Eating Bitter to Taste Sweetness (guest post)

This guest post is by Lila Buckley, a student at Oxford University who is currently in Senegal doing an initial research trip for her master's dissertation on Chinese engagement in agriculture. She writes that her first trip to Africa ...

".. is an unusual introduction to the continent as I am living more in the Chinese world than the Senegalese one. But what a world this is! Chinese people have a reputation for being difficult for outsiders to approach, but in my experience, once you gain their trust they will go to the ends of the Earth for you.

"I am finding this to be true of the Chinese I am meeting here in Senegal as well. I have already been welcomed into a Chinese family running a restaurant in Dakar, gone on a road trip with Chinese agronomists all the way to the northern border with Mauritania, dined on a fishing boat and sang karaoke late into the night with Chinese and Taiwanese fisherman, and worked alongside Chinese and Senegalese workers on a farm outside of Dakar.

"I won't go into too much detail of my findings just yet, except to share a snippet of a conversation I had last night with the head of the Chinese agricultural mission for Senegal. He had been gone all day on a trip to a neighbouring farm that hadn't gone very well. Over dinner I suggested that it must have been very "辛苦" (difficult, exhausting). This is a very common thing to say to someone when you want to express sympathy for a difficult or laborious process. It literally means "tired bitterness". He quickly responded that his work should not be called "tired bitterness". It could be called bitterness, but "bitterness comes in many forms, and what I do does not make me tired. People need to work hard to enjoy rest. You can't really enjoy life without also having bitterness". He picked up a piece of 苦瓜 (bitter gourd) from a dish on the table that he had grown with his own labor, and said, "You can't really know sweetness until you eat bitterness."

"This statement gets at the heart what I observe as a fundamentally different approach to agriculture work between the Chinese and the Senegalese. The Chinese are critical of what the Senegalese emphasis on religion (primarily Sufi Mauride Islam) and what they perceive of as a lackadaisical work ethic of farm workers, while local people seem to both admire the Chinese approach to work, as well as reject it as cold and inhuman. I feel so honoured to be let into both of these worlds for this brief glimpse of time."

DB: I imagine Lila's fluency in Chinese (not to mention her engaging personality) made all the difference in the reception she received in Senegal. We need more researchers with language skills like Lila's doing research on this topic.

China International Fund's New Bellzone-Kalia Guinea Deal

Last week China International Fund, the murky Hong Kong real estate, construction, and investment company, hit the news again with a confirmed report that CIF had signed a preliminary agreement to finance $2.7 billion in infrastructure connected with the development of Australian company Bellzone's proposed $4.45 billion Kalia iron ore mine in Guinea. A $40 million feasibility study still needs to be done before the deal goes forward.

This appears to be part of the $7 billion in infrastructure deals that CIF had been negotiating with the Guinea government last year after the coup, and before the massacre of more than 100 Guinean opposition demonstrators at the national stadium. (This $7 billion has been described in many reports as "Chinese aid" with the spin that "China" stepped in when the West was about to sanction Guinea for the murders in the stadium. See my earlier post Guinea: Bought by Beijing? for a different take on that story.)

On the surface, this new deal resembles the earlier MOU laying out a likely deal between Chinalco and Rio Tinto, discussed in my blogpost: China and Rio Tinto in Guinea: A Wild Courtship. In both cases, the Chinese/Hong Kong company agreed to finance (and build) necessary infrastructure associated with the mine. In both cases, the MOU is preliminary and needs to become a signed deal down the road.

But the two deals differ in some critical details. In the Rio Tinto deal, Chinalco, a very reputable Chinese mining giant, becomes a joint venture partner, a junior shareholder, developing the mine as a partnership. In the Bellzone deal, both companies will set up a joint venture for the infrastructure, with Bellzone becoming the junior partner with 10% of the stake. In addition, they will also set up a joint venture to later exploit another concession held by Bellzone, with shares at this point said to be 50:50. However, Bellzone will develop Kalia itself. CIF, which is not a reputable Chinese company, does not become a joint venture partner at Kalia.

It is not clear how the $2.7 billion will be financed. Where will CIF gain access to this kind of money? CIF had a lot of problems securing the promised funds for its operations in Angola. Are Beijing banks involved? No word on this yet (and I think it would be a first for CIF if this happened. Their past projects have been funded mainly by European and Hong Kong banks).

Finally, there is a huge unanswered question here. Why would CIF simply "give" Bellzone $2.7 billion worth of infrastructure, in return only for rights to buy the output --- at market prices --- and shares in several other not-yet-developed concessions, and without gaining equity in the Kalia mine itself? This is very different from the Chinalco-Rio Tinto deal, and also different from the Gecamine deal in the DRC. Most large Chinese projects with big infrastructure deals have involved loans, which are then repaid with resources.

Bellzone's Managing Director described CIF as "a highly regarded group of companies with a proven track record of developing large infrastructure projects in Africa..." China-in-Africa watchers know CIF as a dubious, murky, problematic Hong Kong company that had great difficulty coming up with the money for its promised projects in Angola and elsewhere.

