Lusaka-Chirundu Road and Summer Research

Road after rainstorm

Road when originally completed.

Here are a couple of 2009 photos of the Lusaka-Chirundu road, another problematic Chinese construction project, this one a key link between Zambia and its southern neighbors. China Henan was the company in this case. A hat tip to Wei for this story.

This project -- along with the crumbling Angola hospital -- was part of this week's Economist story on China and Africa. The Economist reported that the "The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains." Well, I don't think the entire road was quickly swept away by rains, but clearly a chunk of it was.

For another Zambia story on the heavy pressure some of these roads are under, see this Lusaka Times story. Researchers: Zambia provides a wealth of examples of comparative road construction. In this story from 2005, we can see the mention of a Chinese company, a local firm (Sable) and a South African company: Steffanutti and Bressan, all with similar contracts. What an interesting summer research project: comparative analysis of the state of these Zambian roads today, based on contracts awarded in 2005.

New Transparency? Beijing Reports on Chinese Aid

Food donations: photo credit japanfocus.org/-B-McCartan/3153

China's State Council has released its first official report on China's foreign aid program, providing the most authoritative figures on Chinese aid to date. As I told the Associate Press's Gillian Wong, this is a very big step, and should be welcomed. I will look carefully at this report and compare it with my own analysis in The Dragon's Gift (updated for the 2011 paperback, just released in the UK) once I have a minute in the middle of end of semester demands and deadlines ... (how does Chris Blattman manage?!)

Chinese Aid and Luanda General Hospital in Angola: Still Falling Down?

Angolan Cartoon: Crumbling Hospital

Last year we learned that Luanda General Hospital, built by Chinese company COVEC under China's aid program (not under China's multi-billion dollar line of oil-backed credit) had developed severe cracks and was closed, with patients living in tents on the grounds. A critical op-ed on Chinese engagement in Angola published recently in al-Jazeera by Angolan human rights activist and journalist Rafael Marques de Morais, led with this story, arguing that many Chinese projects in Angola had problems with quality.

It is not surprising that some of the hundreds of projects constructed between 2004 and the present under what has now become a $10 billion infrastructure program have problems. As Marques de Morais notes, Angola has weak monitoring and enforcement capacities and a lot of corruption: "After all, Brazilian and Portuguese construction companies have expertly exploited this environment for decades, leading Angolans to create a specific lexicon for the resulting public works: disposable roads, Styrofoam bridges, facade works, etc." China also has a lot of corruption in infrastructure at home, and infrastructure is known worldwide as a sector rife with corruption.

As we know, a Hong Kong based company, China International Fund, is also involved in infrastructure in Angola, although the Chinese government has officially distanced itself from CIF, telling Marques de Morais: “CIF is a company that has no construction record or credentials.” I wouldn't be surprised to find problems with infrastructure built under CIF.

But I was surprised about the hospital. As I noted in The Dragon's Gift, the Chinese have a long-term sense of responsibility for projects financed under their aid program (but not export credits) because aid is an important tool of diplomacy. Because of this, the quality of projects financed under the official aid program is usually very good, and these projects often seem to have life-time guarantees. I looked into what happened in the case of Angola's Luanda General Hospital. Here's what I found.

The decision to build the 100-bed $8 million Luanda General Hospital was made in 2002, and after tenders in China, COVEC won the bid and constructed the building between July 2004 and February 2006, " using 90 percent local labor."  On his visit to Angola in 2006, Chinese Premier Wen Jiabao visited the hospital to officially open it. In June 2010 serious cracks developed in the walls. The patients were evacuated, the hospital was closed, and the Chinese government dispatched a team to investigate.

Their conclusion was that the problem was (the Chinese official claimed) partly Chinese and partly Angolan. According to the contract, apparently, the Angolans were supposed to provide geological survey data for the location, but this data was not accurate, and therefore the design by the Chinese architects was flawed. (Seems to me that given weak state capacity in Angola, this basic task should not have been left up to the Angolans.)

A Chinese official told me: "After several rounds of discussion both sides have reached consensus on how to address the problems. The Chinese side will build some temporary wards and sewage systems for patients to ensure the operation of the hospital. Then the maintenance work and expansion of the hospital will begin." The Chinese government will finance the new construction.

Will COVEC be given the job, or will another Chinese company do the work? That's not clear, but what is clear is that one messed-up hospital project has cast a particularly large shadow over hundreds of other less visible Chinese construction projects in Angola that do not seem -- so far -- to have had such dramatic flaws. Yet what is also clear is that the environment for construction in Angola, as Brazilian and Portuguese companies have found, tends to produce infrastructure with lives that are "nasty, brutish, and short". Perhaps it's time for a new international NGO to focus on monitoring transparency and accountability in public infrastructure projects. "Engineers (and Architects) without Borders"?

New York City Meets Warm Heart of Africa

This has very little to do with China and Africa -- call it New York City and Africa -- but swamped as I am with grading papers, article deadlines, traveling to give talks, thinking what I will say during my seven minutes on a World Bank/IMF Annual Meeting panel this week, I want to share 3:42 minutes of escapism: a video of The Very Best's hit song Warm Heart of Africa with guest artist Ezra Koenig of Vampire Weekend joining Esau Mwamwaya of The Very Best. This sweet and jolly song combines pieces of my life (Columbia University and Malawi where my South African husband lived for five years). Enjoy.

