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China Flexes Economic Muscle Throughout Africa

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  • somaditya roy
    Staking a Claim: China Flexes Economic Muscle Throughout Burgeoning Africa --- Beijing Forges Deep Alliances With War-Torn Nations, Countering U.S. Influence
    Message 1 of 1 , Mar 29, 2005
      Staking a Claim: China Flexes Economic Muscle
      Throughout Burgeoning Africa --- Beijing Forges Deep
      Alliances With War-Torn Nations, Countering U.S.
      Influence --- A Dam Gets Built on the Nile

      By Karby Leggett
      29 March 2005
      The Wall Street Journal
      (Copyright (c) 2005, Dow Jones & Company, Inc.)

      ADDIS ABABA, Ethiopia -- When this east African
      country went to war against neighboring Eritrea in the
      late 1990s, the U.S. responded by evacuating its Peace
      Corps volunteers, scaling back military aid and
      issuing a security warning to U.S. citizens and
      companies.

      The Chinese government had a different reaction.
      Beijing saw the war -- and the reduced U.S. presence
      -- as an opportunity to expand its influence. It
      dispatched even more diplomats, engineers, businessmen
      and teachers to Ethiopia. New aid grants soon rolled
      in, followed by bank credits for Chinese companies
      operating there.

      Today, China's influence in Ethiopia is overwhelming.
      Its embassy is among the largest in the country and
      hosts more high-level visits than any Western mission.
      Chinese companies have become a dominant force,
      building highways and bridges, power stations,
      mobile-phone networks, schools and pharmaceutical
      plants. More recently, they have begun exploring for
      oil and building at least one Ethiopian military
      installation.

      It's all part of Beijing's broad push into Africa.
      Aiming to secure access to the continent's vast
      natural resources, China is forging deep economic,
      political and military ties with most of Africa's 54
      countries. There's more at stake than just fuel for an
      economic juggernaut, however, say senior Chinese
      officials, executives and Western diplomats. In
      Africa, as in many other parts of the developing
      world, China is redrawing geopolitical alliances in
      ways that help propel China's rise as a global
      superpower. China is courting other countries to
      support its plan to reassert political authority over
      Taiwan and seeking a counterweight against U.S. power
      in global bodies such as the United Nations. It's also
      thinking long-term, cultivating desperately poor
      nations to serve as markets for its products decades
      down the road.

      For the U.S., China's Africa initiative poses new
      challenges. Despite a landmark trade pact signed with
      Africa in 2000, U.S. influence has leveled off in many
      African countries and in some cases declined. Now, as
      Washington focuses its attention on the Middle East,
      it faces a formidable player in a region key to future
      U.S. economic and security interests.

      In oil-rich Nigeria, China is rebuilding the railroad
      network. In Rwanda, Chinese companies have paved more
      than 80% of the main roads. In more than a dozen
      African countries, Chinese firms are searching for oil
      and gas and rebuilding electricity grids and telephone
      networks. Chinese companies own one of Zambia's
      largest copper mines and run a major timber operation
      in Equatorial Guinea. In tiny Lesotho, Chinese
      businessmen own and operate nearly half of all the
      supermarkets and a handful of textile companies.

      Though these interests stretch from massive
      state-funded projects to small private ventures, they
      all share a common thread: Beijing's policy of
      actively encouraging its companies and citizens to set
      up shop in Africa at a record pace.

      "China has simply exploded into Africa, as in
      `Katie-bar-the-door stuff,' " says Walter Kansteiner,
      a former U.S. assistant secretary of state for African
      affairs. Adds Rep. Ed Royce, a California Republican
      and vice chairman of a House subcommittee that deals
      with Africa: "China's increasing engagement in Africa
      is a concern and we need to focus on it before Beijing
      becomes fully established."

      Last year, Africa supplied more than 15% of U.S. oil
      imports, and the figure is forecast to rise sharply in
      the decade ahead. Africa is also becoming a major
      global supplier for metals, timber and other natural
      resources.

