China in Africa
11. The Role of China's Financial Institutions
Critical
to
China’s
economic
successes
in
Africa
has
been
the
important
use
of
the
country’s
state
backed
banking
institutions.
Under-pinning
the
aggressive
buy-out
of
foreign
resource
companies,
mineral
and
energy
reserves
and
large
institutional
investment
projects
in
the
continents
oil
and
infrastructure
sectors,
are
a
phalanx
of
state
funding
agencies
supported
by
massive
national
reserves
of
accumulated
liquidity
of
over
US$2
trillion,
ready
to
be
shifted
into
the
global
market
at
a
moments
notice.
These
entities
include
the
China
Development
Bank
(CDB),
Industrial
and
Commercial
Bank
of
China
(ICBC)
China
International
Trade
and
Investment
Corporation
(CITIC),
China
Export
and
Credit
Insurance
Corporation
(CECIC),
Sinosure
and
the
China
Export-
Import
Bank,
whose
executives
work
closely
with
Chinese
oil
corporates
in
putting
together
financial
deals
at
preferable
subsidized
interest
rates.
These
state
driven
institutions
have
vast
resources
at
their
disposal
and
are
able
to
provide
discounted
loans
to
Chinese
corporations
on
the
overseas
acquisition
trail
not
necessarily
subject
to
the
same
rigorous
accountability
and
transparency
constraints
that
govern
Western
business
ventures.
It
is
this
golden
triangle
that
exists
between
Chinese
companies,
the
state
and
quasicommercial
lending
institutions
that
provide
Chinese
oil
companies
with
cheap
finance
to
undercut
their
Western
competitors.
The
China
Development
Bank,
for
example,
is
the
largest
quasi-commercial
bank
in
the
world.
With
assets
of
US$350
billion,
it
is
bigger
than
the
World
Bank
and
the
Asia
Bank.
The
China
Exim-Bank
is
the
world’s
third
largest
export
credit
agency
–
its
principal
mandate
being
to
“implement
state
policies
in
industry,
foreign
trade
and
economy,
finance
and
foreign
affairs”.
The
newly
created
China
Investment
Corporation
(CIC)
sits
on
an
acquisition
war
chest
of
US$200
billion,
courtesy
of
the
Chinese
Central
bank,
now
wanting
to
diversify
its
foreign
exchange
holdings
out
of
US
dollars
and
Treasury
bonds
into
resource
assets.
Indications
are
that
China
Exim
Bank
provided
an
open
line
of
cheap
credit
worth
US$1,2
billion
to
CNPC
and
its
subsidiary
PetroChina,
for
overseas
exploration
and
acquisition
purposes.
CITIC
Resources,
a
subsidiary
of
CITIC,
which
specializes
in
equity
investments
in
energy
and
natural
resources,
has
also
been
working
closely
in
putting
together
oil
deals
involving
Chinese
oil
companies
in
several
African
countries,
most
notably
Chad
and
Nigeria.
Consequently,
with
this
type
of
financial
backing,
the
China
National
Offshore
Corporation
(CNOOC)
was
able
to
put
in
a
higher
cash
bid
of
US$18,5
billion
for
Unacol
two
years
ago
than
that
offered
by
Chevron-Texaco
back
in
2005.
Only
US
legislators
were
able
to
stop
the
deal
from
going
through.
In
2004
for
instance,
Huawei
obtained
a
US
$10
billion
credit
line
from
the
state-owned
China
Development
Bank
and
US$600
million
from
the
Export-Import
Bank
of
China
to
fund
its
global
expansion.
That,
analysts
say,
helped
Huawei
undercut
competitors'
bids
by
as
much
as
70
percent
and
offer
vendor-financed
loans.
For
example,
Nigeria
received
US$
200
million
in
loans
from
the
China
Development
Bank
in
2004
to
buy
Huawei
equipment.
Lending
rates
at
the
time
were
well
below
the
6,39
percent
benchmark
oneyear
lending
rate
in
China
–
sometimes
as
low
as
one
or
two
percent.
All
this
amounts
to
subsidized
risk
investment
–
courtesy
of
the
Chinese
tax
payer.
Importantly,
in
the
absence
of
such
“investment
packages”
Western
companies
find
themselves
at
a
clear
disadvantage,
unable
to
negotiate
discount
signature
bonuses
like
their
Chinese
counterparts.
Innumerous
instances,
a
Western
mining
company
for
example
cannot
commit
to
infrastructure
to
secure
a
mining
project
which
Chinese
companies
are
able
to
do
with
the
assistance
of
Chinese
banks,
geared
specifically
at
resource
acquisition
ventures.
Another
strategy
being
used
by
Chinese
financial
institutions
to
facilitate
trade
and
investment
is
buying
into
overseas
banks
which
have
an
extensive
African
footprint,
by
way
of
branches
and
clientele.