Michael Gerson on "China's Aid Invasion"

The Obamas with the Equatorial Guinean dictator.

This morning's Washington Post had a critical op-ed on China's aid (or is it investment? the online version has "investment" in the title, the print version says "aid") to Africa by conservative columnist Michael Gerson. While less hyperbolic than columns on China's "aid" by Freedom House and others over the past few years, Gerson nevertheless falls into some of the same pits: the double standard; and the mixing up of aid and business.

Gerson writes "in Africa today, America consistently promotes economic liberalization and good governance..." Just how consistently we do this is open to debate. For example, the US provided -- each year -- about $1.6 billion in aid (economic and military) to repressive Egypt under Mubarak. 

Referring to China, Gerson says "African governments have a rich friend with low standards." I wonder how he would describe America's friendship with tiny, oil-rich Equatorial Guinea? Check out Harvard group Human Rights in Equatorial Guinea for a portrait of the deep problems with repression and torture in that country, or read Peter Maass's piece in Slate: "Who's Africa's Worst Dictator?". Yet as the BBC has noted,

"[t]he US finds it hard to criticise a country which is seen as an ally in a volatile, oil-rich region. In 2006, Secretary of State Condoleezza Rice hailed President Obiang as a "good friend" despite repeated criticism of his human rights and civil liberties record by her own department. More recently President Barack Obama posed for an official photograph with President Obiang at a New York reception."

There is plenty to criticize in China's human rights record at home, and plenty of room for improvement as Chinese leaders take uncertain and inconsistent steps toward being a "responsible great power". But let's get our own record straight, Mr. Gerson. Your op-eds will be more credible to Africans if you do so.

China's Oil Imports From Libya

Source: http://www.economist.com/blogs/dailychart/2011/02/libyan_oil  
Hat tip to Leo in Comments section

A Chinese student asked me today what China might learn from the Libya situation about the risks of investing in unstable countries. I mentioned that China's FDI investments in Libya are not large, although China does import oil produced in Libya. But how does China compare with other countries as a buyer of Libyan crude? A quick Google effort found the AP article below, which I have not verified with the source, the International Energy Agency.

Europe gets most of Libya's oil exports


By The Associated Press

Tuesday, February 22, 2011 at 12:55 p.m.

NEW YORK — Europe gets over 85 percent of Libya's crude exports. The rest goes to Asia, Australia and the U.S. Here's a breakdown of how much oil various countries import from Libya (in barrels per day) and the percentage of a country's total crude imports supplied by Libya.

-Italy: 376,000 (22 percent)

-France: 205,000 (16 percent)

-China: 150,000 (3 percent)

-Germany: 144,000 (8 percent)

-Spain: 136,000 (12 percent)

-United Kingdom: 95,000 (9 percent)

-Greece: 63,000 (15 percent)

-United States: 51,000 (0.5 percent)

-Austria: 31,000 (21 percent)

-Netherlands: 31,000 (2 percent)

-Portugal: 27,000 (11 percent)

-Switzerland: 17,000 (19 percent)

-Ireland: 14,000 (23 percent)

-Australia: 11,000. (2 percent)

(Source: International Energy Agency 2010 statistics)

The Associated Press

Origins of China's New Anti-Corruption Law

The Chinese National People's Council has passed a landmark amendment to its corruption legislation that makes foreign corrupt practices illegal. Yesterday Ted Moran, blogging at the Center for Global Development attributed this move to efforts by a G-20 coalition. He wrote:

The Toronto Summit in June 2010 established a working group “to make comprehensive recommendations on how the G-20 can take practical steps to combat corruption.” During the Seoul Summit in November, a coalition of emerging market members of the working group (including Brazil, Argentina, South Africa, and Mexico) quietly joined with the United States to urge China to adopt an anti–foreign bribery law. That effort has now borne fruit!

I respect Ted Moran's knowledge of corporations (in fact I've assigned portions of his new book to my students). And it would be nice to think that Chinese legislation moves that quickly, or that the United States and the G-20's quiet urging led to this result.

Yet in fact, as I pointed out in a chapter written three years ago for Transparency International's Global Corruption Report 2009, "When China goes shopping abroad: new pressure for corporate integrity?" (p. 69), this amendment has been in the works for years: 

Legal changes now under way may boost efforts to combat bribery by Chinese firms outside the country. China was a sponsor, and has signed and ratified, the UN Convention against Corruption (UNCAC), which stipulates that bribery overseas be made a crime. Chinese officials have repeatedly said that China will modify its laws to comply with all the convention’s obligations.14 In September 2007 China set up the National Corruption Prevention Bureau, tasked to improve international cooperation against corruption and fulfill China’s responsibilities as an UNCAC signatory. The agency was not made autonomous, however. In June 2008 the Communist Party’s Central Committee included the prohibition of commercial bribery overseas in its five-year anti-corruption work plan.15

I think we have the UN Convention Against Corruption (which was ratified and entered into force on December 14, 2005) to thank, and before that, the OECD Convention Against Corruption, not the quiet urging of the US or the G-20.

These Chinese reforms were already well under way before June 2010. It's important to get this analysis right if we want to understand how China's efforts to "go global" are likely to evolve, the factors that will influence them, the way the Chinese government works (still a work plan!) and the time involved in moving through reform.

