China in Africa
5. China's New Resource Acquistion Business Model
China’s
economic
scramble
into
Africa
and
Latin
America
follows
a
mercantilist
approachusing
state
resources
to
underpin
state
controlled
business
entities
with
economicobjectives
at
variance
with
traditional
Western
multi-national
corporations.
For
example,Chinese
state
corporations
seek
more
than
just
profit
for
their
shareholders.
Chinesecompanies,
backed
by
senior
political
leaders,
government
financing
and
foreign
aidinstruments,
are
willing
to
invest
in
countries
with
high
political
risk
for
three
reasons:
a)secure
energy
and
natural
resources
for
the
motherland,
b)
access
new
consumer
marketsfor
China’s
products,
and
c)
challenge
Western
hegemony
in
the
international
political
andeconomic
arena
to
reshape
global
institutions
to
suit
Beijing’s
worldview.
These
factorsare
not
reflected
in
the
business
decision-making
process
of
traditional
Westerncompanies,
making
them
vulnerable
to
a
Chinese
business
strategy
which
is
multi-layeredand
includes
massive
state
assistance
on
a
range
of
levels.
The
groundwork
for
China’s
competitive
entry
into
developing
world
energy
and
resourcemarkets
was
laid
over
a
decade
ago
when
important
internal
restructuring
of
the
oilindustry
was
undertaken
by
the
Chinese
government.
For
example,
in
early
1998,
whenthe
state
oil
companies
had
thin
profits
or
lost
money,
the
Chinese
government
adopted
aseries
of
measures
(including
cracking
down
on
small
refineries,
small
oil
producers,smuggling,
suspension
of
the
People’s
Liberation
Army’s
involvement
in
the
oil
business,and
banning
diesel
and
gasoline
imports)
to
shore
up
the
profit
margins
of
state
oilcompanies.
From
2001
onwards,
in
preparation
for
China’s
entry
into
the
WTO
and
duringthe
early
years
of
China’s
WTO
membership,
state
oil
companies
were
granted
monopolypowers
over
many
business
areas
to
strengthen
their
bottom
lines,
including
the
refiningbusiness,
wholesale
oil
business,
retail
stations,
and
the
oil
trade.[ENERGY
POLICY
ACT2005
Section
1837:
National
Security
Review
of
International
Energy
Requirements,
Preparedby
The
US
Department
of
Energy,
February
2006.]These
measures
provided
space
for
thelarge
NOCs
to
broaden
their
asset
base
and
build
up
a
financial
war
chest
to
go
on
theacquisition
trail.
A
similar
restructuring
policy
followed
for
mining,
banking,
constructionand
telecommunication
companies.
At
the
same
time
a
specific
policy
to
go
out
and
secure
energy
supplies
taken
by
the
CCPor
more
specifically
the
National
Development
and
Reform
Commission
(NDRC)
sawmajor
Chinese
state
oil
companies
step
up
equity
investment
and
takeovers
of
a
numberof
small
and
medium
sized
oil
companies
worldwide.
Key
to
this
was
a
coordinatedapproach
which
included
the
simultaneous
use
of
political,
military,
and
financial
levers
ofpower
to
fast
track
relations
between
Beijing
and
the
targeted
countries
and
regions
oftheir
oil
companies.
For
example,
the
formation
of
the
Shanghai
Cooperation
Organisation
(SCO)
includesenergy
producing
nations
which
are
high
priority
targets
for
Chinese
oil
companies
inCentral
Asia.
Similarly
in
Africa
and
the
Middle
East
the
FOCAC
and
the
China-ArabConsultative
Forum
(CACF)
established
in
early
2004,
provide
the
political
muscle
tosupport
and
steer
the
acquisition
programmes
of
large
Chinese
companies
in
general.
In
a
sense
what
Chinese
leaders
are
developing
is
an
integrated
independent
energy
andsecurity
model
that
will
insulate
and
protect
their
import
of
energy
resources
from
thesource
to
final
destination.
For
example,
the
new
PRC
approach
is
a
contractual
one,
butbased
on
strong
diplomacy
and
lobbying
efforts,
in
order
to
achieve
rights
of
explorationand
acquisition
of
crude,
based
on
long
term,
stable
agreements.
The
diplomatic
effort
issupported
by
institutions
such
as
FOCAC
and
the
China-Africa
Business
Council.
It
is
most
demonstrably
seen
in
places
like
Sudan
where
in
obtaining
oil
at
source,Chinese
companies
either
a)
buy
and
exploit
concessions
with
the
assistance
of
localsecurity
or
Chinese
military
(PLA)
personnel,
or
b)
enter
into
long-term
purchaseagreements
with
the
host
country
for
guaranteed
supplies,
according
to
one
source
in
theChina
Institute
of
Contemporary
International
Relations
(CICIR),
for
as
long
as
20
to
25years,
backed
by
a
panoply
of
political
and
financial
inducements.
This
has
to
do
with“locking
in
supplies”
to
the
China
mainland
and
is
evident
in
places
like
Gabon.