In
October
2007
the
Industrial
and
Commercial
Bank
of
China
(ICBC),
the
largest
bank
in
the
world
by
market
value,
purchased
a
20
percent
share
in
South
Africa’s
Standard
Bank
Group
Ltd.
for
$5,4
billion.
Standard,
operating
in
18
African
countries,
leads
all
banks
in
African
loans
and
has
assets
of
nearly
US$120
billion
(Caggeso,
2007).
China
complemented
this
purchase
by
acquiring
a
stake
in
the
United
Kingdom
banking
house
of
Barclays.
Using
the
$200
billion
assets
of
the
China
Investment
Corp.,
China
paid
$3
billion
for
a
stake
in
the
US
investment
banking
firm
Blackstone.
Blackstone
then
helped
CDB
acquire
a
$7
billion
stake
in
Barclays
Bank,
the
United
Kingdom’s
leading
African
bank,
with
dominant
positions
in
such
resource
powers
as
Nigeria,
South
Africa,
Zambia,
and
Zimbabwe.
These
purchases
guarantee
Chinese
access
to
powerful
interests
in
the
financial
community
of
key
African
countries,
and
facilitate
investment
through
non-bilateral
government
to
government
arrangements.
11.1. China Exim-Bank
The vast majority of infrastructure financing arrangements done by China in the African continent are financed by the China Exim Bank, which (like any Exim bank) is devoted primarily to providing export seller’s and buyer’s credits to support the trade of Chinese goods. These credits reached a total of US$20 billion in 2005, making the China Exim Bank one of the largest export credit agencies worldwide. In addition, the China Exim Bank is the only Chinese institution that is empowered to provide concessional loans to overseas projects.
By June 2008, China Exim Bank had financed more than 300 projects in Africa worth at least US$6,5 billion. Infrastructure is the core of China Exim Bank’s undertakings, as approximately 80 percent of projects approved have involved infrastructural development.
The China Exim Bank is increasingly making use of a deal structure - known as the “Angola mode” or “resources for infrastructure” - whereby repayment of the loan for infrastructure development is made in terms of natural resources (for example, oil). While this approach is by no means novel or unique, and follows a long history of natural resource - based transactions in the oil industry - China has taken its implementation to a higher level.
By providing preferred lines of credit to Chinese state-owned enterprises and foreign governments wishing to purchase Chinese made goods, the China Exim Bank supports the overseas expansion of Chinese firms in line with the country’s “Go Global” strategy, whose long-run goal is to increase the productivity and competitiveness of these enterprises vis-à-vis their global competitors.
The arrangement is used for countries that cannot provide adequate financial guarantees to back their loan commitments and allows them to package natural resource exploitation and infrastructure development.
The China Exim Bank’s terms and conditions are agreed on a bilateral basis, with the degree of concessionality depending on the nature of the project. The World Bank’s Debtor Reporting System offers some insight into Chinese lending to Sub-Saharan Africa, including both infrastructure and non-infrastructure loans.
On average, the Chinese loans offer an interest rate of 3,6 percent, a grace period of 4 years, and a maturity of 12 years. Overall, this represents a grant element of around 36 percent, which qualifies as concessional according to official definitions.
However, the variation around all of these parameters is considerable across countries; thus interest rates range from as low as 0,25 (as in the case of Angola) to 6 percent, grace periods from 2 to 10 years, maturities from 5 to 25 years, and overall grant elements from 10 to 70 percent. Chinese loans compare favorably with private sector lending to Africa but are not as attractive as ODA, which tends to provide a grant element of around 66 percent to Africa.
In the case of concessional loans, there is a requirement that a Chinese enterprise be selected as the contractor or exporter. Moreover, no less than 50 percent of the equipment, materials, services, or technology needed to implement the project should be secured from China. In the Angolan case, the figure was even higher at 70 percent.
11.1.1. The Angolan Example
Angola constitutes the best example of just how intertwined China’s economic and political interests are and how effectively Exim Bank’s loans were used to leverage Chinese corporate access to Angola’s oil sector.
Chinese
interest
in
Angola
coincided
almost
simultaneously
with
a
reorientation
in
Angola’s
foreign
policy
towards
the
East.