If I were a shareholder in Bellzone, I would want to see a lot more proof about these projects. There are too many outstanding questions about this deal. Readers' thoughts are welcome. I am currently traveling in South Africa and posting on the run ...

The Rise of ICBC: New Environmental Challenges

Industrial and Commercial Bank of China, the world's largest bank, is increasing its African exposure. Much of this has been done in collaboration with Standard Bank of South Africa, which serves as a partner and, perhaps, tutor. In Ethiopia, however, ICBC seemed to be going solo when it apparently agreed to finance the export of turbines for a controversial dam. Read more about it in Peter Bosshard's May 27, 2010 article in Pambazuka.
This new development has several important implications. China's main financier in Africa, China Eximbank, has over the years formulated and then revised its environmental policy. After a long learning process, China Eximbank now uses international consultants to do its environmental and social appraisals. Will ICBC have to repeat this same lengthy learning process? And perhaps more to the point, will we witness a "race to the bottom' --- or pressure to conform to global standards --- among China's banks as they go global in Africa?

Interview with Paul Fortin on the Chinese Agreement in the Congo

An interesting, if a bit dated, (thanks, Dan) interview in the Belgian newspaper Le Soir. Journalist Collette Braeckman interviews Paul Fortin, the Canadian lawyer and former head of Gecamines, and the man who negotiated the DRC's China deal. Although the interview is in French, and happened in 2008, here are the main points:

• Fortin stoutly defends the agreement, explaining that it was not negotiated in secret with high level leaders, but in Beijing over two months, with a team of 15 experts from the Congo.
• He explains that the infrastructure agreement came first, in September, negotiated with Pierre Lumbi, the Minister of Infrastructure. But the infrastructure loan needed to be secured, as in Angola. Unlike Angola, Congo didn't have readily available resources to secure the loan. It was necessary to develop new resources. As Fortin says, "To finance this, I needed to find 10 million tons of copper as security. Its a form of barter." [DB: at $3000 per ton, 10 million tons comes to $30 billion. That's quite a security. Of course there are costs involved in producing that copper.] 
• "Congo was inspired by the Angola example, except that in Angola, the oil was available immediately, whereas in the Congo, the copper will only be available after three years."
• Calling it "the contract of the century", Fortin said: "it's a new idea. To have thought  it up, and then worked it out over four months, this is an incredible coup."
• "Everything is happening very quickly, and the Congolese are going to be able to see the results of these agreements very soon. With others, it's slow, there are conditionalities, they give you something, they take it back, they hesitate. The Chinese asked no questions, it was a business deal, and that's all. The team that discussed all this with us was not condescending. Their negotiators were very simple, and very direct."

As we've seen in video clips on this blog, the work did begin soon after the agreement was signed, despite the reservations of the international community. In The Dragon's Gift, I point out how important the construction business is for Chinese companies in Africa. It seems that this deal was indeed negotiated with Chinese construction companies, no mining company was involved. (A mining company was recruited to join later, but I'm not sure it remained a partner to the deal. Does anyone know?). This reinforces an important point. In seeing China's activity in Africa as all about a desperate search for resources, we are missing the complexity of the business engagement. In 2008 alone, after all, official statistics from MOFCOM tell us that Chinese companies signed infrastructure contracts worth $40 billion in Africa.

China's $23 Billion Deal in Nigeria: How Real Is It?

The Nigerian National Petroleum Corporation (NNPC) announced on Thursday last week that it had signed an MOU with China State Construction Engineering Corporation Ltd. to construct three oil refineries (about 250,000 bbl/day capacity each) and a petrochemical plant. The total cost would reportedly be $23 billion (or $23.8 billion, according to Beijing's official mouthpiece People's Daily, which also announced the MOU). If we disregard the petrochemical plant, the projected cost would be about $30,666 per capacity-barrel (a measure I think I just invented).

The endeavor still needs to secure loan financing: a combination of supplier's credits guaranteed by SINOSURE, and loans from a consortium of Chinese banks (as far as I know, SINOSURE is simply an export insurance/guarantee agency; it doesn't supply finance itself). This is clearly not a Chinese, but a Nigerian investment. As the People's Daily noted: "Nigeria State Petroleum Corp is responsible for the construction funds."

According to All Africa, 80% of the funding would be supplied by CSCEC, and 20% by NNPC.  If CSCEC merely supplies loans, this doesn't imply any equity shares in the refinery.

How solid is this news? CSCEC is a Beijing firm, a Shanghai stock exchange-listed company, and a subsidiary of China's largest state-owned construction company. It's a very respectable company, unlike the mysterious Hong Kong-based China International Fund we've seen a lot of lately.

