A Chinese 'Marshall Plan' or business? By Wenran Jiang
The commitment by China last year of US$9 billion for investment in the
Democratic Republic of Congo (DRC) has made Beijing one of the most influential
players in the Congolese economy almost overnight.
Since achieving independence five decades ago, the Democratic Republic of Congo
has been ravaged by a dictatorship, war and political strife. Although large in
territory and rich in mineral and other precious raw materials, the DRC is a
failed state that has
been seemingly incapable of maintaining any semblance of stability.
With the lowest ranking per capita gross domestic product, life expectancy,
literacy rate and a host of other human development indicators, it also suffers
from rampant corruption on a level of pandemic proportions [1]. Despite an
election in 2006 and the deployment of the largest UN peacekeeping mission in
history (18,000 troops), war looms in Congo's eastern region as clashes between
rebel forces and the central government have already displaced up to a million
people.
At the same time, large-scale mining contracts and other economic activities
have flowed into the DRC in recent years owing to the global boom in demand for
raw materials. China is a relatively newcomer in this new scramble.
Changing domestic priorities
China's relations with the DRC after its independence in 1960 have been bumpy
at best. While Beijing established revolutionary "brother-in-arms" relations
with many other new African states immediately after their colonial occupiers
departed, China-DRC diplomatic relations were interrupted twice, and finally
stabilized under president Mobutu Sese Seko in 1972. After Laurent Kabila
overthrew Mobutu in 1997, bilateral ties continued to improve, and the past
decade saw impressive growth in bilateral trade.
China has strategically shifted away from actively supporting radical
ideologies around the world in the 1960s and 1970s and moved toward becoming a
major economic investor that proclaims neutrality in political matters.
Reinventing itself as the world's manufacturing power house has resulted in
rapid growth of China's demand for energy, minerals and other resources. As
indicated in the bilateral trade volume figures at the Trade Law Centre for
Southern Africa, Chinese imports from the DRC more than quadrupled from 2004 to
2007 [2].
Despite the DRC's dismal business environment, China's demand for copper,
cobalt, other minerals and the vast potential of the DRC to provide these
metals have driven a range of large, medium-sized and small Chinese companies
and banking institutions into the heart of the largest country in Africa. These
companies have built some impressive landmark buildings such as the national
parliament, the People's Palace and the country's largest outdoor venue, Stade
des Martyrs (The Martyrs' Stadium). China's Huawei Technologies Corporation has
been laying and upgrading the Congolese telecommunications and Internet
infrastructure. China has also provided training for students through other aid
programs as a part of its overall African engagement strategy [3].
A Chinese 'Marshall Plan'?
Yet the aforementioned projects are dwarfed by the massive $9 billion,
multi-year multi-project deal that the two countries signed in 2008.
Negotiations began in the autumn of 2007 for the amount of $5 billion, and
another $3.5 billion was added later. Under the terms of the deal, the
Export-Import Bank of China pledged a $9 billion loan and finance to build and
upgrade the DRC's road (4,000 kilometers) and rail (3,200 km) systems, for
transportation routes that connect its extractive industries, and to develop
and rehabilitate the country's strategic mining sector
In return, China secured copper and cobalt concessions. The country will gain
rights to extract 6.8 million tons of copper and 420,000 tons of cobalt (proven
deposit). The operations are expected to begin in 2013 [4].
The DRC National Assembly approved the agreement in May 2008. After some
adjustment on the Chinese side, three major Chinese companies, China Railway
Group, Sinohydro Corporation and Metallurgical Group Corporation, controls a
total of 68% of a new joint venture, Sicomines, with the rest held by Gecamines
and the DRC government [5]. By May 2008, 150 Chinese engineers and technical
personnel were already in the DRC working on the new joint venture.
The scope of this infrastructure in exchange for resources agreement is
unprecedented in many ways. The promised investment is more than three times
that of the DRC government's annual budget ($2.7 billion for 2007). The Chinese
ambassador to the DRC hailed the deal as only the beginning of China's active
promotion of its relations with the DRC. Congo's Infrastructure Minister Pierre
Lumbi praised it as a "vast Marshall Plan for the reconstruction of our
country's basic infrastructure".
Other than long-distance road and rail construction, the package includes two
hydroelectric dams and the rehabilitation of two airports [6]. If fully
disbursed, this will be the single largest Chinese investment in Africa. No
other countries or international financial institutions have come close to
initiating such a massive project in such a short period of time.
Many see the influx of Chinese capital as hope that the DRC can finally move
forward with some desperately needed infrastructure development. President
Joseph Kabila stated, "For the first time in our history, the Congolese people
can see that their nickel and copper is being used to good effect." Yet critics
have lashed out at the arrangement as a sellout of DRC's natural resources.
They argue that the entire arrangement is a ruse intended to veil the
Kinshasa's corrupt regime's scheme to grab money at the expense of ordinary
Congolese. Others have argued that the deal is bad for Congo due to the huge
profits for China. Yet others claim that the Chinese investment will further
fuel armed conflicts raging in the most resource-wealthy parts of the country.
It is difficult to arrive at a precise estimate on the mineral profits for
China's initial investment. Estimates have ranged from $14 billion to $80
billion. But with the recession hitting many major developed economies, metal
prices have declined sharply in recent months. For instance, copper has dropped
to about $3,000 from $9,000 per tonne at its peak [7]. Based on various
calculations, Chinese profits will have to be adjusted to the market situation.
It is hard to imagine, with such a large fortune at stake, that Beijing would
want to see the DRC destabilized. If anything, it is in China's fundamental
interests to build a more secure environment for its long-term presence. That
may explain the specific clause in the agreement which specifies that native
Congolese workers will compose 80% of the work force on all projects.
