Tuesday, 19 March 2013 10:50

Newsletter 28

In this newsletter:

  • African diplomats weigh-in on Xi Jinping's visits
  • Standard Chartered Sees Xi Jinping Visit Driving China-Africa Trade
  • China’s interest in Africa picking up as its economy recovers
  • Intrigue in the Sino-Africa courtship dance

African diplomats weigh-in on Xi Jinping's visits

Tanzanian and South African diplomats on Monday expressed their expectations after it was announced that Chinese President Xi Jinping will visit their countries later this month.

Philip S. Marmo, Tanzania's embassador to China, said Xi's visit will promote the friendly relationship between the two countries, which has been developing for a long time.

Exchanges and cooperation have developed in politics, culture and the economy over the past decades. More and more companies from Tanzania have been doing business with Chinese companies, and Chinese companies are also investing in Tanzania, Marmo said.

Agreements are expected be reached in the fields of agriculture, industry, energy and infrastructure, among others, during the visit, he said.

Thembinkosi Gcoyi, economic counsellor of the South African Embassy in Beijing, said Xi's visit is significant, considering South Africa is among the first countries he will visit after being elected.

"I'm very hopeful that Xi's visit will indeed contribute to strengthening the bilateral relationship," said Gcoyi, adding that the visit will be beneficial for both countries.

Xi will pay state visits to Russia, Tanzania, South Africa and the Republic of Congo from March 22 to 30, Foreign Ministry spokesman Qin Gang said Monday.


Standard Chartered Sees Xi Jinping Visit Driving China-Africa Trade

Trade and investment flows between China and Africa will gain momentum this year as President Xi Jinping visits several nations on the continent during his first overseas trip, Standard Chartered Plc (STAN) said.

Xi, who took over from Hu Jintao last week, will visit Russia, Tanzania, South Africa and Congo from March 22 to March 30, according to the official Xinhua News Agency. Rising Chinese investments in Africa will continue, Stephen Priestley, the bank’s head of origination and client coverage for the continent, said in an interview in Beijing yesterday.

Trade between China and Africa may have risen to a record last year after growing 20 percent to 163.9 billion yuan ($26.4 billion) through October, according to China’s Ministry of Commerce. Forecasts of a more stable economic environment will help drive trade and investment, Priestley said.

“There are fewer disruptions within Africa than there were in the last year and the year before,” he said. “We just saw an election in Kenya, we just had an election in Ghana and there was a transfer of power and there’s no disruption to the economy. It’s a stable growth pattern.”

Standard Chartered, with operations in 16 African countries, plans to invest $100 million over the next three years, opening 110 branches on the continent and recruiting 950 consumer-banking staff. Revenue from Africa made up more than 8 percent of income last year, according to the London-based bank.

‘Substantial Goodwill’

Chinese investment in Africa totaled almost $20 billion at the end of last year, creating jobs, tax revenue and training for local residents, Shen Danyang, spokesman for China’s commerce ministry, said at a briefing in Beijing today.

“China has built substantial goodwill in Africa over the years,” said Standard Chartered’s Priestley. “It now needs to make sure it balances that, making sure that certain companies ensure there are skills transfered and that they don’t replace the labor in these countries.”

Nigeria’s central bank governor Lamido Sanusi warned in a Financial Times article earlier this month that Africa must shake off its romantic view of China and accept that it is a competitor as much as a partner and that it’s capable of exploitation as much as Western nations.

“China is a major contributor to the deindustrialization of Africa and thus African underdevelopment,” Sanusi wrote.


China’s interest in Africa picking up as its economy recovers

The year 2011 saw a staggering increase in Chinese mining investments in Africa. Whereas these had totalled some $1.5-billion at the end of 2010, by the conclusion of 2011 the figure had rocketed to $15.6-billion. Africa has become the site of almost 75% of Chinese foreign mining investment. The China Mining Association (CMA) reported that, worldwide, Chinese companies invested in 284 mining companies during 2011. These figures exclude the oil and gas sector.