Several
issues
were
emerging
to
aggravate
relations
with
Angola’s
traditional
Western
partners:
- Growing criticism of Angola’s rampant corruption problems by NGOs such as Global Witness and global financial institutions like the International Monetary Fund (IMF) and World Bank demanding greater transparency and good governance considerations with regard to oil revenue flows;
- The Elf Aquitane corruption scandal exposing the payment of bribes to African elites including Angolan government officials, in return for favourable access to oil markets;
- Luanda’s continuing civil war against UNITA;
- The absence of democratic elections;
- The so-called Falconegate scandal in France which fingered high-ranking Angolan officials involved in the illegal acquisition of French arms, including officials in the President’s Office i.e. General Helder Viera aka “Kopelipa” – the President’s main security chief;
- The most important aspect was funding – to jump start the rehabilitation of the social fabric and the country’s infrastructure practically destroyed in nearly 30 years of civil war. According to the Angola bank BCI, the country needed US$15 billion in direct loans, at the start of the post-war (April 2002) reconstruction period of which only US$3 to 4 billion could be raised in Angolan banks or other credit institutions.
The bulk – some US$11 to US$12 billion would have to come from abroad. Angola found itself in a catch 22 situation – it owed the Paris Club of Creditors some US$11 billion in foreign debt – monies which the Angolan government was unable to repay, let alone properly service its interest debt repayment obligations. Relief could only be gained by embracing an IMF structural adjustment programme which required fundamental institutional reform of the Angola’s government institutions and the opaque use of its oil revenues. Once an IMF programme was place, negotiations with the Paris Club could move forward providing much needed debt relief for Angola.
At the turn of the millennium, Angola briefly flirted with an IMF Staff Monitoring Programme (SMP) to try and put into place building blocks for the reform of Angola’s economy and governing institutions. However, it would require the dismantling of the way Sonangol conducted business – effectively a “sovereign state” within the Angolan government – more powerful than the Finance Ministry and the Central Bank of Angola (BNA) combined. At the time, this was not something the Presidential Palace (the “Futungo”) was willing to consider.
After oil prices started to rise from its low levels of around US$10 per barrel by the close of the last century – Angola dumped the SMP programme and aggressively switched to raising oil backed loans on the international money market via Sonangol. Effectively the state oil company became lender of last resort for the Angolan government and quickly built up a reputation for scrupulously adhering to debt repayment schedules of such loans – much to the delight of international bankers.
However, the price of such loans were extremely high, with Angola paying premium interest rates for its high risk status, using oil backed guarantees that were much lower than prevailing market rates. At one stage Sonangol was locking up nearly its entire future planned oil production as oil pay back guarantees for the loans. The oil backed loan policy also came under scathing criticism from the Bretton Woods institutions. They argued that arguing that it was an expensive alternative to embracing IMF reforms, and postponing much needed reforms to stabilize the Angolan economy and the reintroduction of Angola back into the mainstream global economy.
In addition, the much promised “donors conferences” never materialised in Angola’s attempts to attract IMF monitored foreign money and soft loans. Angola’s top negotiators at the time led Finance Minister José Pedro de Morais and the ever competent Aguinaldo Jaime - head of the Angolan Central Bank (BNA) at the time, were met with the constant refrain that “it is immoral to lend to a country soaking rich with natural resources, as Angola, a country that is unable or unwilling to initiate sizeable political reforms”.
In the end a stalemate was reached with foreign donors, who would not lend because of the lack of reforms, and Angola would state that the lack of reforms was due to the refusal to lend.
11.1.1.1. Enter the Chinese
It was this confluence of events which saw China enter the Angolan equation, already hungry for the acquisition of raw materials. With the ending of the civil war in April 2002, Angola needed rapid socio-economic development to fast-track the development of an emaciated populace. This became Dos Santos’s most important policy objective - to leave behind a legacy of socio-economic development (a type of economic peace dividend) for which he would be remembered for, before he stepped down.
China provided the solution – flush with cash, Beijing was willing to leverage its political influence in Africa by using its growing pile of cash filling up the Central Bank coffers and related state backed financial and developmental state owned enterprises (SOEs) such as the China Exim Bank, China Development Bank (CDB), China Construction Bank (CCB), Sinosure, China International Fund (CIF), etc.
Importantly, there were no political or “moral” strings attached to such loans – with China strictly sticking to its principle of “non-interference in the sovereign affairs of nations states. At the time, Aguinaldo Jaime confided to several interlocutors that China had a supplementary advantage: its banks had enough liquidity to immediately disburse money, and saw loans as a continuous process, until the necessities of the borrower would end.
Angolan officials say they turned to China because Beijing was willing to offer assistance without political strings attached, especially on the issue of transparency, as well as opening up important sectors of the Angolan economy. The Chinese were prepared to negotiate low interest rates and reasonable repayment schedules, but with the understanding that there would be economic and political prizes to be won, especially in the oil industry.
11.1.1.2. A Loan Chronology and the Oil Link
Thus examining a time line assessment of the loans made to Angola since 2004, shows a close relationship between lending announcements and the clinching of important energy projects between both countries. This interlock is outlined below along with a sequenced analysis of when various loan disbursements were made to the Angolan government.
