Editorial - China's mining and commodity trade with Africa

In June last year, China ousted the world’s top iron ore producer, Brazil’s Vale do Rio Doce (CVRD) and France’s Eramet, to secure the rights to extract huge untapped iron ore reserves in Belinga, Gabon. Dedicating US$3 billion to the project, which includes the building of advanced infrastructure to reach the remote and mountainous mining area, Beijing was focused in its bid to oust other foreign companies and usher in a new era for mining in the West African country.

Regional Business Briefs

ADB urges Asian trade bloc & financial cooperation
The head of the Asian Development Bank (ADB) has urged East Asian countries to create a regional free trade bloc and to increase financial cooperation to reduce the risk of crises. "To maximise the potential benefits of free trade agreements, East Asia has to chart a clear roadmap to establish a region-wide FTA," Harihuko Kuroda said at the East Asia summit. ASEAN speeded up its own goal for a single market to 2015 at the summit, but in a region with wide disparities in economic development, and where business often takes a backseat to nationalism, a full free trade area is unlikely. Kuroda noted some of the contradictions in East Asia, which needs a total of US$ 3 trillion to deliver power and water to its people and bridge infrastructure gaps over the next 10 years but whose foreign exchange reserves are now approaching that level.

Intel plans new China plant
Intel Corp., the world's top chipmaker, plans to invest in a major new plant in China to make leading-edge chips, its biggest investment in the country to date. The plant will make 65-nanometre multi-core processors and will be Intel's first such manufacturing facility in Asia. Intel has already invested approx. US$ 1 billion in China to date. Intel, which entered the China market in 1985, has over 6,000 employees working on assembly, testing, research and development and sales and marketing in 16 cities there, according to the company's Web site. Until now, most foreign chipmakers have used China for lower-technology test and assembly work, with few doing more sophisticated production in the market. Intel has announced that it plans to make China an independent sales and marketing region in 2007, underlining the country's growing importance as the company's second-largest consumer market after the United States.

Chrysler to co-operate with China’s Chery
Chrysler Group President Tom LaSorda confirmed that his company had reached an agreement in principle with China's Chery Co to distribute Chery- made small vehicles in the global markets. "Being able to partner with Chery represents a long-term solution to the challenges of how to profitably compete in the small vehicle segment," said LaSorda. "This supply partnership is part of a new business model that is allowing us to introduce all-new products more quickly, with less capital spending. This announcement reflects the realities of a global industry and DaimlerChrysler's need to remain competitive in all segments," he added. Chery has already adopted some of the most state-of-the art manufacturing processes and the level of technology adopted in their plant rivals that of many western automakers.

Citi Property to invest in Indian property market
New York based Citigroup Property Investors (CPI) is planning to invest US$ 500 million to build assets in Indian property market. According to David Schaefer, managing director and Head - Asia pacific, the company is looking at investing in the hospitality and residential sectors in addition to creating office space in tech-parks. "The funds being brought to India are being utilised for creating a quality land bank in major cities and also to invest in specific projects undertaken by builders," he added. The company, since May 2005, has invested US$ 250 million in building real estate assets in residential and hospitality sectors in Chennai, Bangalore, Pune, Delhi and Hyderabad.

Indonesia inks oil contracts to boost reserves
Indonesia signed new production sharing contracts with three global energy firms -- ConocoPhillips, CNOOC Ltd. and Premier Oil in order to boost reserves, the oil minister has announced. Asia-Pacific's only OPEC member has been offering new exploration rights to try to stem a steady decline in oil production that has threatened its status as an exporter. Indonesia has struggled to maintain output as the country has failed to tap new oilfields fast enough. ConocoPhillips is in a joint venture with Statoil ASA of Norway to explore 5,086 square kilometres (1,964 square miles) of the Kuma block off west Sulawesi. The oil contractor will get 35 percent if oil is found in the Kuma block and 40 percent of gas, while the rest will go to the government. Indonesia also signed an oil contract with CNOOC for the onshore Batanghari block in central Sumatra. The oil contractor will get 20 percent of production if oil is found and 40 percent of gas in Batanghari. Indonesia says it has about 8.6 billion barrels of proven and potential oil reserves and 182 trillion cubic feet of gas.

