“Buying mines in Africa” and the question of China’s “soft power”

About a year ago, an interesting post “Buying mines in Africa— so that you know how difficult it is for China to obtain overseas resources [非洲买矿记 (让你知道中国海外获取资源何其难！)]” was published on Tianya by a poster named “sheishi sheifei renpingshue 谁是谁非任评说”.

This poster “sheishi” claimed to be an heir of a famous mining family in China. Together with “world famous noble families” in the mining business, his delegation went to an unidentified country in Africa shortly after China’s president Hu Jingtao’s official visit in Africa in early 2007. (Other posters of the thread later suggested that the destination was South Africa). They hoped to be able to purchase an iron ore mine, and to invest in a processing factory to smelt high quality iron, which is a highly desired resource in China.

The purpose of posting this thread on Tianya, according to “sheishi”, was to help people to gain a deeper understanding of how difficult it is for China to exercise its “soft power” at a global scale, to genuinely connect with international trade protocols, and how unrealistic it is for China to purchase natural resources for strategic reserve [zhanlue chubei] with its abundant foreign exchange reserve.

The whole negotiation process of this deal was fascinating. “Sheishi” described how their African partners at first spent a great amount of time and money “entertaining” Chinese investors with banquets, sightseeing, charity activities and the like, to consume some days off their planned negotiation itinerary. (“Sheishi” wrote that Africans were quite savvy with the technique of hospitality [zhaodai] that the Chinese were so familiar with. It was quite a killer technique that even his team could not resist the power and art of reception.) This kind of unplanned delay had certainly added tension and anxiety in the later days of negotiation as the team had to rush through hundreds of pages of legal documents and contracts written in English.

As “Sheishi” and his team began to pay full attention to the details of contracts and conditions, they realised with great astonishment that what they originally thought to be a winning deal turned out to be a ‘trap’ that could cost them millions of dollars.

First, there is a “trap” in the contracts:

The iron ore mine was unbelievably cheap, but the cost of the proposed processing factory was unreasonably high. This was a puzzle that the Chinese delegation could not understand. After a careful examination of the iron ore sample that the Africans provided, the Chinese soon discovered that this iron ore mine was in fact a titanium-iron ore mine. Titanium is expensive in the international market, but this is not what China desires (China has abundant titanium reserve but not iron). The Chinese then realised that the processing factory would be used to extract titanium for the Africans rather than to smelt iron for the Chinese (hence the added cost). After the extraction of titanium, iron ore would be transported to China as ‘waste’ (therefore cheap). But this would become a sensitive issue: under this particular context, because iron ore would enter China as “waste”, the China Customs would not allow “imported trash” [yang laji] to enter the Chinese border. Eventually Chinese investors would be the ones to suffer serious consequences: if they would not be able to transport the iron ore into China, they had to shoulder additional costs to refill these “waste” back into the mine for environmental purposes. This cost would be hefty and if the local authorities find the effort unsatisfactory, they wouldn’t be able to obtain another permit in mining.

Second, there is a lack of knowledge in the legal procedures:

When “Sheishi” and his team consulted African local lawyers who practiced mining laws (whose hourly rate varied from $2,000 to $10,000), it occurred to them that Africa had already established quite a sophisticated legal system since the colonial era concerning the mining industry. In comparison, the mining law in China lagged far behind and all the legal consultants in the Chinese delegation lacked sufficient professional literacy in understanding all the legal frameworks regarding the mining law, lest finding any potential pitfalls that might put Chinese investors in a disadvantageous position.

Prior to the negotiation, the Chinese legal consultants prepared seven contracts that contained a few dozen pages of relevant documents. They soon realised that this kind of contract was far too simplistic and porous. In Africa, the mining law concerns not only the property rights of the mines, but also the right of land use, the right to use the underground areas of the mine, the right to use adjacent land (e.g. to obtain consent issued by users/owners of adjacent land), and strict environmental conditions (e.g. pollution control, underground water protection, waste management, etc). The seemingly sufficient legal documents in the Chinese mining industry turned out to be completely vulnerable or even useless in the African context.

Third, there is a lack of institutional care and support:

One overseas Chinese [huaqiao] told “sheishi” and the team that this particular African city was a dangerous place for the Chinese, because apparently the Chinese were the darlings of kidnappers. Chinese were known for their habit of bringing large amount of cash; they did not carry guns; and more importantly, the Chinese government / embassy wouldn’t intervene if the Chinese were robbed or kidnapped. (Local Africans were poor men and there was little to gain by robbing them; kidnapping white men would be unwise because it usually escalated into serious cases—international pressure would be placed on the local authorities, and extra forces would be used to rescue the victim, therefore the stakes were to high to kidnap a white man.) The local overseas Chinese claimed that if a Chinese were to be kidnapped or even murdered, the embassy would hardly exert any effort to issue even a diplomatic note.

