Wednesday, May 30, 2012

Chinese Thinking on Taxation and African Infrastructure

On Friday last week while I was in Nairobi at a World Bank event on China and fragile states, The Star (Nairobi) published an insightful article by Chinese engineers Su Wu and Kou Yang. I've noted in The Dragon's Gift how China's policy banks have followed the "request-based" financing model made famous by Japan. This article shows how Chinese companies are trying to educate Africans about ways in which they can afford to have [more Chinese companies] build their infrastructure. I especially like this because it combines my two interests: China/Africa, and Taxation and State-Building.  A hat tip to Paul S. Rogers.

"Kenya: Here Is How to Build Costly Infrastructure," The Star (Nairobi) By Su Wu and Kou Yang*, 25 May, 2012.

Most of African countries are under developed and unable to afford the construction of infrastructures. Therefore, the establishment of a proper taxation system that will enable the collection of adequate capital for infrastructure is naturally a subject quite valuable for studying.

The importance of a good infrastructure in development cannot be over-emphasized. However developing such an infrastructure requires huge sums of money. Building for instance the 1412km road from Lamu Port of Kenya to South Sudan, requires about $ 2.118 billion.

Setting aside such a huge amount of money from the national budget will surely result in a big deficit and unfavourable effect on the economy. So it is wise to apply [for a] loan for the construction with expected profits of the road as mortgage.

Thursday, May 24, 2012

China Africa Development Fund Not Attractive Enough in China

China Africa Development Fund, the equity investment arm established by China Development Bank and launched at the 2006 Beijing Summit of the Forum on China Africa Cooperation, has failed in its effort to raise $2 billion on the capital markets. Instead, says a story published by China's vigorous economics newspaper Caixin, the state will arrange a second injection of foreign exchange:   "The fund’s parent, China Development Bank (CDB), arranged the US$ 2 billion worth of eight- to 10-year loans at bargain interest rates after CADF’s cash injection plan, some two years in the making, won State Council approval in March."

Chinese private funds and investors were not tempted by the potentially high returns on offer in Africa. And they were put off by the CADF's mission of holding shares for at least five years and potentially longer, to give projects a chance to mature. Caixin's analysis reinforces some of my points about China following the Japan path. Here's Caixin again:
"Nevertheless, economists say CADF’s initiative underscores China’s shift from exporting products to exporting capital – a path Japan followed in the 1980s after coordinating government and commercial agencies to promote overseas development."
One mistake in the article. An anecdote said to be about Libya is actually about Liberia (below). This interesting story illustrates the independence of state-owned companies. They couldn't be compelled to take over a politically important project. But it also shows something unfortunate about CADF: apparently, it could be compelled.
"A private company from China had signed a US$ 2.6 billion contract with the government of Libya [Liberia] for a mining project. But the Chinese side couldn’t fulfill its obligations, so it put the project up for sale. At the time, state-owned steel companies were unwilling to get involved partly due to perceived risks of doing business in Africa. CADF assumed 85 percent of the project and negotiated a settlement with the Libyan [Liberian] government, making the project more appealing to potential Chinese buyers. Later, Wuhan Iron and Steel Group bought a 60 percent stake."
See the original story on, a great website that aggregates stories on China themes. 

Tuesday, May 22, 2012

University of Nairobi Public Lecture

I will be speaking at the University of Nairobi Thursday afternoon May 24, 2012, on "China and Africa in the 21st Century," from 3:30 to 5:00 pm. The lecture will be co-hosted by the Institute of Diplomacy and International Relations, the Africa Research and Resources Forum, and the World Bank's Global Center on Conflict, Security, and Development. The lecture will be followed by a debate on China's role in Africa.

Location: University of Nairobi, Education Building, ED 213, 2nd Floor.

Update, Thursday, May 24: great turnout at the lecture, but not enough time for all those waving hands to be called on by the moderator, Professor Michael Chege. Let's see how many students find this blog and ask their questions here, as I invited them to do!

Sunday, May 20, 2012

Podcast of Interview at AmCham Beijing

I spoke at the American Chamber of Commerce during my quick trip to Beijing recently. Great fun to see old friends like Dwight Nordstrom, with whom I started Chinese classes in 1979 in the Yale in China program then at Hong Kong's Chinese University. He's now an active industrialist with factories in Beijing and elsewhere. Here's a link to the podcast of an interview that AmCham did with me after the talk.