Wednesday, October 19, 2011

China International Fund in Africa: Caixin's New Revelations

Dar es Salaam Airport, Sept. 2011 photo: Tang Xiaoyang
 Entering and leaving the airport in Dar es Salaam, it's hard to miss the massive fence around a piece of ground that the Tanzanian government hopes will become Terminal III. On the fence in bold letters one can read "Investor: China International Fund, Ltd." But peek behind the fence, as I did earlier this month, and you will see ... nothing:  an empty piece of land without a hint of construction or machinery. Another example of the "talks big but doesn't deliver" style that frequently characterizes the deals signed by this sleazy Hong Kong company.

Two days ago, the Chinese newspaper Caixin published an investigative report on China International Fund (CIF) done by a group of journalism students at Columbia University. Accompanying the  report are two other articles in Chinese, and an introduction by Caixin. (hat tip to Wei, and thanks to Tang Xiaoyang.)

The first of the Chinese language articles focuses on CIF's complicated oil deals in Angola, and the second on problems Chinese contractors have faced when they've gotten involved with CIF contracts.

This latter issue is one that arouses intense feeling on Chinese blogs. One blogger commented about the headaches inexperienced Chinese contractors had after they jumped at the chance to carry out construction projects for CIF (usually after being enticed with a promise of getting work without having to go through a tender): "Dancing with wolves is not fun ... you might think you're going to eat wolf meat, but you turn out to be the wolf's snack."

Caixin notes, tantalizingly, that their own reporters were able to access a "previously undisclosed Ministry of Commerce study [about CIF] with surprising conclusions." Unfortunately, Caixin is no Wikileaks. They included no links to the MOFCOM study. But we learn some details, including the "surprising conclusions": MOFCOM accused Xu Jinghua (Sam Pa) of essentially hijacking China's economic diplomacy in 2003 and 2004 by presenting himself in Venezuela and Argentina as an official representative of the Chinese government. (This was strenuously and publicly denied by China's Ministry of Foreign Affairs, which has also warned about the quality of CIF's work.)

What did the journalism students discover? They write extremely well and they had some great interviews. Choice new details emerge of the personal appearance of CIF's head, the rogue businessman Xu Jinghua or "Sam Pa".  He has a toothbrush moustache. He and associate Lo Fung Hung were "dressed like street people" for a meeting with Israeli diamond dealer Lev Leviev (Lo wore a diamond tiara; Sam wore "cheap-looking pants"). We learn more sordid details of multiple lawsuits against Sam Pa, and some new details about CIF's real estate purchases in Manhattan (what a great choice for money laundering!), and bungled deals in Madagascar. There's a great quote from a lengthy interview the students snared with investment banker Mahmoud Thiam who was Guinea's mining minister when the CIF arrived in Guinea:
"When a new government comes into power, especially an inexperienced one, there's one phenomenon that never fails: every crook on Earth shows up. And every crook on Earth has the biggest promises, has access to billions of dollars of lines of credits, of loans."
This quote is followed later by another gem, from one of the participants in the meeting between a CIF subsidiary and Lev Leviev, where a deal was signed but came to naught: "The letter may as well have been written on toilet paper."

Overall, this is a very helpful step in the effort to shed light on a very murky outfit and overall provides new details as well as a fine summary of the important earlier work on the 88 Queensway Group by the U.S.-China Economic & Security Review Commission. The students are to be commended.

Just two things trouble me in Caixin's introduction and the students' report.
First: Caixin's introduction says that CIF has "demonstrated unparalleled power".  I don't see that at all. CIF talks big, but frequently it can't walk the walk. Outside of Angola, I see a series of bungled and failed deals where CIF has not been able to secure financing, or has provided a "down payment" but little more.

But second, and more importantly, the students say: "CIF has introduced a new model for doing business in Africa [emphasis added]. A private Hong Kong company would provide loans from Chinese government banks to help resource-rich African countries build their infrastructure. In exchange, it would get oil and minerals to sell to China."

