China, Africa, and Oil

Via The Washington Post, a detailed look at how China – intent on getting the resources needed to sustain its rapid growth – is taking its quest to lock down sources of oil and other necessary raw materials across the globe. As the article notes:

“…China has turned to Africa, an oil-producing source whose risks and challenges have often caused it to be overlooked economically.

…Africa holds a fraction of the world’s proven oil reserves — 9 percent compared to the Middle East’s nearly 62 percent — but industry analysts believe it could hold significant undiscovered reserves. As a result, China is seeking to increase its oil imports from the continent. It now receives about one-third of its oil imports from Africa, 9 percent of the continent’s total exports in 2006 (by contrast, the United States purchased 33 percent of that year’s exports from Africa). China’s biggest suppliers in Africa as of 2006 were Angola, the Republic of Congo, Equatorial Guinea, and Sudan. It has also sought supplies from Chad, Nigeria, Algeria, and Gabon.

Eighty-five percent of Africa’s exports to China come from five oil-rich countries (Angola, Equatorial Guinea, Nigeria, the Republic of Congo, and Sudan), according to the World Bank.

…Because Nigeria and Angola, the continent’s largest oil producers, have decades-long relationships with Western oil companies, China has developed a two-pronged strategy toward energy investments. First, it has pursued exploration and production deals in smaller, low-visibility countries such as Gabon, Equatorial Guinea, and the Republic of Congo. Second, it has gone after the largest oil producers by offering integrated packages of aid.

In Angola, which exported roughly 465,000 barrels of oil per day to China in the first six months of 2007, Beijing secured a major stake in future oil production in 2004 with a $2 billion package of loans and aid that includes funds for Chinese companies to build railroads, schools, roads, hospitals, bridges, and offices; lay a fiber-optic network; and train Angolan telecommunications workers. Elizabeth C. Economy, CFR’s senior fellow and director for Asia studies, says China is following a very traditional path established by Europe, Japan, and the United States: offering poor countries comprehensive and exploitative trade deals combined with aid. The Chinese counter that they are giving African governments what they want: no-strings-attached investment and infrastructure.

Such aid deals have not always been successful, however. In Nigeria, Chinese state-owned CNPC’s $2 billion investment in an oil refinery has fallen through, and in Angola, news reports suggest that work on the country’s railroads has either halted or encountered serious delays. Analysts say China’s most successful African energy investment has been in Sudan, which now sends 60 percent of its oil output to China.

Overall, China has not made the inroads into Africa’s oil reserves that some media coverage has suggested; the energy consultancy Wood Mackenzie estimates Chinese companies hold under 2 percent of Africa’s known oil reserves. Erica S. Downs of the Brookings Institution writes that “most of the African assets held by China’s NOCs [national oil companies] are of a size and quality of little interest to international oil companies (IOCs). In fact, many of these assets were relinquished by the IOCs…”

This entry was posted on Sunday, June 22nd, 2008 at 3:54 am and is filed under China.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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