Notes:
14 Li Jinzhang, vice minister of foreign affairs, statement at the First Conference of the State Parties to the UN Convention against Corruption, Amman, Jordan, 10 December 2006; Caijing Magazine (China), 25 July 2007.
15 Central Committee of the Chinese Communist Party, ‘Work Proposal of Establishing and Improving the Anti-corruption System 2008–2012’, June 2008. 

China and Libya: Update on Workers

Bangladeshi workers stranded in Libya. Photo: AFP

Last week I posted on China and Libya, highlighting the challenge of Chinese companies employing Chinese workers and the backlash against this. A reader forwarded me an article from a Bangladeshi newspaper, The Daily Star, that puts China's actions into comparative perspective. Where the Chinese government has moved in ships and planes to evacuate the 30-36,000 Chinese working in Libya (most as laborers), Bangladesh has done little to ease the plight of what appears to be anywhere from 45,000 to 60,000 Bangladeshi workers stranded in Libya. According to the article, "a Chinese company moved 804 Bangladeshi workers to Greece from Libya on Sunday."

An October 2008 article in Libyaonline.com provided some history on the Libyan government's policy of recruiting labor abroad. Then, the Libyan government had "directed foreign companies from Germany, Japan and South Korea working in Libya as well as [the] Libyan private sector to recruit workers from Bangladesh." I haven't seen any major newspapers asking whether the instability in Libya would make Bangladesh rethink its labor export strategy...

The Human Side of China's "Economic Invasion" of Africa

Engineer Liu Hui & Kenyan workers: Sven Torfinn/Panos Pictures

If you overlook the title, "China's Economic Invasion of Africa," you'll enjoy a well-done and interesting story by Xan Rice in The Guardian's Sunday, February 6, 2011 issue. It contains great interviews of individual Chinese entrepreneurs and corporate managers who have come to do business or seek their fortunes in African countries.

Here's one quotation from a Chinese entrepreneur who, Rice writes, "is aware that western attitudes to China's push into Africa remain largely negative – something he struggles to understand."

"Western countries also buy oil, and have mines around the world. People don't talk about 'grabbing', or 'new colonialism' there. So why is it different for Chinese? We are not sending our armies to places and saying: 'Now sell us this!'" Xu says. "If you can't compete with us, you find an excuse. It's like two children fighting, and the losing one crying to his parent about funny tricks."

Some of those funny tricks might involve practices that have been outlawed in the West under laws like the US Foreign Corrupt Practices Act and the OECD Convention on Corruption. These are not always observed by Western companies, but at least they serve as an important signal of a liberal normative consensus. China has no comparative law.

It was particularly interesting to me that the story begins with Zhang Hao, the son of a man who worked on one of China's foreign aid-financed development projects -- a fishing project on Lake Victoria that I wrote about in The Dragon's Gift. After spending time there himself as an aid worker, Hao's father encouraged him to explore business opportunities in Uganda.

A hat tip to Li Anshan's Centre for African Studies at Peking University.

China and Libya: What's the Real Story?

Chinese evacuees in Malta. Dmitry Solovyov / NBC News

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

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

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

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

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

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

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

References:

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

China's Special Economic Zones in Africa

Outside a Chinese residential project near Addis (not the Zone).

Last week I was in Ethiopia for a quick trip with the China-DAC Study Group, a two year effort to build bridges between China, OECD countries and African countries in the broad area of development assistance. I had a chance to visit the Chinese Eastern Industry Zone (thank you, Michael!), probably the slowest of the six zones in Africa to get going, but which is moving ahead quickly now. The single factory on site, a cement factory, is owned by the zone developers, and apparently profits from the factory are helping them overcome capital shortages experienced in earlier years, enabling the infra. The two photos below show the sign at the entrance to the zone, and the factory shells being constructed by the developers, which will be rented out to other industrialists.

If you're interested in learning more about these zones, the Journal of Modern African Studies (January 2011) has just published an article I wrote with Tang Xiaoyang: "African Shenzhen: China's Special Economic Zones in Africa." This is based on our fieldwork between 2007 and 2009 covering all six official African zones (Mauritius-JinFei; Nigeria-Ogun; Nigeria-Lekki; Zambia-Chambishi/Lusaka; Egypt-Suez; Ethiopia-Eastern). Here's the abstract:

Industrial sites being constructed at the Eastern Zone

Abstract: "This article examines recent Chinese efforts to construct a series of official economic cooperation zones in Africa. These zones are a central platform in China’s announced strategy of engagement in Africa as ‘mutual benefit’. We analyse the background, motives and implementation of the zones, and argue that they form a unique, experimental model of development cooperation in Africa : market-based decisions and investment by Chinese companies are combined with support and subsidies from an Asian ‘developmental state ’. Though this cooperation provides a promising new approach to sustainable industrialisation, we also identify serious political, economic and social challenges. Inadequate local learning and local participation could affect the ability of the zones to catalyse African industrialisation. The synergy between Chinese enterprises, the Chinese government and African governments has been evolving through practice. A case study of Egypt provides insight into this learning process."