But it's still early. An MOU is a sign of intention:  more than a first date, but much less than a wedding ceremony. The chances of this being derailed, like other large Chinese projects in Nigeria, are high. Yet it also has all the hallmarks of China's more successful deals in Africa. No bids. Creative loan financing. Chinese concern about loan repayment. "Agency of restraint" that locks some of a county's natural resources into directly useful infrastructure. Note these provisions, in particular:

...the operational mode of the new refineries will be different from that of the existing ones, ... government will have no shares or financial contribution to make in the construction and management of the plants as the entire project will be executed with loans sourced by NNPC and the Chinese firm. The refineries are to be managed by CSCEC consortium upon completion until the full recovery of their loan used on the project.

With this much detail, it sounds like the project(s) are indeed fairly advanced. They also sound like BOT (Build, Operate, Transfer), projects, rather than BOOT (Build, Own, Operate, Transfer). This would differ from the model set up with Sicomines in the DRC. Chinese lenders will expect the loans to be secured, probably with oil export proceeds sent to a Chinese escrow account. Also in contrast to the DRC, there is no talk of a resource concession linked directly to the deal.

SINOSURE is very conservative. If they do get involved in guaranteeing the loans, they will want to make very sure they don't lose their shirt.  But will the Nigerian government provide a sovereign guarantee? There could be more wrangling around sovereign guarantees such as we saw in the DRC with the $9 billion (now $6 billion) copper project.

Could this still be win-win for Nigeria? It would be terrific if Nigerians could finally refine their own oil. They presently import about 85% of their fuel needs, despite being a major oil producer. Some 20,000 Nigerians are expected to find direct and indirect employment through the construction and operation of the plants. But ultimately the benefit for Nigerians rests not just in employment and in the national pride of refining their oil, but in the cost of refining versus importing it. International tenders and competitive bidding are supposed to ensure that countries get value for their money. Not that this always works.

A quick search of refinery construction costs yielded one recent report of a refinery planned for Kuwait of 615,000 bbl/day capacity, for $19 billion ($30,894 per barrel of capacity). But that contract was canceled after opposition members objected that even though it was an international tender, it had not been done properly. (The companies were South Korean, Japanese, and American). The projected costs of the Nigerian project seem to be in line with the estimates for the proposed Kuwait construction. Another project proposed in South Africa was estimated to cost $10 bn for a 400,000 bbl/day capacity refinery, or $25,000 per barrel of capacity.

I remember analyzing the cost of producing irrigated wheat in Nigeria while on a World Bank mission there in 1987. We found that it cost 10 times as much in foreign exchange to produce irrigated wheat in Nigeria as was saved by not importing the wheat. If they do come to pass, let's hope these oil refineries are a more efficient venture. But if they don't come to pass, this will reinforce what Peter Bosshard said in response to my post on Nigerian power plants: 

Because of financial and political spoils, signing a contract for a big infrastructure project is more attractive than actually building and operating it. This is one reason why so many deals are announced but then never materialize. (See more on this in his blog post: Money for Nothing (Or How Corruption Fuels Dam Building in Nigeria).

So ... who wants to take bets on these projects going forward? A hat tip to Peter Lewis for this story.

Chinese Aid in Cambodia: How Much?

China is not very transparent about its aid on a country or regional basis. There is no place on the internet where you can download Chinese aid statistics, in contrast to Western donors who report their aid to the OECD's Development Assistance Committee (DAC). This is why in recent testimony to the U.S. Congress, an expert on Southeast Asia, Ernest Bower, could say:

The best estimates to quantify Chinese aid in Southeast Asia have come from a Congressional Research Service Report which estimates that aid increased from $36 million in 2002 to over $6.7 billion in 2007. By comparison, the same source recorded US aid to Southeast Asian countries to be $452 million in 2007.

Bower presumably said this with a straight face. I've written skeptically about that very questionable Congressional Research Service (CRS) report in an earlier post, "Billions in Aid". The report uses a very peculiar definition of Chinese "aid":  all capital flows with links to the Chinese government, its state-owned companies, or its banks. Commercial bank loans, investment, export credits: they're all called "aid". The report explains this definition, but then it compares its Chinese "data" (all gleaned from the internet by a group of students, itself problematic) to official development assistance (ODA) from the West, which explicitly does not include commercial bank loans, investment, or export credits.

But it's the Congressional Research Service! Can we blame Bower for not second-guessing this report?

Maybe.

With just a little searching, he could at least have found some real data on Chinese ODA in Cambodia. Several years ago, the Chinese embassy in Phnom Penh began to report its official development aid disbursements for Cambodia. These are collected in the annual Cambodia Aid Effectiveness Report (the most recent one I could find was November 2008 which lists all the years from 1992 to 2008, with estimates for 2009 and 2010). This fits with statements in a Brookings report, among others, that the Chinese participated in the Cambodia Development Cooperation Forum in 2007, and contributed data on their aid disbursements. This is something that donors across Africa would love to see happen there (and I would love to know more about how/why this happened!).

So how much official aid is China giving to Cambodia? And how does this compare with "the West"?

