China in Africa (Source: Mining Weekly)

Anglo American, China Development Bank agree to develop projects in Africa, China
(Source: Mining Weekly)

By: Creamer Media Reporter
Published: 4 Feb 08 - 10:56

Diversified-miner Anglo American has entered into an agreement with the China Development Bank to identify and develop a pipeline of natural resources projects in Africa and resource-hungry China.

Anglo American CEO Cynthia Carroll said on Monday that the company was “actively” looking for further projects in China.

“This memorandum of understanding will further enhance Anglo American’s project potential in China, Africa and other key markets,” she said.

China Development Bank governor Chen Yuan commented that its relationship with the mining giant would put it in a better position to do business with the natural resources industry.

“With the growth of the global economy, we are confident that this relationship will be mutually rewarding.”

Anglo American's share price jumped almost 4% on the news, trading at R444,50 a share in Johannesburg by 10:40

800 Chinese State-owned enterprises active in Africa, covering every country

By: Keith Campbell
Published: 28 Sep 07 - 10:15

In 1418, the prosperous coastal towns and cities of East Africa were visited by a tremendous fleet, spearheaded by the biggest sea-going ships ever built up to that time, from the mightiest ocean-going navy in the world – that of Imperial China.

The fleet’s flagships were, by the standards of all cultures of the age, huge, and the total number of officers, officials, sailors, soldiers, medics and others embarked ran into the tens of thousands. It was the first direct contact between the Chinese State and African States, although indirect trade relations (through Arab and Indian middlemen) had already existed for centuries.

The 1418 fleet deployment to Africa was followed by two more, from 1421 to 1422 and 1431 to 1433. Fortunately for the Africans, on all three of these deployments, the Chinese sought ritual submission to their Emperor, and trade, not conquest and occupation. In the words of American historian Louise Levathes, “Africa was China’s El Dorado – the land of rare and precious things, mysterious and unfathomable.”

Then, for internal political reasons, China abandoned all direct contact with Africa. More than half a millennium would pass before the Chinese State again actively approached Africa.

The year was 1963, and this re-engagement was signalled by the unprecedented visit by then Chinese Prime Minister Zhou Enlai to Ghana, Guinea, Mali, Ethiopia, Sudan and Somalia (plus all the North African states, except Libya). With admirable understatement, Zhou, speaking in Mogadishu (one of the ports visited by the Chinese fleets 500 years earlier), said, “We feel that our present visit to Africa is somewhat belated. But after all we have arrived . . .”

This time, China’s interests were ideological, political, and diplomatic, to promote revolution in African countries still under colonial or white minority rule, to strengthen newly independent States, and to break out of the country’s then existing diplomatic isolation. The promotion of revolution took the form of assistance to national liberation movements. For independent African States, China offered aid and assistance, and on generous terms. Between 1963 and 1983, China – still a poor communist economy – provided African countries with roughly $2-billion in very soft loans (usually interest-free and with very long repayment periods). A lot of practical assistance was also provided – by the early 1980s, some 150 000 Chinese technicians had served in Africa.

The flagship programme was the Tazara railway, linking Dar es Salaam with Lusaka. Funded by interest-free Chinese loans, built by 25 000 Chinese engineers, technicians, and workers, as well as 100 000 Africans, the 1 860-km-long railway, including 93 stations, 300 bridges, and some 10 km of tunnels, was started in 1970 and completed in five years – two years ahead of schedule.

But then, again, internal political developments in China (Mao Zedong died in 1976) saw that country dramatically reduce – although not, this time, terminate – its involvement with Africa.
Now, for the third time, China is back. Why?

“A key date is 1993,” highlights London School of Economics senior lecturer in international relations Dr Chris Alden.

“That year China ceased to be an oil exporting country and became an oil importing country. That’s when their economic growth outran their domestic resources and traditional imports.” MD of the specialist South African consultancy The Beijing Axis, Kobus van der Wath, points out that “this was the result of 15 years of change and reform in the Chinese economy, initiated by Deng Xiaoping”, who came to power in 1977. China became a communist State with a capitalist economy.

“China has been growing since it opened its borders from 1978 to 1979, but it really accelerated in the late 1990s,” says South African Institute of International Affairs Development Through Trade Programme economist Philip Alves. “China then developed a ‘going out’ strategy, encouraging Chinese companies to invest abroad, with the result that China’s economic footprint began to expand globally – it already had a global political footprint.”

“Deng’s reforms led to a significant influx of foreign direct investment (FDI) into China, which, in turn, resulted in the re-establishment of domestic consumer demand in the country, which has now reached levels not previously seen in modern Chinese history,” explains Van der Wath.

