Identifier
Created
Classification
Origin
09BEIJING288
2009-02-06 01:00:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Beijing
Cable title:  

PROMOTING CHINESE INVESTMENT IN AFRICA

Tags:  EINV EAID ECON ETRD UNDP CH 
pdf how-to read a cable
VZCZCXRO4286
PP RUEHBZ RUEHCN RUEHDU RUEHGH RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA
RUEHRN RUEHTRO RUEHVC
DE RUEHBJ #0288/01 0370100
ZNR UUUUU ZZH
P 060100Z FEB 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 2132
INFO RUEHZO/AFRICAN UNION COLLECTIVE PRIORITY
RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 2091
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
UNCLAS SECTION 01 OF 04 BEIJING 000288 

SENSITIVE
SIPDIS

STATE FOR EAP/FO -- NORRIS
STATE FOR EAP/CM -- SHEAR, THORNTON, FLATT, PARK
STATE FOR AF/FO
TREASURY FOR IA
NSC FOR LOI, PITTMAN
ADDIS ABABA FOR USAU
STATE PASS USAID

E.O. 12958: N/A
TAGS: EINV EAID ECON ETRD UNDP CH
SUBJECT: PROMOTING CHINESE INVESTMENT IN AFRICA

REF: A. BEIJING 118 B. 08 LUANDA 1023 C. 08 NAIROBI
2866 D. ADDIS ABABA 149 E. MONROVIA 73 F.
LUANDA 51 G. BEIJING 286

Summary
--------

UNCLAS SECTION 01 OF 04 BEIJING 000288

SENSITIVE
SIPDIS

STATE FOR EAP/FO -- NORRIS
STATE FOR EAP/CM -- SHEAR, THORNTON, FLATT, PARK
STATE FOR AF/FO
TREASURY FOR IA
NSC FOR LOI, PITTMAN
ADDIS ABABA FOR USAU
STATE PASS USAID

E.O. 12958: N/A
TAGS: EINV EAID ECON ETRD UNDP CH
SUBJECT: PROMOTING CHINESE INVESTMENT IN AFRICA

REF: A. BEIJING 118 B. 08 LUANDA 1023 C. 08 NAIROBI
2866 D. ADDIS ABABA 149 E. MONROVIA 73 F.
LUANDA 51 G. BEIJING 286

Summary
--------------


1. (SBU) In recent meetings with three key semi-official and
private Chinese organizations that promote Chinese investment
in Africa, all three stressed that they are paying more
attention to political and economic risk, environmental
protection, and China's reputation in Africa and around the
world. Large numbers of Chinese firms are already active in
Africa, but the earlier uncritical African embrace of Chinese
economic engagement has evolved into a more "normal"
relationship in which friction over issues such as trade
deficits, job losses, and compliance with environmental and
labor laws has become more commonplace. Nonetheless, China
remains committed to strengthening its investment position in
Africa. Post will report septel on China's official
assistance to Africa, which is run principally through the
Ministry of Commerce (MOFCOM),the China Export-Import Bank
(China EXIM),and the China Development Bank (CDB). End
summary.

CADF: Pushing 1st Billion of Equity Investment Out the Door
-------------- --------------


2. (U) At the 2006 Beijing Summit of the Forum on
China-Africa Cooperation (FOCAC),China's coming-out party as
a major new donor and investor in Africa, President Hu Jintao
pledged -- among other things -- to establish an investment
fund that would eventually allocate $5 billion to support
Chinese firms investing in Africa. According to MOFCOM,
China had already invested more than $5 billion in Africa by
the end of 2008, but President Hu's commitment was on top of
existing investment flows. It led to the June 2007 launch of
the China-Africa Development Fund (CADF),with a first phase
of $1 billion in funding provided by the China Development
Bank (CDB),one of China's three policy banks. (Note: CDB
was recently given a new mandate to operate as a commercial
bank, although sources tell us no major changes have yet been

implemented in its modus operandi. End note.)


3. (SBU) CADF's modus operandi is to participate as an equity
partner (though without a controlling stake) with Chinese
firms doing business in Africa in the following priority
sectors: 1) agriculture; 2) transportation and energy
infrastructure; 3) natural resource exploitation; and 4)
industrial parks. As a risk-bearing investor that makes no
loans, CADF does not add to African debt burdens (unlike
China EXIM and CDB, which are lenders). Li Dongya and Zhou
Chao, CADF's Managing Directors for Risk Management and
Advisory Services, told econoff that CADF is 100 percent
market-oriented, seeking only commercially-viable projects
that it will eventually be able to sell off or transfer
profitably. To date, CADF has already approved some 20
different projects in 13 different African countries in which
it will invest close to $400 million, and is working hard to
identify more. Several projects have already begun
implementation, including a power project in Ghana with
Shenzhen Energy (CADF partnered with Shenzhen Energy while
CDB provided a loan for the project),a private cotton
processing plant in Malawi, and ventures undertaken by SOE
giants China National Steel and China National Building
Materials. More information can be found at CADF's website
(www.cadfund.com). (Note: Emboff asked for detailed
information, including funding levels, on CADF's approved
projects, but was referred to the website. We have not found
much detail there either. End note.)


