From Sandton to Shanghai

(Not a NASA lift-off, but China’s Shenhua rocket that propelled the country’s first manned space mission in 2005. Photo: Xinhua. )

As the new millennium winds on, many people will look for concrete evidence that China has indeed arrived on the world superpower stage. If you are looking for a definitive date, then diarise the year 2020 when China plans to send its first man to the moon.

Thus far, there have only ever been 3 countries in the world to send humans to space. In 2005, China became the newest member of the 62.1 mile high club. It joined US astronauts and Russian cosmonauts when its taikonauts (from 太空 - ‘taikong’ or ‘outer space’) blasted into the heavens on a Shenzhou spaceship in 2005

USA and Russia both staked their claim to superpower status during the height of the cold war. Their competing space programmes signified the apex of global military and technological advancement. But it was only the USA that was able to sustain this advantage and put a man on the moon in 1969. In 1972, Eugene Cernan was the last man on the moon and both China and the USA are speculating that the year 2020 will see a lunar return after half a century’s absence. My money will be on China.

While China’s space ambitions are not a state-held secret, what is unique will be its method of delivery. Very simply, China is in dire need of a overarching goal to drive its national agenda once the Beijing Olympics and Shanghai Expo are resigned to the history books. It is my belief that China’s next big national goal will be its space programme. More specifically, this generation of Chinese citizens will be compelled into the 21st century by seeing a Chinese person on the moon in 13 years time.

The Chinese having a saying: “旧不去，新不来” which basically means if the old does not go out then the new can not come in. At the moment, Shanghai and Beijing are the hotbed of China‘s national development goals. These are driving China‘s modernizations and its rise to global prominence. Just about nothing happens in Beijing that is not linked to some pre-Olympics goal and ditto goes for Shanghai’s hosting of the World Expo in 2010.

In Beijing this means teaching taxi drivers to speak English, cutting down on the fake DVD sellers on the roadside, banning spitting in public, encouraging metro manners and getting people to walk on the right side of passage. It has also meant massive infrastructural investments in new subway lines, high-speed trains, airport modernizations and of course hugely impressive sports stadiums and related infrastructure.

In Shanghai, the dawning of the World Expo in 2010 has meant (amongst other things) the construction of an 18km bridge to Chongming Island, adding a few dozen more metro stations to the grid, increasing the font size of local street signs, testing the world’s first 4G cell phone network and demolishing 3km of prime land on the banks of the Huangpu River.

In this light, the Chinese government has shown strategic smartness to the highest degree. There is nothing to smooth-over the difficult transition of moving a fifth of the world’s population from a communist to market society quite like having big aspirational goals on the horizon. This type of socio-economic evolution is painful at best and creating a sense of ‘future hope and present progress for the greater good’ is an imperative chasm-crossing feat.

Ever since I arrived in China, I have had much respect for how well the Chinese are capitalizing on the opportunity of hosting 2 of the 3 biggest events in the world. In some ways, I am also seeing the many lost opportunities that South Africa seem to be passing in the night as our Soccer World Cup stage draws closer.

Sure, we will hold a successful World Cup beyond all the eternal pessimists of the world that sell newspapers or who we have thankfully forever banished to Australian and New Zealand shores. However, where are the big housing, education and crime goals that should surely be proactively addressed through such a unique cause to unify the nation around?

However, realizing the just how important the Olympics and World Expo are to China’s bigger national cause and global interests, I have always been fascinating to ask “What Next?” There is little else on the global calendar to compare. What China needs is a massive externally focused goal. These are its characteristics:

• Bigger than just a city centric goal like Shanghai or Beijing
• From 2010 to 2020. Beyond this is too intangible a time span
• Aspirational goal of the highest possible military and technological achievement

This goal needs to combine China’s unique assets: its immense financial capacity, the long-term planning capabilities of an autocratic government, large doses of national pride and vast pool of intellectual resources to draw on. There is nothing else as tangible or logical to accommodate all these facets as putting a man on the moon. Not only is this something to unite the country around, but it is something that says to the rest of the world that China has finally arrived.

There are some shortcomings to contend with. China is often judged for where it is going rather than where it is. The reality is that it is many (many, many) years behind the USA’s current space prowess. It is catching up really fast and it has the extra capacity to catch up even faster. Money, smart vision and a big national goal can get a man on the moon and this is what inspired the US in the 1960s.