China's aid to Cambodia has been in the media several times, with very large sums mentioned. In 2006, the BBC wrote that China's "aid" commitments were $600 million, the same as the total commitments from all the other donors combined. This has been very widely circulated as an alarming "fact".  Similarly, in December 2009, when a visiting Chinese leader signed off on 14 separate agreements, it was widely reported that China was providing $1.2 billion in "aid" to Cambodia. (In fact this news about Chinese commitments came from the Cambodians, not the Chinese, who rarely have press releases containing aid or loan figures.)

But let's look at apples and apples.  According to the official data, Beijing disbursed $53.2 million in official aid in 2006, $92.5 mil in 2007, and was expected to disburse $127.9 mil in 2008, $67.1 mil in 2009, and $47.5 mil in 2010.

China surpassed the US as a donor to Cambodia in 2006, when the US disbursed $51 million, an annual figure that has remained fairly consistent in recent years. But Japan's aid was higher than China's for every year until 2009 when China was expected to overtake Japan. Aid from the UN agencies was far, far higher than aid from China, every year, as was aid from Europe. In fact, from all non-Chinese donors, Cambodia received official development assistance disbursements of $660 million in 2006 and $698 in 2007 (for more recent years, the data on some donors was incomplete).

How should we interpret the large figures mentioned in the press? For one thing, the Chinese practice is to sign a number of different official agreements concerning aid, export credits, and even investment together. Agreements are usually negotiated separately, and well beforehand, but then held off until a high-level Chinese official is visiting, so that they can be signed together in a big ceremony. This also means that these agreements refer to commitments that will take place (or be disbursed) over a number of future years. Unlike other donors, the Chinese do not make new commitments annually, even though, of course, they have their own annual budget for aid expenditures. So these multi-year figures should not be compared with annual commitments or disbursements from other donors.

Further, some of the commitments signed in 2009 are clearly export credits, not aid. We have a Cambodian report on the 14 agreements signed at the time the figure of $1.2 billion was mentioned:

1. Exchange of notes on the construction of a new office building for the Senate
2. Exchange of notes on the restoration and conservation of a temple in Takeo
3. Agreement about economic and technical cooperation with a grant of Yuan 50 Million [approx. US$7.3 million]
4. Agreement about economic and technical cooperation with a loan of Yuan 50 Million [approx. US$7.3 million] [this will almost certainly be the typical 'interest-free loan' -- DB]
5. Framework agreement about a concessional loan for the construction of National Road 57B
6. Framework agreement about a concessional loan for the construction of National Road 59
7. Agreement about a concessional loan for the construction of National Road 57B
8. Agreement about a concessional loan for the construction of National Road 59
9. Agreement about a general loan for the use of preferential buyers credits
10. Framework agreement on the provision of communication equipment to the Ministry of Economy and Finance
11. Agreement about favorable export buyers credit for infrastructure at the Kompong Trabaek River in Prey Veng
12. Agreement about favorable export buyers credit for the project to construct the National Road from Sen Monorum to Dac Dam in Mondolkiri
13. Agreement about favorable export buyers credit for the project to construct power lines to distribute electricity to areas around Phnom Penh
14. Agreement on transport and infrastructure cooperation

These agreements are very vague. The concessional loans would qualify as official development assistance or ODA, but according to DAC rules, the favorable ("preferential") export buyers credits would not qualify as ODA. Even if they were concessional, they would not be reported as ODA by the Chinese if they were following DAC rules. (For me, this list raises even more mysteries. Why are some roads financed by concessional loans and some by preferential export buyers credits?)

Could the list above add up to $1.2 billion? Perhaps, although it seems unlikely to me. But even if the figure of $1.2 billion is realistic, remember that these are agreements for projects that will take place over some years to come. Chinese aid is rising sharply, but it would be an error to view "aid" as rising from "$600 million" to "$1.2 billion" and then compare this with annual ODA commitments from wealthier donors. On an annual basis, ODA from China to Cambodia is likely to follow the trend set by Japan, which has also been concentrated in transportation, and which has averaged around $100 million per year.

One last point: Brendan Brady, a journalist based in Cambodia, wrote in a story on CBC.com that the $1.2 billion referred to Chinese investment. In fact, Chinese companies want to invest in at least two new, large BOT hydropower projects that will, together, cost around $1.1 billion. At least one of these has secured finance from China Eximbank. This could have been part of the discussion in December and the $1.2 billion. But more on that in a subsequent post.

China in Nigeria: Power Myths & Realities

How many times have you read that "China" is building the Mambila Hydropower Project in Nigeria? Folks, as of right now, this project is moribund.

Yes, two Chinese companies, China Gezhouba Group Corporation (CGGC) and China Geo-Engineering Corporation (CGC), signed a contract to construct the dam. But the expected China Eximbank financing was never finalized. The Mambila dam fell victim to the review of President Obasanjo's murky "oil-for-infrastructure" deals ordered by his successor, the late President Yar'Adua, in October 2007. This was nicely detailed in an August 2009 Chatham House report, Thirst for Oil. The Chinese companies have a contract, but without secure financing, the project will not go forward.

