Friday, August 19, 2011

The Economist on China International Fund

credit: Reuters, as used by The Economist
As readers of this blog know, I've been compelled to (as Owen Barder once Tweeted) "fisk" some of The Economist's fact-challenged articles that deal with topics I follow fairly intensely: China in Africa, and Chinese aid. But this week I was, in general, impressed by a lot of Oliver August (and team)'s investigative reporting on China International Fund and the 88 Queensway syndicate.

Here's what is important about this report:

1.  It's the best analysis yet of the evidence that points strongly to a conclusion that China International Fund (or the 88 Queensway group) is not some secret tool of Beijing:
 Although the Queensway syndicate has sometimes been suspected of being an arm of the Chinese government, there is little evidence of that.
As I have also argued, the evidence points instead to CIF's role as a broker -- like Pierre Falcone -- with high level Africa contacts involved in making deals in Africa's often nasty and money rich resource sector. (See my posts on CIF: March 20, 2010 "Was Guinea Bought by Beijing?" June 2, 2010 China International Fund's New Bellzone-Kalia Guinea Deal," July 27, 2010 "China International Fund in Africa: Another Failed Project"). 

But why did The Economist relegate this portion of Oliver's excellent analysis to Baobob's blog rather than the print edition?

2.  It contends that "China" is probably paying market prices for Angolan oil, even if the company China Sonangol (a joint venture between the Hong Kong based CIF and Angola's state-owned oil company Sonangol) may pay a lower price. This is consistent with what I have seen elsewhere.
The terms under which China Sonangol buys oil from Angola have never been made public. However, several informed observers say that the syndicate gets the oil from the Angolan state at a low price that was fixed in 2005 and sells it on to China at today’s market prices.
3.  It makes clear that although earlier predictions by The Economist and others that "China" (i.e. CIF) would prop up the military junta in Guinea, were not accurate. Whatever funds the Queensway group transferred had little impact on the junta, which honored the promise to hold elections.

4.  It reports that Angola's state-owned oil company Sonangol now owns shares in China International Fund.
First, the Angolans, including Mr Vicente, seem to have gained a significant hold on the syndicate. Recent company fillings in Singapore show that China Sonangol now owns China International Fund, the original vehicle.
China Sonangol (which does not involve any mainland Chinese companies) is a joint venture between Sonangol (30%) and Dayuan International Development, Ltd. (70%), part of the infamous Hong Kong group known as "88 Queensway". According to the 88 Queensway study, Dayuan owned 99 percent of China International Fund.  If this report is correct, China Sonangol now owns CIF, in other words, Angola's Sonangol itself would now have about 30% of CIF. So when we read about "China International Fund" doing something in Africa, we should be thinking "Angola" as well as "Hong Kong".

5. It is the first place I've seen to break a story that one of the key "88 Queensway" people, Wu Yang, has broken from the group and actually sued them. I would have loved to hear more about this.

OK, so I do have some criticisms of the article.

1. Let's start with the title and subtitle: "The Queensway syndicate and the Africa trade:  China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals."

As I know with The Dragon's Gift: The Real Story of China in Africa, authors don't always get to choose their titles or subtitles: editors often do this for them. Nevertheless, this article is about China's oil trade with Angola, not Africa. And as campaigns like "Publish What You Pay" and research on the "resource curse" have shown us, the subtitle one could easily be rewritten as "The West's oil trade with Africa is dominated by opaque multinationals. Ordinary Africans appear to do badly out of their hugely lucrative deals." 

Sadly, there is nothing unique about that.

2. Some fact-challenges on timing:
In 2002, after decades of commercial isolation, China started encouraging entrepreneurs to venture abroad.
No: not decades of commercial isolation preceding 2002. I devoted an entire chapter of The Dragon's Gift, "Going Global," to showing how this process of "going out" began around 1979 in Africa and evolved gradually.