The second issue is one of pride. Simply putting a man on the moon is doing what the USA did 50 years ago. The Chinese definitely don’t want to emphasize that for all their advancement, they are still miles behind the USA. So expect the rhetoric and tweaks to come in so as to differentiate the two space programmes. While China is not the threat that Russia was, it is still a proud nation to contend with.

As I write this, China’s first lunar probe, Chang’e, is circling the moon and I am sure that China’s top brass are already contemplating the next big thing. With this in mind, I am happy to stick my neck out to predict that:

• The space programme will be China’s next big national goal after 2010
• The next person on the moon will be Chinese

(Source: Xinhua. Hot off the press. One of China’s first ever lunar photos taken by Chang’e I and published on 26 Nov 07)

Rather strangely, China has made virtually no investments in major multinational miners. In 2006, Larry Yung made a small blimp on the radar screen by purchasing a 1.1% (USD800 mn) stake in Anglo through his company China Vision Resources.

Investing in a multinational mining company is a highly sensitive, politically challenging task for China. Any Chinese company that has the ability to do so also has strong government ownership and this turns an equity purchase into an issue of national interest rather than a pure business transaction.

At the same time, China is finding itself in a difficult position. It is still heavily reliant on companies such as Rio Tinto, BHP Billiton and Anglo American for its supply of key resources such as iron ore, high grade coal, copper and nickel. Rising commodity prices are placing pressure on manufacturing costs and resource sustainability – the backbone of China’s current economic rise to fame.

The ‘hot off the press’ news that the China Development Bank has bought a 1% stake in Rio Tinto. It comes at a very revealing time indeed. Rio is currently subject to a hostile take over by BHP Billiton. According to a Daily Telegraph article, if successful, this super-sized merger would give the company a 40% control of the iron ore market. As a crucial commodity to its manufacture-driven economy, China currently consumes half the world’s iron ore supply.

A merger of this magnitude would definitely be detrimental to China’s iron ore bargaining power. By purchasing a bigger stake in Rio, China Development Bank could thwart BHP’s acquisition plans. It would also as the perfect excuse for China to make its first big investment in a major mining stock. This would probably be one of the few times that a company like Rio would actually welcome China taking a significant stake in them.

There will be some hard bargaining and Mandarin translation going on in the Rio Tinto boardroom. And if that fails then attention will shift to the next most likely prospect…

Photo courtesy of China Daily

After ICBC opened Chinese and South African eyes to a new world of investment possibilities, there must to be a number of large Chinese companies taking a closer look at South African service sector companies with a large African footprint.

There is not a huge amount to choose from that satisfy these criteria while allowing for a significant level of investment , but here are two companies to keep eyes your on:

MTN

MTN’s name has already been bandied about by the South African press as a possible target for Chinese investment. It has the widest coverage of any cell phone company in Africa, its making a lot of money on the continent and has a strong presence in countries where China has already invested significantly. These countries include Nigeria, Zambia, South Africa, Angola and the DRC.

Sanlam

(Click here for the a report on Sanlam’s Developing Markets prospects)

Sanlam is another interesting prospect. It has a presence in Botswana, Kenya, Ghana, Tanzania, Zambia and is looking at expanding into Nigeria. While Sanlam’s Africa strategy is not yet properly developed, it does have the potential for African expansion to suit a Chinese emerging market focus. The Chinese insurance sector has also recently seen the IPO of two massive companies and this has given them capital to burn. Of course, the Chinese sector has much room for development, but China’s insurance heavy weights will already be contemplating international strategies.

(The world’s 3rd and 5th tallest buildings are etched in the background of Shanghai’s oldest tea house. Photo: Julian Hewitt)

China is a confident nation. You have to be to call your country the Middle Kingdom. One only needs to look at a Chinese map of the world to see that China and not Europe is placed in the centre. As a Eurocentric country, to South Africans it seems only natural that Europe should be in the middle of the globe. After all, the Greenwich Meridian runs through London and not Beijing.

However, Beijing has its own meridian and if you stand in Tiananmen Square, you stand in the very heart of the Chinese world. Look north and you see the Forbidden City – home to Ming and Qing dynasties and site of the Imperial City during the Mongol Yuan Dynasty. Rather significantly, the newest edition to Beijing’s sacred meridian is the Olympic Stadium.