Nigeria does have two real cases of Chinese power plant construction, however. Two sites (Papalanto/Olorunsogo and Omotosho) were chosen for multi-phase gas-fired power plants, and both contracts were signed in 2002. Both had Chinese financing, almost certainly suppliers' credits from the two companies. (I was given a copy of the terms of these Chinese loans:  $114.9 million each, for two 335MW power plants, signed in 2002, at 6% interest, a grace period of 6 years, maturity in 12 years.)

As opposed to hydropower dams, which use a renewable resource, but are controversial for their environmental and social disruption, gas power plants use a natural resource that Nigeria has in abundance, yet is currently wasting in useless flares (see photos above and below, courtesy of BBC). Each site was projected to reach 1000+MW over time. For the first phase of 335MW, as former president Obasanjo recounted in "My Power Plant Story" (May 12, 2008):

We had to seek loan from China at concessionary rate to support two of the sites ... Omotosho and Papalanto [Olorunsogo] were built to the point of commission before I left government in May 2007. As at today, Papalanto [Olorunsogo], Omotosho ... are generating power for the grid. 

Obasanjo also pointed out that Omotosho and Papalanto/Olorunsogo were slated for expansion, and Nigeria did launch second phases at both sites. According to a January 30, 2010 investigative report in the Nigeria Compass by lead reporter Charles Okonji:

• China National Machinery and Equipment Company (CMEC), the major state-owned firm which had completed the first phase, was awarded the EPC (Engineering, Procurement, and Construction) contract for Phase II of the Omotosho plant, for 750MW of additional thermal power.
• Shandong No. 3 Electric Power Construction Corporation (SEPCO III), the smaller Chinese firm that built the first phase of Papalanto, was also awarded the contract for the second phase of 750MW at Papalanto [Olorunsogo].

However, China Eximbank did not finance the second phase of Omotosho, where the Nigerian government defaulted on the financing after providing a down payment. The work stalled. Omotosho is reportedly being pruned down to 500MW. At Papalanto, apparently financing was secured and the work on the 750MW expansion was said to be close to completion with a projected June 2010 commissioning date.

The financing for the second stage of Papalanto/Olorunsogo could also have been from China Eximbank. Building Bridges, a 2009 report* on Chinese infrastructure projects in Africa done by researchers at the World Bank, states (p. 26) that $300 million (or, on p. 57, $298 million) of the financing for Papalanto was secured from China Eximbank with a deal for China National Petroleum Company (CNPC) to purchase 30,000 barrels of oil per day from Nigeria's national oil company. Given that the first phase of Papalanto was financed in 2002 at $114 mil and that the first phase, at 335MW was less than half the size of the second phase, at 750MW, this financing of $298 or $300 million seems certain to be for Phase II. Would be interesting to know more about this oil-backed infrastructure deal. I haven't seen another hint of it anywhere. Has anyone else?

Ironically, despite their ongoing expansion, the Omotosho and Papalanto plants (first phase) were both operating well below capacity in 2009 ... due to inadequate gas supplies. A resource Nigeria has in abundance continues to burn across the Niger Delta, and Nigerians continue to experience famously "epileptic" power supplies. Perhaps it's time to reconsider the finance for Mambila?

*The 2009 report is confusing because it does not mention that the two power plants were constructed in two stages, with the first phase (2002-2007) financed by China. Yet it states that the size of the two stations will be 335MW, (actually the size for the first stage only). The second stage was for an additional 750 MW, although this was apparently scaled back to 500MW at Omotosho. The report also said that China Eximbank was financing the construction of the power plant at Geregu (built by the German company Siemens). This is highly unlikely, given that the purpose of China Eximbank is to finance exports from China, not Germany. Since the Building Bridges study provides no documentation for their information, it is hard to double check their sources. 

The Dragon's Gift: Advising Britain's New Government?

As Britain tries to figure out how to form a government, I am pleased that someone put The Dragon's Gift into a list of recommended reading for that new government. Today's Guardian newspaper features experts who give their advice and offer "essential reading" for the new power holders (whomever they turn out to be). Pankaj Mishra, the award-winning novelist and essayist, picks up the theme of China's rise and recommends "With regard to Africa, where Britain has a substantial aid commitment, Deborah Brautigam's The Dragon's Gift offers a more thoughtful assessment of China's intentions and motives in the continent ..." 

Now if only I could get someone to recommend The Dragon's Gift to my own government ...

Also this weekend, a nice review of The Dragon's Gift by Helmut Reisen, "Pourquoi La Chine Investit L'Afrique," appears in Les Enjeux, the magazine of French newspaper Les Echos.   