Thus examining a time line assessment of the loans made to Angola since 2004, shows a close relationship between lending announcements and the clinching of important energy projects between both countries. This interlock is outlined below along with a sequenced analysis of when various loan disbursements were made to the Angolan government.
- 2000: In the same year that Defence Minister Kundy Pahyama visits China in May 2000, Angola’s oil exports to China surge from 40 000 bpd in 1999 to 174 000 bpd in 2000.
- 2002:The China Construction Bank (CCB) and China Eximbank invest US$145 million in Chinese firms working in Angola.
- 26 November 2003: A “Framework Agreement” is signed between China’s Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the Angolan Ministry of Finance. This is the legal basis for the whole credit contracting process between the two states that was to follow in the period ahead. Very importantly, it was determined that the credit line could extend up to US$10 billion, until the end of the reconstruction period.
- February 2004: Sonangol head Manuel Vicente visits Beijing to discuss joint projects and steps to enlarge the Chinese stake in Angola’s upstream and downstream sectors. Discussions included Sinopec’s possible participation in the proposed Lobito oil refinery set to produce 240 000 bpd of refined petroleum products.
- March 2004: – Chinese Deputy Prime Minister, Zeng Peyan, visits Angola and then Angolan Prime Minister Piedo Nandó visits Beijing. China Eximbank and the Angolan Ministry of Finances sign a US$2 billion loan agreement, with a further facility of US$500 million set aside to be drawn upon if required. The initial US$2 billion loan is divided into two equal parts. US$1 billion would cover 18 contracts for public works, 60 different projects and a host of supplementary plans including 1 500 trucks for farmers and agricultural merchants, a new power grid for Luanda, agricultural projects, and a 371 km road linking the capital with the crucial northern town of Negage, through heavily mined parts of the country. The balance would go to 27 contracts and 50 social projects covering health and education, public works and social development.
- September 2004: Visit to Luanda by the Exim Bank head Yang Zilin to look into allegations of corruption around the loan and means to monitor more effectively its disbursements. Shortly after the visit, Angola establishes a Technical Monitoring Office (GAT) for the Chinese loan, working under a Inter-Sector Monitoring Commission. The Commission, headed by then Finance Minister José Pedro Morais, include the Minister for Public Works, the BNA Governor, the Secretary at the Council of Ministers and the Chairman of Sonangol. The GAT is made of experts from the Ministry of Finance, BNA, cabinet ministries involved in projects and Sonangol officials - as the loan is guaranteed against oil production. [See below.] • At the time of the visit, China’s Sinopec oil company eased out India’s ONGC-Vindesh to acquire Shell Oil’s 50 percent stake in Block 18, operated by BP-Amoco.
- October 2004: Upon consultation with Beijing, President Dos Santos and Nandó decide to create a specialised office, to supervise the national build up, oversight and spending of foreign funds, and channel and monitor part of the Chinese loan. Known as the National Reconstruction Office (GRN), it presides directly under the chief of security in the presidency, General Hélder Vieira Dias, aka “Kopelipa”. Importantly the GRN started as a monitoring entity over the Eximbank loan, following allegations that Angolan officials via questionable economic entities were skimming off massive commissions from the fund. The main culprit identified was António Van Dunem, Secretary of the Council of Ministers and the direct link between the President and the Cabinet who shortly after his exposure was sacked.
- November 2004: China ejects Total SA from Block 3/80 in retaliation over the Falconegate affair. Sonangol enters into discussion with Sinopec to take over the block.
- 26 February 2005: Visit to Luanda by the high powered Prime Minister Zeng. Several oil related and financial agreements are signed, including the handover of US$6,3 million interest free loan for “technical projects” and the signing of two memorandums of understanding linked to a joint study on the oil exploration of Angola's Block 3/05 (formerly Block 3/80), between Sonangol and Sinopec and another one on the joint exploration of the country's new oil refinery.
- March/April 2005: A new loan agreement is signed between the China International Fund (CIF) and the GRN, with documents signed in Hong Kong and Luanda. A initial amount of US$2,9 billion is disbursed to previously war ravaged corridors such as Luanda-Lobito, Malanje-Saurimo, Saurimo-Dundo, Saurimo-Luena, including a slew of presidential projects - revamping of the current Luanda airport and the construction of a new one (US$450 million), expansion and repairs to railway lines – including the famous Benguela railway line (US$300 million), dredging Luanda bay, a new sewage system for the capital, etc. An additional US$6 to US$7 billion was envisaged for disbursement over a four year period but have yet to be fulfilled. However, in 2007, many CIF projects came to a standstill due to problems within CIF and its parent company - construction arm of Beiya International Development Ltd., the parent company of China Angola Oil Stock Holding Ltd., which trades Angolan oil. By the end of 2008, 80 percent of the initial US$2,9 billion disbursement had been spent. The balance of the US$6billion to US7billion has not been spent and is likely to become part of a “joint venture” financing deal that will include China EximBank.