The Elcano Royal Institute/Real Instituto Elcano, a Spanish think tank, has just published a short article of mine, "China in Africa: Seven Myths." Here's an overview:

"Sensationalism and rumours cloud our ability to understand China’s growing engagement in Africa. Many of the fears about Chinese aid and engagement in Africa are misinformed. This paper unpacks seven myths: (1) ‘China is a newcomer to Africa’; (2) ‘China targets pariah regimes’; (3) ‘China hurts the West’s efforts to build democracy’; (4) ‘Chinese aid is huge’; (5) ‘Chinese aid is mainly used to win access to resources’; (6) ‘China is sending millions of farmers to Africa, leading the land grab’; and (7) ‘Chinese companies bring in all their own workers’.

While China’s rise in Africa is cause for some concern, efforts to gain a more realistic picture should help Africans and their other development partners to craft appropriate responses." Click here to continue.

Being a Constructive Critic: "China's Growing Role in African Peace and Security"

photocredit: japanfocus.org

On being a "constructive critic":  Saferworld, a UK-based non-governmental organization, has just released their report on China's Growing Role in African Peace and Security. They sent me a copy last week.

I read the Executive Summary, which seems overall to be a balanced and helpful treatment. I'm not (at all) an expert in the security area: I always recommend Ian Taylor's excellent work. However, the report frames Chinese security engagement within Chinese engagement more broadly, and here there are a few mistakes. Below, my comments to the authors:

It looks good! There were a few areas where I saw some room for improvement:

p. 1  "China ... has started to deliver development assistance..."

As you know, I'm sure, China "started" to deliver aid to sub-Saharan Africa around 1960. Recently aid has increased, but it's still fairly modest and not new. This is important because it helps dispel the myth that China just arrived as part of a desperate search for resources. This engagement is much more complex.

p. ii. "China has developed close relationships with African regimes that the international community, or more specifically, Western countries, only engage
with in a manner that is conditional on improvements in governance."

Perhaps you mean Western governments only provide aid "in a manner that is conditional on improvements in governance"? (even this is debatable: see Egypt for example...). Western companies have lots of engagement except when specifically banned, which is extremely rare (Sudan). And Western governments "engage" with all sorts of poorly-governed and/or non-democratic countries: Angola, Nigeria; Egypt; Chad; DRC; Guinea; Equatorial Guinea ... and even Sudan and Zimbabwe.

One statement is quite inaccurate:

p. ix  "As part of China’s wider participation in Africa’s infrastructure development, Chinese finance and companies had been involved in the construction of 25 dams in Africa by 2008."

I've seen the report you cite. The authors did a good job of compiling media reports. However, the figure of 25 is far from the real story.

Here's how these 25 projects break down:  4 refer to projects, usually quite small, completed between 1982 and 1996; 3 refer to repairs or expansions of hydropower plants (i.e. new turbines, etc.), not dams; 2 have construction contracts signed recently & seem to have financing lined up, but haven't started construction & so could still fall apart (Ethiopia-Neshi; Togo-Adjarala); 10 appear at the present moment to have been MOUs or expressions of interest that went nowhere; as of 2011 only 6 of the listed projects are dams currently under construction or completed recently (Ethiopia-Tekeze; Ghana-Bui; Congo-Imboulou; Sudan-Merowe; Botswana-Dikgatlhong; Gabon-Grand Poubara).

Some of these points are small, but as you know, as a constructive critic, it's important to present things as accurately as possible -- it shows you know what you're talking about, and this matters for Chinese readers as well as us in the West.

Understanding China

As Washington prepares for Hu Jintao's state visit, two excellent and short articles that help set the stage for understanding "how China thinks":

• James Fallows in The Atlantic January 16, 2011 on "Imagining America as China": a thought experiment that does an excellent job of showing the sheer scale of China. A hat-tip to Chris Blattman.
• Henry Kissinger (yes, I'm surprising to find myself agreeing completely with this craggy old realist). In the Washington Post, January 14, 2011: "Avoiding a US-China Cold War." A thoughtful, large-picture view of our quite different paths to the present.

Wikileaks: What Do the China-Africa Cables Really Tell Us?

Chinese President Hu Jintao and President Kibaki of Kenya

Hu Jintao is heading to Washington. We're not sure what will be on the agenda, but we do know that China's engagement in Africa is a source of some concern for the US government. We've all see that Ambassador Johnnie Carson believes that China has "no morals" in Africa. But a closer look at the Wikileaks cables reveals some surprises about China, the US, and at least some parts of Africa. Ryan Briggs and I discuss this at the Royal African Society's African Arguments.

Has China's Export Financing Met Its Match?

photo: a train in Pakistan: but is it GE or Chinese? 

A fascinating new development in the dry area of export financing: we learn that for the first time, the US Eximbank has matched China Eximbank's terms for export financing. John Pomfret reports for the Washington Post on the case of GE's effort to win a tender for train exports to Pakistan. GE was about to give up:

After all, China was a powerful competitor that routinely offered low-cost financing - below-market interest rates, easy repayment terms - that cut tens of millions of dollars off the bottom line of its international deals.
But in a case that underscores a significant shift in how the United States and the rest of the developed world are dealing with the challenge of China's economic might, the U.S. Ex-Im Bank decided to fight back. In February of last year, U.S. Ex-Im informed Pakistan's Ministry of Railways that it would take the unprecedented step of matching China's below-market-rate financing terms.

GE won the contract. 

"There's a new willingness to take on China, to compete toe-to-toe with China on financial terms," said Fred Hochberg, the chairman of the Ex-Im Bank. "This is a policy change that we will compete with anyone who's not compliant."