I don't buy most of this. First, the overall model of oil-backed loans is far from new, as I discuss in The Dragon's Gift and in my blog post October 17. Second, loans-for-infrastructure secured with resources are also not new in Africa. China Eximbank had been doing this before Angola, and even in Angola, China Eximbank's oil-backed infrastructure line of credit preceded the CIF deals.

Third, very little infrastructure appears to actually have been built by CIF. We've read about the collapse of projects even in Angola, and the fact that the Angolan government had to issue bonds to pay for some of the projects when CIF couldn't raise funds. Finally, the statement "loans from Chinese government banks" implies that somehow CIF is linked into the big deals (totaling to date -- in Angola -- $14.5 billion) financed by China's official policy banks: China Eximbank or China Development Bank. They are not. Or at least I don't see any evidence for this.

In Angola, it's possible CIF could have acted as a broker in one (maybe more) oil-backed deals in which commercial banks -- including commercial Chinese banks -- participated. Here is how the 88 Queensway study described CIF's financing (pp. 14-15; 35):
Financial documents from the Hong Kong Company Registry indicate that CIFL took out four loans over the course of three years in order to pay for its infrastructure projects, although financial documents do not contain exact figures for the amount of money for each loan. The banks providing these loans include the following: Bank of China (branch in Hong Kong) Limited; Calyon* (a French bank); and Wing Hang Bank, Limited (based in Hong Kong). ... [CIF claims to have received finance from French bank Société Generale but not necessarily for projects in Angola]. ...
This implies that CIF was the borrower, as opposed to the Angolan government. In any case, this doesn't look like "loans from Chinese government banks". If the students have better information, bring it on.

*We also know that Calyon was lead arranger for the proposed $3 billion 2005 syndicated loan deal which according to Sonangol, was "secured by a long-term offtake agreement between [Sinopec subsidiary] Unipec and China Sonangol with the oil destined for the Chinese market." These are the participating banks: Banco BPI; BNPP; Deutsche; DZ Bank; Fortis; HSH Nordbank; KBC Bank; Natexis; Nedbank; RBS; Société Générale; Standard Bank; Sumitomo; UFJ; WestLB.  China Development Bank has also participated in a syndicated loan to Angola.



SE said...

Hi Deborah!

This question is not related to the above post, but I would love to hear your interpretation.

I've been reading some reports with the headlines along the line of "China implements 100 clean energy projects in Africa".

These projects were the outcome of the 2009 FOCAC meeting. What I find unclear in these articles is wether or not these projects have even begun to take off, completed, or if they are still just in the planning stage.

example of one of the many (very similar) reports:


Deborah Brautigam said...

Hi Sigrid -- Chinese companies are currently preparing proposals to access the funding available for these projects. I spoke with one in Tanzania a couple of weeks ago that had submitted a voluminous proposal for a biogas project. So they are taking the market model (as with many of the FOCAC pledges). I don't know how the decisions are being made though. Interesting topic to research ...

Sigrid said...

Yes... I guess the Chinese articles might have a bit of an ambigious wording so to give the impression that there has been a lot more action to date.

Anyhow I tried to find some information on potential energy projects and came across a 92 page report by WWF called:Exploring China's role as catalyst of renewable energy development in Africa", published in March this year.

I was thrilled to see that it included 3 case studies, one of which was Mozmabique. So my disappointment was great when i realised that the entire case study pretty much dealt with China's role in constructing the Mpanda Nkua dam....refrencing an earlier WWF/CCS study which in turn based the information on a 2009 article from Macauhub.

Makes you realise how important it is to make sure your sources are recent because information gets old/outdated very very fast in this topic.


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We've read about the collapse of projects even in Angola, and the fact that the Angolan government had to issue bonds to pay for some of the projects when CIF couldn't raise funds.

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This implies that CIF was the borrower, as opposed to the Angolan government. In any case, this doesn't look like "loans from Chinese government banks". If the students have better information, bring it on.

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in my opinion china is trying to increase it's area of influence , and with all the excess money they have now they are targeting countries from africa and asia who desperatly need the money