It was in 1421 that China was last open to the rest of the world. After a fire ravaged the Forbidden City, it was taken as a sign that heaven’s mandate to the emperor was under threat. China, as is custom after long periods of history, closed ranks on the outside world. Foreign envoys were recalled, books burned and China’s advanced navigation programme stopped in its tracks.

It took another 400 years for Western colonial powers to pry an unwilling China from its reclusive shell. But China was not quite ready to face the world. The country was weak and divided. It took an extended struggle by the Communists to win the hearts and minds of the peasants in overcoming China’s Nationalist Party, who then fled to Taiwan. Under the ruthless leadership of helmsman Mao, a long divided China became reunited. As the Chinese say, if the old does not go out, the new cannot come in.

Subsequently, China was been reclaiming its global status. Hong Kong and Macao are back in the Mainland fold. Taiwan’s influence has been whittled down to diplomatic relations with just over 20 of some of the world’s most insignificant nations.

Meanwhile, the country’s economic machine has been powering full steam ahead - smoothing over the chasms of moving from a communist to a market economy with relative ease. China has been like a coiled spring waiting to be sprung. History will recall how Deng Xiaoping launched China’s Special Economic Zones in 1979 that would become the engine behind the south and east coast’s economic revival.

Towards the end of 2001, under the rule of the Central Communist Party, China took a real great leap forward in joining the ranks of the World Trade Organisation. Now the country awaits the Beijing Olympics with trepid anticipation. The world will be invited back to China on a scale not seen for over 500 years.

While the planet is becoming more China centric, in China’s mind the country is merely coming round the full circle. After all, the country was the most technologically advanced nation on earth in the Middle Ages and through its sheer size, China can also claim to have been the world’s largest economy for 1700 of the last 2000 years.

Australia’s opposition leader and head of the Labour Party, Kevin Rudd, made a lasting impression on the world’s second most powerful man. Much to Chinese President, Hu Jintao’s delight, at a recent APEC meeting, Kevin addressed President Hu in fluent Mandarin – the fruits of having served as a diplomat in Beijing for a number of years.

With this in mind, I am earnestly hoping that Comrade Zuma has also picked up some Chinese from his struggle days.

(The old and the new of Shanghai. Our first apartment is in the distance. Photo: Julian Hewitt)

Bordering the East China Sea on one side and flanked by the Huangpu River on the other is Shanghai’s Pudong District. For all intents and purposes, Pudong is the golden child of the Chinese economy. The reason for this is that it does what no amount of facts, figures, GDP growth rates and statistics can ever do – and that is quite simply that Pudong puts a face to China’s economic miracle.

Go back 15 years and Pudong was essentially a smattering of low lying buildings and a collection of small scale agricultural plots supplying fresh produce to the city. Fast forward to 2007 and Pudong’s riverfront vista has to be one of the most impressive skylines in the world. Take Johannesburg’s tallest buildings and you would need to double their height to get a proper sense of Pudong’s scale.

Stare across the river at night and a rocket-like TV tower adorned with giant red spheres rises almost half a kilometer into the sky. Its impressive structure is bathed in light to capture every ounce of your imagination. To its right two massive skyscrapers compete for attention. The Jin Mao Tower stands at 88 storeys and has recently been eclipsed as the 95 storey World Financial Centre nears completion.

Someone one said that Pudong’s rice paddies were watered with money and it is a great metaphor to describe the frenetic-paced development taking place here. This really struck home when I recently tried to locate our flat using Google Earth’s satellite imaging. Instead of a huge complex that housed over two dozen, 30 storey apartment blocks, I found a vast track of dusty land and an old Chinese community nestled in the top corner.

The image on my computer screen had a rather surreal museum-like quality to it, and I felt a compulsion to locate other Shanghai landmarks I knew had not escaped the passage of time. Whole blocks of Shanghai’s old town replete with mazes of alleyways and old men playing Chinese Chess on the side of the road now stood in forlorn states of demolition. A massive swathe of industrial land between Shanghai’s bottom two bridges has been completely flattened to give way to what will blossom into the city’s 2010 World Expo venue.

It seems that Shanghai’s history is measured in months and years, not decades and generations. It’s the sort of change that affects living here on a month to month basis. For example, when we first arrived in the city, a gravel road connected our flat to my wife’s business school. Now, a brand new 2-lane highway has taken its place. The metro line I travel on everyday has been extended by 4 stops and a brand new line bisects it one stop up.

