China’s Long Term Strategy in Africa Defies Current Market Woes

Via Africa Asia Confidential, an in depth analysis of China’s growing relationship with Liberia, which is expanding into Guinea and Sierra Leone.  As the article notes:

“…The US$2.68 billion agreement signed by China Union’s Chief Executive Yin Fuyou and Liberian President Ellen Johnson Sirleaf on 19 January to restart iron ore production at the old Bong Mines flies in the face of global economic realities as mining projects stall and close across Asia and Africa. The mega deal – the largest in Liberia’s history – points to China’s long term strategy in the region, where it is developing a portfolio of mining interests in Guinea and Sierra Leone.

The agreement is largely the result of President Johnson Sirleaf’s relentless pursuit of major Chinese investments since her accession in January 2006. Beijing likes Sirleaf Johnson because of her strong international credentials – unlike its other partners such as Sudan‘s Omer Hassan Ahmed el Beshir and Zimbabwe‘s Robert Mugabe.

The deal must be ratified by Liberia’s Senate and House of Representatives, where Johnson Sirleaf’s Unity Party is in a minority, and neither side wanted to discuss the details before the vote. Representatives of China Union (Zhonglilian in Chinese) were unwilling to provide even the English transliteration of the name of the company’s Chief Executive, Yin Fuyou. (It has been spelled six different ways in the Anglophone press.)

The head of the National Investment Commission (NIC) Richard Tolbert said that ‘two or three million people screaming is not going to make the legislature’s work easierthere are a hundred representatives [in the House and Senate], that is enough.’ Tolbert, a close presidential ally, also courts Chinese investment. The signing took place after contract iron ore prices fell 50% last year; they are forecast to fall another 30% in 2009, so it is clearly a long-term investment.

Meanwhile, a larger iron project in Gabon is faltering (see page 5), but on 12 January, China’s state-owned CIC Resources bought a Sierra Leonean company to control the Bagla Hills iron ore concession in the Western Cluster iron ore formation which passes through Liberia and Sierra Leone.

Financial worries

Civic activists in Monrovia worry about the financial implications of the China Union deal as the government tries to finalise a debt reduction plan with the IMF. Remarkably, China Union raised $2.6 bn. without attracting any media attention. Xue Song, an attaché to the Chinese Embassy in Monrovia, described China Union as ‘a group of five to seven private companies formed to develop the Bong mines’. China Union’s website was only launched in October 2007, well after it had started operating in Liberia.

The company calls itself one of the ‘Top 500 private companies in China’. In fact, the $5 bn. state-backed China Africa Development Fund has become an ‘important investor’ in China Union and the company lists among its strategic partners which provide help with expertise and technology a state-owned giant, the China Metallurgical Mining Corporation.

In early 2006, Johnson Sirleaf asked China’s Embassy to bring investors to work with Liberia’s private sector. Several Chinese companies arrived in Liberia for a general business survey, which covered Buchanan port, the railways and Bong Mines. On returning to China, some of them formed China Union to pursue investment opportunities in Liberia – not specifically to bid for Bong Mines.

All the projects that China Union eventually pursued had been pushed by Johnson Sirleaf at the Forum on China-Africa Cooperation in Beijing in November 2006: the modernisation of Buchanan port, its development as a free zone (which was refused to Indian investors Mittal), and the rehabilitation of the Mount Coffee hydropower plant on the St. Paul River.

Following Johnson Sirleaf’s call for Chinese investment and her trip to Beijing, representatives of China Union visited Monrovia and signed a memorandum of understanding for investments: it included agreements for manufacturing, agriculture, hotels, ports, mining and oil refining and exploration.

Chief among the companies forming China Union is the Henan Jianghai Group. It is joined by Henan Jinda Industry Company (a mining company), Tianjin the Leader Group (a logistics company) and Gingko (Hong Kong) Investment Company (which is involved in oil and gas). President Hu Jintao‘s stopover in Monrovia in February 2007 further boosted China’s overtures.