In an interview with the Wall Street Journal, Hochberg confirmed this view: "They're winning deals in part because they're not playing by the rules." Although the US administration positioned this action as a move against China, which was not "playing by the rules" it's important to point out that the rules China was not playing by are a voluntary "Arrangement on Officially Supported Export Credits" set by the elite membership of the OECD, an organization of wealthy states that does not include China.

The rules apply only to other OECD members. Why should China abide by these rules?

This is a positive development. The US has long pressed other wealthy exporting powers to adhere to common rules in order to try and create a level playing field. Yet the rise of the BRICs now makes the choice of the OECD as the arena for rule-making seem quaintly obsolete. If we want to get China and the other BRICs to play by the wealthy countries' rules, we do need to create incentives. Now, in a tiny way, Chinese companies can feel the pain of being outside. But more importantly (and urgently), we need to have an arena in which these negotiations can take place.

Pomfret gets one thing wrong, I think. He suggests that the Chinese are using "foreign aid" in these deals, and that the US must use its foreign aid "to serve diplomatic or strategic goals" but that China's Ministry of Commerce dispenses foreign aid, with the purpose of "making money for China." First, it isn't foreign aid funds, but export credits that we're talking about, and they are not being disbursed by the Ministry of Commerce but by the China Export-Import Bank. We have the same kind of agency, the US Eximbank, and that's the relevant comparison: both were set up to "make money" for their owners' companies. I doubt if the US Eximbank got a tranche of finance from USAID for the train deal. 

What were the actual terms for the contract? We learn from Pomfret that "Instead of fees of up to 21 percent of the contract, the United States said it would charge Pakistan 8 percent. Repayment was stretched from 10 years to 12." Charging fees of 21 percent, no wonder we're losing out to China! From the Wall Street Journal, we learn that the interest rate charged by the US Eximbank will be based on Treasury bond yields (now about 3 %), but we don't learn what the margin over T-bonds will be. I will try to find this out, but I doubt if the US Eximbank will be any more transparent on this than China's Eximbank.

Murder of Chinese Manager at Zambian Mine

Henry Hall, at China Africa News, posted this thoughtful comment on his blog after reading about the sentencing of a Zambian worker from the Chinese-owned Collum coal mine, which has been in the news recently. Apparently, a year ago, a Chinese manager at the Collum mine was murdered by one of the workers, This worker has now received the death penalty. Henry Hall caught the story and begins his comment with a reference to the Collum coal mine:

... where Chinese managers injured a number of workers late in 2010. What I did not see reported at the time however, was that a Chinese manager had been killed by a Zambian worker as recently as February of last year. Although this in no way excuses the actions of the Chinese managers, it certainly seems relevant to the discussion. It again highlights Beijing's failure to properly manage the media impact of their African misadventures.

I also thought this report was sad and revealing. Sad because clearly the Collum coal mine is a place with deeply troubled labor relations, problems that apparently drove one man to murder. And revealing because I could not find anything else online about the killing of a Chinese manager by a Zambian worker. Did it really happen? Wasn't it considered news?

For a collection of stories on the shooting of Zambians by two Chinese managers in October 2010, including a link to a Chinese investigative reporter's story, see China Digital Times.

How Many Chinese Workers?

Senegalese & Chinese. AFP for the BBC

Since the late 1970s, the Chinese government has promoted labor exports to earn foreign exchange and provide employment opportunities. Yes, there are thousands of Chinese working overseas today, over 700,000 by official count -- mainly not in Africa, but in Hong Kong, Asia and the Middle East. Yet the popular idea that Chinese companies bring in all their own workers and refuse to hire Africans is not true. The photo to the right could be duplicated in dozens of African countries.

But what is the ratio of Africans to Chinese workers on Chinese projects in Africa? What cases, if any, do we find of Africans being hired in management positions on a Chinese investment or project? Are Chinese-speaking Africans breaking into this area?

I will be maintaining a page on this blog, Chinese Workers in Africa, in which I will collect anecdotes on the ratio of Chinese to African workers on projects and investments. If you work on, or visit a Chinese project in Africa, post here with a line with the ratio, verified, if possible, with local officials, particularly trade unions. I'll update the page regularly. While I wouldn't want to do multiple regressions using these anecdotes, they may help to shed some light on this not well understood issue. Many thanks.