But it is the sheer scale and ambitions of the city’s development that I find most exciting. Shanghai’s 4000 plus skyscrapers already exceed that of New York City. The city’s 130km long metro line has another 400km in the planning or construction phases. The total figure will soon surpass the length of the London Underground. At the same time, the world’s longest trans-oceanic bridge is currently under development between Shanghai and the major seaport of Ningbo to the south. The 36km long bridge will reduce the current 4 hour journey to 1 hour.

To try and get a sense of the city’s dynamism, I enjoy frequenting a coffee shop alongside the Huangpu River to absorb myself in the many facets of the fascinating vista in front of me. The Huangpu is definitely no Riviera, so there are no yachts, no cruiseliners and no private jetties to be seen. It is a dirty, muddy coloured working-river punctuated with a plethora of barges going about their daily coal carrying, ore transporting duties.

The river makes for a perfect canvas to describe Shanghai. On the Pudong side, the massive skyscrapers and one of Asia’s most important financial hubs tower over the river. On the opposite bank, the elegant sophistication of classy sandstone buildings point to Shanghai’s strong colonial influences. In one panoramic view, Shanghai’s cosmopolitan past, industrial present and aspirational future make for rather odd acquaintances that merge into the city’s present.

If you go beyond the glitzy shopping malls and watch the city at work, whether it is the investment bankers in Pudong or the huge informal recycling community, you can start to tap into the essence of the city. What Shanghai does have in large doses is the kind of edgy energy than seems to punctuate some of the most dynamic cities in the world.

It is the same raw energy that you will find it in places like Johannesburg or New York City. Like Shanghai, these cities are melting pots of civilizations that attract people from far flung corners to play out their greatest dreams, or at the very least, to be standing in the theatre of those more fortunate.

There can be something quite disconcerting about watching the world change in front of your eyes. I like to call this the privilege of change – the opportunity to quite literally watch a society transform in front of you. I was lucky to live through South Africa’s political transformation and now I am living in the middle of one of the greatest economic miracles in modern times.

Despite all the paradoxes that change brings, there is one thing that I am certain about in Shanghai. While money does not grow on trees, it can do wonders for dusty tracks of land and rice paddies…

(Because this cement plant is on a tourist route near the Yantze River, plans are afoot to move it a couple of valleys along. Out of sight… Photo: Julian Hewitt)

Much has been said about China’s political and economical challenges. The reality is that China’s biggest challenge will not come from either of these tightly controlled and well managed aspects of society. China’s biggest problem will be environmental.

Mao once famously said that a revolution is not a dinner party, and the Industrial Revolution that swept across the Western world in the 18^th and 19^th centuries was by no means a pretty affair for the environment. The Industrial Revolution gave rise to great fossil fuel-guzzling, coal-burning factories that massively increased air pollution and chemical discharges.

China’s industrial revolution is hardly a walk in the park either. The difference is that Britain industrialized a population of less than 20 million and the USA went through the same process with under 100 million. China is walking down the same path, but with 1.3 billion people and it is doing so under the microscopic scrutiny of the West.

There was no internet, Greenpeace, Al Gore and Kyoto Protocol to maintain accountability 2 centuries ago. Nor were there delicate trade issues to consider. When a Dutch research team recently announced that China had overtaken the USA on the pollution stakes, it was splashed across the American newspapers, but received scant attention here. China rightly claims that it has 4 times the population of the USA and most of its industrial output ends up in the American homes anyway.

However, there are different issues at stake. China has more localized problems to be concerned about. There has been a rash of publicity regarding defective and hazardous Chinese products hitting international shelves. A few examples include contaminated toothpaste, deadly dog food, and according to the New York Times, seafood that was stopped 391 times at the USA border last year. Essentially, what were isolated issues has now become a serious bout of negative publicity for Chinese foodstuffs

These problems have found their way back to South Africa, right to the doorstep of my hometown. High levels of cadmium have been discovered in South African pineapples after local farmers unknowing used contaminated Chinese fertilizer. Shipments of canned South African pineapples have subsequently been rejected by the EU, after they were found to contain high levels of lead, arsenic and the carginogenic cadmium.

Bear in mind that for every case of contamination reported overseas, there are hundreds more happening on a daily basis in China. Addressing defective products is not that complex. What is required are many more balances and checks – tighter legislation, greater consequences for overstepping the boundaries and increased manpower to monitor product safety standards.