- March 2006: China and Angola announced the establishment of a joint venture between Sonangol Refineries (Sonangref) and Sinopec to build the much discussed US$3,4 billion oil refinery in Lobito with a capacity of 240 000 bpd. In the same month the original US$2 billion loan is increased by US$1 billion to US$3 billon, rendering China the biggest foreign player in Angola’s post-war reconstruction process.
- May 2006: SSI beat off international competitors in bids worth US$2,4 billion to win crucial stakes in Blocks 15 (20 percent) and 17 (27,5 percent). The two blocks have total proven reserves of 3,2 billion barrels.
- 20 June 2006: Chinese Prime Minister Wen Jiabao undertakes a blitz visit to Angola, and Prime Minister Nandó meets visiting Exim Bank boss Yang Zilin. A Memorandum of Understanding (MoU) is signed between Yang Zilin, Angolan Prime Minister Nando and Finance Minister José Pedro Morais, extending an additional lending facility of US$2 billion to Angola.
- April 2007: Gao Jian, head of the China-Africa Development Fund (CADF) and the Vice President of the China Development Bank (CDB) meet Deputy Prime Minister Aguinaldo Jaime. First discussions take place on loans not attached to oil guarantees. Established in 2006 with seed capital of US$5 billion, the CADF based Equity Fund, is used by Beijing as a “first step” to investment in Africa. Jian has been in touch with the Angolans, usually accompanied by CADF CEO Chi Jianxin. Indications are that a loan is planned from CADF in April/May later this year at Libor plus 1,5 percent. However, the amount to be loaned will not be as high as the Exim Bank amounts. [Note: No loans as yet have been made by CADF to Angola. This remains part of ongoing negotiations between both countries.]
- 19 July 2007: An additional US$500 million is granted as part of the credit extension linked to the provisions of the 2004 Exim Bank loan. The conditions linked to this loan are precisely the same as those governing the first disbursement of US$2 billion as per the March 2004 Exim Bank loan.
- 20 September 2007: Finance Minister José Pedro Morais meets new Exim Bank head Li Ruogu (a US educated technocrat, who worked in IMF circles and the African and Asian Development banks) to finalise the contractual document for the MoU signed between Yang Zilin, Angolan Prime Minister Nando and Finance Minister José Pedro Morais in June 2006, making available an additional US$2 billion loan. Conditions vary slightly from the initial Exim Bank loan structure negotiated in 2004. Interest is set at Libor plus 1,25 percent with the repayment period reduced from 17 to 15 years,
- 3 July 2008: New Exim Bank head (Li Ruogu and José Pedro de Morais sign a “Complementary Individual Financing MOU”, which sees the disbursement of a separate US$134 million loan to three communal development projects in Angola. The terms of the loan are the same as the September 2007 Exim Bank loan. The credit will fund the modernisation of the electricity system in two towns in Lunda Norte and Luanda Sul provinces, the construction of a water treatment plant and canals in the Luanda area and a road upgrade projects in two other provinces.
- August –September 2008: President Dos Santos visits Beijing and Shanghai, for the Olympic Games. China and Angola affirm the need to start a new approach to loan agreements. Dos Santos and Aguinaldo Jaime meet CADF head Gao Jian, and plan a new series of loans no longer guaranteed by oil, but by “sovereign guarantees” issued by the Angolan treasury. Jian calls this a “risk sharing loan”. Gao Jian is also the Vice-President of the China Development Bank (CDB).
- December 2008: With global markets collapsing, Dos Santos returns to China to obtain guarantees that loans promised to Angola will not be interrupted, and to ask for the possibility of additional funding . He is told by Chinese officials that the global credit crunch is “temporary”. Dos Santos meets with the Exim Bank board, under Li Ruogu and reviews a new set of proposed loans, partly decoupled from oil backed guarantees, as the Chinese believe that Angola’s growing currency liquidity is enough to satisfy their credit concerns. The CIF payment crisis issue is also reviewed (see below), as are other FDI projects. Discussions centre on the possibility that stalled CIF projects like the new Luanda airport and the New Luanda City Project – could be cofunded with Exim Bank money, as could other flagship projects such as the planned SONAREF refinery, the new Soyo Technological and Industrial City and Development Pole, new power generation projects, the expansion and training of the TAAG air fleet and crews and Sonangol’s LNG project.
- 19 January 2009: During a quick two day visit, China’s Commerce Minister Chen Deming meets with new Angolan Finance Minister Severim de Morais, and states that direct loans made to Angola from Exim Bank totalled US$4,5 billion in the 2004-2008 period. The figure, however, is over US$5,5 billion.