And this FDI continues, and will continue, to pour in. The Economist Intelligence Unit (EIU) forecasts that FDI into China over the five-year period from 2007 to 2012 will average $86,8-billion annually. Note that these figures exclude FDI into Hong Kong. This ranks China as number three in terms of attracting FDI – the US is number one, and the UK number two. Hong Kong ranks eighth, Russia thirteenth, Brazil and Singapore joint fourteenth, while India does not appear in the top 15. The EIU forecast for India for 2007 to 2012 is FDI inflows averaging $20,4-billion a year – only 23,5% of the figure for China.

“China, with its rural migration to its cities, its booming industry, its gross investment: a gross domestic product ratio of 50%, has an enormous demand for resources,” avers Van der Wath. And this demand currently cannot be met from domestic sources – China is a poorly explored country. “So China began to look at resource supplies from abroad,” he adds. “It began to look strategically at resource pipelines, and in 1998 [then President] Jiang Zemin visited Africa – this marked the start of the new epoch.”

“China definitely does have a strategic view concerning Africa,” confirms University of Stellenbosch Centre for Chinese Studies project director Lucy Corkin.

“The Chinese government has a very long-term view, and they are looking to Africa as a strategic partner.” This is shown by the Forum on China-Africa Cooperation (FOCAC), launched as a Ministerial-level gathering in Beijing in 2000, attended by 80 Ministers from China and 44 African countries, and hosted by Jiang.

The second FOCAC was held in 2003, in Addis Ababa, with 70 Ministers from China and 44 African countries. This was accompanied by the First China-Africa Business Conference, attended by some 500 Chinese and African business people – cooperation agreements worth $1-billion were signed.

Last year, for its third edition, the FOCAC was upgraded to summit status, with President Hu Jintao hosting 48 African Heads of State in Beijing. Held in parallel was the Second China-Africa Business Conference, which saw the conclusion of trade deals totalling $1,9-billion.

At this FOCAC summit, Jintao announced that China was increasing the number of items it imported tariff-free from least-developed African countries from 190 to 440, and that his country was cancelling the debts owed to it by heavily indebted African countries. He also promised to double China’s aid to Africa by 2009, build 100 rural schools and 30 hospitals, and grant $37,5-million to combat malaria. China, he said, would provide $3-billion in preferential loans and $2-billion in export credits to Africa over the next three years, and create a special $5-billion fund to facilitate Chinese investment in Africa.

The country would also train 15 000 African professionals, send 100 senior agricultural experts to the continent, and set up ten specialised agricultural technology centres in Africa over the next three years.

“China is offering Africa a diplomatic and commercial package as sophisticated as anything you’d expect from an established industrial power,” states Alves. “This is wrapped in cotton-wool rhetoric which makes China seem more appealing to African governments than Europe, the US, or Japan.”

Significantly, Chinese involvement and investment in Africa is being led and, currently, dominated, by State-owned enterprises (SoEs) such as the China National Offshore Oil Company (CNOOC), Sinopec, China Minmetals, and China Non-Ferrous Metals Company. These are being supported by other, service sector, SoEs in the banking and logistics sectors, such as the China Overseas Shipping Company.

“China’s thrust is for commodities and oil,” affirms Alden. “It’s about purchasing and extracting resources.”

“China’s focus is minerals and resources, which it needs to fuel its economy,” agrees Corkin. “But China came to this stage of development late, and needed to look for regions where there are not already strongly entrenched interests, and Africa, especially with regard to oil, still has space for the Chinese.

“There seems to be an emerging pattern. China offers African states soft loans and technical assistance to develop infrastructure and, in return, China gets access to minerals,” she highlights. “These projects generally involve several different Chinese SoEs from different sectors, such as banking, construction, and petroleum or mining.”

A key institution in this regard is the China Export-Import Bank (Eximbank). “A China Eximbank loan of $4-billion to Angola spearheaded the entry of Chinese construction firms into that country – while 50% of Eximbank loans must, in principle, be spent on buying goods and/or services from Chinese companies, 70% of the construction contracts financed by these concessional loans must go to Chinese com- panies,” she cites. Since 2000, Chinese companies have built eight middle- and large-scale power stations, more than 6 000 km of road in Africa, as well as refurbishing railway lines.

It is estimated that some 800 Chinese SoEs are active in Africa today, covering every country, although this figure includes provincially owned as well as nationally owned companies, as well as companies that are trading, not investing, and companies whose activities have nothing to do with natural resources or China’s strategy for obtaining these resources.

And Chinese private-sector companies are now also beginning to invest in Africa. “China is not as monolithic as people think,” cautions Corkin.