In a sign of growing urgency, the former head of China’s Food and Safety industry watchdog - Zheng Xiaoyu – was recently executed after being convicted of taking bribes to register substandard medicines. These inferior medicines resulted in the deaths of at least 10 people. Much attention has been given to this landmark case. To put it in a more Chinese way, it was a question of killing the chicken to scare the monkeys away.

The real challenge is to address the causes and not the symptoms though. While superficial issues rage around the global media, China has a much bigger fire looming in the background. The problem is not a complication one. China is still largely driven by manufacturing output. The manufacturing sector has large energy requirements as inputs and large amounts of effluents are discharged into the environment as outputs.

If this process is not competitive, then business moves to Vietnam, Myanmar or India. Using coal for energy is less expensive than sustainable energies and discharging untreated chemicals into the local river is cheaper than treating them.

However, when a massive lake has been so polluted from industrial discharges, that huge swathes are covered in a poisonous algae and the adjacent city of nearly 5 million people can’t even boil the water to make it potable, then your environmental challenge becomes a question of social harmony.

When this same incident repeats itself in nearby lakes and affects other large cities, then these isolated incidents soon become trends. This then leads on to a question of priorities. What is more important – a city with high economic growth or one with lower growth but where you can at least drink the water when you have boiled it.

The big issue at stake is that environmental challenges are less predictable than next year’s economic growth rate, next month’s trade surplus with the USA, the appreciation of the Chinese currency or even the next country president. Less predictable means less manageable and therefore more risky. The next outbreak of SARS or the next occurrence of poisonous algae has a much more direct impact on the man on the street than next month’s global trade figures.

(Shanghai’s impressive skyline viewed from the lofty heights of the Jin Mao Building Photo:Laurette Moolman)

Time to Return the Compliment

For too long, South Africa has viewed China as a nation of cheap textiles and import quotas. There are much bigger opportunities and threats to grapple with on the very near horizon. China has a pragmatic view of its relationship with Africa and it is time we returned the compliment.

When Standard Bank issued a recent cautionary that a transaction of material nature was soon to be announced, it was clear that a big shake up was headed the way of the South African banking industry.

A big deal was afoot. For it to be material, the imminent investment had to be over 25% of Standard Bank’s R150 billion market capitalization. The money market soon provided further clues. Since the notice was publicized, the Rand had strengthened considerably. It was a sure sign that the market was already pricing a foreign purchase into Standard Bank.

Standard Bank and ABSA have the largest African footprint of South Africa’s Big 4 banks, but ABSA had already been snapped up by Barclays. Most American and European banks were still recovering from the sub prime mortgage debacle and were in no mood for international acquisitions. It looked like a Chinese bank was in the running.

Since ABSA was already under foreign ownership, the Competition Commission loomed as a large obstacle for any company braving a majority purchase in Standard Bank. Chinese suitors have access to money and not international management expertise, so a minority stakeholding was most likely.

Armed with these facts, 2 days before the official announcement, it would have been possible to make an informed prediction that a Chinese bank was buying a minority stake in Standard Bank.

A Lesson in Pragmaticism

In a similar lesson in pragmaticism, any rudimentary analysis of mining opportunities in the DRC would have pointed to the fact that it would have had to be high on China’s wish list. After all, the DRC has the largest untapped mineral resources in the world and had a complete lack of infrastructure to mine it.

This was the perfect situation for an increasingly risk averse China with regards to exploiting mining situations in Africa. Given that China already has significant oil and raw material investments from Sudan and Zimbabwe to the most unstable parts of Nigeria and Ethiopia, a sizable investment in the DRC was only a matter of time.

Again, when China announced a USD5 billion mining development and infrastructure package to the DRC, the world seemed to have been caught off guard.

Rather than be astonished by China’s foreign investment strategies, it is essential for South African decision makers to step back and look at the situation from a rational perspective.

China’s first wave of investment in Africa was state-driven around national interests and focused on developing sustainable supply lines for oil and energy extraction. South Africa was largely left out of this investment loop as Chinese money flowed into Nigeria, Angola, Sudan and Zambia. In many ways China was a direct competitor to South African mining and construction companies with an African agenda

China has a very comprehensive investment plan for Africa. It has already invested heavily in continent-wide mining, construction and infrastructural projects. China’s assumption is that this will also equate to a bottom line impact on the economic development of the countries being invested in.