The
transport
of
oil
will
be
done
preferably
via
Chinese
built,
maintained
and
controlled
oilpipelines
to
Chinese
built
or
maintained
refineries,
or
on
to
ports
which
will
enjoy
some
sortof
security
agreement
with
the
Chinese
navy
(PLAN).
Loaded
onto
Chinese
ships
(verylarge
cargo
carriers),
the
oil
will
travel
under
close
surveillance
by
the
Chinese
navy,especially
through
potential
choke-points
which
in
time
of
war
constitute
a
real
threat
to
themovement
of
shipping.
Ports
of
call
being
probed
for
possible
regular
stops
or
leased
bases
in
Africa
for
Chineseships
include
at
least
two
points
of
anchorage
in
Madagascar
(Majunga,
Antongil
Bay),
Dares
Salaam,
Maputo
and
Beira,
Port
Said,
Walvis
Bay,
Simonstown,
Massawa
and
DahlakKebir
archipelago
(Eritrea),
Flamingo
Bay
(Sudan)
and
Algiers
and
Annaba
(Algeria).Discussions
on
this
led
to
the
visit
of
Chinese
Defence
Minister
Cao
Gangchuan
to
Cairoand
Dar
es
Salam
in
April
2006.
Consequently,
China’s
growing
energy
investments
in
Africa
will
be
followed
byheightened
naval
activity
around
its
coastline,
and
the
deployment
of
an
increasingnumber
of
civilian
and
military
personnel
in
Africa,
already
obvious
in
China’s
growing
rolein
African
peace-keeping
missions.
It
is
also
being
followed
by
other
Chinese
non-oilcompanies
and
growing
numbers
of
Chinese
diplomatic
personnel
–
many
economicintelligence
officials
placed
their
by
the
Ministry
of
Commerce
(MOFCOM)
and
the
MSS.[See
Chapter
6]
5.1. The View on Africa
Underpinning China’s entry into the African energy and telecommunications sectorsspecifically has been a calculated effort to forge close economic alliances with local stateowned entities (SOEs). By doing so, China has been able to move closer to the politicalelites which dominate the decision-making process of such SOE’s, and in turn are able toinfluence broader strategic decisions pertaining to the development of the local energy andtelecoms sectors.
For
example,
an
emerging
pattern
of
China’s
expanding
energy
search
in
Africa
is
that
ithas
made
an
effort
to
work
closely
with
African-based
national
oil
companies
(NOCs),larger
(non-Western)
NOCs
and
international
oil
companies
(IOCs),
as
well
as
privateniche
companies
that
while
low
on
technical
capacity
have
high
levels
of
political
influence.This
has
been
done
to:
- Fast track political networking
- Access new energy markets
- Undermine Taiwan’s influence in Africa
- Access new technologies
Alliances between state companies are invariably based upon bilateral arrangementsunderpinned by aid, and to marriages of convenience between minnows and majors –each trading political connections for capital, technical expertise and legitimacy.
This entry strategy at state level is evident in a number of countries, most notably Algeria,Angola, Chad, Congo-Brazzaville, Niger, Nigeria, Mauritania, and Sudan. The equation issimple: African SOEs and especially national oil companies (NOCs) are highly politicizedentities enjoying close links to the ruling elites. Examples of these include Sonangol(Angola), Sonatrach (Algeria), Nigeria National Petroleum Industry (Nigeria) and Sudapet(Sudan). While Western oil companies are reluctant to consider economic engagementwith NOCs, Chinese companies take an opposite view, where they are viewed as vitalconveyer belts to piggy-back their way into the corridors of power. Careful not to be seenas an "exploiter" of such oil, China, for example, stresses that its increased presence willalways result in new opportunities for local petroleum firms. This is most obvious, forexample, in Angola with the formation of Sonangol-Sinopec International (SSI) in 2004,and in Nigeria.
As the scramble for energy in Africa intensifies, the game becomes more complex. Whereaccess to state NOCs are not possible, Chinese oil companies have resorted to a “TrojanHorse’s” entryist strategy into Africa, hiding behind ostensibly new and little-known playerswho enjoy considerable political clout in sensitive energy rich regions on the continent.Some notable examples include the roles played by Energem Resources, Cliveden Oil andseveral Nigerian oil companies, in opening doors to sensitive but potentially oil rich areasin Africa with whom China had poor diplomatic relations with.
A similar policy has been followed in the telecommunications field where Chinesetelecommunications companies have worked closely with their African state counterpartsin various joint ventures to fast-track access into local markets.
5.2. Subsidizing Business Risk in Africa
Sitting on a foreign reserve war chest of over US2 trillion – the largest in the world - Chinais also able to offer generous aid and loans to African countries, using it as a lever to winenergy and other contracts. The most notable was the US$2 billion loan made to Angola inApril 2004 and topped up by another US$3 billion in 2006. This paved the way forSinopec’s entry into Angola’s oil industry in a significant way – although in more recentyears, Sinopec has suffered some economic setbacks in the country. Another example, isthe US$9 billion loan to the DRC made in 2008 which remains the subject of controversywhere in exchange for China’s involvement in infrastructure development, Chinesecompanies will have access to massive tracts of mineral concessions.