Malaysia's GDP growth to slow in 2007
Malaysia's economic growth will likely ease to 5.2 percent this year from an estimated 5.9 percent in 2006 as a subdued global outlook dampens exports. The estimates by the privately-funded Malaysian Institute of Economic Research (MIER) are below the government's growth targets of 6.0 percent in 2007 and 5.8 percent in 2006. "With growth in the developed countries moderating and given the increasing uncertainty in the global outlook for 2007, Malaysia's exports could be affected and domestic demand will, in turn, also be affected," the institute said in a report. Government spending in 2007 could partly cushion the economy from the global slowdown, it said. Economists expect Malaysia's trade-driven economy to moderate slightly this year as softer U.S. demand hits exports of electronics and crude palm oil. However, steady demand from China and Japan could take up some of the slack and offer room for some growth.  

In January, Chinese President Hu Jintao paid yet another visit to Africa. He has visited 17 African states over the last ten months - more than any other head of state. China has rapidly become the most assertive investor nation in Africa.

There are now over 800 Chinese state-owned enterprises (SOEs) active in African regions. They have a presence in practically all African economies but China's largest investments to date are in the energy-endowed economies of Nigeria. Sudan and Angola - the latter is China's largest suppler of oil. According to the Chinese government, its enterprises have already invested US$ 6.27 billion in Africa.

Chinese SOE construction and telecom firms are also expanding their footprint across the region and are gaining market traction in all economies they enter. Following them are pharmaceutical, automotive and engineering equipment firms. China's Government announced in November that it has established a US$ 5 billion African investment fund. This fund will further fuel the expansion of these sectors.

Emboldened by the attention and financial gains from China, Africa states may be less inclined to pursue political reform. The "Chavez effect" is taking hold in Africa - resource nationalism, delayed political reform and increased political assertiveness against traditional western interests. In Africa we can label it the "Dos Santos" effect. It is unfortunate that the clash of interests over strategic energy assets between China and the West is likely to further entrench non-democratic regimes in oil rich states in Africa with neither doing enough to propagate political reform to these non-accountable governments.

However, the criticism should not result in China being branded the continent's latest coloniser.

But as China's presence and influence in Africa expands, it will find it increasingly difficult to stay out of domestic political issues. The recent elections in Zambia where the opposition leader whipped up anti-Chinese sentiment in an attempt to rally domestic support portends the use of the "China card" being played in domestic African politics.

China is even having an impact on economic policy-making in South Africa. Disagreements on trade policy due to intense competition from China are fuelling disputes between government and COSATU. Import quotas on Chinese textiles and garments - forced on government by labour lobbyists - are a case in point.

Africa's geo-strategic relationship is shifting away from the West toward the East - and focusing on China. China's commercial engagement with Africa is challenging the vested interests of the former colonial powers. The burgeoning relationship holds out a great deal of opportunity for Africa.

China's engagement strategy toward Africa is a long-term one. But Africa's strategy toward China is ad hoc and fragmented. Even Africa's regional associations do not have common positions on how to engage China. It is imperative that African states gain an understanding of how to leverage China's commercial and political interests in the continent.

Europe regards Africa as a developmental burden whilst China sees Africa as a commercial opportunity. The strategies of engagement are different but the outcomes will be the same unless African governments and private sectors learn to better engage China and channel its attention in the continent toward development, not commercial exploitation.

Regional Business Briefs

DHL plans investment of millions in China
DHL plans investment of millions in China German air express and logistics giant DHL plans to invest more than US$ 110 million in China over the next few years to maintain its leading position and to capitalize on the country's continued growth in trade. China is one of DHL's fastest-growing markets, accounting for 25 percent of its revenue in the Asia-Pacific and 10 percent of its global sales. The announcement was made by Klaus Zumwinkel, board chairman of Deutsche Post World Net, DHL's parent company, during his latest North Asian trip. He also announced investment commitments of over US$ 90 million for Japan and US$ 75 million for South Korea. The new investment is a key initiative for DHL to enhance its position in Northeast Asia, which will be the fastest growing transportation market in the Asia-Pacific region by 2020.