-
7
February
2009:
Angolan
Finance
Minister
visits
China
to
put
the
finishing
touches
to
a
new
US$1
billion
loan
from
Exim
Bank.
Indications
are
that
this
will
not
be
oil
backed
but
linked
to
“sovereign
guarantees”.
No
details
are
forthcoming
on
this
at
the
time
of
writing.
There is no doubt that Angola was given unusually generous terms on the loans, even by normal Exim Bank standards: British index Libor 3 M (three months) plus 1,5 percent. Payment to be spread over 17 years, with 5 years of grace. Two semi-annual payments, were scheduled for 21 March and 21 September each year. Although rates are favourable, if compared to the famous 2005 Standard Bank loan of US$2,35 billion (at Libor plus a 2,5 percent interest rate), interest payments do not vary much from other loans made to Angola, re LR Luminar, Deutsche Bank of Spanish Santander. India Exim Bank offered a loan at Libor plus 1,75 percent. However, all these loans differ in one respect - they are based on “sovereign guarantees” (i.e., promissory notes from the Ministry of Finance) and not on “real guarantees”, as mandatory allocated quotas on oil production, or loan amount equivalent oil barrels.
This year, Angola has reopened discussions with the IMF. Reasons have been suggested in some quarters was that Angola’s reliance on Chinese funding was becoming excessive and that alternative funding avenues are now needed, to balance Angola’s foreign debt portfolio.
11.2. The China-Africa Development Fund
The
CADF
was
officially
established
on
14
March
2007,
following
Chinese
President
Hu
Jintao’s
promise
at
the
China-Africa
summit
in
Beijing
in
2006,
to
provide
additional
funding
for
investment
in
Africa.
The
CADF
is
funded
and
controlled
by
the
China
Development
Bank
(CDB),
a
state-owned
bank
which
has
played
a
key
role
in
developing
China’s
economy
over
the
past
twenty
years.
The
CADF
is
one
of
eight
elements
in
China’s
planned
enhanced
engagement
with
Africa
over
the
next
three
to
five
years
as
outlined
by
President
Hu
Jintao
at
the
2006
Forum
on
China
-
Africa
Co-operation
(FOCAC)
Summit
in
Beijing.
At
the
FOCAC
summit,
President
Hu
emphasised
that
China
was
seeking
a
new
mechanism
to
facilitate
investment
in
Africa.
The
fund’s
business
scope
includes
equity
and
quasi-equity
investments,
fund
investments,
investment
management
and
consulting
services.
Its
mission
is
to
support
African
countries’
agriculture,
manufacturing,
and
energy
sector
development;
to
expand
transportation
and
telecommunications
networks;
and
to
promote
the
pace
of
urban
infrastructure,
resource
extraction
and
the
establishment
of
trade
zones,
or
Chinese
business
centres,
in
Africa.
Chinese
officials
have
promised
that
the
fund
will
be
more
comprehensive
than
similar
offerings
by
international
organisations
such
as
the
ADB
and
the
International
Finance
Corporation
(IFC).
Chinese
multi-nationals
and
state-owned
companies
have
already
received
assistance
from
the
fund
in
accessing
the
African
market.
Telecommunications
giant,
Alcatel
Shanghai
Bell,
for
example,
has
received
backing
from
the
CADF
to
explore
new
opportunities
in
Africa.
The
CADF
provides
a
mechanism
for
Chinese
companies
to
establish
and
maintain
business
networks
across
the
continent,
by
providing
them
with
low
interest
bearing
loans
and
on-site
facilitation
services.
It
is
expected
that
the
initial
US$1
billion
will
be
spent
during
2009,
with
an
additional
US$2
billion
available
in
2010
and
the
remaining
US$2
billion
on
offer
in
2011/12.
The
CADF
will
provide
a
major
incentive
for
Chinese
companies
to
come
to
Africa.
In
addition,
the
CADF
backed
by
official
links,
will
assist
Chinese
companies
in
overcoming
the
many
challenges
of
doing
business
in
Africa.
The
fund
is
now
well
positioned
to
assist
Chinese
companies
to
fill
the
vacuum
left
by
retreating
Western
businesses,
especially
mining
houses
such
as
Rio
Tinto,
as
Western
economies
contract.
The
more
than
900
large
Chinese
companies
active
across
the
African
continent
will
be
able
to
access
CADF
funding
for
new
projects
and
for
the
expansion
of
existing
operations.