The Lubumbashi copper boom and bust
It is too early to make definitive conclusions about the $9 billion mega-deal
as many Chinese copper extractors and smelters in the southeast province of
Katanga have clearly gone through a business cycle of prosperity and decline.
When the worldwide demand for copper and cobalt increased, especially from
China, many Chinese enterprises, ranging from large to small, went to the
mining city of Lubumbashi to set up extraction smelting operations. While the
large firms were securely financed and planned to lay the foundations for a
long term relationship, many medium-sized and small companies, with limited
financial flexibility, went to Congo in the hopes of making a quick buck [8].
But after the Congolese government placed a ban on raw ore exports in 2007,
these small businesses became mainly involved in processing and trading and
found that, even in the midst of the copper rush, earning a quick profit was
far from easy.
Unlike well-established Western companies with integrated mining and processing
operations, many new Chinese firms were set up only for smelting. They depended
heavily on raw materials collected from individual manual miners and once the
furnace was up and running many of them found that they did not have enough
supplies. More experienced Western firms, on the other hand, could secure
supply for the furnaces from their own large-scale mechanized mining
operations.
When the Katanga provincial governments implemented new regulations, demanding
that the processor of minerals must supply the raw materials from their own
mines, many small Chinese smelting plants were forced to stop their operations
due to a lack of resources and increasing cost. While some simply diversified
into trading activities for large firms, others were stuck with their
investment in land, plant and other equipment [9].
Contrary to popular perception that the all-powerful central government is
behind all the advances of Chinese enterprises, almost none of the medium-sized
and small Chinese companies receive any kind of governmental assistance. There
is not even a Chinese consulate in Lubumbashi [10]. A provincial government
minister told the author that there were very few cultural exchange activities
between China and the Katanga province, something quite in contradiction to the
assumption that China is facilitating its commercial interests through a
variety of cultural and socio-political initiatives.
The continuous decline in metal prices has resulted in more than 300,000
workers losing their jobs in the mines and factories around Lubumbashi. Renewed
fighting and turmoil in the east has also adversely affected the security
situation in the resource-rich province. In one recent development, more than
10 people, including one Chinese citizen, were killed in Lubumbashi. The
government security forces are stretched thin and skyrocketing unemployment is
making the city more difficult to manage.
Another 'great game' by the great powers?
Despite the deteriorating business operating environment, many Chinese and
international businesses continue to expand in the DRC. "There is still money
to be made," as the chief executive of a medium-sized Chinese mining firm told
the author last autumn. However, the situation has grown increasingly bleak due
to the country's shaky stability and falling commodity prices.
The long-term outlook for China's role in the DRC is not clear (the same can be
said for China's overall strategy toward Africa). Even if Beijing's $9 billion
infrastructure for resources project is fully implemented, China will remain a
newcomer in the Western-dominated mining sector of the DRC. For example, the
6.8 million ton copper deposit concession to the Chinese side is only about
two-thirds the amount controlled by a single American firm, Freeport - operator
of Congo's huge Tenke Fungurume mine [11].
Yet there are indications that the United States and other Western countries
are concerned about Chinese intentions in the DRC in particular and in Africa
in general. There is also an emerging debate on whether the ongoing war in
North Kivu province, in the far east of the Congo, is the result of the growing
rivalry between the United States and China in the DRC [12].
In a country that has 10% of the world's copper and one-third of its cobalt
reserves, 75% of Congolese live below the poverty line. It is too early to tell
whether Chinese investment actually improves the lives of ordinary Congolese or
whether it merely serves to intensify the competition among the great powers
for the control of the world's natural resources and adds to the misery of the
local population. Notes
1. UNICEF, Statistics on Democratic Republic of the Congo, available
here.
2. Gilbert Malemba N'Sakila, "The Chinese Presence in Lubumbashi, DRC," The
China Monitor, Issue 24, October 2008, Center for Chinese Studies, University
of Stellenbosch, p7.
3. "Millicom Awards Major Network Contract to Huawei", News from Huawei's
corporation website, April 13, 2008.
4. Hannah Edinger and Johanna Jansson, "China's 'Angola Model' comes to the
DRC," The China Monitor, Issue 24, October 2008, Center for Chinese Studies,
Stellenbosch University; Alfred Cang, "China Railway to Fund $2.9 Billion Congo
Mining Project," Reuters, April 22, 2008, Dow Jones Factiva.
5. "DRC: Loan Tensions," Economist Intelligence Unit - Country Monitor, August
18, 2008, Dow Jones Factiva.
6. Timothy Armitage, "DRC Outlines US$9.25 Billion Deal with China", Global
Insight Daily Analysis, May 13, 2008, Dow Jones Factiva.
7. The author's own calculation based on data available at ca.advfn.com.
8. This section is based on the author's field research and interviews in
Lubumbashi and surrounding areas, September 7-12, 2008.
9. Ibid.
10. Ibid.
11. Calculation based on "Mutual Convenience", The Economist, March 13, 2008.
12. F William Engdahl,
China's US$9bn hostage in the Congo war Asia Times Online, December 2,
2008.
(The author would like to thank Stellenbosch University's Center for Chinese
Studies, Johanna Jansson and Simin Yu for providing field-trip support and
research assistance.)
Wenran Jiang is a professor of political science and director of the
China Institute at the University of Alberta, and a senior fellow at the Asia
Pacific Foundation of Canada. He is the editor of the forthcoming book,
Fueling the Dragon: China's Energy Demand and Its Implications for Canada. The
views expressed in his publications are his own and do not reflect the
institutions with which he is affiliated.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