Facing these three significant challenges, “sheishi” and his team cancelled their original plan and returned to China. In reflection, he commented on the kind of dilemma that Chinese private (or state-owned) enterprises are facing in relation to obtaining resources overseas.

The first dilemma is the lack of support. “Sheishi” claimed that Africa is the ‘playground for adventurers’ [maoxianjia de leyuan]; but without the security support of the state, even these adventurers would not dare to play in this foreign land. It is common to see the U.S. putting international pressure on other countries just for one citizen, and its army announcing wars overseas for their citizens…

But what do their citizens do? They are developing and exploiting  resources in foreign countries. The state is hiding outside in the whole process and everything seems to flow smoothly under the term of market exchange. Whereas in China, a private enterprise like ours can not dream to be protected by the state army.

If we are a state-owned enterprise, that’s a different issue—the state and the army will intervene but then it has become a political issue altogether; that’s why in Africa people talk about China’s neo-colonialism now. What we need is private enterprise doing business following the local rules and regulations: just like the Americans, the Europeans. They are private companies, and we are private companies as well. We are all part of the market economy and therefore the anti-Chinese forces can not point fingers at the Chinese state. What we need is ‘fair play’, but this ‘fair play’ has to be supported by the state from behind.

The Chinese state is not helpful not only in terms of the lack of security support, but also in terms of the restrictive foreign exchange control scheme [waihui guanzhi]. Because of this scheme, it is extremely difficult for private Chinese business to invest in foreign countries. Although buying mines falls under the investment scheme that the state supports, there still are strict evaluation and verification processes—unless the investors are state-owned enterprises. Without any affiliation with the state, or a foreign identity, investment has to be done in the form of trade or some other ways. “Sheishi” expressed his frustration and said that sometimes it seems that the Chinese government wants to push everybody out of the country!

The second dilemma is the lack of knowledge. When “Sheishi” returned to China, he could not find even one expert in African mining law. He said:

According to the (African) local rules, if you ask the lawyer a question, by law he has to answer this question truthfully—he will be fully responsible if he gives inaccurate answers or information. But if you do not ask, he does not have the obligation to remind you of such information. Now the problem is we can not even ask any questions, how can we begin to talk about doing projects? China knows so little of the outside world. We do not have our own expert. How can we not be cheated? It takes many years of education to make an expert and we don’t even know how to educate people. Therefore it is truly difficult for China to expand its “soft power” in the world.

“Sheishi” pointed out that the fundamental challenge that China faces now is truly the lack of soft power. His idea of what constitutes soft power is a bit different from Joseph Nye’s original notion. He claimed that:

Over the years our country has increased  its foreign exchange reserve significantly. But with the rapid economic development, we are facing a severe challenge: resource shortage. To invest elsewhere for resources has now become a popular voice in China, as if with money one can buy anything possible. But with my experience in Africa, my deepest realisation is China’s lack of soft power overseas. One can not rely simply on money to solve problems. Without any expertise in foreign laws, or the thorough understanding of the international mining industry regulation and rules, our money will be only cheated; without the state military power as a firm buttress, one’s personal and business security will not be guaranteed—how can one dare to buy anything without certain security support? Money is easy to accumulate, but the kind of soft power that enables profitable business overseas is difficult to attain. That is why China now owns so much foreign exchange reserve, but little has been spent to purchase resources or raw materials outside of China—we are still paying a high price to import the processed products. Until now, China has only been successful in takeovers of small mines or tailings, but not large-scale mining sites.

It is easy for Chinese scholars to give suggestion on how China should spend foreign exchange reserve on resources, but in reality this is a tremendous undertaking that China is not yet fully equipped to carry out. Many are flushed with optimism of China’s ‘rise’, or the expansion of China’s ‘soft power’ in terms of economic and cultural influences; few actually realise the weaknesses within China’s development plans and its international ambitions.