Since
its
inception,
the
fund
has
invested
US$400
million
in
over
20
projects
in
Africa,including:
- Malawi - cotton project;
- Ghana - 560 000 kW power station;
- Ethiopia - glass factory (other projects in the following sectors are under investigation: agriculture, manufacturing and construction);
- Egypt - Suez Trade Park;
- Liberia - projects under discussion include agriculture and construction;
- Nigeria - Lachish Trade zone;
- Zimbabwe - chromite project;
The CADF has also concluded a co-operation agreement with EcoBank, the leading independent regional banking group in Africa. EcoBank is active in 25 African countries providing a range of services from micro-lending to major investments.
The specific objectives of the fund have been identified as investing directly in Chinese companies which have set up operations in Africa, or plan to invest in Africa. The CADF co-operates alongside Chinese government and diplomatic initiatives to strengthen China-
Africa relations and strategic partnerships. The fund identifies appropriate projects and expects to show a profit from its operations. It is intended to improve Chinese corporate capacity, without further burdening African countries’ debt profiles. Though a specialised
team manages the fund with the overriding objective of ensuring profitability, it is beholden to the CDB which in turn operates under the jurisdiction of the all-powerful State Council. The primary target of the fund is Chinese companies operating in Africa which want to
expand operations, or undertake new ventures.
The CADF’s business scope includes the following:
- Equity investment - support for Chinese companies in Africa (usually the CADF will not be the major shareholder);
- Quasi-equity investment - investments in stocks and bonds;
- Fund investments - the CADF may invest in capital funds which have African exposure;
- Investment management and consulting services - the CADF will provide advice for Chinese corporations seeking to invest in Africa. Target industries identified by the CADF include:
- Agriculture and manufacturing industries;
- Infrastructure, including power generation; transportation, telecommunications and water supply;
- Natural resources, such as oil, gas and raw materials; and
- Industrial parks for Chinese enterprises in Africa.
The CADF is prepared to invest in new or existing Chinese enterprises which are initiating or expanding operations in Africa. Once on a sound footing, the CADF may decide to terminate support for any particular Chinese enterprise.
The CADF is fully funded by the state-owned China Development Bank (CDB), which has been a key institution in supporting China’s infrastructure development and the promotion of basic industries and strategic industries. The activities of the CDB provide the model
and guidelines for China’s activities in Africa through the CADF backed by significant financial capacity. CDB activities in China are substantial and have included the following:
- Electricity supply - the CDB has provided over US$500 billion to build power stations and develop power-lines throughout China;
- Roads - China’s Development Bank has played a key role in developing China’s main road system with an exposure of over US$490 billion;
- Railways - the CDB has a strategic partnership with China’s Ministry of Railways which has produced an extensive rail network in China. The CDB is presently involved in a high-speed rail project which will link the mid-west to Beijing;
- Petroleum - the CDB has invested over US$100 billion in oil fields, refineries, pipelines and support networks throughout China;
- Agriculture, public infrastructure and telecommunications - in all these areas the CDB has played a key role in funding new development projects and advancing economic development in China.
Thus the CADF’s funding partner has extensive and wide-ranging experience in developing an emerging economy and providing the capital and advice for positive outcomes. The China Development Bank of course is a key player in promoting and implementing China’s “go global” strategy of which Africa is a major focus of attention.
By the beginning of January 2009, CADF had concluded deals worth almost US$400 million in over 20 projects since its inception. At least another 100 proposed projects are presently under consideration by the fund. The fund has also established strategic partnerships with 10 major enterprises in China in order to expand business co-operation with African countries.
11.2.1. CADF Opens New Office in South Africa
On 16 March 2009, the China-Africa Development Fund (CADF) opened its first African representative office located in the city of Johannesburg. The opening was marked by a signing ceremony of an MOU between CADF and the South African Department of Trade and Industry (DTI). Little information, however, was provided on the nature of the MOU signed between both countries. Only a general statement that the MOU will “increase Chinese investment opportunities” in South Africa was offered. Chinese officials acknowledged afterwards that more information should have been forthcoming on the MOU.
The opening of the CADF office in Johannesburg, however, does constitute a more fundamental engagement with Africa by Beijing. According to Chen Yuan, Chairman of the board of the China Development Bank (CDB), the new office will serve as a channel to accelerate investment in both South Africa and the Southern African Development Community (SADC) region and that funding will be made available for a range of projects in Africa intended to assist in the continent’s development. An amount of US$5 billion has been ear-marked for the fund by the CDB, of which US$1 billion is now immediately available. To date, CADF has committed US$400 million to Chinese companies new investment projects in Africa.
Chairman Chen Yuan (See Annexure IV) explained that the fund will open the way for a new wave of Chinese investment in Africa to promote long-term economic development in Africa. Chen indicated that the fund will invest in “multiple industries” to provide a range of economic development options. CADF President Chi Jiaxin (See Annexure IV) explained that the office was the first of its kind in Africa, but many more were planned for other parts of the continent as a means to facilitate an active investment programme. The CADF will provide the foundation for expanded China-Africa trade and investment and will make it more attractive for Chinese investors to come to South Africa and Africa as a whole.
