China Swaps Gusto for Rigor as It Learns From Africa – by Franz Wild (Bloomberg News – June 3, 2014)

China’s gung-ho foray into Africa is waning. As trade with the continent surpasses an annual $160 billion, its companies are avoiding risk by taking smaller stakes in projects close to making money.

Cowed by capricious commodity prices, political instability and a string of lost investments, Chinese financiers aren’t as gutsy as when state-owned giants used their heaps of cash to propel the nation’s “Go Out” drive and whip up business abroad 15 years ago.

“There was a lot of enthusiasm and momentum,” said Clement Kwong, whose Beijing-based Long March Capital Ltd. clubbed together with other investors last year to take over a South African gold company. “That momentum is definitely reined in by a new level of risk aversion and caution.”

China surpassed the U.S. as Africa’s largest trading partner in 2009. Trade volumes soared 11-fold in the decade through 2013, according to data from the Geneva-based International Trade Centre. The quest for profit now trumps the wider aim of creating a Chinese footprint abroad.

Smaller private companies are taking the lead from the state-owned giants that prepared the ground. After many African leaders doubled back on the initial fervor for China, the new players are less conspicuous and score quicker returns.

China’s enthusiasm for the mega-deals of the past, such as the landmark $2 billion oil-for-infrastructure accord with Angola in 2004, is tempered by failures.

China’s Missteps

Gabon scrapped China Machinery Engineering Corp.’s $3.5 billion project to develop the Belinga iron-ore deposit in 2012, while a Chinese copper-cobalt mine in Democratic Republic of Congo has been delayed as the companies await legislation guaranteeing tax exemptions.

Jinchuan Group Co. Ltd.’s search for nickel and copper in Tanzania failed in 2011, when the world’s fourth-biggest nickel producer realized it wouldn’t get a license to dig up a nature reserve. Project leader Jianke Gao was sent to build a South African mine as Chief Executive Officer of Wesizwe Platinum Ltd. (WEZ) Jinchuan had bought a 45 percent stake.

“Before coming to buy a project here, Chinese companies will now do more research before making a decision,” Gao said in an interview. “When Chinese investors come to other countries to invest, there are lots of examples of failure.”

Libya gave China its biggest wakeup call, when the 2011 civil war forced Chinese construction companies to abandon billions of dollars worth of equipment and business, and 30,000 Chinese workers were evacuated.

Political Calculations

“We need to price in things like regime change and the cost of operating in a somewhat less than transparent environment,” Kwong, 47, said wearing a checked shirt, blue jeans and white sneakers and sipping iced coffee on the terrace of his Johannesburg hotel. South Africa’s business hub is Kwong’s base from which he looks for other African acquisitions.

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