Economic upturn

China needs minerals and metals to feed its economy. From 1999 to 2009 the country’s real gross domestic product (GDP) grew at an annual average rate of 10.3%. The Asian giant has become the second largest economy in the world, and, according to The Conference Board’s “Global Economic Outlook 2013” (January 2013 Update), accounted for 16.4% of global economic output last year. (The US contribution was 18.2%; in rather sharp contrast, India was responsible for 6.3%, the whole of Latin America for 7.7%, Russia and Central Asia and South East Europe 5.9%, Africa 3.3% and the Middle East 3.7%. As for Europe – defined as the European Union plus Iceland, Norway and Switzerland – that contributed 20.3%, while the figure for the Euro area was 13.8%.)

The world was, of course, hit by the Great Recession of 2008/2009, and the downturn is by no means over. And China was also affected. Economic growth for 2012 was 7.8%, the Chinese Academy of Sciences (CAS) has reported. But the second semester of the year saw faster than expected growth. The Chinese government’s growth target for the year was 7.5%. Nevertheless, this was the country’s slowest growth rate since 1999 – the rate for 2011 was 9.3% and for 2010, 10.4%.

"China’s economy has maintained steady growth,” reported National Bureau of Statistics Commissioner Ma Jiantang. “The economic situation in 2012 was complex and severe. China’s economic growth rate in the fourth quarter ended a seven-straight-quarter slowdown. However, with great effort, China has implemented a macro-regulation policy and the economy in the fourth quarter picked up and grew by 7.9%."

This year, however, the economy is expected to start accelerating again. The Academy forecasts the country’s GDP will rise by more than 8%. "We expect that China’s GDP will expand by 8.4 percent year on year in 2013, 0.6 percentage point higher than last year,” affirmed CAS researcher Chen Xikang. “The growth is not large but is still quite significant."

"China’s job market remains quite steady.We still create lots of new jobs, despite growth has decelerated,” Peking University National School of Development Professor Huang Yiping told China Central Television (CCTV). “At the same time, the government has become cautious in promoting more stimulus policies to promote growth. So I think China may experience the 8 percent growth for a while.” "I think what interesting is that whether we should be pleased or disappointed by the 8 percent growth,” said the Economist’s Asia economic editor Simon Cox, also talking with CCTV. “Eight percent may be the new normal for China’s economy. Eight percent may be enough to keep the labour market fully employed."

Slowdowns and signs of recovery

The slowdown has not been without its effects. Notably, the Chinese steel industry is suffering from overcapacity and prices last year were back at 1994 levels. The China Iron and Steel Association (CISA) forecast in December that the country’s steel production for 2012 would come to 723-million tons, an increase of 3% over 2011, but that steel consumption would be some 679-million tons, a rise of only 1.8%.

Yet new investment in the steel industry, mostly from the private sector, came to $65.82-billion last year and was 3.9% greater than in the previous year. “The steel industry is facing an increasingly difficult time, and the surplus capacity is worsening,” warned CISA Secretary-General Zhang Changfu in December. “The high investment will apparently intensify the oversupply in the steel industry.” January saw slower steel sales in China, and lower steel prices.

Yet, even so, there has been some good news for the global iron-ore mining sector. The stockpiles of the ore held at Chinese ports have been falling. They fell by 1.05-million tons, or 1.3%, in just one week last month (the second week of January). That same week saw slight increases (one point in each case) in the price indices for imported 63.5% grade and 58% grade iron-ore.

It is true that Chinese iron-ore imports last year, at 740-million tons, represented a 8.4% rise over 2011, but the 2012 average import price was down 21.6% on that for 2011. The spot iron-ore prices during last September were the lowest in three years. Although spot iron-ore prices are expected to be rather weak during the next few weeks, they were already 67% higher in January than during the September lows. And Chinese pig iron prices rose by 4% in January, in comparison to December, and are expected to remain stable until March.

It is currently still winter in China and the “construction season” starts in March – steel sales should rise rapidly from then on, as a strong season is expected, and this should help iron-ore prices. For 2013 as a whole, the Baltic and International Maritime Council (the largest shipowners association in the world) foresees increased steel demand in China, for machinery as well as infrastructure and housing, requiring the country to increase its iron-ore imports. These are expected to grow by 7.5% this year. The Council also believes that the proportion of domestic-mined iron ore in the Chinese steel industry’s inputs has declined since early 2008.