Tesco buying big in China
Britain's largest retailer Tesco plans to buy 2.2 billion pounds worth of finished goods in China in 2008 as the country becomes its most important overseas supplier as well as a key retail market. The hypermarket giant now buys 60 percent of its internationally made goods in China and works with over 300 vendors in the world's most populous country, said Ken Towle, CEO of Tesco China. In addition, Tesco formally opened its first superstore under its own brand in Beijing recently. In December, Tesco boosted its stake in local hypermarket chain Hypemall from 50 percent to 90 percent, paying 180 million pounds and taking Hypemall's 46 stores into its network.

ONGC, Gazprom sign energy cooperation pact
 India's Oil and Natural Gas Corp. Ltd. recently announced that it had signed an agreement with Russia's state-run Gazprom to jointly explore oil and gas fields in India, Russia and other countries. Gazprom has invited ONGC's participation in eight projects in Russia, the Indian firm said in a statement. "ONGC in turn extended an invitation to Gazprom for participation in integrated petrochemicals, LNG and power projects in India," it said. As well as cooperation in midstream and downstream oil and gas projects in each other's countries, the agreement also covers the supply of liquefied natural gas to India and compressed natural gas related projects in India.

Cairn wins two exploration sites in India
 British oil explorer Cairn Energy Plc announced that Cairn India had won an interest in two new offshore exploration blocks in India. Cairn Energy India Pty Ltd has been awarded a 10 percent interest in the 9,400 square km Palar Basin block, with Cairn India Ltd getting a 25 percent interest. Cairn India Ltd also won a 40 percent interest in the 12,300 square km Kerala Konkan Basin block.

Pakistan foreign investment on the rise
 Foreign investment in Pakistan is likely to jump more than 50 percent from US$ 3.87 billion in 2006 to approx. US$ 6 billion this year, due to a series of sweeping reforms that have helped turn the economy around. Salman Shah, adviser on finance to Prime Minister Shaukat Aziz, said foreign stakes in Pakistan's financial sector, especially its banks, were growing and several foreign banks were interested in the Pakistani market. The banking and financial services sector attracted FDI of US$ 517 million, followed by US$ 495 million invested in the communications sector, and US$ 315 million in oil and gas exploration. Shah added that the reform process, particularly the privatisation, deregulation, and liberalisation policies have paid very rich dividends. Pakistan sold several big state-run firms, including its biggest privatisation of all, the US$ 2.6 billion sale of a controlling 26 percent stake in Pakistan Telecommunication Co Ltd, to Emirates Telecommunications Corp in June 2005.

AFD provides funds for development of Vietnam's infrastructure
The French Development Agency (AFD) will provide EUR123.4 million (US$ 160.3 million) in official development assistance to help Vietnam implement three infrastructure development projects. In the first project, AFD will provide EUR80 million to help Vietnam build a railway route in Hanoi, which links a railway station in Tu Liem district with the Hanoi Railway Station in central city. AFD will also give EUR32 million to a project on upgrading a 285-km railway system from Hanoi to the northern border province of Lao Cai. The project, implemented from now until 2012, is expected to contribute to economic and tourism development in the Northern provinces, as well as to the country's regional integration. The remaining EUR11.4 million will be provided for construction of public works to prevent floods at two sections of the Sai Gon River in Ho Chi Minh City and southern Binh Duong province. Since 1994, AFD has provided Vietnam with a total ODA of EUR720 million.