China in Latin America book out

Finally, after a dozen China in Africas, here is a China in Latin America, written by R. Evan Ellis. His post as “professor at the Center for Hemispheric Defense Studies” made me wary, but, even though the book is based on the usual combination of newspaper accounts and interviews, it is in fact good. It has a wealth of country-by-country information that is exceedingly difficult to obtain elsewhere (unlike the now-considerable overlap of sources about Africa), which includes very useful brief descriptions of Chinese immigration and everything else you would expect (from trade and infrastructural projects to military cooperation and what he calls “intellectual infrastructure,” which includes the teaching of Chinese). One shortcoming here is that there is no separate discussion of development aid, even though Ellis does mention low-interest loans.

The book really does fill a gap. For instance, I have long known about the large and new Fujianese immigration to Argentina and the fact that these migrants run a lot of groceries, and have wanted to know whether this group has anything to do with infrastructure investments from China. Ellis tells me that it does not, yet. He also confirms that although Brazil has the largest number of Chinese, Chinese megaprojects here have been relatively insignficant (partly because of a lack of excitement about Chinese loans and labour) and there is no rush on the Chinese language, unlike in Chile (though this section is made less reliable by the fact that Ellis uses only Spanish and English sources, no Portuguese ones). His data in some cases go up to December 2008, so that he is already able to account for some of the effects of the recession. As of that date, it appears that the ambitious transcontinental rail and road projects in which Chinese companies and banks have been mooted as investors and contractors have not yet taken off.

The book is not led by a preconception of what China is doing in Latin America — perhaps because it is not so easy to have such preconceptions, unlike in Africa. This makes the continent all the more interesting as a case study. Indeed, Ellis details how the resource-shopping of Chinese mining and metallurgy companies in South America often takes the form of joint ventures that are not unidirectional; thus, Chilean-Chinese and Chilean-Brazilian joint ventures have announced plans to open smelters and fertilizer plants in China, a Brazilian company owns Chinese nickel mines, and a Chilean wine makers has invested in wine production in Xinjiang. While nearly all current South American administrations are keen on contacts with China, this has not prevented them from taking measures such as Chile’s ban on Chinese fishing vessels using port facilities as retaliation for what they say is Chinese overfishing of the sea outside Chile’s territorial waters.

Ellis also notes that despite all the attention of China’s “strategic partnership” with Venezuela and its warm welcome by leftist Andean presidents, Chinese investors, like all others, prize political stability, transparency, and developed infrastructure. This means that they have been far keener to provide loans to Chile, Argentina and Brazil than, say, Venezuela. Like in Africa, Chinese companies (and presumably politicians) are keen to leverage their comparative advantage in unstable places shunned by Western investors (or where Western investors are unwelcome), but they are equally intent to enter larger, stabler countries and play by the rules if they have to.

Nigerians clash with police in Canton

On this blog we tend to write about the link between Chinese migration and development projects, but there is also migration from poorer countries to China: brides from North Korea, Vietnam, and Burma, entertainers and businessmen from Central Asia, and traders from Africa. This is an underresearched subject, but there are at least two ongoing research projects on the African trading community in China: by Barry Sautman and Yan Hairong in Hong Kong, and by Michal Lyons and Alison Brown in England.

A few days ago, Chinese media reported that about 300 Africans clashed with police at a police station in Canton. They were protesting the restrictions police sweeps on foreigners ahead of the 1 October anniversary celebrations of the 60s anniversary of the founding of the PRC, which combined with visa restrictions introduced ahead of the Olympics (resulting in African citizens being unable to get PRC visas in Hong Kong) meant that many traders became not only illegal migrants but also subject to deportation. In particular, the demonstrators were incensed about the death of a Nigerian, described as an illegal money changer, who fell from a building while trying to escape a police raid. According to the report, authorities in Canton are concerned because the man was a Muslim, and his death came just after the clashes between Uyghurs and Hans in Urumqi (also reportedly triggered by the death of two Uyghur Muslims in a fight in Guangdong).

There are several remarkable aspects about this report. First, the fact that it was allowed to appear: this probably reflects growing government confidence that readers would side with the police against ethnic groups they see as troublemakers (Tibetans, Uyghurs, Africans).

Second, even though the tightening of checks on foreigners ahead of the celebrations seems appeared to target political dissenters (say, human rights of Falungong activists), it was in fact used for an entirely different purpose, one that was much more in line with the practices of Western states. The report alleged that although officially Canton has 20 thousand African (mostly Nigerian, Ghanaian, Cameroonian and Liberian) residents, unofficial estimates are as high as 200 thousand, the population grows by 30-40% every year, and the two trading centers where Africans concentrated have been identified by police as areas of drug dealing. Such reports associating Africans with crime and illegal immigration are very similar to the portrayal of Chinese traders in Eastern European and African media, and having to hide from police sweeps is a familiar experience for businesspeople in Eastern Europe’s Chinese markets. In other words, what first appeared to be a party-state crackdown on dissent turned out to be more a “security” measure that victimizes economically or culturally undesirable foreigners from poor countries and makes China look more, rather than less, like the West.