US Far Outstrips China in Arms Sales to Dictators

Kristin Jones reports for the South China Morning Post on the surprising result of a new Norwegian study that examined US versus Chinese arms exports. She also quotes some of my reservations on the study's methodology:   US far outstrips China in arms sales to dictators
Kristin Jones in New York Jan 03, 2011
When it comes to arming autocrats in Africa, upstart China is no match for the United States, a study of arms exports finds. China's sales of weapons to dictatorial regimes such as Sudan and Zimbabwe have sparked outrage from human rights advocates, academics and officials in the West. Some say that Beijing is undermining the development of democracy and rights in Africa. In a State Department cable recently released by WikiLeaks, the top US diplomat for Africa, Johnnie Carson, summed up the basic sentiment for an audience of oil executives in Lagos, Nigeria, in February last year when he noted: "China is a very aggressive and pernicious economic competitor with no morals." But compared with the US, China actually shows a preference for relatively democratic clients such as Zambia and Namibia, according to a review of arms transfers from the end of the cold war until 2006. And morals or not, the US tends to favour autocrats and human rights abusers - most notably its ally Egypt. "The US is promoting its strategic interests even if it means promoting authoritarian regimes, while China is more interested in economic relationships," said Paul Midford, who co-authored the study with Indra de Soysa using data compiled by the Stockholm International Peace Research Institute. The findings turned common wisdom on its head, said Barry Sautman, a political scientist at Hong Kong University of Science and Technology. "People naturally assume that because China is an authoritarian state, it will want to sell arms to other authoritarian states, and that the US will do the opposite," Sautman said. The actual record is more complicated. In Sudan, a state with an egregious record of atrocities against its people, China has indeed supplied weaponry. But it is not the most important supplier of arms, the authors note. From 2001 to 2008, as international attention to China's involvement in Sudan grew, Russia sold five times more arms to Khartoum, according to the Stockholm data. More of China's arms went to Egypt - its biggest market in Africa. But there, Beijing's sales were dwarfed by the US. From 1989 to 2006, the US provided Egypt with billions of dollars worth of fighter jets, tanks, missiles and other arms. Hosni Mubarak, Egypt's president, has ruled since 1981 under "emergency" law that allows the government to detain people without charge. Torture by police and security forces is routine. "This is not to excuse Chinese arms sales to undemocratic or human rights-violating regimes," says Ian Taylor, a professor of international relations at the University of St Andrews who has written about China's role in Africa. "But we need to remember that firstly, China is not the worst culprit in this - the United States is, by far." The Stockholm data includes sales of things like tanks, military helicopters, and fighter aircraft. But it doesn't include small arms and dual-use equipment, which are often sold through brokers rather than by direct government-to-government arrangements. This omission was significant, said Deborah Brautigam, an expert in China-Africa relations at American University in Washington DC. Small arms, including AK-47s and ammunition, comprised the bulk of Chinese weaponry sold in places like Zimbabwe. And the trend, she added, may be towards more Chinese arms sales across Africa - not fewer. The authors might have come up with different results, she suggested, by looking at a shorter and more recent time span. "China's export of arms, like all its other exports, are likely on a sharp rise year by year," Brautigam said. But Chinese arms sales did not signify an effort to challenge values like rights and democracy, Brautigam and other specialists said. To those who had painted a picture of an emergent superpower that sought to create a "Beijing consensus" of authoritarian states, the data from Stockholm illustrated that "there may not be anything to that", Sautman said. Midford and de Soysa are both political science professors at the Norwegian University of Science and Technology. Their research was initially presented at an international studies conference in New Orleans in February, and is under review for publication in an academic journal.

The Dragon's Gift: The Real Story of China in Africa was just chosen as one of Zocalo Public Square's Top 10 Books of 2010:

Brautigam provides a new way to see China’s economic growth, offering context for all the fearful headlines about its relationships with African countries.

Thanks, Zocalo -- "the website that connects people to ideas and to each other".  

Click here to read Zocalo's full review of The Dragon's Gift.

China-Africa Economic and Trade Cooperation White Paper

I've been getting calls these days from journalists who want to discuss "China-Africa Economic and Trade Cooperation," the new white paper produced by the Chinese government. Some say they find it fascinating. For anyone who has been following these issues closely, there is little new in the paper, which serves as a progress report on trade, investment, and aid. The report refers regularly to "China" and "Africa" as though these are two separate states (sometimes it mentions "African countries"). I sympathize with this; it's all too easy to slip into discussions of China and Africa as though the continent and the country are two equal partners.

The report does contain two new pieces of data from the notoriously untransparent Chinese government:

(1) Chinese FDI in African manufacturing. The report carries the first official statistics on the distribution of Chinese investment in Africa by sector that I have seen since about 2000 (see the chart that accompanies this article). Data on Chinese FDI needs to be viewed with some skepticism. I pointed out why in an earlier blog posting here. However, data is far more likely to be under-reported than over. Keeping this in mind, the report notes that by the end of 2009, accumulated manufacturing investment in Africa came to 22% of the total. This would make it $2 billion, at a minimum. Clearly, Chinese manufacturers are interested in investing in Africa. This data fits well with what I have seen, and the arguments I have made in The Dragon's Gift and "'Flying Geese' or 'Hidden Dragon'?

(2) Debt cancellation. Between 2000 and 2009, the Chinese government has canceled an accumulated 18.96 billion RMB yuan (about $2.8 billion at an exchange rate of 6.8 RMB to the dollar) of debt for 35 African countries. This is interesting to me, as it shows a slowdown in debt cancellations over time. It reinforces my conclusion that the debt cancellations were only (as announced by the Chinese) about the old, overdue, zero-interest foreign aid loans, and not the new concessional and/or market-rate loans provided by the China Eximbank. As far as I've seen none of those loans has been canceled.

The report provides data on African investment in China, which, it says, amounts to an accumulated $9.93 billion. Although African entrepreneurs in South Africa, Mauritius, and elsewhere have been investing in China, this relatively large figure includes investment that transits through the Indian Ocean island of Mauritius, which hosts a popular offshore financial center. This FDI, which is then labeled as coming from Africa via "Mauritius" is more likely to be from Chinese domestic investors who are "round-tripping" in order to take advantage of incentives for foreign investment. A similar dynamic has made "Mauritius" appear to be the largest foreign investor in India.