Vinashin in JV with Dutch Shipbuilder
 The Vietnam Shipbuilding Industry Corporation (Vinashin) has signed a contract with its Dutch partner, Damen Shipbuilding Corporation, to set up a shipyard in the northern port city of Hai Phong. The 42-ha Damen-Vinashin shipyard will be built at an estimated cost of 30 million euros (US$ 39 million). It is scheduled to start operating after two years of construction. Upon its completion, the joint venture will manufacture various kinds of ships like tug boats, high-speed ships, and vessels for offshore service. The establishment of the joint venture marks a new development stage in the cooperation between the Damen and the Song Cam shipyard of Vinashin, which has cooperated in building SAR rescue ships in Vietnam for many years.  
 

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Asia Business Briefing, March 2007

Editorial - China pursues a continental market

Recently, Chinese President Hu Jintao travelled once again to Africa. He has visited 17 African states over the last ten months - more than any other head of state. China's political focus on Africa is unprecedented in Beijing's relations with any state or region. Considering the very regular visits of China's top leadership to Africa, the Chinese obviously see us as important. The question is, why do the Chinese regard us Africans as being so important?

SOE strategies Chinese firms are trailblazing across the continent acquiring mineral and energy assets. There are now over 800 Chinese state-owned enterprises (SOEs) active in African regions. They have a presence in practically all African economies but China's largest investments to date are in the energy endowed economies of Nigeria, Sudan and Angola - the latter is China's largest suppler of oil. According to the Chinese government, its enterprises have already invested $6,27bn in Africa. China's single largest global investment to date has been in Nigeria when China's oil major CNOOC acquired an oil concession for $2,27bn.

Welcoming investment African governments have been generally welcoming of Chinese investment. Nigeria, Angola, Sudan and Equatorial Guinea have been the recipients of the largest inflows of Chinese investment on the continent. The nature of their economies - commodity rich, pervasive state intervention in the economy, weak commercial law, and shaky public sector institutions - all lend themselves to rapid market entry. Chinese firms have rapidly been able to gain market traction in these economies. The Chinese have had a harder time in South Africa though. Market competition is greater, the mining sector is mostly wrapped up by the majors and differing cultural conditions have all conspired to thwart China's success in the local market.

Strategic drivers But what are the strategic drivers of China's foray into Africa? The securing of energy security is first. China has also set a trade target of $100bn with Africa by the end of 2010. This will make it the continent's largest trading partner. Africa is a new continental market for lesser priced Chinese exports.

But the most strategic driver of China Inc.'s venture into Africa is Beijing's long term strategy to remove its economy from international commodity markets. By acquiring commodity assets at source, negotiating prices with the recipient (African) government and securing long term supply contracts, China seeks to establish parallel markets that are removed from international commodity markets where prices are set in either London or New York. This is the underlying factor driving Chinese foreign commercial policy in Africa.

Strategic partnership

China is a key country with which South Africa needs to co-operate to promote the agenda of the developing world within multilateral organisations. There exists much potential for South Africa and China to act as strategic partners to promote the interests of the developing emerging market world.

South Africa risks, however, missing out on China's economic revolution unless our society develops a greater knowledge and understanding of the Chinese. China has become the most confident and assertive commercial player in Africa. It appears that China will over time displace Western commercial interests and political influence on the continent. But China is not the new coloniser. It is an expanding global power toward which Africa must pragmatically align itself.

Regional Business Briefs

CVRD to boost investment in China
Brazilian iron ore giant Companhia Vale de Rio Doce (CVRD) plans to invest US$ 6.5 billion this year to support its expansion in China. The investment will go into the company's nickel processing and coal mining activities in China, and also into equipment purchases, according to CVRD's chief executive officer Roger Agnelli. The company will launch a US$ 62 million in Dalian in July next year, which will churn out 32,000 tonnes of nickel products each year. Agnelli pointed out that the new product will make the CVRD the second largest manufacturer of nickel products in China. The company is also considering expanding its investment in China's coal mines, with an anthracite plant and a coke project already launched in the country. CVRD also intends to buy more equipment in China for use in power plants, ports and railways in Brazil.