Third, the fear that the conflict may escalate because the victim was Muslim is again similar to paranoid reactions of Western governments, but also shows sensitivity to the possible repercussions of the incident for China in Muslim countries. Indeed, as our Jakarta correspondent Johanes Herlijanto reports, while China has gone a long way bolstering its image as a source of Islam-friendly modernization in Indonesia, demonstrations were planned in front of the Chinese embassy today to protest the government’s treatment of Uyghurs. (They were cancelled after the firebombing of the Ritz-Carlton and the Marriott this morning.)

Clashes with Africans are not an entirely new phenomenon in China. In 1989, Chinese students in Nanjing demonstrated in protest against Africans students’ alleged harassment of Chinese girls in an incident that, according to some, was one of the triggers of the protests that later went down in history as the democracy movement.

Russian scholar says Chinese are paid to marry Russians

Recently I gave a talk in Paris and met Olga Alexeeva, who is doing her PhD at Paris VII and has written a few articles on Chinese businesses in Russia. In one of these papers, which she kindly sent me, she quotes Vilya Gelbras, the top authority on Chinese migration in Russia, as claiming that Chinese migrants who marry Russian women receive a bonus payment from the Chinese government.

Naturally, I thought this must be a mistake, so I checked the source. It is a 2005 interview with Gelbras in Novaya Gazeta, Russia´s premier independent (anti-Putin) newspaper, authored by none other than Anna Politkovskaya, the woman who was Russia´s best-known investigative journalist before she was assassinated.

In the interview, Gelbras indeed claims that he has seen a plan, which “has been discussed by” the Politburo of the Chinese Communist Party, to “organise the settlement of Chinese migrants all over Russia through Amur Province in order to control merchandise by concentrating it in their own hands in the hubs of the Transsiberian Railway” (чтобы через Амурскую область организовать вселение китайцев по всей территории России и таким образом, держа в своих руках товарную массу, сосредотачивая ее в своих руках в узловых пунктах Транссиба вплоть до Москвы, излучать свое влияние). Further on, Gelbras claims that now there is a second ” infiltration plan”. And, no kidding, he does say that Chinese men who marry Russian women get paid by the government. Then he goes on to talk about how the Chinese have cut down all the forests along the Transsiberian railroad and are poaching frogs.

Gelbras says that he wrote a special report for the UN on this issue. I have not come across it. The whole thing perplexes me. To be clear, I cannot imagine that these claims are true. What I can imagine is that Chinese companies, including state-owned ones, have plans for expanding their business in Russia, much of which has to do with timber and other primary resources. But Gelbras is a reasonably serious researcher, who has criticised Yellow Peril fearmongering in the past, and even in this interview the main target of his criticism is Russian corruption.

I have come across a number of articles written by Chinese academics on Russians’ fears of Chinese immigration, one of them by Li Lifan of the Shanghai Academy of Social Sciences, who is a senior figure in the Shanghai Cooperation Organisation (the one that comprises Russia, China, and the Central Asian republics). These articles tend to deal with the fears as xenophobic responses to social instability and other factors, and in my view they are largely right. I wonder how Li would respond to the Gelbras interview.

Exporting China’s Development: panel at ICAS

Several of this blog’s contributors are involved in the panel “Exporting China’s Development to Africa and Southeast Asia: Aid, Investment, Migration” at the upcoming International Convention of Asia Scholars in Daejeon, Korea, on 6 August. The aim of the panel is to bring together people who have done grounded research on the subject in these two regions.

The preliminary programme of the conference is now available here. Scroll down to find the panel.

“Timor-Leste: The Dragon’s Newest Friend”

A report on China’s relations with East Timor, by Loro Horta, has been published by the French institute IRASEC
 as Discussion Paper no. 4 (May 2009). It seems to be a standard “realist” IR kind of text, about foreign policy influence. What makes it interesting is the biography of the author:

Loro Horta is a graduate of Peoples Liberation Army National Defense University (PLANDU). Previous to his Chinese education he was educated in Australia, the United States and Singapore. His [...writings] on the Chinese military and other China related topics have been published by the Military Review, Australian Army Journal, Strategic Analysis the Center for Strategic and International Studies, Washington D.C, and Yale Magazine.