      Yet in some of Africa's most promising commodities
      markets, China is now challenging U.S. and other
      Western firms for access to these goods. Since 2000,
      China's trade with Africa has nearly tripled to almost
      $30 billion. Last year, China spent almost $10 billion
      on African oil, accounting for nearly one-third of its
      total crude imports. That's twice as much as it
      imported from Saudi Arabia, traditionally one of
      Beijing's biggest suppliers. In oil-rich Angola, where
      ChevronTexaco Corp. and Exxon Mobil Corp. have large
      operations, China has become a major buyer and an
      increasingly active investor.

      Unlike the U.S., which bars U.S. companies from doing
      business with some outlaw regimes, Beijing expresses
      no qualms about dealing with the continent's most
      brutal and corrupt leaders. Instead, Chinese leaders
      prefer to view their relationship through a
      North-South prism, emphasizing the need for developing
      nations to band together against the industrialized
      West. "China is ready to coordinate its positions with
      African countries . . . with a view to safeguarding
      the legitimate rights and interests of developing
      countries," said Chinese Premier Wen Jiabao during a
      2003 speech in Ethiopia.

      What's more, many Chinese companies operating in
      Africa are government-owned and less concerned with
      near-term profits. Indeed, by reaching out to African
      leaders who are shunned by Western nations, and
      throwing money at projects Western companies avoid,
      Chinese officials and businessmen say they are able to
      secure more business deals and build political
      influence at a far more rapid pace.

      Consider Sudan, a war-torn nation set across from
      Saudi Arabia on the coast of the Red Sea. In 1997, the
      U.S. passed a law barring U.S. oil companies from
      investing there, saying Sudanese leaders had engaged
      in human-rights abuses and sponsored terrorism. In the
      years that followed, China invested more than $2
      billion in Sudan's oil industry. Today, Sudan provides
      China with nearly 5% of its annual oil imports.
      Beijing, meantime, has become one of Sudan's largest
      arms suppliers, according to foreign diplomats and aid
      workers in the region. China's foreign affairs
      ministry declined to comment.

      More recently, the U.S. sought to impose United
      Nations sanctions on Sudan amid continuing violence in
      the Darfur region, where pro-government militiamen
      have raped and murdered civilians while suppressing a
      rebel uprising. Beijing deflated these sanction
      efforts by threatening to use its veto power in the
      U.N. Security Council. Yet far from seeing itself as
      complicit in Sudanese violence, Beijing sees the oil
      project as a symbol of China's reliability when others
      have left. "It's part of our policy of long-term
      cooperation that helps both sides," says Li Xiaobing,
      a senior Africa official at China's Ministry of
      Commerce.

      A similar dynamic is now playing out in Zimbabwe. Over
      the past three years, the U.S. and European Union
      imposed sanctions on Zimbabwe President Robert Mugabe
      and dozens of his closest government officials. In
      power for 25 years, Mr. Mugabe presides over what is
      widely regarded as one of Africa's most corrupt and
      ruthless regimes. Human-rights organizations and
      Western governments regularly cite his regime for its
      use of arbitrary arrests, torture and murder to
      suppress political dissent.

      By sanctioning Zimbabwe, the U.S. and EU hoped to
      isolate and ultimately unseat Mr. Mugabe. China, as a
      matter of policy, has worked to blunt the impact,
      boosting aid and investment. Last year, it opened
      direct flights between the two countries. Chinese
      leaders still afford Mr. Mugabe huge respect. Since
      1980, Beijing has invited the president to China seven
      times, feting him at banquets. Dozens of Chinese
      leaders, including former Communist part boss Jiang
      Zemin, have visited him.

      The close ties are now paying dividends for such
      companies as China National Aero-Technology Import and
      Export Corp., or Catic. A trading company jointly
      owned by two large Chinese aerospace concerns, Catic
      between 2003 and 2004 signed a series of contracts
      valued at $300 million to rebuild Zimbabwe's
      electricity grid. It has a raft of other deals in the
      pipeline -- including possible military aircraft
      sales, company officials say. "We see Zimbabwe as a
      great opportunity, a great place to make money," says
      Wang Dawei, the company's vice president.