However, Chinese imports of refined copper are forecast to decline this year, in comparison to last year. The figure for 2013 is expected to be 2.8-million tons to 2.9-million tons, as against 2012’s 3.4-million tons.The 2012 figure was a record (the previous record was 3.19-million tons, set in 2009) and was driven by very strong demand during the first two quarters of the year. Chinese companies were apparently acquiring copper to act as collateral against loans.

By late 2012 the cost of the imported copper exceeded the cost of the metal on the Chinese market and the metal was stacking up in bonded warehouses. At the end of the year, copper stockpiled in bonded warehouses in Shanghai amounted to 1-million tons, in comparison to 500 000 t in March (2012).

In addition, some Chinese banks started refusing to issue Letters of Credit (LC) for copper imports. “Besides high domestic inventories, difficulty in getting LCs is another reason for discouraging imports,” the Platts news agency and consultancy quoted an unnamed Hong Kong copper trader as saying in January. Furthermore, Chinese domestic copper production is expected to increase this year.

Regarding coal, China’s imports last year were 57.9% up on 2011, amounting to 289-million tons. This was composed of anthracite (11.93%), coking coal (18.55%), thermal coal (35.14%), lignite (18.59%) and “other” (15.79%). The only significant African source was South Africa, which contributed 12.4% of Chinese coal imports. (Australia accounted for 38.18%, Indonesia for 33.05% and Russia for 6.58%.)

The country’s imports have seen a steady increase over the past three years, and the China Coal Transportation and Distribution Association expects them to remain strong during this year. Coal imports are increasing in large part because the Chinese government is closing unsafe local mines – 1 973 coalminers were killed in mining accidents in China in 2011 and 2 433 in 2010. Beijing plans to close some 5 000 coal mines this year, the Xinhua News Agency reported early this month.

Of course, China also imports other commodities, such as alumina, lead, nickel, tin and zinc. The country’s alumina imports rocketed 165.1% in 2012 in comparison to 2011, reaching 5.02-million tons. Barclays Bank thinks that alumina imports may decelerate this year. Chinese imports of lead concentrate rose by 25.69% in 2012 as against 2011, coming in at 1.82-million tons (containing 1.03-million tons of lead) and reversing declines during 2010 and 2011. Refined lead imports were up 3.31% last year.

Regarding nickel, Chinese imports of ore in December were 10% higher than in November (annual figures do not yet seem to be available). This was because of restocking by Chinese traders and smelters. Barclays expects Chinese demand for nickel ore to continue to increase during this year. Concerning tin, the Chinese built up stocks during 2012, therefore import growth this year is expected to be modest. Refined tin and tin alloy imports in the 11 months January to November 2012 came to 29 307 t, an increase of 45% over the same period in 2011.

Zinc imports in 2012 were nearly 50% higher than in 2011, but this jump was the result of purchases of the metal for use as collateral, which could support the price but curtail Chinese production of the metal. However, Barclays predicts that Chinese demand for imported zinc will stay strong in 2013. There are also other minerals and metals that the Chinese are importing or seek to import, including uranium and gold.

Africa focus

With GDP growth accelerating again, the Asian giant’s need for access to resources remains strong. But this is not the only reason for the strong interest in Africa by Chinese companies. Other mining jurisdictions are becoming less inviting. “The change of Australia’s mining tax policy has made it more expensive to invest in the country,” ATKEPP International Consultancy chief analyst Zheng Jiaxin told the Global Times newspaper back in June. Even earlier, in March last year, China-Africa Development Fund chief marketing officer Liliang Teng remarked to the Reuters news agency that it was “easier to get approvals in African countries. There are no big headaches, like with Canada and Australia”.

There is also a positive side to the change in investment focus. “The country’s rapid increase of investment in Africa was mainly driven by several large successful projects undertaken by Chinese companies in the continent last year [2011],” affirmed CMA spokesperson Yang Qiuling, again to the Global Times in June. Chinese companies made seven major investments in the African mining sector in 2011, totalling $14.7-billion. The smallest of these was worth more than $1-billion. Together, these seven represented 94% of Chinese mining investment in Africa in that year. In contrast, Chinese mining investment in Australia in 2011 fell 70% year-on-year, to $1.3-billion.