Controversy over Chinese investment in Vietnam mining

The Wall Street Journal reported on 1 May (James Hookway, “Once Enemies, Vietnam Now Fights for China Funds”) that a controversy had erupted over the plan for a state company to create a $460 million venture with the Aluminium Corporation of China to extract bauxite in the Central Highlands. 97-year-old General Vo Nguyen Giap, a hero of the French and American wars, has “written open letters to the government warning of growing Chinese influence” and environmental damage, a point also made by a “chorus” of scientists and economists who question the project’s feasibility. “In comparison, there has been little outcry against a unit of U.S.-based Alcoa Inc., which is conducting a feasibility study for a possible alumina refinery in southern Vietnam.”

The Central Highlands is, of course, not only an area of relatively untouched nature but also one where the “Montagnard” ethnic groups, with their often conflictual relationship with the central government, are located. In this regard, the story is very similar to the Lao and Cambodian cases, but in a very different political environment — one where there is political alliance but also a strong sense of opposition to China (and the Chinese), both among the elite and the population, but where the state is governed to a way very similar to China’s.

Call for papers: Chinese in Africa/Africans in China, Johannesburg, 26-29 August 2009

Shortly after the International Convention of Asia Scholars in Taejon in early August, at which some of us will host a panel on ethnographic approaches to China’s development export, the Chinese in Africa/Africans in China International Research Working Group will organise its second mini-conference. Here is an excerpt from the call for papers:

Chinese people have become targets of increasing anti-Chinese sentiment, especially led by opposition political parties and civil society groups for different ends. In South Africa, perceptions that those who look Chinese carry on them large sums of cash appear to have resulted in a sort of racial profiling by South Africa’s criminal element as well as state patrols, exposing these individuals to robbery, blackmail, and personal violence. In spite of events and statistics being disclosed by researchers in the field, newspapers in Namibia, Zambia, and South Africa continue to under-report such political and social tensions while they remain critical of China’s seemingly unequal engagement with African nations and over-report the numbers of Chinese in these countries.

Simultaneously, African traders and other entrepreneurial business people have been making their way to China in increasing numbers over the last few years.  They are bypassing Chinese traders acting as middlemen in Africa and going directly to wholesalers as well as producers/manufacturers in China.  Over the years, some of these Africans have settled in Guangdong and other coastal provinces, and their numbers continue to grow. However, very little is also known about these transient and settler communities that are bridging the continents through exchange of goods and money, but also through dispersal of cultural knowledge.  

Deadline for submission of abstracts: 1 June 2009. Full papers must be received by 31 July 2009. Abstracts and queries should be directed to Yoon Jung Park at yoon@tiscali.co.za or +27 83 348 9241.

New China in Africa book launch

Less than three months after the  last China-in-Africa book launch, Washington, D.C., is hosting another, this one at the Jamestown Foundation. This China in Africa, released  last December, is edited by the respected China historian Arthur Waldron,  and the launch event features other well-known participants who are new to this debate, including the veteran Hong Kong journalist Willy Lam, the political scientists Edward Friedman and Yitzhak Shichor, two U.S. military analysts, and the keynote speaker, Victor Gao, Director of the China National Association of International Studies and former vice president at the China National Oil Corporation (interesting combination!)

Le Monde on Chinese casinos in Burma

Le Monde on 5 May ran a short article on the Chinese-run casinos in Pangwa, a town across the Chinese border controlled by the New Democratic Kachin Army. Pangwa is not one of the “special regions” but, like those, seems to be run by a combination of an ethnic Chinese civil elite and an armed faction. 

Referring mostly to reports in Chinese media, the article writes about the closure of bigger casinos to the south in the zone controlled by the Independent Kachin Army, where Chinese police has intervened. In Pangwa, rumours have it that some Chinese customers who have threatened to denounce the owners to Chinese authorities have been killed.

The article is far from being well-researched, but it does point to interesting questions about the different ways in which local elites in various “special regions” articulate with interests and powers inside China. It also suggests that in at least some cases, greater influence of Chinese authorities may be preferable to local ones. (I was reminded of Russia’s withdrawal from Chechnya: there is little doubt that now the local despot, anointed by Russia, is alone with his subjects, it will be so much the worse for them. Obviously, there are many parallels from the history of Western colonialism too.)