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The Observer: China buys its future from Africa

Limited by the West, the superpower is scouring the continent for raw materials

Tim Webb and Nick Mathiason
Sunday February 10 2008

The city of Kitwe is in the heart of the Zambian copper belt. The new roads and lush green parks intersecting the shanty towns hint at the boom in copper prices, which have quadrupled in six years. But neither Zambian mining firms nor the government paid for them.

The roads and parks are a gift from China. In the past couple of years, all over Africa and Asia, Chinese-built roads, railways, hospitals and schools have been springing up. They are part of China’s relentless drive to secure access to the natural resources it needs to maintain its economy’s extraordinary boom.

In Nigeria, China has promised to spend $4bn on infrastructure such as railways, power plants and phone networks in return for preferential bidding rights over the country’s oil industry. Shell is also thought to be selling its stake in two offshore oil licences in Nigeria. The state-owned China National Offshore Oil Corporation (CNOOC) is one of the favourites to buy.

Steven Knell, energy analyst at Global Insight, says: ‘For China, doing natural resources deals with other governments is one way of getting to the front of the queue. So it says to resource-rich governments, “What do you need?”‘

China’s largesse is not always appreciated by everyone. Locals in Kitwe recall how a Chinese couple bought a newly built, empty housing compound in the city. No one was seen entering or leaving the complex, other than the Chinese. Then, in the dead of night, huge trucks arrived dumping thousands of tonnes of copper-cobalt. The minerals were then shipped out of the country.

Such behaviour has fuelled suspicion and resentment of the Chinese presence in Zambia. Some opposition politicians accuse the Chinese of exploiting the country for its natural resources. It has even spilled over into violence, with Chinese workers targeted by rioters in the capital 18 months ago.

This month, it was the turn of Rio Tinto and its takeover suitor BHP to feel the force of China’s relentless drive for resources. State-owned aluminium group Chinalco bought a 9 per cent stake in Rio to disrupt the takeover. China is worried that a combined group would have a stranglehold over iron ore exports.

And last week Chinese companies announced ground-breaking joint ventures with Russian aluminium giant Rusal and the miner Anglo American. It was also announced that Aim-listed oil company Soco International had sold an oilfield in Yemen to Sinochem Petroleum for $465m.

China’s demand for raw materials has grown massively over the past 20 years. According to Barclays Capital, the country now consumes a quarter of the world’s copper, compared with a tenth a decade ago. Last year, China alone accounted for a staggering 94 per cent of the global growth in demand for aluminium.

It also now accounts for almost a tenth of global oil demand, compared with only 3 per cent 20 years ago and 6 per cent in 2000. It is now the world’s biggest oil consumer after the United States. Until a decade ago, it could meet demand from domestic oil production. Yet, according to official statistics, it had to import 40 per cent of the oil it consumed in 2004.

China’s voracious appetite for raw materials is not the only driver behind its grab for them. After all, demand has been growing dramatically for the past decade or more, yet it is only recently that China has stepped up efforts to secure access to them. What has changed is that the new-found wealth of Chinese companies and the government means it can now make a much bigger impact. Chinalco’s acquisition of the Rio stake was the largest Chinese investment in a foreign company to date.

The boom in commodity prices over the past three years, and fears over future energy supplies, has made national energy security a priority for China. ‘It has realised that competition for raw materials is hotting up,’ Knell says.

Shujie Yao, programme director for China at GEP, Nottingham University’s globalisation centre, adds: ‘China wants to reduce the risk and uncertainty of having to rely on imports. An international conflict could jeopardise its supply of raw materials. It will feel a little bit more in control if it buys shares in natural resource companies or buys mines.’

But Kevin Norrish, from Barclays Capital, thinks the idea that China is carting off shiploads of copper, other metals and oil from Africa and elsewhere back home is over-simplistic. While many of the deals involve securing direct imports back to China, Norrish argues that China is also trying to boost global production of commodities and so keep the price it has to pay for them lower.

‘China isn’t trying to tie up swathes of the world’s natural resources so no one else can get at them,’ he says. ‘It is taking a very active role in helping meet the challenge of rising global demand. Its investment means copper mines may be built in parts of Africa, for example, that might otherwise be problematic and take much longer to get financed.’

Most of China’s largest companies are run by the state. Senior managers are government officials, so companies’ interests are closely aligned to the government’s, says Shujie Yao.

That is why Chinese companies are prepared to pay more for raw materials than foreign companies. For example, it clinched a $3bn deal with Gabon to start an iron ore mine at Belinga by promising to build a 310-mile railway to link it to the coast. Analysts say that BHP had turned down the project, deciding it was too expensive.

But for foreign companies, dealing with state-dominated Chinese enterprises is not necessarily disadvantageous. China is potentially the largest consumer market in the world, access to which is also strictly controlled by the government. Offering access to other countries will be part of the quid pro quo in the longer term, says Knell.

Much has been written about ‘resource wars’, with some strategists believing that securing access to raw materials will be the flashpoint for future conflicts. But it would be wrong to accuse China, because of its activities in Africa and Asia and the share raid on Rio Tinto, of firing the opening salvos.

For decades, oil majors such as ExxonMobil and BP were effectively arms of the state. America’s blocking of CNOOC’s attempt to buy US oil company Unocal in 2005 on grounds of national security made it clear that China would not gain easy access to raw materials in the West. This has forced it to look elsewhere, particularly countries blacklisted by the West because of their appalling human rights track records.

‘The Chinese have learnt that a good way of getting round the status quo is to go to places such as Burma,’ says Knell. ‘It knows too well that its national oil companies can’t just walk into major acreage in the Gulf of Mexico. The attitude to China is bordering on the hypocritical. We in the West wrote the book on resource nationalism.’

This article appeared in the Observer on Sunday February 10 2008 on p7 of the Business news & features section. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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