“China is trying to move from being subject to price and supply risk takers on international markets to owning, operating, and refining the resource, thereby gaining some price and supply security,” emphasises Van der Wath. Chinese investments in Africa amounted to $46,3-billion by the end of last year, in sectors such as agriculture, communications, energy, and manufacturing.

Chinese imports from Africa totalled $28,8- billion in 2006, a 37% increase over 2005 (Chinese exports to Africa in 2006 were worth $26,7-billion, up 43% on 2005 – Africa is also important to China as a market). China is Africa’s third-largest trading partner.

“If you look at the trade and investment patterns, the intensity of Chinese involvement is primarily in commodities, especially energy commodities,” says Alden. “China’s main objectives are oil, iron-ore, copper – all industrial metals, and any kind of raw material required by industry, in fact,” asserts Corkin.

“Oil is the big story,” affirms Alves, “but equally important is the range of metals and minerals which are needed as inputs into Chinese industry, such as cobalt, bauxite, copper, zinc, nickel, iron-ore and precious metals – Chinese mining companies are interested in anything Africa has.”

In 2005, oil accounted for 70% of all African exports to China.

“African oil countries have received the biggest Chinese investments – Angola, Nigeria, Sudan,” points out Corkin. “Outside oil, the biggest recipients of Chinese investment have been Zambia (copper) and Gabon (iron-ore).”

“In energy, the Chinese are doing two things – in countries like Angola, where oil production is well established, the Chinese are buyers; in places like Sudan, where oil production is not established, they are investing in getting the oil out of the ground, refining it, and then shipping it to China,” explains Alden. “Their investment is totally geared to supplying the Chinese market.”

“China has invested in the Angolan oil sector, but Angola doesn’t allow any single country or company to dominate its oil, and China is a junior player in that country,” elucidates Alves.

“But China entered Sudan in the mid-1990s, when Western companies left, and China now dominates the Sudanese oil sector.”

African governments have generally welcomed China’s latest approach to Africa – the country is providing appreciated aid, trade, and especially investment, without seeking to influence or alter their domestic policies and behaviour, as most other major investor countries now do.

But Chinese investment has been accompanied by the creation of Chinese communities across the continent, and the establishment of small Chinese businesses which are competing with local small enterprises, and signs of popular resentment against the Chinese have been emerging, most notably in Zambia where, in the 2006 Presidential elections, the opposition candidate ran on an explicitly xenophobic anti-Chinese ticket.

Edited by: Martin Zhuwakinyu

Quietest, most powerful 'revolution' moving through Africa, says Borshoff

By: Martin Creamer
Published: 28 Sep 07 - 0:00

The world’s quietest and most powerful current revolution is the “Chinafication” of Africa, which is under way throughout the continent, says Paladin Resources MD John Borshoff.

Borshoff, whose Australian- and Canadian-listed company has uranium assets in Namibia and Malawi, says that China is making an effort to secure resources in a manner that could, in future, make the country a “price maker” rather than a “price taker”.

In China’s moves in Africa he sees enormous opportunities for companies.

He points out that, while China has huge amounts of capital and a hunger for product, it “probably” lacks the expertise of private-sector resource companies.

But he predicts that corporate China will get stronger and that environmental issues will dictate that Chinese companies become fully transparent, because this is what host countries are demanding.

Borshoff says it is also “very important” for African countries to have mining companies that are part of the “price-making formula”.

Equinox Minerals CEO Craig Williams says that Chile, the world’s preeminent copper province for the past 30 years, proved difficult to penetrate when China looked around the world for copper, so it decided on central Africa, the world’s next biggest copper province.

“The Chinese are prepared to take a more robust view on risk than some bankers and that’s the impetus for its aggressive move into central Africa,” Williams says.

He says that Equinox, which is building the big Lumwana copper mine in Zambia, is “very pleased” that China is active in Zambia and predicts that China will become “a very important player in the Zambian copperbelt”, where it is building a large new smelter.

Williams says that China is also funding many aspects of public infrastructure including power stations, roads and rail.

While China’s strong position in Zambia may not be “particularly palatable” politically, he says that China is doing “some very positive things” in Zambia.

“The relationship that we have with the Chinese is a very positive one and will be one that will underpin our development in years to come,” says Williams.

Albidon GM exploration John Schloderer says that his company, which is operating in Zambia, has “an excellent offtake agreement” with a Chinese company.

“Chinese influence there has been quite a positive one for us,” Schloderer says.

Anglo American vice-president exploration Ian Willis says Anglo sees the Chinese involvement in both a partnership and competitive sense.

“We have strong, clear, good relationships with Beijing through our representative office there,” Willis says, adding that the company is also a resources investor in China itself.