On a minor note, the report shows that Chinese translators are not immune to mistakes common in the Western media. For example, at several points the report's translators mistakenly substituted "Libya" for "Liberia" as in the discussion of a Chinese vocational technical center being provided for "post-war Libya". In fact, the Chinese are building a Liberian vocational training center on the outskirts of Monrovia at Gardinersville, on the site of the previous MVTC.

China's Resource-backed Weapons Exports: Norinco

book cover: Harper Collins

My nighttime recreational reading these days is Richard McGregor's The Party: The Secret World of China's Communist Rulers. I've not seen much yet in the book that sheds new light on China's engagement in Africa, with one interesting exception. In a chapter on the Party and the military (in which McGregor notes that the "heroic frontier business exploits" of the People's Liberation Army are now "a thing of the past") he gives an example of a business deal forged in Iraq in connection with the Iran-Iraq war (1980-1988).

Apparently Iraq bought weapons from China during the war, on credit, but couldn't repay. This unpaid debt and negotiations seem to have dragged on for years. Finally, McGregor reports, on p. 116: "it was paid in kind in 1996 by offering PetroChina a $1.2 billion oil concession in tandem with Norinco, a state-owned weapons manufacturer. The US ousting of Saddam Hussein delayed the project, and work did not begin on it until 2009."

The use of commodities to secure or repay export credits has a long history in China. As I pointed out in The Dragon's Gift, Japan used this system to finance its early exports and turn-key projects in China back in the 1970s.

Moises Naim and the $9 Billion Dollar Myth

Moises Naim (photo: le livre noir de l'economie)

This week in an Indian opinion piece on India-China rivalry, I read yet another reference to a myth first circulated (I think) by Moises Naim, editor of Foreign Policy, and then picked up by Fareed Zakaria. Here's how the story was told today:

"In his book The Post-American World, Fareed Zakaria quotes Moises Naim, editor of Foreign Policy magazine, telling a story about the Nigerian Government negotiating a $5 million loan for train systems with the World Bank in 2007. The bank had insisted that the Government clean up the notoriously corrupt railway bureaucracy before it approved the loan. The deal was almost done when the Chinese stepped in and offered the Government a whopping $9 billion loan to rebuild the entire train system — with no democratic and human rights strings attached. The World Bank was sent home within days!  This is how China works."

This is a great story. The only problem is (as I point out in The Dragon's Gift):  it never happened.

I don't mean to impugn Moises Naim's veracity. No doubt someone from the World Bank did tell him this tall tale. But because he seems to have liked the story, he never checked the facts. In fact, this is not how China works, and repeating this fictional story only helps cloud our understanding of Chinese engagement in resource-rich countries in Africa.

What really happened -- as just a little research would have revealed -- was this:  a Chinese company (CCECC) won an $8.3 billion contract to rebuild the Lagos-Kano railway. The Chinese government had offered a line of export credit for $2 billion at a competitive commercial rate, and a preferential export credit for $500 million. The Nigerian government discussed a number of projects that might have benefited from these tied credits, not just the railway. At the end of the day (as Nigerians are fond of saying), the $2 billion credit was never used and expired. The railway contract was suspended, and the $500 million preferential credit was renewed, and is likely being used today to fund a much smaller railway project. More on this

China's "Rogue Aid": Japan Times

The Wikileaked documents have spawned a number of stories on China and Africa. Here's one from Japan Times that offers up some interesting insights, but that also gets a bit garbled, particularly the part that purports to discuss my book, The Dragon's Gift. The headline ("Pernicious 'rogue' offers of aid") is calculated to push the "China threat" button, even if, as in this case, the reporter's story itself is fairly balanced.

One of the myths that circulates widely (and is repeated without question in this story) comes from a much-criticized report on Chinese aid prepared by the US Congressional Research Service. According to the Japan Times:

A U.S. congressional report last year quoted research showing that total Chinese aid in 2007 was $25 billion. Aid to Africa in the 2002-2007 period was more than $33 billion.

As I've noted on this blog before, these estimates are so preposterous that they should simply be treated as amusing, a funny story, except that they were presented to the US Congress as serious. Here's the inside story: what was the "research" quoted by the CRS report? A background paper on "Chinese aid" done as a class project by a group of graduate students from NYU. The students, perhaps encouraged by the researchers, decided to count every media report of a flow of finance from a Chinese entity into Africa, Latin America, or Asia as "aid". They lumped together grants, official and commercial bank loans, export credits, supplier finance, foreign direct investment, and so on. As long as it had some link to the Chinese government (i.e. it was from a state-owned bank or company) they added it to their database and called it "aid". 

This methodology has two obvious problems. First, investment, export credits, supplier finance, etc., is not "aid" but commercial in nature, and should not be counted as official development assistance. Second, the fraction of projects mentioned in the media that actually go forward is small, no matter who is financing them. This overstates the size of Chinese engagement. While the CRS report claimed that China gave $18 billion in "aid" to Africa in 2007, by my estimates, the real figure of official aid disbursed in 2007 was less than 8 percent of that.

The ever-interesting economist Professor Chris Blattman comments on "China: Not Playing By the Rules?" in his blog, chrisblattman.com:

In a front page headline today, the New York Times comes to the rescue of Gamesa, a Spanish company producing wind turbines in the nefarious Middle Kingdom.

