CHINA: To Congo, With Trouble

  • by Antonaeta Becker (london)
  • Monday, May 10, 2010
  • Inter Press Service

'It is now clear that western countries don't want to see China's influence grow in Africa,' says Duan Hongwu, a Beijing-based analyst who has been following China's investment in Congo. 'The barter deal is an obvious 'double win' -- it helps Congo convert its rich mineral resources into a real economic capital. At the same time it takes care of China's abundant foreign reserves by finding a suitable outlet for investment.'

The package 9 billion-dollar deal that Beijing signed with Kinshasa in 2008 raised China's stakes in Africa, transforming it into one of the most influential players on the continent and the biggest investor in one of its largest and most populous countries.

Under the terms of the deal China pledged a 9 billion dollar loan and agreed to build massive new copper and cobalt mines, 4,000 km of roads and railways, upgrade Congo's beleaguered mining sector, and build schools, hospital and clinics. In exchange, Beijing secured copper and cobalt concessions that over 25 years will supply Chinese manufacturing with 6.8 million tons of copper and 620,000 tons of cobalt.

Hailed by Kinshasa as Congo's Marshall Plan, the Sicomines project has run into a series of troubles since its signing. It was frowned at by western powers, and before the ink on its paper had dried up the International Monetary Fund had begun exerting pressure on Congolese leaders to renegotiate its terms in order to secure a new aid package from their western donors. Congo had eventually to agree, and late last year the deal was downsized to 6 billion dollars.

'Was the U.S. worried that by investing big in Africa, China may gradually reduce its share of U.S. treasuries?' suggests Duan. In February China sliced its massive U.S. Treasury bond holdings to the lowest level in at least nine months amid speciation that Beijing was considering diversifying its portfolio.

But the downsizing of the deal did not spell the end of trouble for Beijing. China Railway -- China's largest construction company, and one of Congo deal's undertakers -- has been hit with a decision by a Hong Kong court blocking its entry into the Congo market until the bad debts contracted by the Mobuto Sesi Seko regime with Tito's Yugoslavia over a defunct hydropower project in 1980 had been paid up. Mobuto Sese Seko was president of the Democratic Republic of the Congo, formerly Zaire, from 1965 to 1997.

FG Hemisphere, a hedge fund that had managed to buy up chunks of the Seko regime's debt and then re-packaged it, obtained in February a favourable decision by a Hong Kong court on its claim that China Railways' 'entry fees' should be used to offset Congo's unpaid debt.

China Railways has a wholly owned subsidiary in Hong Kong, and under the 'one country two systems' arrangement in place in Hong Kong since its return to mainland China in 1997, the territory enjoys an independent judiciary system.

Beijing's deal has recently also been a subject of investigation by a commission set up by the National Assembly of DRC. The probe is focused on the disappearance of 23 million dollars in signing bonus that Chinese companies were due to have paid to Congo's Gecamines, their local partner in the Sicomines project. The adverse publicity China has received in the probe is raising questions about the transparency of its long-term projects in the country, and in Africa as a whole.

Some Western critics say China is interested only in extracting Africa's natural resources to feed its fast-growing economy, and cares little for African development, acting like the new colonial power on the continent.

But Chinese experts see the lingering shadow of a 'Cold War' mentality in the west's accusations of 'new colonialism'.

'Is China buying cheap and selling pricey to qualify as a colonial power?' asks Shen Jiru, an expert on international relations with the Chinese Academy of Social Sciences. 'Exactly the opposite -- we are providing free-interest loans and aid and we are a reliable backup for Africa's economic development.'

China pledged last year to give Africa 10 billion dollars in concessional loans over the next three years, and is accelerating its drive to pour vast sums of money into developing infrastructure in many African nations. African leaders have hailed the new wave of China's investment in the continent.

Speaking at the World Economic Forum on Africa held in Tanzania last week, Ethiopia's Prime Minister Meles Zenawi said China's interests were consistent with those of African countries striving to overcome the legacy of reliance on commodity exports and move towards industrialisation.

It made sense for China to spend in Africa, Zenawi said, because its massive foreign exchange reserves are largely denominated in dollars, and Beijing needs to diversify those assets. 'It's in their interest to spend tens of billions of dollars in Africa and it's in our interest to have access to those tens of billions of dollars.'

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

Where next?