4. (SBU) Mr. Li told econoff that, as an equity partner, CADF
is sensitive to risk. CADF has a three-tiered system for
ranking risk in each African country that roughly corresponds
to green, yellow, and red lights. Though he declined to name
countries in any particular category, he said that there were
several in the red light category (as per reftel A, we

BEIJING 00000288 002 OF 004


suspect Zimbabwe is in this group, together with countries
suffering armed violence). Li and Zhou stressed that CADF,
though a commercially-oriented institution, is committed to
the "principles of scientific development," meaning it works
to ensure that projects it participates in abide by host
country laws and are environmentally sustainable. In cases
where the host country has low or non-existent environmental
standards, CADF will apply Chinese standards. Mr. Li also
pointed out that more Chinese companies are now using African
workers, rather than importing Chinese labor. He said these
moves are not based on altruism, but a hard-headed strategy
for avoiding adverse pressure from both African and
international stakeholders.


5. (SBU) CADF, which plans to establish a representative
office in Johannesburg in early 2009, has recently initiated
dialogues with the NEPAD Secretariat (New Partnership for
African Development -- the African Union's economic
development program, which seeks to attract investment and
espouses good governance) and with the African Development
Bank on the possibility of joint projects. Li said CADF has
also exchanged some information with the World Bank.


6. (SBU) Li and Zhao said it was hard to grade the impact of
the Global Financial Crisis (GFINC) on Chinese companies'
willingness to invest abroad, pointing out that while some
firms were hoarding scarce cash, others were perhaps seeking
to take advantage of good bargains. They said Chinese
companies operating in Africa benefit from the overall warm
ties between China and the continent, Africans' desire to
learn from China's successful development experience,
especially in developing their export sectors, and the
willingness of Chinese entrepreneurs to work hard and endure
arduous conditions. On the flip side, they commented,
Chinese entrepreneurs suffer from their relative lack of
experience in operating overseas, ignorance of local cultures
and customs, fierce international competition for lucrative
projects, and infrastructure gaps that frequently leave
factories idle due to lack of water or electricity.

CABC - Advising Chinese Firms How to Succeed in Africa
-------------- --------------


7. (U) Econoff also met with Ge Kaiyong, Director of Training
for the China-Africa Business Council (CABC - visit
www.cabc.org.cn for more info),which was jointly organized
in 2005 by the UN Development Fund, the China International
Center for Economic and Technical Exchanges (CICETE -
MOFCOM's entity for liaison with UN economic agencies),and
the Guangcai Program, a coalition of Chinese private
companies that was established in 1994 to contribute to the
fight against poverty. CABC's mandate is to support Chinese
private enterprises that want to enter the African market by
providing information on potential funding sources,
explaining African culture, organizing trade missions, and
conducting market research. At present, CABC has 280 member
companies and four satellite offices in Wuhan, Hong Kong,
Macau, and Hengshui (Hebei province).


8. (U) For the past four years, CABC has focused its work on
six core African countries recommended by the UNDP: Cameroon,
Nigeria, Ghana, Kenya, Tanzania, and Mozambique, but it plans
to expand its geographic scope this year. CABC does not have
offices in Africa, Mr. Ge said, but works closely with
Chinese embassies, host government investment promotion
agencies, and UNDP offices in those countries. CABC also
partners with CADF, China EXIM, CDB, and African banks like
Cameroon First Bank, Ghana's Echo Bank, South Africa's
Standard Bank, and the World Bank's International Finance
Corporation to help Chinese entrepreneurs find appropriate
financing. (Note: Mr. Ge said that China EXIM had been
leading the charge in financing Chinese economic activity in
Africa, but that CDB and CADF were quickly catching up. Post
intends to meet with officials from EXIM and CDB to discuss
their respective roles in promoting Chinese economic
relations with Africa in the near future. End note.)
Likewise, CABC recommends that its members consider

BEIJING 00000288 003 OF 004


partnering with Chinese state-owned enterprises in Africa,
given the resources and experience many of these SOEs have to
offer and the difficult conditions Africa poses for small
companies.


9. (U) CABC is an active match-maker. According to Mr. Ge,
it worked with UNCTAD in setting up a trade promotion show in
Nairobi in 2006, co-hosted with the Tanzanian government and
UNDP a China-Africa Business Forum in May 2008 that attracted
more than 100 Chinese and 200 African companies (CABC hopes
to replicate this event each year with a different core
African partner),and plans to be involved in UNCTAD's 12th
annual meeting scheduled to take place in Accra, Ghana in
April 2009. In addition, CABC has led annual high-level
business trips to Africa. In all of these cases, CABC
arranged briefings for the Chinese participants beforehand on
cultural and language barriers and the ins and outs of
operating successfully in Africa (with presentations by
Chinese diplomats formerly posted to Africa and African
diplomats stationed in Beijing),and then helped set up
one-on-one meetings with potential African partners. Mr. Ge
said CABC has helped members with a number of big deals, for
example, bringing a delegation from Ghana to Shenzhen
regarding the power project mentioned in para 2, which is
expected to begin generating electricity this year. He also
noted that Huawei (a CABC member) has a huge training center
in Nigeria and Huali Ketai, a Chongqing-based pharmaceutical
company (another member) doing anti-malaria work in several
African countries, is considering opening a manufacturing
plant in Tanzania.