      A spokesman for China's Ministry of Foreign Affairs
      declined to discuss Mr. Mugabe's human-rights record,
      saying "China and Zimbabwe have a traditional
      friendship and a relationship based on cooperation."

      There is also a softer side to China's pursuit of
      Africa, one that could help Beijing if regimes that
      it's closely associated with, such as Sudan and
      Zimbabwe, are toppled. In 2000, Beijing voluntarily
      waived $1.2 billion in sovereign African debt and it
      recently agreed to bring some 10,000 African students
      to China on scholarships. Across Africa, it has
      dispatched hundreds of doctors and teachers in recent
      years.

      China's ties to Africa date back to the 1950s, when
      Beijing threw its support behind African independence
      movements as a way to counter U.S. and Soviet
      influence in the region. These days, Beijing's
      emissaries to Africa have swapped their uniforms and
      weapons for business suits and name cards. In 2000,
      China established the pro-business China-Africa
      Cooperation Forum with 44 African nations, paving the
      way for a free-trade and investment pact with the
      region.

      Few countries have felt China's influence as much as
      Ethiopia. Though China established relations with
      Ethiopia in 1970, ties were limited until the
      mid-1990s. That's when Beijing initiated a broader
      push across Africa in an effort to secure natural
      resources and political influence on the continent.

      A decade later, Ethiopia has become a reflection of
      China's wider ambitions in Africa and the changes it
      portends for the region. A poor, landlocked nation of
      68 million people, Ethiopia lacks the vast natural
      resources that have drawn China's interest in other
      countries. But it has something else Beijing craves:
      geopolitical clout in the region. Ethiopia is the
      source of the Blue Nile, the river that slakes Egypt's
      thirst. It is the meeting ground between largely
      Muslim north Africa and the Christian south. And it's
      the seat of the African Union, the political body that
      represents the continent.

      Wu Ping, a tall man in his mid-40s, was one of
      Beijing's pioneers in Africa. In 1993, he was
      dispatched to Ethiopia by Catic, the state firm
      rebuilding Zimbabwe's electricity grid. His simple
      orders: open a trade company and develop political
      relationships. Mr. Wu began by selling things like
      milling equipment for sugar cane. Later he branched
      into tractors. Though he made little money, he forged
      close relations with Ethiopian officials, partially,
      he says, by paying the occasional bribe. "Sometimes
      it's the only way to get things done in Africa," he
      says. A Catic spokesman in Beijing says the company
      has a strict internal policy against paying bribes and
      denies it's a widespread problem.

      Today, Mr. Wu cruises around Addis Ababa in a Toyota
      Land Cruiser and presides over a growing business
      empire. His latest project: an $11 million airport
      hanger that, when complete later this year, will be
      able to house the world's largest aircraft.

      To secure the contract, Mr. Wu beat out an Australian
      company by deliberately underbidding the contract.
      Though he will lose money on the deal, he says it's
      all part of Catic's strategy. "Almost every African
      leader passes through this airport to attend meetings
      at the African Union," he says, standing a short
      distance from dozens of Chinese and African workers
      working at the construction site. "So they will all
      see our hangar."

      Even more important, Mr. Wu says the owner of the
      hangar, Ethiopia Air, is mulling a large order of
      propeller aircraft, and the hangar contract has opened
      the door with officials who will play a role in that
      decision. "That's my company's real goal in Africa --
      to sell airplanes, both commercial and military," he
      says.

      Unlike Mr. Wu, Deng Guoping, general manager of China
      Road and Bridge Corp. in Ethiopia, says he's not sure
      his company will ever make money here. In the past six
      years, Mr. Guo has paved five highways stretching more
      than 300 miles. Three more roads are under
      construction and he's bidding on another three.