Foreign firms eye joint oil projects
Foreign giants are gearing up to further tap China's offshore reserves since the country's top offshore oil firm opened an unprecedented number of blocks for international collaboration. This year, 22 blocks covering an area of 114,050 square kilometres are available for international cooperation, China National Offshore Oil Corp (CNOOC) said in a public notice. It is largest-ever offer for international cooperation in the country's oil and gas sector. The 22 blocks include three blocks in the South Yellow Sea Basin, four blocks in the East China Sea and 15 blocks in the South China Sea. CNOOC spokesperson Liu Junshan said that developing the 22 blocks will require fairly complicated technology and high-level expertise and therefore, it will be necessary to bring in international experience. Two companies that have thus far indicated interest are Total and BP.

Allianz plans to enter India's retail banking
German insurance giant Allianz is planning a retail banking foray in India. "We are examining the market in banking and asset management and are in talks with the authorities," Werner Zedelius, Allianz's growth markets operations head said. Allianz is already present in Indian insurance market through its joint venture with Bajaj Auto. "We are looking very intensively at whether we should enter India in the retail banking market," Zedelius said. "Looking at the growth patterns of the Indian economy and prospects for banking here, we see this as a very attractive opportunity," he added. Zedelius said Allianz sees India as its most important market among other emerging countries like China and Russia.

Havell's acquires Dutch firm Sylvania
Electrical equipment major, Havell's Group has acquired Europe's Sylvania, headquartered in Frankfurt in Germany, for an acquisition price of US$ 300 million. According to Havell's Chief Executive, Anil Gupta, the acquisition "is an all cash deal". Sylvania has an annual sales turnover of US$ 600 million. With the latest acquisition, Havell's will catapult into a US $ one billion company in size. Sylvania which is a popular market brand in the US, European and Latin American plants has ten manufacturing facilities across the three continents including one in Africa.

Inpex wins Indonesia exploration rights with Total
 Inpex Holdings Inc., Japan's biggest energy developer, announced that it has been awarded an offshore block from Indonesia jointly with France's Total SA. Indonesia, Asia Pacific's only OPEC member, earlier this month awarded nine oil and gas blocks to a host of energy firms, and Total won the Southeast Mahakam block in East Kalimantan. Inpex and Total each have a 50-percent stake in the block, with Total as the operator. The block is located adjacent to the Mahakam block, from which the two firms are producing crude oil and natural gas.

Hyundai to build US$ 270 million engine plant
 Hyundai Motor Co. South Korea's top auto maker, announced plans to invest US$ 270 million to build an engine plant at its US car making unit in Alabama to serve growing demand in the world's No.1 auto market. The engine plant, estimated to create about 520 jobs, will begin mass output from September 2008 and supply engines to the Alabama plant and a Georgia plant being built by its affiliate, Kia Motors Corp. Separately, Hyundai also said it would begin mass production of fuel-efficient environmentally friendly hybrid cars from 2009, with a production target of 300,000 in 2015.

Mercosur to explore Free Trade Agreement with Pakistan
Mercosur, a regional group of four Latin American countries, has expressed its willingness to sign a free trade agreement (FTA) with Pakistan. Mercosur, comprising Argentina, Paraguay, Uruguay and Brazil, is an emerging trading bloc, which is also known as Southern Common market in Latin America. According to the Chairman of the Foreign Affairs Committee of the Argentine Chamber of deputies Dr Jorge M Arguelio, South American countries view Pakistan as a 'gateway to East Asia.' He noted that an agreement already in place between Pakistan and Argentina on enhancing trade and economic ties would bolster mutually beneficial cooperation for the well being of the people of two nations.

Singapore's Banyan Tree to build luxury resort in Vietnam
 Singapore's Banyan Tree Group has been granted approval to build a luxury resort in the Chan May-Lang Co economic zone in central Thua Thien Hue province. The US$ 276.2 million project will include hotels, restaurants, sports facilities and entertainment areas, covering a total 209 ha. Once completed, the deluxe resort will serve a minimum of 100,000 tourists per year. The Chan May-Lang Co economic zone has thus far attracted more than 60 domestic and foreign invested projects worth hundreds of millions of dollars.