A common thread in Anglo’s long history with the China is, Willis says, the willingness of the Chinese to partner Anglo elsewhere in the world in new resource developments.

“Not a lot has come of that at this point in time, but those partnership arrangements are available through offtake agreements, joint ventures and strategic funding. These form an important part of Chinese development initiatives into Africa and other parts of the world.

“The issue starts to arise around the competition part of the equation. Is there a level playing field in some of the involvement of Chinese companies and others into our industry?

“Some of the semi-government companies out of China tend to represent not just an entirely commercial, but also a strategic and political initiative as well,” says Willis.

Asked whether lower safety, health and environment standards characterised Chinese competitive bidding, Willis says Anglo has always found the Chinese to be “very amenable and interested” in safety, health and environment as a competitive advantage.

On whether the private sector could ever compete with China, the country, with its command economy, Anvil Mining MD Bill Turner says that the fact that China has a seemingly inexhoustible supply of funding is only one component of what is needed to operate successfully in the mining industry.

“Having a lot of only one component won’t necessarily do it. If you look at Gecamines, which has the best portfolio of copper properties of any company in the world, you see they are in a rather difficult situation because they really have just got one component.

“I think it’s the balance of all the different components and getting the balance right that makes success, and not an over-abundance of one component,” says Turner.

Williams concurs, saying that the Chinese recognise that they need to work with junior mining companies in order to understand the way that they operate and visa versa.

“But the next step in the question is ‘what happens after they have learnt all that’ and there is a feeling that we may have to look out,” says Williams.

The DRC’s Katanga governor Moise Katumbi says that he has experienced two types of Chinese groups operating in the Kataga province, the genuine investor, who enters legally and is bank supported, and the illegal entrant who buys material and take it out of the country.

Katumbi says that he has had to stop illegals from exporting Katanga material and among the less desirable are those who make people work without safety apparel, against whom he has taken action.

But, by the same token, Chinese companies like Covec are doing a wonderful job in Katanga, he says.

South Africa’s Minerals and Energy DG Sandile Nogxina says that all those doing business in South Africa have to comply with the law, no matter whether privately owned or state owned.

“If you come to South Africa and you want to make use of the South African national resources, you must also assist in attaining certain strategic government objectives, one of which is beneficiation and the other the broadening of the economy to include people who were historically excluded from the participating in the economy.

“China is definitely no exception to that,” Nogxina says.

Australian High Commissioner to South Africa Philip Green finds China’s particular interest in Africa unsurprising and predicts that China will have “a big influence in years to come”.

One of the reasons is because its involvement in Africa is welcome: “I hear African leaders say over and over again that they welcome Chinese involvement in their countries.

“I recently saw a record of a speech that the Chinese Ambassador made in South Africa and he said that they, in the embassy in Pretoria, spend a lot of time thinking about China’s reputation in South Africa and Africa and they are naturally anxious to ensure that China’s reputation is enhanced by the things that Chinese companies do.

“Some of the contrary around these issues suggests that Africans are passive in responding to the interests of others on their continent, and clearly they are not,” Green says.

China is now Australia’s largest trading partner and “a very important part of Australia’s prosperity and growth going forward”, says Green.

“One of the things that Australian industry has been very effective in doing is involving itself in China’s value chain and rather than seeking to compete where China has natural advantages. Australian farmers are doing that in agriculture and Australian service industry is doing that brilliantly in relation to the training of students and tourism,” Green says of an Australia whose Menzies government, not that long ago, was wont to speak of the “Yellow Peril”.

The MD of unlisted International Base Metals, Stephen Blackman, says that “the couple of million dollars” that the Chinese invested in his company enabled it to build a copper position in Nambia.

On political risk, FirstCity Partnership’s Mark Gubbins says that the Chinese pursuit of a long-term and secure supply of commodities aligns with the interests of private-sector project developers in Africa and believes that “a good partnership with a good Chinese investor can be a very strong political-risk mitigant”.

Coffey Mining-RSG principal Rick Yeates warns that African governments will endanger hard-won reputations if they succumb to the temptation of favouring Chinese access to the continent's minerals.

Although both China and India are now competing for access to mineral commodities in Africa, Yeates notes that China is the more competitive in actively courting African governments to secure “preferred access to mineral opportunities”.

“While this approach is understandable from a Chinese perspective, the temptation to respond with favouritism and in the application of discretionary decisions by government agencies risks jeopardising hard-won reputations brought about by enlightened legislative reforms, along with social and environmental operating standards,” Yeates says.

He says African governments will be “very aware” of the “potential negative impact” of a perception of mineral legislation being applied in an unfair and untransparent manner.
Edited by: Martin Zhuwakinyu

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