Zhong Jianhua, China’s Ambassador to South Africa indicated that his office was ready to facilitate an increase in Chinese companies visiting the country. He predicted a growing interest in Africa following the opening of the CADF office and assured delegates that the embassy would work closely with the CADF to advance new Chinese investment programmes. The ambassador also indicated that the opening of the CADF office followed closely on the visit of a high-ranking Chinese business delegation to South Africa three weeks earlier led by senior executives from the country’s telecom sector, in search of new investment opportunities in South Africa.
South Africa’s Deputy Trade and Industry Minister, Elizabeth Thabethe, said the CADF will focus on collaboration in the following areas: mining, transport, energy, agriculture, infrastructure development and the information & communication technology sector. In this respect, South African officials are looking to building new commercial relations with a range of Chinese investment companies, backed by the CADF. Speaking briefly on the MOU signed between herself and CADF CEO Chi Jianxin, she said that it would provide “financial assistance” to South African companies in “distress”, alluding to the impact that the global financial crisis was having on local business.Also a key speaker at the event, African National Congress (ANC) Treasurer Mathews
Phosa commented that the opening of the new CADF office was indicative of the trust that
China had in South Africa’s legal institutions. He pointed out that in recent years China’s
growing economic and political prestige had resulted in South Africa turning “east” in
search of new economic partnerships. Phosa said that projects financed by the Chinese
to help emerging entrepreneurs in South Africa would be supported by the ANC. Despite
the contraction of the world’s key economies, Phosa was impressed that China is still
willing to make new investments in Africa and help African economies overcome financial
difficulties, and that the “decline” in Western interest in Africa is expected to be filled by a
new wave of Chinese investments. He welcomed China’s interest in Africa and
emphasised that Chinese investments were welcomed by South Africa, SADC and the
continent as a whole.
Mathews Phosa assured attendees that the China-South Africa relationship will be
stepped-up after the April elections – predicting an escalation of co-operation in the
months ahead focused on “people to people” (party to party) engagement. .
The presence of Phosa as a non-government party functionary at the opening was
somewhat unusual. However, it followed up an earlier meeting that was had between
Chen Yuan and ANC President Jacob Zuma, to discuss improved China/SA collaboration.
Reliable reports indicate that China had made a substantial donation to the ANC to assist
the party in the funding its April 2009 election campaign.
11.3. Industrial Commercial Bank of China
The
Industrial
Commercial
Bank
of
China
(ICBC)
–
China’s
biggest
bank
-
made
headline
news
in
the
African
context
when
it
bought
a
20
percent
share
of
South
African
Standard
Bank
for
US$5,1
billion
in
2007.
Two
years
on
and
ICBC
and
its
Standard
Bank
partner
are
in
the
process
of
planning
a
continent-wide
acquisitions
programme
that
may
see
it
rope
in
over
US$500
million
by
2010.
Standard
Bank’s
impressive
access
to
the
African
market,
backed
by
Chinese
capital
is
set
to
transform
the
continent
as
Chinese
acquisitions
expand
and
accelerate.
Standard
Bank’s
advantage
is
based
on
its
network
of
1,000
branches
in
18
African
countries
with
new
outlets
planned
in
the
DRC
and
Angola.
Standard’s
broad
coverage
has
opened
a
new
avenue
for
China’s
state
backed
ICBC
to
advance
Beijing’s
geo-strategic
agenda
across
the
continent.
Contradictions
between
Standard’s
traditional
approach
to
banking
and
China’s
statedriven,
long-term
vision
for
Africa
are
evident,
but
progress
is
being
made
on
crafting
a
compromise
business
model.
Clive
Tasker,
chief
of
Standard’s
African
Division
is
said
to
be
planning
a
US$5
billion
acquisition
programme
with
a
strong
focus
on
oil,
telecoms,
mining,
base
metals
and
power
generation.
Target
states
include
the
DRC,
Ghana,
Tanzania,
Mozambique
and
Nigeria.
The
first
step
is
expected
to
be
a
US$1
billion
resources
fund
intended
to
leverage
ICBC
into
major
African
commodities
markets.
Over
the
longer
term,
Standard
Bank
is
increasingly
expected
to
front
for
China’s
strategic
resource
acquisition
programme.
The
ICBC-Standard
Bank
co-operation
list
now
covers
over
60
projects
and
is
expected
to
expand
significantly
over
the
next
few
months.
ICBC’s
annual
profit
growth
rate
has
totalled
37,5
percent
on
average
over
the
past
six
years.
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