3. Do Chinese companies' have no ownership of Angola's oil assets?. The Economist writes:
By contrast, China’s state-owned oil companies have no direct interest in Angolan oilfields, one of their two biggest sources of crude. Their names do not show up on the map of concessions.
I don't have time to explore this in depth -- I'm trying to write a scholarly journal article this week! -- but I doubt this is true. Sinopec sent out a press release in March 2010 that they had acquired 55% of the shares of Block 18 in Angola, from Sinopec Sonangol (SSI, the joint venture that also involved China Sonangol), saying "This transaction is Sinopec’s first acquisition of overseas upstream assets. The assets are also the best-ever overseas assets of Sinopec." A March 2011 report in the invaluable investigative newsletter China-Africa Confidential stated:
In February, China Sonangol won three deep-water pre-salt oil (equity) concessions in Blocks 19, 20 and 38, adding to its existing shares in Blocks 3, 31 and 32. Meanwhile Sonangol Sinopec International (SSI), a joint venture between China’s state-owned Sinopec and China Sonangol, has equity stakes in blocks 15, 17 and 18.
4. The article mentions enormous CIF "pledges" and "rights" in Zimbabwe without commenting that these have been as vacant as other enormous "pledges" made by CIF in places like Guinea.
Sino-Zimbabwe Development Limited (a CIF-linked company)... received rights to extract oil and gas, and to mine gold, platinum and chromium. In return, the company publicly promised to build railways, airports and public housing. These pledges were valued at $8 billion by Mr Mugabe’s government.
5. The article insinuates that the CIF oil-backed infrastructure finance deal in Angola (which may amount to some $2.9 billion) is somehow a trade of infrastructure for all of Angola's oil exports.
In return for Angolan oil, the syndicate promised to build infrastructure, including low-cost housing, public water-mains, hydroelectric plants, cross-country roads and railways, according to the government. The country desperately needs such things, to be sure. But their value is unlikely to exceed several billion dollars. That looks like a poor deal for the Angolan people.
I'm sure that all the international oil deals in Angola are not doing much for the Angolan people (nor did they all during the Cold War, when Western firms were the only beneficiaries). But these deals should not be seen as a "swap" of Angolan oil for infrastructure, but rather oil-secured finance. I'm not sure how large the CIF infrastructure deals actually are in Angola, but they are small in comparison with the $20 billion annual value of Angola's oil exports to China.

Several points the article didn't make, but could have:

6. CIF's officials may have deliberately tried to camouflage their company by adopting a name similar to conventional corporations in China: CIF is similar to CIC, China Investment Corporation and CICC China International Capital Corp. Both of these are large, legitimate companies, and CIC in particular is involved in long-term overseas investments. 

7. The Bright Connection.  Along these lines, the name of a key CIF-affiliated company, New Bright International, is similar to the Chinese Everbright* group (one of the 88 Queensway gang, Wang Xiangfei, was formerly an executive director and CEO of an Everbright subsidiary) and Sinopec's 100% owned subsidiary Century Bright Capital Investment Ltd. Is this also done for camouflage, or does it mean that these "Bright" companies are affiliated?

I've been contacted by several groups doing research on CIF, including Global Witness and some student researchers at Columbia University. I hope they were able to sort more of this out and I look forward to their findings.

*Is the financial services corporation China Everbright a front for Chinese military intelligence, as the famous 88 Queensway Group report alleged (while noting in a footnote on its source: "information from this source has not been corroborated")? Could be, but if so, that hasn't stopped companies like Citicorp from partnering with Everbright: see, for example, Citicorp's Hong Kong-based investment fund Citicorp Everbright China Fund 


Anonymous said...

If you search by CIF's Chinese name: "中国国际基金公司", you will find in 2007 it has been involved in a serious fraud in a listed company. This company is really a mysterious one. Actually many Chinese media had done some research on it, and its real face is still in the dark.

And this blog reveals lots of details, I wonder how could it possible not making tofu-projects if the allegations are true:

sorry... they are in Chinese.


Anonymous said...

The recent Caixin magazine lauched a serial reports on CIF, and reveal some shocking details. The reports accused CIF has abducted the China's foreign affair strategy.


Anonymous said...

Actually these reports have English version. Here is one of them:


nike kobe said...

I've been contacted by several groups doing research on CIF, including Global Witness and some student researchers at Columbia University. I hope they were able to sort more of this out and I look forward to their kobe

Anonymous said...

I do not get the logic of why Sonangol should own 30% of CIF. Dayuan seems to be a shareholder of both China Sonangol and CIF. That Sonangol is part of China Sonangol does not make it a co-investor in CIF.

Deborah Brautigam said...

I'm not sure that the Economist was correct to state that China Sonangol now owns CIF. But if (and only if) that ownership is 100%, then Sonangol, which owns 30% of China Sonangol, would be indirectly a 30% owner of CIF. I think CIF is less and less a factor in this complicated story, however.