The Henan Jianghai Group is based in Zhengzhou, Henan province. It grew out of Zhengzhou’s Electrical Teaching Equipment Company, established in 1990 by TV saleswoman Yin Aiping with capital raised from selling ‘800 unsellable TV sets’. Now it is a provincial behemoth, a holding company with diverse interests in property development, milk production, brewing and, crucially, mining: Jianghai Group owns Nanzhao Hengtong Mining, which mines gold, granite and rutile in Henan.

Yin Aiping is Chairman of the board; her attention is devoted to sustaining Jianghai’s domestic holdings. The President of Jianghai Group, Yin Fuyou, is also the Chief Executive of the mysterious China Union and mastermind of its headlong expansion. NIC’s Chairman Tolbert and Liberian Reconstruction and Development Committee Secretary Natty Davis were apparently among the keenest Liberians to sign with China Union.

The situation at the Bong Mines was complicated by the decision in December 2005 of Chairman Charles Gyude Bryant‘s Transitional Government to award the concession to Kkaf Nigeria, which promised an investment of $1 bn. against bids from the United States and United Arab Emirates. Despite his links to President Olusegun Obasanjo‘s Transcorp chaebol, Kkaf Chairman Kola Adun has been fighting a losing battle since January 2006 against the Sirleaf Johnson government’s determination to reopen the bidding for the Bong Mines. Land and Mines Minister Eugene Shannon had said the matter would be resolved by the end of 2007.

Johnson Sirleaf has been pushing for the development of a free port at Buchanan and asked the Beijing government to establish an official Chinese special economic zone like those in Zambia and Mauritius (AAC Vol 1 No 10). In early 2008 in China, China Union’s Yin Fuyou spoke of the plans of three Chinese investment groups to build a 50 square kilometre free trade zone in Liberia, which he would call ‘Nanyang City’ after his home town.

Yet plans for a free zone seem to be on hold. Johnson Sirleaf said in January 2008 that Liberia had won approval as one of China’s special economic zones; that was confirmed by the China-Africa Development Fund in April 2008, but the terms of the deal have not been released.

Yin has introduced other businesses to Liberia. He is a founding member of the Henan Yuwan Association of Industry and Commerce, a business association established in Nanyang, Henan, in 2006. In March 2008, Yin told the association about the investment opportunities in Liberia. The next month, association members landed in Monrovia for a five-day tour, all arranged by Beijing’s Ministry of Commerce and led by China-Africa Development Fund President Chi Jianxin. Also on the visit were representatives of China Union, Sinohydro, Shanghai Holding and telecoms company ZTE.

At a China-Liberia Investment Forum, 22 April 2008, Liberian Vice-President Joseph Boakai, Foreign Affairs Minister Olubanke King Akerele, Antoinette Sayeh (then Minister of Finance, now Africa director at the IMF), Chris ToeToga McIntosh (Planning and Economics Affairs) and Tolbert gathered to welcome the Chinese visitors. (Agriculture),

The Chinese delegation was shown around Bong Mines, Buchanan Port and the ruins of the Mount Coffee Hydroelectric Plant, a 64 MW station on the St. Paul River that was destroyed in the civil war. Tolbert suggested that Chinese finance would not be subject to strict controls.

Bidding for the Bong Mines and associated projects reopened in May 2008: this time the competition was between India’s Vedanta Resources, Israel‘s Beny Steinmetz Resource Group and China Union. In November 2008, the Bid Evaluation Panel of the Inter-Ministerial Mineral Technical Committee announced the short list: Vedanta, which offered a $36 mn. signature bonus; BSRG ($20 mn.); and China Union ($40 mn.). In December, China Union was announced as the winner, with the IMMTC giving it a rating of 99 of 100 points.

Yin and his business colleagues soon flew to Monrovia to negotiate the final terms. The real powers behind the deal are the representatives of the China Development Bank and the CADF, whose backing was essential for its approval. At the signing, Yin effused, ‘We love Liberia, just as we love China’ and went on to say that the Bong Mines deal was part of a Chinese programme to ‘rescue this economy’.

This entry was posted on Monday, February 23rd, 2009 at 12:19 pm 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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