 

List of Tariff-Free Entry Products for African LDCs: Update

In an earlier post I celebrated the "release" of the list of products given tariff-free entry into China from Africa's least developed countries. I said that this list had been very hard to find. In fact, I had asked Chinese officials several times for the list without success. Now, thanks to Liu Rongkun, an astute M.A. candidate at American University's School of International Service, we see that China's Ministry of Commerce (MOFCOM) actually published the entire list in July 2007. (In Chinese, naturally.) Liu Rongkun points out that the latest round of tariff-free entries announced in November 2006 took effect July 1, 2007. MOFCOM published the list four days later, on July 5th, 2007 along with the list of countries included under "least developed." According to Liu Rongkun's research, this initial list of 27 countries has been expanded several times as new African LDCs have "exchanged notes" with Beijing to formalize this benefit. As of late 2009, it probably now includes 31 countries -- only those who follow the "one-China" policy, naturally.

Liu Rongkun also reminds us that at the November 2009 FOCAC ministerial meeting in Egypt, China's Prime Minister Wen Jiabao announced that by 2012, 95% of products produced in Africa will be tariff-free if exported to China. This probably still applies only to LDCs. But stay tuned for changes in the tariff list.

Finally, keep in mind, as China's ambassador to Malawi commented: "This policy does not only encourage Chinese enterprises to invest in Africa ... people all over the world who invest in Africa can enjoy this treatment." This is of course good to hear. But this makes it all the more curious as to why versions of this list have not been translated into languages in use in Africa and circulated widely by MOFCOM. It also makes it all the more useful to have the list in English (and thanks again to Standard Bank researchers who did that hard work). Now, who will do the translations into French, Portuguese, Swahili ... ?!

Is China a Developing Country?

Is China a developing country? With all the hype about China's rapid rise, many seem to believe that China is now a "developed" country, like those in North America and Europe, and should follow the same rules as the rich countries. Steven Pearlstein put the case recently in the Washington Post:

As a developing economy, it was entitled to a grace period from the normal rules of global commerce as it transitioned from state control to open markets. But with China's extraordinary success, its grace period has now run its course.

The normal rules would mean things like allowing its currency to float freely, liberalizing trade, or adhering to the rules and regulations developed by the Organization for Economic Development and Cooperation, the club of 30 industrialized countries established in 1960 that has welcomed a handful of formerly "developing" countries since then, including Mexico (1994), Korea (1996) and Poland (1996).

But what makes Pearlstein think that China's extraordinary success has now brought it out of the developing country category?

According to the World Bank, developing countries fall into either "low income" or "low middle income" or "high middle income" categories, when their total national income is divided by their total population to give per capita gross national income (GNI). The most recent data we have on GNI is from the World Bank, for 2008. Country groups (below) were based on the 2008 categories.  

Country Groups

• low income, $975 or less (Mozambique: $380, Zambia: $950)

• lower middle income, $976 - $3,855 (India: $1040, Nigeria: $1170, China: $2940)

• upper middle income, $3,856 - $11,905 (S. Africa: $5820, Malaysia $7250, Mexico: $9990)

• high income, $11,906 or more. (S. Korea: $21,530, USA: $47,930, Norway: $87,340)

According to this, China's extraordinary success has merely brought it to the top of the list of lower middle income countries. Many argue that China's exchange rate is undervalued. If we add 40% to China's GNI, which would bring it to $4116, the per capita figure still remains squarely in the middle income range. Although China is close to upper middle income, it is not anywhere near being a high income country.

Several years ago, Cambridge economist Ha-Joon Chang wrote a prize-winning book with the provocative title Kicking Away the Ladder. Chang's argument is that historically, as today's wealthy countries became rich, they used extensive state intervention. However, after they have climbed up that ladder, they "kick it away" by insisting that developing countries follow free market principles.

Less polemically, given China's still low-middle income economy, it is not surprising that all kinds of standards in China are also still low, even though in labor, environment, and safety, the government is starting to push standards up the ladder. We are starting to see a trickling down of the new rules and rhetoric on standards even in some of China's proposed projects overseas. Advocacy to increase this trickle is a great idea. But keep in mind that China is still a developing country, with standards and policies that reflect this status. It's not Norway, or even South Korea.