Chinese mining companies have adapted their strategies for investment in Africa. Increasingly, instead of seeking to acquire assets or projects outright, they are entering into joint ventures (JVs) and even accepting minority stakes. Thus, the Aluminium Corporation of China (Chinalco) and four other Chinese companies have formed a consortium which has a 47% share in global mining major Rio Tinto’s Simandou iron-ore project in Guinea. Chinese groups have also begun buying equity in overseas mining groups. Chinalco has owned 9% of Rio Tinto, for example, since January 2008.

Meanwhile, Chinese resource-consuming companies have begun seeking off-take agreements with foreign miners, in return for investment. Thus, last year, Shandong Iron & Steel bought 25% of the Tonkolili iron-ore project in Sierra Leone for $1.5-billion from UK-domiciled African Minerals. The deal gives Shandong the right to buy the iron-ore at a reduced price and to have the option to buy up to 25% of the mine’s output.

However, full take-overs till occur. In April last year the China Guangdong Nuclear Power Holding Corporation bought the Australian company Extract Resources, which was developing the Husab uranium project in Namibia, for $2.4-billion.

Right now, the Sichuan Hanlong Group is busy concluding a $1.5-billion take-over of Australia’s Sundance Resources, which is developing the Mbalam iron-ore project, which straddles the border between the Republic of Congo and Cameroon. This deal should be concluded by the end of this month or the beginning of next month (March), and it is being financed by the China Development Bank.

Sichuan Hanlong is reported to be trying to interest two other Chinese groups, Hebei Iron & Steel and Wuhan Iron & Steel, to invest in Mbalam. Wuhan already has iron-ore projects in Africa, in Liberia and Madagascar.

With the Chinese economy accelerating again, more such deals, in many areas of mining, and across the entire African continent, can be expected.


Intrigue in the Sino-Africa courtship dance

Countries in Africa and The Peoples Republic of China, PRC, are in transition and are engaged in the process of self-evaluation.

Convergence of aspirations arising out of similar experiences as victims of Western exploitation forces the two to attract each other. On one side, African countries reassess the value of the relations with the West, one that is seemingly conditioned on continuous subordination and exploitation.

On the other side the PRC is going through changes and self-reassessment in every field that has socio-political impact not only in China but also in other countries.

China, with its image of a "Third World" country countering Euro-imperialists, attracts most attention. Its national attitude, to ensure that China will not be subdued again, is changing as it sticks to four types of thinking: strategic, forward looking, innovative, and global. Thus, instead of waiting for others to go to China, the Chinese go to other places and make their presence so known that they cannot be ignored.

Subsequently, the intelligentsia, policy makers, and ordinary citizens everywhere marvel at China's ability to infiltrate the rest of the world. It appears focused, deliberately non-confrontational, and committed to its agenda.

Projected to become the largest economic power before long, it seemingly leads "Third World" countries in displacing the dominance of the "First World." In this, it is perceived to counter the global arrogance of the Euro-imperialists which deal with Third World countries paternalistically.

Insisting that it is Third World country remains part of China's international political mantra, especially with the new political leadership under Xi Jinping. That leadership is the beneficiary of past achievements starting with Mao Zedung establishment of the People's Republic of China, PRC.

Deng Xiangping introduced capitalism as "socialism with Chinese characteristics" and created a power transfer system. The departing Hu Jintao encouraged military and technological build up while following Deng's advice to keep low profile.

Internet nationalism

Xi will build on these achievements while confronting internal and external challenges. His team will have to identify and define internal obstacles which appear to be mainly class and generational. Reducing the size of poverty, roughly 10 per cent of the population is said to be extremely poor, translating to 130 million Chinese, and absorbing these into the middle class will not be easy.

Along with China's rapid growth is the rise of millionaires, still a tiny fraction of the population, who have become visible symbols of growing rich/poverty gap and such capitalistic maladies as corruption, joblessness, and inflation. The maladies, especially rapid corruption, sap the political legitimacy of the powerful and make it difficult for Xi to maintain the myth of communist benevolence.

