China’s African Inroads Shaken by Regional Political Uncertainties

Publication: China Brief Volume: 8 Issue: 21

Chinese state-owned enterprises and private companies doing business in Africa are increasingly finding their lucrative and unbridled trade and contracts mired in the pervasive domestic power struggles shaping African politics. Chinese businesses’ risk aversion to political uncertainties and their ability to remain above the fray in these endemic conflicts are being tested throughout the African continent due to changing governments and regional conflicts. This trend has been highlighted by the recent challenges facing the Chinese government and businesses in Nigeria, Zambia, and the Congo.

In a statement filed by China Railway Construction to the Hong Kong Stock Exchange on November 3, 2008, it was learned that the Nigerian government under President Umaru Yar’Adua has suspended a $8.3 billion contract to the company for building a 817-mile-long railway linking the city of Kano in the south to Lagos in the north (Forbes, November 4). The terms for infrastructure and oil contracts negotiated by his predecessor have been the target of President Yar’Adua’s administration since assuming office approximately a year and a half ago.

Zambia’s mining sector experienced a boom in Chinese investments under late president Levy Mwanawasa. The death of Mwanawasa from a stroke in August precipitated a run-off election that revealed deepening tensions over the issue of Chinese investments in that country. For example, during the previous 2006 election, in which Mwanawasa defeated his opponent Michael Sata, Sata campaigned heavily on the rising discontent felt by many Zambians toward Chinese business practices in Zambia. Mwanawasa’s successor, Rupiah Banda defeated Sata by a narrow margin of only 35,000 votes which strongly suggested that public attitudes toward Chinese investment were having a negative impact on internal politics.

Boiling tensions between Tutsi rebel leader Laurent Nkunda and the Kinshasha government in the Democratic Republic of the Congo, where the Chinese government has invested heavily for its rich mineral resources, is threatening to reignite a war that has already claimed millions of lives, and in the past month that has created a humanitarian crisis with more than 200,000 displaced persons on top of the 1.2 million already in camps (Wall Street Journal, November 4). Nkunda has called on President Joseph Kabila for direct talks to raise the issue of a $9 billion deal signed between Congo’s state-owned Gecamines with a Chinese consortium that gives China rights to extract 10.6 million tons of copper and more than 600,000 tons of cobalt. In return China pledges to invest $6 billion in infrastructure projects for roads, railroad tracks linking the copperbelt to Congo’s port, two hydroelectric dams, hospitals and schools, as well as $3 billion for mining infrastructure (The Associated Press, October 30).

As China’s footprint grows on the African continent these incidents are causing some Chinese firms to reconsider the Chinese government’s guarantees in assuming the risks of investing overseas, especially in developing countries such as Africa (Forbes, November 4).