China's Africa Land Grab Myths Part II: The (Non-Existent) $5 Billion Fund

Is "China" actively seeking land in Africa to grow food, presumably to ship back to China? This is the assumption behind much of the reporting and blogging on this topic. Yet as I have pointed out in The Dragon's Gift, as well as a September 2009 article in China Quarterly, there is (as of yet) almost no evidence to back this up.
Yesterday I read Howard French's new Atlantic Monthly article on China and Africa: "The Next Empire". It is beautifully written, with Howard's distinctive voice and insight. Yet in saying that "Beijing had earmarked $5 billion for agricultural projects in Africa in 2008, with a focus on the production of rice and other cash crops" I think Howard included one of the urban myths (if we can call it that) about Chinese rural engagement in Africa that circulate around the internet.
The source of this story is almost certainly a 2008 report by a Liberian journalist on the visit of a delegation from the China-Africa Development Fund to Liberia. The journalist reported that China had "earmarked $5 billion" for the production of food and cash crops in Africa. But this was a big mistake.
Stephen Marks took up the Liberian report in a story he posted for Pambazuka in 2008. Marks pointed out what China-Africa watchers already knew: the $5 billion China Africa Development Fund (CADF) is an equity fund for Chinese investment in Africa, in all sectors, announced at the Beijing Forum for African leaders, in November 2006. Since then, CADF has been sending teams to almost every country in Africa, including Liberia, to scout out developmental investment opportunities in manufacturing, power plants, and so on. Very little of CADF's investment has gone to agriculture.
As Howard's article notes, on June 30, 2008, China's Economic Observer published what has become the centerpiece of most stories on China's overseas farming plans. This June 30, 2008 story on policy discussions in China was intriguing (and looks authentic), but as the original notes, the report is very tentative. There is ample evidence about Chinese interest in investing in agriculture in Latin America (soybeans in Brazil) and in Southeast Asia (mainly oil palm). But in Africa, although Chinese investors have been exploring farming opportunities in several countries since 1990 (and investing in some, such as Zambia), hard evidence for large, new Chinese farming ventures or farmer exports just isn't there.
Instead, what we are seeing a lot of is an innovative model that combines aid and Chinese agribusiness. As in Mozambique (the subject of a forthcoming post), this experiment tasks Chinese companies with finding a profitable, income-generating activity that can allow them to sustain demonstration centers, 20 in total in Africa, showcasing new agricultural technologies and providing technical training. Are these centers the leading edge of a new land grab? I don't think so. They're far more likely to be the leading edge of China's new multinational agribusiness companies. This could be worrying for other reasons (what about GMOs? controversial hybrids?). But that's a separate issue.

The List of Zero-tariff Products is Now Here!

The tariff list is finally public. What is this list and why is this important?

In 2003, Chinese leader Wen Jiabao pledged to give tariff free access to an unspecified number of exports from Africa's least developed countries (LDCs). At first, 190 products were covered. In November 2006 (at the Forum on China Africa Cooperation Beijing summit) the Chinese promised to increase this list to 440. But it has been impossible for most people (like me) to get a list. Now Jeremy Stevens and Simon Freemantle at Standard Bank's Economic Research Group have published (courtesy of China's Ministry of Commerce and Beijing Axis) the full list of 454 product lines for which China is giving tariff-free access to African LDCs. (I received it as a pdf file, which I can't find a way to post here, but you should be able to get the list by registering at the Standard Bank site highlighted above.)

At least three-quarters of the products are industrial goods: vehicle spare parts, bicycles, soap, plastic products, leather wallets, cotton fabric and t-shirts, umbrellas, ball-point pens, table lamps, refined copper products, diesel generators, and fish hooks among them. There is a clear correspondence between these items, and China's domestic restructuring plans. As I note in The Dragon's Gift, China's government wants its companies at home to move up the value-chain. Just a few weeks ago Guangdong province announced that it was raising provincial level wages by 20 percent. The products on the list are mainly from entry-level industries that Chinese planners would like to move beyond.

African governments that want to foster manufacturing investment now have a list of products for which they might offer their own incentives. Some Chinese companies will be looking to relocate to Africa in order to export back to China, duty-free. Other Chinese firms in Africa are already producing products like sesame (Senegal) and plastics (Nigeria) and spun cotton/synthetics (Mauritius). Some have Chinese markets in mind. But African companies can equally benefit from strategic targeting of their products to the Chinese market. At the same time, it's clear that a lot of compromise went into this list and not all LDC African manufactured products are eligible. Decaf roasted coffee is on the list, but not regular processed coffee, for example. There are a few other surprise products, including dental fittings, electric alarm clocks, and bow ties.

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.

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.

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.

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.

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).

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.

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: http://lingalafacile.com/). 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.

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.

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."

Problems with Official Data on Chinese Overseas Investment

The Nigerian press just posted a story on Chinese investment in Nigeria. According to the report, Rong Yanson, China's Economic Counsellor, said that China's stock of investment in Nigeria is $7.24 billion, covering petroleum, iron and steel, manufacturing, agriculture, fisheries and pharmaceuticals. When I saw Rong Yanson in May 2009, he told me that Chinese investment in Nigeria was around $6 billion. Both of these figures are way beyond the statistics reported in China's Bulletin of Overseas Investment. In 2008, the Bulletin reported China's FDI stocks in Nigeria to be $795.91 million. So what's the real story?
I think Rong Yanson is right. FDI statistics coming out of China are notoriously bad. In Latin America, for example, the top two destinations for Chinese FDI are reported to be ... the Cayman Islands and the BVIs!  These two tax havens are obviously where Chinese companies operating overseas park their cash in order to keep it out of the strict exchange control system in China. And yet just the other day I was asked to review an academic paper that used China's official FDI data in cross-national regressions to say something about the driving forces for Chinese investment. Data this poor is not likely to prove anything beyond the truth of GIGO ("Garbage In, Garbage Out").

