without saying that people, who daily risk their lives for this very democracy, only moderately appreciate this jugement. In Cairo, I saw many placards with Chinese inscriptions that I could not read. But in Tehran, they are kind enough to translate and I hear, "Obama, Obama, you are either with us or with them" and "Death to China" ...
    It is not just an urgent choice that only Obama will have to make!
    dan
    And at the level of China itself, I have the impression that the CCP has been caught between the fear of a Soviet Union-style collapse if they accept a political reform and an Egypt-style overthrow if they do not.

    Some comments on the article itself:
    In the international news, I have read verry little about China's quest for natural resources.
    So I have just seen only one article that gives a review of the Chinese oil interests in Libya for maybe one hundred on Western oil companies.
    In fact, very little is said about China and if so then, it goes more generally about the risks for China and its companies, the evacuation, the Chinese foreign policy and the non-intervention policy...
    China joins in United Nations sanctions.
    This is fine for Qadhafi who now can claim that he only just does the same thing than the CCP in 1989:
    "The unity of China was more important than those people on Tiananmen Square" he said…
    Qadhafi made many enemies in Africa and the Middle East, including Saudi Arabia, China's largest source of oil, thus the most important country in the Middle East for China.
    As with any vote in the UN (North Korea, Iran, Sudan, ..) China is usually trying to avoid to play cavalier seul and in this case also ...
    China's investment in Libyan Oil is actually quite modest:
    But where last year China imported around 150,000 barrils per day from Libya, the U.S. imported only 51,000 barrils per day ....
    And in the present situation only Austria, China and India continue to import oil from Libya.
    For China, the problems posed by the popular uprising in Libya are far more about Chinese construction projects and Their use of Chinese labor ...
    The general rule is that Chinese embassies abroad are very reluctant to give the number of Chinese in the country. In addition they argue that they only have figures limited to the staff of the SOEs.
    When the Chinese evacuation finally got started the embassy could give a very accurate figure: 36,000, or only 140 men of target to get the exact number!
    Another remarkable fact: it is right that in the end everone eventually evacuated , but everyone did this in an anticipative way, except for China and South Korea who were obliged to do so after attacks on their workers.
    Also noteworthy is that many Vietnamese and Bangladeshi were working for these Chinese companies ...
    According to China, there were 75 Chinese companies in 50 projects and 27 of them were attacked by "thugs" “robbers" and a dozen Korean projects were also attacked ....
    To my knowledge, no other companies were attacked and many were protected by their armed workers.
    These attacks were done by armed citizens and were often battles in line with the Chinese staff who even dug up sand dams against SUVs.
    Although no deaths were reported there were many wounded and the compounds were not only sacked but everything was systematically destroyed with heavy losses for the companies involved.
    In one of the first attacks near Ajdabiyah, at 863 km from Tripoli, a thousand Chinese workers, men, women and children with minimal luggage were obliged to walk trough the desert to Tripoli ...
    As always in Africa, Southeast Asia, Oceania and the Caribbean, the Chinese presence create strains.

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  3. Maybe this Chinese manager has a clear view on this:
    Unlike some Chinese enterprises, Youngor ITS employs mainly local people at plants in Vietnam and the Philippines, which, Li Ruchen, has helped Youngor have a safer business environment.
    Our experience is as an overseas investor, you must provide job opportunities to locals and learn to live with local businesses, "he said.
    And then there is a complaint that sounds familiar to me: the wages were too high, they don’t know foreign languages and are not sufficiently trained ...
    I hear employers worldwide use this reasons to bring in low-paid immigrants…
    From Libya there were 36,000 Chinese people who had to be evacuated because the contracts stipulated that only 30% of recruited people had to be locals and even that limitation was not systematically observed.
    I haven’t read anything about a Chinese evacuation from Egypt, the difference beeing that, except two exceptions, the percentage of the Chinese workers there may not exceed 10% of the hired people.
    The Chinese evacuation was easy gooing, not so surprisingly, according to Chinese sources, it was more than a dozen times that China had to evacuate since this first happened in East Timor.
    Nevertheless, it was in Chinese style: evacuated workers did occupy the Guangzhou Baiyun International Airport till they could enforce the promise that their arrears would be paid ...
    And a final conclusion: from Australia all over Kenya to the Middle East, China is investing huge amonts of money and, in the event of a crisis, they are obliged to see that they have no leverage at all and no lasting goodwill in those countries…

    dan

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  4. Thanks for your comments, Dan. I haven't scanned all the news for stories on China and Libya, but I wrote this posting in part because I was contacted via email by four or five different reporters (including the FT reporter who broke the first story) and all were asking the same question: how will the situation in Libya affect China's investments in politically unstable countries.

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  5. Dear Prof. Brautigam,

    Is there a good online source to find a detailed break down of FDI into Libya by major source countries and dollar amounts (& if we're lucky, a break down by industry as well)?

    I have found aggregate figures at numerous sites, but nothing about where the investments come from.