      In all, Chinese contractors have stitched together a
      road network that reaches Ethiopia's northern border
      with Sudan to the eastern seaport of Djibouti to the
      southern border area with Kenya. China Road secured
      most of its contracts through public tenders. Yet Mr.
      Deng says he is instructed to slice projected profit
      margins so thin -- about 3% -- that losses are
      inevitable, given perennial cost overruns in Africa.
      Western businesses, by contrast, typically pad bids
      with projected profits of 15% and more. Even so, Mr.
      Deng has his eye on a range of new projects, including
      water reservoirs, airport facilities and a railway
      project. "We're a government company and the Chinese
      government wants us here building things," he says.

      The U.S. provided Ethiopia with nearly $500 million in
      aid last year. But for U.S. companies, Ethiopia's
      small market, uncertain legal system and sometimes
      fast-changing political currents make the country a
      risky place to do business. One of the only U.S.
      companies with substantial business in Ethiopia is
      Boeing Co., which supplies Ethiopia Air with the
      passenger jets for its international routes.

      In contrast, Chinese companies say these factors
      sometimes helps advance Beijing's wider goals. The
      story of Jiangxi International Economic and Technical
      Cooperation Co., another state firm active in
      Ethiopia, explains how. A few years ago, a flood in
      Ethiopia left a few hundred people homeless. Not long
      after, Beijing pledged about $4 million to build them
      new homes. It hired Jiangxi International as
      contractor. At a ground breaking ceremony, China's
      ambassador and Ethiopia officials shook hands and
      smiled for photographers.

      About a year later, eight modern apartment buildings,
      each five floors with pink walls and blue-trim
      windows, were completed. But the homeless families
      never moved in. Instead, the complex was handed to
      Ethiopia's Ministry of Defense, which used them to
      house its own personnel. Today, a corrugated metal
      fence rings the complex, with a small group of guards
      stationed at one corner. "We don't really care who
      uses it," says a senior executive at Jiangxi
      International, requesting his name not be used. "It
      was a political task for us and so long as Ethiopia
      officials are happy, our goal is fulfilled."

      A spokesman for Ethiopia's Ministry of Defense said
      the flood victims didn't like the apartments and were
      relocated to another neighborhood, and that the
      Ministry later purchased the apartment block.

      Lately, Beijing has begun winning projects that have
      geopolitical relevance, such as Ethiopia's Takazee Dam
      -- a massive, $300 million hydro-power station that is
      rising on the headwaters of the Blue Nile River. Set
      deep in a mountainous region near the border with
      Sudan and Eritrea, the Takazee Dam has been on
      Ethiopia's drawing board for over a decade. But
      getting it off the ground hasn't been easy, thanks to
      Egypt. Cairo has long feared any project that could
      affect the flow of the Nile, viewing its own access to
      those waters as a matter of national security. Indeed,
      so great was its concern over Takazee that Egyptian
      officials have made clear that any attempt to divert
      Nile water could result in military action, according
      to senior Chinese and Egyptian officials.

      That warning scared off the World Bank and other
      international financial organizations, and also raised
      concern among potential foreign contractors. Several
      years ago, Ethiopia announced it would finance the
      project on its own. Though a handful of Western
      contractors submitted bids, the Ethiopian government
      awarded the project to Chinese companies. Since then,
      Egypt has taken a more low-key attitude toward the
      dam. Chinese engineers say there are no immediate
      plans to divert the dam's waters for other uses, such
      as irrigation.

      Today, the Takazee Dam is inching toward completion.
      Already, hundreds of Chinese engineers have carved out
      a vast administrative camp, an underground tunnel
      nearly a mile long and deep caves that will hold
      massive power turbines. Later this year, they will
      begin pouring the 600-foot-high cement dam. Once
      complete, the Takazee dam will stand as one of
      Africa's largest, and will help change the lives of
      those who live in northern Ethiopia, where electricity
      is often nonexistent. Ultimately, some of the power
      could be pooled into a regional power grid.

      That would allow neighboring countries to tap into the
      power. And it would also further China's ambition of
      expanding oil and mineral exploration in the region,
      particularly in southern Sudan. Says Girma Biru,
      Ethiopia's Minister of Trade: "China has become our
      most reliable partner and there is a lot we can learn
      from Beijing, not just in economics but politics as well."



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