As it is, Africa’s recently strong economic growth rate is riding the wave of a largely Chinese-fueled commodity boom. Higher growth rates are supporting increased household spending on goods and services. South African companies boast a significant African footprint and are in a prime position to benefit for this. From China’s viewpoint, they make for attract investment vehicles.

The Second Wave is just Beginning

The second wave is just beginning. Massive Chinese state owned enterprises are listing for the first time. In the space of 5 years, the global capital market has shifted from New York to Shanghai and Hong Kong, buoyed by a rampant Chinese stock market.

Make no mistake of the size of these Chinese companies. Their market capitalization might be propped up by over exuberant mainland investors, but Standard Bank’s new partner – ICBC – is 60% larger than its closest USA banking rival. Keep in mind that China has 1.3 billion consumers to tap into - 400 million of whom own cell phones and another 100 million who surf the internet.

These huge enterprises are cash flush from recent listings. They have capital to burn and global ambitions to pursue. While most companies still have significant government ownership, the second wave of Chinese investment is driven by business opportunities.

For shrewd local investors and local business leaders, it is crucial to weigh up two important facets. Firstly, keeping tabs on big Chinese IPOs is important as this will inform the source and sector of future global and South African investments.

Prophetic Insight

Secondly, an analysis of South African service sector companies with a large African presence is essential to predict future Chinese investment patterns. Linking these companies and their sectors to their respective listed Chinese counterparts will provide prophetic insight.

ICBC’s investment in Standard Bank was the biggest international investment China had ever made. If Sasol’s USD6 billion Coal to Liquids programme sees the light of day in China, it will be the single largest FDI into the country. As a relatively small economy, South Africa has the scope to play a surprisingly influential role attached to the coattails of an emerging economic giant.

We do however need to get closer to the action and be less surprised by the possibilities that are emerging from China. A rather large second wave is already hitting our shores.

DRC’s sun rises in the East

Julian Hewitt
05 October 2007

China’s recent announcement of a $5-billion loan to the Democratic Republic of
Congo to develop national infrastructure and mining interests seems to have taken
the world by surprise.

International mining companies and institutions such as the World Bank,
International Monetary Fund and African Development Bank have been scrambling
to find out more details of the Chinese deal that might have severe repercussions on
their own activities in the country.

China’s move, however, is far from unexpected. In fact it makes complete sense
from a Chinese perspective. The DRC is one of the most mineral-rich countries in
the world. It has an abundance of raw materials, such as copper, cobalt, diamonds,
uranium, manganese and gold. Of these copper, uranium and manganese occupy
top spots on China’s hit list of minerals that have strategic national value. The loan repayment terms will be primarily in the form of mining concessions to
Chinese companies.

China missed out on the first scramble for Africa and has had to settle on riskier
environments to satisfy its voracious mineral appetite. It took only two years after the
dust settled on Angola’s protracted civil war before Chinese oil companies were
setting up shop in the country. Further examples of China’s risk aversion include significant oil interests in Sudan and the recent purchase of a ferrochrome mining company in Zimbabwe.

What counts massively in China’s favour is the high-level diplomatic support that
accompanies its mineral and energy investments in Africa. Having direct government
backing helps to decrease the vulnerability of doing business with unstable regimes.
China has another ace up its sleeve that is unmatched by global mining companies.
This is the huge infrastructural backing it can lend to countries such as the DRC.
Instead of benefiting from its enormous mineral wealth, the DRC has been racked by
a 30-year-long civil war, leaving its economy in tatters and the country lagging near
the bottom of the world’s poorest nations list.

A 2005 Organisation for Economic Cooperation and Development country report
says 80% of the DRC’s population lives on less than $0,2 a day. Only 5,7% of the
population have access to electricity and less than 5% of the country’s 57 700km
road network is tarred. What mineral wealth the DRC has is being whisked out the
country’s porous back doors.

Although only 1% of the country’s arable land is under cultivation, the agricultural
sector was responsible for a staggering 50% of the country’s GDP in 2003.
As part of the loan agreement with China, $3billion will be allocated to infrastructural
projects. These include a 3 400km highway, a 3 200km railway link with Matadi on the Atlantic Ocean, 31 hospitals, 145 health clinics and two universities. One has to
wonder how much more favourable the global reaction would have been if it was the
World Bank announcing these terms rather than China.