    Thanks in advance for any suggestions.

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  6. China has changed a great deal since Tiananmen. You can say that revolution hasn't been in vain after all. There's plenty of economic freedom today but very little political freedom. China's relative stability today actually hinges on this economic freedom which has proven very successful in addressing poverty. An important side effect is it serves to divert people's energies to economic pursuits rather than political.

    Any working democracy need stable independent institutions. Today the communist party and the army form the 2 main pillars. Democracy can't take hold in such circumstances. But China needs democracy for next-stage growth. Such a big country need peaceful ways to resolve dissent else it'll be violent replays of dynastic changes all over again. Ironically, it's ambitions in the world also hinges on stability back home like the US. What we are seeing today is a suppressed static picture so often seen in autocratic regimes, it looks stable but you never know the simmering pressures building beneath only to rupture like an earthquake one day.

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  7. Dan, you commented above "...because the contracts stipulated that only 30% of recruited people had to be locals ..." Do you have a source for this stipulation? I've not seen a Chinese company put this into its own contracts before. If it goes into a contract (as in the DRC, or Angola's requirement that 30% of the work had to be subcontracted to Angolan companies) it seems to be done at the behest of the country that pays, not the country that does the work.

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  8. Dear Prof. Brautigam,

    As requested;
    http://www.tripolipost.com/articledetail.asp?c=1&i=4105

    To me it looked the same kind of rule as in Egypt (10 % with 2 exceptions).

    As maybe it is important to you, yesterday I saw for the first time this kind of rule for the DRC:

    “tewerkgestelden, minimum 3 Congolezen en maximum 1 Chinese werknemer”
    in a factfinding mission of a Belgian syndicalist in the DRC, meaning a legal quotum of only one chinese employee for every 3 congolese…
    I had never heard of it, but it comes from a vervy long refection on the union work in the DRC…

    Regards


    dan

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  9. Thanks Dan. It turns out that the Libyan law is the same as the Angolan law. The Tripoli Post article says: "Libyan law makes it mandatory for foreign companies to recruit 30 per cent of their staff among Libyan nationals." And the Chinese companies have followed that just about the same way they have in Angola (i.e. not).

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  10. Investment figures for individual OECD countries in individual other countries can be found at the OECD's data website, but not for non-OECD countries.

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  11. The Chinese leaders shouldn't yield to the vicious western politicians that leave not a stone unturned to try to overthrow the current Chinese political regime, under their cloaks of ''Democracy'', ''Freedom'', ''Human Rights'' etc. I have just one answer to these vicious politicians: their ''Democracy'' panacea didn't prevent their rich and developed countries from declining desastrously day after day, with the coffers of their states empty, entailing indescribable sufferings for their ordinary citizens. I think that ''Goddess Democracy'' is an excellent thing for everybody, including for the Chinese people, but that it must be adapted to the Chinese realities, with Chinese colours, and not blindly follow the western model.

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  12. Great article, I definitely now know what's going on between them. Thanks.

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    Replies
    1. Though China produces goods for the entire world i find from my frequent trips to china that the foreign corporatins mainly
      Americans and Europeans who are producing these goods and to my surprice I find that all the brand name goods produced in China are more expensive for Chinese than in America and Chinese are the big buyers of these Brand names. therefore America will have to bow to China because of massive corporate interest in China and would have to let Chinese
      invest in under developed nations.

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  13. Dear Prof. Brautigam,
    I am anticipating of starting a PHD course in September in one of UK's Universities on the Sino-African Relations.
    I am writing to enquire on how I can have your contact. I wish to ask for some direction on my posited research topic; "The Political Economy of the Sino-African Relations: An in-depth analysis of the institutions guiding the Sino-African Relations". Prof. I wish to find out who formulates the institutions serving as recipes to the Sino-African relations, is it China, Africa, the North, or a combination of China, Africa and the West. By institutions I mean both the formal and informal rules guiding the Sino-African relations.
    I think my research will be relevant in that, it will help researchers to understand the driven-hand behind key areas affecting the Sino-African relations like the poor labor conditions, environmental hazards, durability of Chinese buildings, bridges and roads, and China's loan to African countries.
    I also think this will serve as a better rudiment to analyze the much controversial debate on China's motive in Africa.
    I embarked on this research because I have realized African leaders determine much of the outcome of their relations with China as any other Country. I think if we get to understand the institutional framework formulation process, we will also help policy makers to understand what changes can be made on the part of Africa so as to help African leaders to use the Sino-African relations as a period of institutional and policy adjustment to create a part to sustainable development for African Countries.
    Presently, my research topic is: “To what extent will stronger Sino-African Relations effect the future of global Politics”

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  14. Hi - I recently came across this article by Dan Glazebrook in the Guardian which explains much about what actually happened in Libya and the real motivations of the forces behind the so-called revolution there:

    http://www.guardian.co.uk/commentisfree/2012/jun/14/africom-imperial-agenda-marches-on

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