CHINA

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02 November 2006
Experts See China's Trade "Tsunami" Sweeping Africa

By Jim Fisher-Thompson
Washington File Staff Writer

Washington -- China's economic expansion in Africa increasingly is accompanied by strategies for extracting much-needed raw materials to fuel the Asian giant's growth, according to a panel of trade and African experts.

But the West still holds an advantage for equity or stock ownership deals in Africa, they concluded.

After decades of building stadiums for dictators and providing the occasional railway line and paved motorway to African countries in return for supporting some policies, China's interest in Africa is now almost purely economic, a panel of Africanists and trade experts concluded at a November 1 forum sponsored by the Washington-based American Enterprise Institute (AEI).

China's 1960s and 1970s policy of supporting "liberation brothers" in Africa and garnering support to block recognition of Taiwan "radically shifted and is today strictly driven by commerce," former Assistant Secretary of State for African Affairs Walter Kansteiner told the AEI panel.

Kansteiner, a founding member of the international trading and consulting firm the Scowcroft Group said, "This tsunami [wave of economic expansion] of China into Africa is about raw materials; about feeding the industrial base back in China."

The increasing need for raw materials like oil, gas, metals and lumber explains the phenomenal jump in China's trade with the continent that rose from just over $10 billion in 2000 to $40 billion in 2006, driving China's share of the African market to 6.8 percent compared to the United States’ 5.8 percent. In Sudan alone, China has invested $4 billion in oil exploration and production as well as the construction of pipelines and a port.

Angola now supplies China with 522,000 barrels of oil a day, surpassing Saudi Arabia as its largest oil supplier and making Angola China’s largest trading partner on the continent.

Former U.S. Ambassador Paul Hare, who now is the executive director of the U.S.-Angola Chamber of Commerce, told the panel U.S. business has not been asleep in Angola. He noted that Boeing Corporation recently signed a $1 billion deal to provide passenger aircraft to the Angolan national airlines.

But, "China is in Africa for the long haul; at least as long as the oil holds out," Hare added.

Kansteiner, who previously helped arrange a $1 billion equity deal for the privatization of South Africa's Telkom, said the West still holds an economic advantage over China.

"We've not really seen Chinese asset ownership start to take place. We're seeing much more trade and much less foreign direct investment," he said. “You see a little [of] Chinese ownership taking place in the oil patch but generally you don't see them making asset investments, but I think it's coming."

INVESTMENTS IN AFRICA INCREASING

The private sectors in Europe and America are "scrambling for and ramping up" their direct investments on the continent. "We've never had as many private equity funds focused on Africa as we do now. Portfolio investing is also increasing," Kansteiner said.

Kansteiner said, "most African companies when they go public" -- selling stock or ownership in their companies to investors-- "go public on the Johannesburg Stock Exchange or the London Stock Exchange."

"We've seen dozens and dozens of African countries do IPOs [initial public offerings] primarily on the London Stock Exchange and most of those financial buyers are western and Japanese institutions buying these stocks; [we] don't see many Chinese participating in the IPOs. But I think that will come, too."

But that said, Kansteiner noted, "the Chinese are becoming more effective in signing off-take agreements and making long-term contracts." Unlike foreign direct investment, off-take agreements allow the purchase of raw materials without having direct ownership in the extractative industries that produce them.

After a recent purchase of a "potentially large copper mine" in southern Congo, Kansteiner said, "It wasn't 48 hours after we closed the deal and purchased the concession I got a phone call from a Chinese metal trader who wanted to discuss off-take agreements. I had to explain that 'actually there is no mine -- it's probably five to seven years away from production’ -- and he said, ‘Well, that's no problem; five to seven years, we can start talking now.'"

The Chinese have become "very intense, very focused. They want to be first movers; they want to get in on the deal," Kansteiner said.

On November 3 China is hosting 48 African heads of state in Beijing to discuss economic and political issues of interest. In a speech he gave in Pretoria on October 25, Chinese Ambassador to South Africa Liu Guijin said, "China-Africa friendship is time-honored and China's relationship with Africa is always a cornerstone of China's foreign policy."

Asked recently if China posed a threat to America in Africa, Assistant Secretary of State for African Affairs Jendayi Frazer said she did not believe that "China's interest or engagement in Africa is in direct competition to the United States." (See related article.)

Frazer who traveled to Beijing in November 2005 to consult with top Chinese officials, later said, "I think China has as great a right to engage in Africa as any other country, [and] there is enough good to be done" on the continent.

For additional information on U.S. policy in the region, see Trade and Economic Development.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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