The other major value add from the Chinese perspective is that the Zambian
Copperbelt cuts a swathe through the southeastern corner of the DRC. China has
invested more in Zambia’s mineral resources than in any other African country. The
Zambian Copperbelt is the location of China’s first special economic zone in Africa.
In addition, China’s proposed highway will link up to Zambia, which puts the DRC and
its mineral reserves in easy grasp of the TanZam Railway to Dar es Salaam.
Despite institutional misgivings about all things Chinese in Africa, China’s forays into
the DRC can only add value to a country that has been going nowhere slowly for
three decades. In fact, it is hard to imagine a better lifeline coming from anywhere
else.

From Sandton to Shanghai

Julian Hewitt
11 April 2007 11:59

Yesterday started with a walk to our local expo centre - the one whose white, wave-like roofs catch my eye very time I stare out at the view from our 20th-floor alcony.

Normally, a R10 taxi ride would have sufficed to get to the expo centre in Shanghai. There is something eeply gratifying about walking to a place when you now other people would have travelled across the world to get to the same spot.

Business people from around the world make the long lights, expensive hotels and jet lag part of the price ag to get into the city now at the centre of the world economy.

After a scenic riverside walk, we arrived at our destination half an hour later, showing our international passports to get in free of charge. The trade fair is one of Shanghai’s largest and one that fills up every inch of space that nine aircraft-hanger-like halls can offer. Last year, the six-day fair brought in USD3,3-billion (about R24-billion) of business, not far off the GDP of many African economies.

Walking through rows and rows of consumer goods, sports equipment, ornaments and clothing, it was easy to start imagining the same products lining the shelves of Clicks, Mr Price and Cardies back at home. The Chinese mean business and this is a place of one-stop deal-making. Not only can you purchase just about any consumable the Chinese economy can deliver, there are fancy restaurants to charm the buyers, meeting rooms to
negotiate the deal, translators to bridge the language divide, legal services to
help with contracts, police offices for disputes and freight companies to get the
goods safely home.

Later, we found ourselves in a much smaller school hall helping to sort out clothing donations from expats that were being boxed up and sent to far away, poverty-stricken Yunnan Province. These are just some of the contrasts that make up daily life in Shanghai.

It was not that long ago that I had the idea of moving from our Sandton home to live in Dube, Soweto. I wanted to experience a different dimension of our country. My Zulu was conversational at best, but I had spent time working with a number of primary schools in Soweto and felt drawn by the strong sense of community.

But Wayne Gretzky, Canada’s renowned hockey player, once famously said that the trick is not about skating to where the puck is, but rather skating to where the puck is going to be. And, from a South African point of view, China looked like the place to be heading to — not only is the world becoming a smaller place, but China is playing an increasingly bigger role in the global goldfish bowl.

And so, instead of Soweto, my wife and I have now been living in Shanghai for half a year. As opposed to brushing up on my Zulu, I have been studying Mandarin at a top local university for the past semester. It seems like two incompatible decisions — Shanghai or Soweto — but life nowadays is all about dealing with paradoxes. In this case, it was a question of balancing local knowledge and global awareness.

While China is part of the daily business news in South Africa, while companies like Sasol, SABMiller and Naspers have made big strides in China and while Africa is a big part of China’s global picture, the bridges that straddle these divides are not very wide. Take Shanghai as an example. Shanghai is a city of 20-million people and the financial face of China. In the whole city, there are a total of three South Africans studying at local
universities and, at a guess, less than 10 young professionals making a career here.

On the governmental side, although South Africa has good relations with its Chinese counterparts, I have been told that there are few if any Mandarin speakers in either the department of trade and industry or the department foreign affairs.

Compare this to Australia, which has a whole team of Mandarin speakers working within their governmental trade negotiation unit. Perhaps we are catching up. In July this year, the first employees of the department of foreign affairs leave Beijing as fluent Mandarin speakers after an intensive language programme.

But the point remains: for all the opportunities that China opens up to South Africa, and for all the challenges it poses, there is much scope for us to learn the language and understand the business and cultural aspects of a society that is rapidly shaping international affairs.

China changes rules of resource game

Julian Hewitt: COMMENT
13 February 2007

When I left South Africa, a talk by Clem Sunter titled “China’s Game” was ringing in
my ears. Clem talked about the rules of the game China is playing in its
unprecedented drive to industrialise a 1,3-billion strong population. What struck me
was China’s dependence on natural resources to continue its impressive growth
trajectory. One of the major rules of China’s game requires it to establish massive
and sustainable supply lines to secure resources that fuel its vast factory-floor
economic model.