For Western companies operating in Africa, the Chinese factor is set to weigh heavily onfuture investment decisions. In simple terms they do not have adequate responsemechanism in dealing with China’s holistic approach in accessing energy and mineralresources in competitively tight markets and therefore face a continual threat of beingblind-sided by an increasingly finely honed Chinese resource acquisition strategy. China’sintegrated approach towards foreign investments in places like Africa allow Chinesecompanies to enjoy lower political and economic risk entry levels to that faced by Westerncompanies, because the Chinese risk matrix underpinning the way it conducts business isfundamentally different to that held by Western companies, especially in the energy field.
For example, Western oil companies are primarily driven by profit not by their respectivecountry’s national security considerations. Chinese state oil companies on the other handare geared towards the acquisition of oil supplies for the Chinese economy, not the openmarket. Western companies are accountable to their share-holders, Chinese companiesare accountable to the state - more specifically the Chinese Communist Party (CCP).Western companies are essentially on their own in making investment pitches in Africancountries. Chinese companies enter a market with the full institutional backing of the statecovering financial resources, diplomacy, trade and development projects, and security andintelligence assistance.
In simple terms, China is becoming adept at putting together multi-tiered investmentpackages backed by the state and offering multiple benefits to host countries whichWestern companies can simply not emulate. For example, in July 2006, CNPC obtainedfour oil blocks (two in the Lake Chad Basin and two in the Niger Delta) in return for itswillingness to invest in the construction of a 1 000 MW capacity hydropower plant inMambila (now pushed to 3 000 MW), Plateau State, as well as taking up a controllingstake in the 110 000 barrels per day (bpd) Kaduna refinery for US$4 billion.
Consequently, problems associated with political risk for Chinese companies investing inAfrica is significantly offset by the willingness of the Chinese government to investconsiderable “diplomatic and political capital” in boosting Africa’s influence and prestige inglobal forums. Such political agreements or understandings underpin the existence of aspecial dispensation enjoyed by Chinese companies in African countries. In addition,Chinese investments are invariably backed by cheap government institutional financialinstruments whether in the form of soft loans and insurance, as well as a host of valueadded development projects and regional and intercontinental organizational supportgroups such as FOCAC, the China-Africa Business Council and a growing number of localChinese “friendship” and “business” associated chapters – that all give political muscle tothe protection of investment decisions.
This all amounts to ring fencing investment projects from political risk and open marketcompetition not enjoyed by Western investors, and fast tracking the entry of Chinesecompanies into previously tight markets. It also allows Chinese companies to toleratehigher risk thresholds than their Western counterparts, and invest in areas off-limits toWestern companies that will stabilize later i.e. Sudan. By the time stability emerges, Chinais already well entrenched in the local economies.
Massive loans provided by China’s Export-Import Bank (China Exim Bank) form thefoundation of China’s commercial engagement. Government support for Exim Bankensures that Chinese companies can conclude high-risk contracts and have longer graceperiods than their Western competitors to show a profit. [See Chapter 11]
According to a three-year plan for China's oil and gas industry made by the NationalEnergy Administration, China is considering setting up a fund to support firms in theirpursuit of foreign mergers and acquisitions. The plan was submitted at the National WorkConference on Energy held in Beijing in February 2009. This provides a further indicationof how China will use state finances to underpin global acquisitions abroad.
Long-term planning, backed by guaranteed state support therefore provides a solidbacking for Chinese entrepreneurs in challenging African markets. Short-term losses canbe ignored, while the strategic plan and state backing is in place since EXIM Bank isanswerable to China’s leadership and not to the concerns of stakeholders. State-ownedbanks provide guaranteed loans and guaranteed political support for Chinese initiatives.
Chinese corporations which link their commercial objectives to China’s national interesthave a business model which can withstand the rigours of the African market. At a timewhen Western companies are increasingly short-term focused and risk-averse, China isable to support its corporate advance in Africa, opening the way for a strong Sino-Africandependency.
目次
- 1. Introduction
- 2. Africa in the Context of China's Resource Acquisition Requrements
- 3. The Origins of China's New Africa Policy
- 4. The Role of FOCAC
- 5. China's New Resource Acquistion Business Model
- 6. The Role of Chinese Institutions in the Acquisition of Business Intelligence
- 7. China's Energy Footprint in Africa
- 8. China's Mining Footprint in Africa
- 9. China's Telecommunications Footprint in Africa
- 10. China's Infrastructure Footprint in Africa
- 11. The Role of China's Financial Institutions
- 12. Implications for Japanese Investors
- Annexure I: The Focac Fuc Structure
- Appendix II: The Forum on China-Africa Cooperation
- Annexure III: Ministry of Commerce
- Annexure IV:Profile Chen Yuan and Chi Janxin