The NY Times was reporting on Gamesa's complaint that Chinese companies are not playing by the rules, but taking advantage of government support. Blattman continues:

State subsidies and policies to foster infant industries at the expense of foreign competitors. This sounds almost like the dark and nefarious practices followed by… Spain.

Personally I see nothing dark or nefarious here. This is good old fashioned industrial policy at work. How else do we expect poorer countries to converge to riches? Innovate on the frontier? I am an amateur economic historian at best, but here’s my opinion: almost never been done.

China’s story today sounds a lot like continental Europe in the early 19th century, Japan after the Meiji Restoration, and the Asian Tigers in the 20th. Go back two hundred years and you can find the British press enraged with the same complaints as they lose their textile industry to that backwards backwater, France.

I remember well the same complaints made about Taiwanese copying when I lived in Taipei in 1979-80. Blattman points out that while suffering from "unfair Chinese competition", Gamesa had still managed to double its sales of wind turbines in China. Click here to continue.

China's DRC Roads Redux

Chinese road construction in DRC. photo Kilogold.net

While searching for an update on China's multi-billion infrastructure contract in the DRC, I came across a blog posting on the website of a Canadian company, Kilo Goldmines, Ltd., which had a photo of Chinese road construction in the DRC (right). Accompanying it was this note:

"While there are critics of this deal and pundits who claim this is the 'second colonisation' of the DRC, this barter deal is widely seen as a key catalyst to help jump start the economy and rebuild core infrastructure that has been neglected for decades. Kilo is a primary beneficiary of some of this newly developed infrastructure including rehabilitated roads around its Somituri project."

Chinese Refineries in Nigeria, Chad, Niger & Ghana: The Sudan Model?

Khartoum Refinery. photo credit: KRCSD.com

We've read recently about Chinese offers and deals to build refineries in African countries: Nigeria, Chad, and Niger and in Ghana, alumina, (but perhaps oil in the future). Not all of these deals have been concluded or financed, but we can learn something about the probable structure of the deals by revisiting the first of these: the Khartoum Refinery, a joint venture between the government of Sudan and China National Petroleum Corporation (CNPC), which opened in June 1998.

This refinery was financed by CNPC (there is no mention of China Eximbank, which was still a relatively small player in the 1990s), probably through a supplier's credit. According to a 2002 report by the IMF, the financing was secured by crude oil exports -- not access to a new concession, but as a guarantee.

At first, the debt service payments for the refinery were non-transparent, i.e. not included in the government's budget. The IMF made greater transparency a condition, and by 2002, as the Fund noted, Sudan's "budget now fully incorporates the debt service payments for the construction of the Khartoum refinery" (p. 21).

The IMF and the World Bank were concerned that Sudan had scaled back on debt payments owed to their two institutions in 2001. The value of Sudan's crude oil exports amounted to US$1.3 billion in 2001 (p. 10), but much of this value belonged to Sudan's foreign investors. In 2002, Sudan's net foreign exchange receipts were projected to be only around $120 million. Debt service for the refinery (which mainly supplied Sudan and its neighbors, including Ethiopia) amounted to $60 million annually. This left only about $60 million "for payments to the World Bank, the Fund, and other creditors (p. 38, n. 22)."

How did CNPC step ahead of the IMF and the World Bank, who are generally recognized as any borrower's "preferred creditors" (i.e. they are supposed to be paid first)? The debt service on the Khartoum refinery was fully secured by Sudan's crude oil exports. As the IMF noted, if debt service was not met, "the CNPC has the right to lift the equivalent amount of crude oil in kind. Nonpayment is thus not a realistic option (ibid)." Through securing its credit by crude oil, CNPC effectively became Sudan's most preferred creditor.

In its letter to the IMF, Sudan noted that in addition to including the repayments for the refinery in the budget, i.e. making it all more transparent, it planned to "implement a system that will ensure cash payment, as budgeted, of oil collateralized debt service payments in order to avoid in-kind lifting, thus further increasing transparency of oil revenues and avoiding distortion of oil delivery obligations" (p. 68). This was implemented.

What can Nigeria, Chad, Niger and Ghana learn from Sudan's experience?

First, clearly, securing the refinery with future oil revenues (and, perhaps, having Chinese managers) allowed Sudan to refine its own products rather than exporting crude and importing refined products, which is what Nigeria does today as a result of its failure to keep its refineries working. (We don't know how profitable/cost-effective the Chinese-built Khartoum Refinery, is in comparison with other, similar refineries. This information would be useful for countries contemplating similar arrangements.)

Second, be transparent. If a poorly governed country like Sudan can practice budget transparency for Chinese finance, there's no reason why others can't.

Third, price your domestic petroleum sales at or even above the market, as Sudan has done, in order to keep the petroleum sector above water and repay your creditors. Nigeria has far to go in this regard.

Fourth, you may be able to get away with the preferred creditor arrangement, but it won't be a walk in the park. It's easy to see from this why the IMF and the World Bank dislike the Chinese model of commodity-secured credits. They do effectively enable Chinese creditors to step ahead of the IMF and the World Bank in having Chinese credits repaid. This was one of the issues in the long stand-off over the $9 billion Chinese credit to the DRC.

Finally, keep in mind that by tying up your future revenues, you could at some point find yourself so squeezed that half of your net foreign exchange earnings are tied up in payments for just one project, as in Sudan.