Billions in Aid?

Here in Washington, it's widely believed that China gives "billions in aid" to Africa. And no wonder. A World Bank report cited a figure of $44 billion for China's total aid to Africa between 1960 and 2006. (I point out in The Dragon's Gift that what the Chinese actually said was 44 billion renminbi (about $5.6 billion) over nearly 50 years.)

Mistakes like this are not too surprising, given the secrecy of China's actual aid figures.  However, up on Capitol Hill, a 2009 report from the Congressional Research Service "China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia," has gone much further and in the process, done a great disservice to efforts to understand this issue.

Why? The simple reason is that that the CRS authors defined Chinese "aid" as all of China's state-sponsored activities: grants, loans, export credits, infrastructure projects and foreign investment. Their argument: "many PRC economic investments abroad can be counted as aid rather than foreign direct investment (FDI) because they are secured by official bilateral agreements, do not impose real financial risks upon the PRC companies involved, or do not result in Chinese ownership of foreign assets." But these factors, even if true (and that is debateable, particularly regarding financial risks), do not come close to making an economic transaction into "aid"!

(They also took their "data" from news reports, but that's another story.)

In 2007, they contend, China provided Africa with $17.962 billion in "aid" (Table 4, p. 8). This compares with estimates by a range of people (myself included) that put Chinese official development aid to Africa in 2007 much closer to $1.4 billion.

Then, having defined "aid" as all of China's state-related economic activities, they argue that "China’s aid to Africa is driven largely by its objective of securing access to oil and minerals for its growing economy" (p. 10).  But this reasoning is entirely circular. Having previously defined "aid" as including investment by China's state-owned companies in oil and minerals, as well as oil-backed, market-rate export credits, how could you come to any other conclusion?

Not surprisingly, this analysis of China's "aid" is now feeding into scholarly journal articles and books (I first noticed the report when an article I was asked to review cited it as the  source for a statement that China had given Africa $17.96 billion in aid in 2007).

Let's try harder to compare apples and apples, not apples and lychees. As a Washington Post article said yesterday, "China is no enemy, but inflating the challenge from China could be just as dangerous as underestimating it."

What the Focac?!

What the Focac?! An amusing take on the West's moralizing about Chinese companies "dancing with dictators" in Africa while the West puts its best efforts into protecting the fragile region. I can only imagine the British mercenary Simon Mann (convicted for the quixotic attempt to foment a coup in Equatorial Guinea -- Mann claims that Maggie's son Mark Thatcher recruited him) or Pierre Falcone and Jean-Christophe Mitterrand (convicted in a French court of illegal arms sales, kickbacks, embezzlement in the "Angolagate" case) saying they are shocked, shocked to see what the Chinese are prepared to do.

Sinosure & Nigeria: the elusive $50 billion

On April 2, 2008, China-Africa watchers read in the Financial Times that Sinosure (China Export & Credit Insurance Corporation, Beijing's export finance insurance agency) had told Nigerian officials that it was ready to provide $50 billion in export insurance for exports or projects in Nigeria. This figure has been repeated often, including recently in an article in Africa-Asia Confidential, where it figures among the "unmet promises" for China-Africa relations. What's the likely reality of this story? Here's some evidence. For all of 2007, Sinosure provided $39.6 billion in export insurance worldwide. This rose to $62.7 billion in 2008, according to their 2008 Annual Report. Almost all of this was insurance for short-term export credits, including suppliers' credits. Does it seem likely that after providing $39.6 billion in 2007 across the world, Sinosure would offer to provide $50 billion, just for Nigeria, in 2008? When I was in Nigeria in May 2009, I asked at the Nigerian Ministry of Finance, the IMF resident office, and the Nigerian embassy about this "$50 billion" Sinosure "pledge", only to be met by bafflement. None of them had even heard about this tale. It continues, however, to circulate around cyberspace with a robust life of its own.

The $100 Billion Chinese Investment in Latin America Myth

This weekend, I came across a Latin American myth about Chinese economic engagement circulating around cyberspace. In a November 2004 speech to Brazil's parliament, Chinese president Hu Jintao (allegedly) said that China would invest $100 billion in Latin America over the next few years. Whoa, I thought. This is way too high, it can't be right. I googled "$100 billion investment Hu Jintao 2004 Brazil" and got dozens of references to this alleged pledge. So I then checked the Chinese English language media. China Daily carried the actual speech in full. This revealed that Hu had actually pledged to increase trade between China and Latin America ... to $100 billion by 2010. Not investment.

Sigh. Even the Congressional Research Service repeated the $100 billion investment figure in an otherwise pretty good 2008 report to Congress ("China's Foreign Policy and 'Soft Power' in South America, Asia, and Africa"). With "facts" like this floating around the Hill, it's no wonder alarm bells go off.