10. (SBU) Like the CADF officials, Mr. Ge said Chinese
entrepreneurs face some serious challenges in Africa,
including the slower pace of making things happen, different
cultural and legal environments, and some self-inflicted
wounds resulting from the cavalier attitude of some Chinese
businessmen during the 2000-2006 period, when Chinese
investment in Africa was growing exponentially. There had
been a bit of a reality check since then, he said, noting
Chinese investment scandals in some African countries and
growing protectionism in others like Nigeria, which has
effectively prohibited Chinese imports of a range of textile
and footwear products. In the same vein, Wang Hongyi, an
Africa expert at the China Institute of International
Studies, commented to emboffs that if China isn't more
careful, it will come to be seen by Africans as just another
colonial exploiter.


11. (SBU) Mr. Ge said China understands the rationale for
better balancing its trade relationship with Africa, as
evidenced by recent tariff reductions on hundreds of African
imports. (Note: MOFCOM announced last week that two-way
trade reached a record of $106.8 billion in 2008, with Africa
exporting mostly raw materials and China exporting mostly
manufactured goods. End note.) With regard to poor behavior
on the part of Chinese businesses operating in Africa, Mr. Ge
said CABC is working hard to sensitize its members to
cultural, legal, and environmental issues and promote
corporate social responsibility, noting that CABC chairman Hu
Deping (son of former Communist Party Secretary Hu Yaobang,
whose death sparked the 1989 Tiananmen movement) attended the
2nd UN Global Compact Leaders Summit chaired by UN Secretary
General Ban-ki Moon in July 2008 in Geneva. The UN Global
Compact espouses corporate social responsibility standards in
human and labor rights, environmental protection, and
anti-corruption.

Private Consultant Also in the Mix
--------------


12. (SBU) Econoff also met with the head of Africa Investment
Net (AIN),a private consulting company that does the same
type of work as the CABC (i.e., education, match-making, and
3-4 trade missions annually with interested companies),
except for paying clients (both SOEs and, increasingly over
the past several years, private firms). AIN (see
www.africa-invest.net for more details) was established in

BEIJING 00000288 004 OF 004


1999 by Mr. Wang Wenming, a former MOFCOM official focused on
Africa, including a tour at the PRC Embassy in Cairo. Wang
said that business was picking up as Chinese companies were
facing a tougher economic environment at home and were
looking for overseas investment opportunities. He said his
clients were focused on establishing factories (particularly
for construction materials) and shopping centers in Africa to
serve local consumers and avoid high tariffs on Chinese
consumer products in key African markets like South Africa,
Nigeria, Egypt, and Kenya. He said there was also some
interest in agricultural ventures related to biofuels and to
growing vegetables popular among the sizable Chinese
communities in countries like Sudan (50,000),South Africa
(400,000),and Nigeria (70,000). Wang echoed the concerns we
heard at CADF and CABC about Chinese firms (especially
smaller ones) employing exploitative business practices that
sullied China's reputation and made it harder for others to
do business in Africa, and said he spent much of his time
persuading clients to follow more economically and
politically sustainable business models. Incidentally, Wang
is participating in an African Business Conference being held
February 21-22 at Harvard Business School, where he will
speak on a panel entitled "China and Africa: Friends or
Foes?"

Comment
--------------


13. (SBU) China's economic footprint in Africa is large and
will continue to grow, given the high tolerance for risk and
arduous working conditions of Chinese entrepreneurs,
Beijing's firm commitment to promoting investment there, and
the welcome mat rolled out by many African governments for
this relatively new, less-conditional, and very large source
of international financing (see reftels B-F). Though the
problems related to corporate misconduct discussed by our
interlocutors are real and may hasten the end of the
China-Africa honeymoon phase, the hard benefits to both
sides' economic interests are substantial and not going away
(see reftel G). For Africa, more investment with less
conditions. For China, access to raw materials and new
consumer markets. And while the Chinese are still willing to
do business in countries and in ways that Westerners will
not, many are beginning to understand that good corporate
practices benefit not just African communities and habitats,
but their own long-term business (and political) interests.
This is manifested not only in their rhetoric, but in Chinese
outreach to the AU's NEPAD, the Africa Development Bank,
various UN bodies, and the World Bank. This could serve as a
foundation for U.S.-China dialogue on our respective economic
programs in Africa. End comment.
PICCUTA