More serious than the millions in poverty, is the fact that the collective memory of pre-1949 or even Deng's China is fading fast and communism as a doctrine is losing its attractiveness. The tendency for the prince-lings and the CPC members, roughly 80 million, to hoard power has a class ring to it whose effect is to leave a sense of alienation to the rest of the 1.3 billion who are mostly below 60.

For such people, extolling the virtues of the Communist Party in delivering China from pre-revolutionary mess does not resonate well because their perception of what is wrong is linked to experiences under communist rule. Most people, including the new leadership, do not have good memories of Mao's China and even Deng is beginning to sound like a relic.

While some of the domestic challenges affect China's ability to act internationally, in the face of "instant" or "real time" diplomacy, there is a new assertive attitude in Beijing. Officials are aware of the rise of new players and dynamics such as "netizens" and "internet nationalism" that tend to limit the freedom of officials to make policy. They have also concluded that Deng's advice for China to hide power is increasingly irrelevant in the 21st Century.

For this reason, some of Xi's advisors are calling for Chinese self-assertion, argue multi-polarity with China as one of the poles, want beefing up of military and technological research, and reject semblance of Chinese meekness. To these, Chinese sovereignty in disputed waters was not open to discussions.

Increased attention

Other than asserting China's sovereignty, Xi will most likely strengthen the image of China as a "Third World" country in countering Euro-imperialists. He will most likely strengthen what is termed the Beijing Consensus that counters the World Bank and IMF driven Washington Consensus.

The drive to make China's economy number one, surpassing the Conceptual West economically and politically, will thus intensify rather than abate. It will, most interestingly, be assisted by the continuing decline of Western economies which then have to pay homage to China.

At the same time, Xi will engage in balancing acts of exercising influence in the neighbourhood without provoking excessive hostility. China will continue talking of its limited capacity to be the centre of a new world order even as it tries being 'responsible' on such issues as Iran and North Korea.

It will be careful on North Korea, a southern neighbour, whose nuclear ambitions are not welcome in Beijing. At the same time China would not want the collapse of North Korea which might mean economic disaster for China through the influx of refugees and ideological problems in the growth of belief that China cannot protect its own political system.

What does all this mean for Africa and China in 2013? The new Chinese leadership is likely to increase its attention to African countries. The two sides have a kind of symbiotic and emotional relations, reinforcing each other in the midst of external Euro-challenges.

In warding off Euro-aggression, the Chinese are in the lead and are inspirational to many African states. It is the desire to be free of the Euro-constraints that partly attracts Africa to China.

Credible alternative

China will continue to derive two types of benefit from intensifying relations with Africa, as propelled by the Forum on China Africa Cooperation. First, China cannot do without Africa in its global reach and will continue to acquire raw materials cheaply from the African continent for its expanding economy. Second, China derives ideological satisfaction in helping African states to reduce debilitating Euro-influence.

Similarly, African states derive two types of benefits from China. Chinese investors and engineers are helping to exploit resources and to build extensive infrastructure at reasonable costs whose effect is to develop hitherto ignored regions. The second benefit is the political and ideological freedom that Africans derive in having a viable and credible alternative to relations with Euro-powers.

There are challenges to continuing positive relations on both sides. First in Africa, there are influential African Europhiles who are instinctively hostile to any development that does not have Euro-approval.

Second, African states will continue being pressured not to have dealings with China or to deal with China only through Euro-powers who claim to know better than the Africans what is in the best interests of the Africans.

China also has challenges in Africa. The Chinese are poor at projecting themselves at the social level and are poor at people to people relations.

Second, the Chinese propaganda machinery is not as efficient as that of the Euro-powers who are good at portraying the Chinese as heartless exploiters of poor Africans. China has been responding to this weakness by setting up, mainly in Nairobi, media centres for Xinhua News Agency, CCTV, and China Daily.

Africa and China will continue attracting each other because it is in their interest. Those interests are economic, ideological, and in international politics. With the decline of the Euro-powers as the centre of global operations, the attractions will intensify, and so will the challenges.

Among the challenges is ability to balance each side's desired ideals and the available capacity to achieve them. Of necessity, therefore, Africa and China will in 2013 be pragmatic rather than dogmatic in advancing and protecting mutual interests.


Last modified on Tuesday, 19 March 2013 11:53