Of course, this is the major pillar behind African-Chinese trade. Africa has the
undeveloped resources China so desperately wants. In testimony to this growing
trade and development cooperation, Chinese President Hu Jintao has visited Africa
five times since 1999 and Premier Wen Jiabao has already toured the continent on
three separate occasions. Depending on which side of the fence you sit on, much
has been said about China’s new “colonial” role in Africa or the massive development
opportunity for the continent to dovetail on China’s great economic ambitions.

There are a couple of interesting factors that make up China’s drive to secure
mineral resources and energy assets. The first is the sheer scale of the undertaking.
China has a massive population and burgeoning economy to support. The other is
the role of the state in securing these resources. This is a national prerogative, which
is not unique in itself. However, the fundamental difference is that the Chinese
government plays a prominent role in meeting these strategic requirements, while
most other governments rely largely on the invisible hand to meet a rising supply and
demand needs.

At China’s disposal is an army of state operated enterprises (SOEs). Long a
backbone of a previous, more socialistically inclined, era, the more effective SOEs
have subsequently embraced a world of initial public offerings (IPOs), international
acquisitions and foreign contracts.

China’s ruling party has entrusted them with a mandate to pursue resources deemed
to be of strategic national interest — iron ore, nickel, zinc, oil and gas and copper,
among others. The SOEs have political backing, massive credit lines from local
banking institutions and increasing international business acumen.

A sign of things to come is the Belinga Project in Gabon. Purported to be the largest
untapped iron-ore reserves in the world, a Chinese consortium came head to head in
the contract bidding with Brazil’s CVRD — the world’s largest iron-ore producer.
Because Gabon’s iron-ore reserves are situated deep in equatorial forests, massive
infrastructural costs have excluded previous iron-ore suitors. Enter the Chinese
consortium, which offered to a) build a new railway line 560km into the jungle, b)
construct a deep-water harbour from which to export the iron ore, c) develop a
hydro-electric dam to supply electricity to the project, d) finance the initiative, e) bring
in Chinese labourers to build it and f) offer to buy the entire mined output.

Not surprisingly, CVRD got blown out of the water in the bidding process — few
companies on Earth would be able to compete with such a comprehensive undertaking.

A recent “secret” meeting at the World Economic Forum in Davos, Switzerland, was
held between the heads of more than a dozen of the world’s largest mining
companies. The six-hour think tank highlighted what a growing concern Chinese
encroachment in Africa was becoming. The group — ironically given the
colonialesque title of “the governors” — sought to find ways of curtailing China’s
immense interest in Africa, which is rapidly displacing their exposure on the
continent. They are considering appealing to the World Bank and United Nations for
help. What “the governors” are rapidly realising is that competing with
government-backed Chinese companies is beyond their capacity. The World Bank
estimates that, last year alone, China spent more than $10-billion on infrastructural
projects in Africa as part of its capacity for-resources exchange.

There is a flip-side to China’s foreign mining exploits. The debate started in earnest
when in 2005 China’s Minmetals made an audacious takeover bid to acquire
Canadian miner Noranda — then the world’s ninth-largest copper and third-largest
zinc producer. A strong nationalistic Canadian backlash revolved around the
argument that Minmetals was a state-owned company and local officials were not
comfortable with a foreign SOE acquiring an important industry on home turf. The
deal was eventually scuppered and other Chinese SOEs have faced many similar
subsequent acquisition challenges.

Bear in mind that China has more than a trillion dollars in foreign reserves from
spiralingtrade surpluses. One of the reasons it is reluctant to completely open its
currency to market forces is the inevitable appreciation of the Chinese yuan against
major currencies such as the United States dollar. Even a “small” 10% depreciation
will wipe off $100-billion from Chinese reserves — enough to finance the estimated
project costs of Gabon’s Belinga Project 169 times over. It has to be tempting for
China to reduce currency exposure on its monolithic foreign reserves by investing in
foreign resources, killing the proverbial two birds with one stone.

Whatever the future holds for China’s quest to build its resource supplies, the rules of
the game will definitely be different from those of the corporate game being played at
present.

And Africa will be a key part of the playing field making us all rather interested
participants or observers.