Chris Alden & Martyn Davies A profile of the operations of Chinese multinationals

in Africa', South African Journal of International Affairs, vol. 13, no 1 (2006):

83-96.
'China's goal is not to overturn the world order but instead
to participate in this order and to reinforce it and even to profit
from it.'
Fu Chengyu, CEO
Chinese National Offshore Oil Corporation, February 20061
Chinese MNCs, highly competitive, supported by state, acquisition drive in developing
world. Especially Africa - rich in natural resources, under-exploited markets.
Contrast with French - close alliance between political, economic, and military interests oil company executive in particular. Has even resulted in French troops sent to African
countries to put down popular uprisings against dictators.
South Africa - Eskom - MNC blending national concerns with those of major power
supplier. Hydroelectricity in the DRC - Daniel and Lutchman:
It is little wonder then that the South African government has
committed so much in the way of time and effort, as well as
military peacekeepers, to the task of bringing political stability to
the DRC and to ending the endemic conflict in particularly the
eastern region (Ituri) of the country.
Engagement with Zimbabwe in constructive engagement/quiet diplomacy - Zimbabwes
dependence on Eskoms power.
BRICs countries in emerging market economies.
Fortune - company -> multinational when international sales >20% of its total.
China - specific conditions of historical development from command -> market economy,
unbroken one-party rule, relationship to other countries.
Ejected all Western multinationals post 1949 revolution. Built up big companies in energy,
mining, construction, but not much competitiveness.
New models - heavily reliant on political support, financial backing from the state, mining
and energy industries.
Beijing - picking corporate champions to enter Fortune 500. Preferential finance, tax
concessions, political backing to go global and become true multinationals. Build
businesses on the back of a booming home market, economy of scale.
Aspirations:
- Backward and vertical integration. Acquiring upstream assets to acquire resources,
commodities, but also douwnstream ones - retail, petrochemical, power generation.
- State resources and energy security - purchase international energy assets.

- Partnerships and joint ventures. Gains for MNCs, technological inroads. E.g.
PetroChinas tie-in with Total in Inner Mongolia, Sinopecs joint venture with Sonangol.
- Create satellite companies to quickly get in on various projects.
Chinas first movers
Sinopec, CNOOC, China Minmetals Corp - extractive.
Huawei Technologies, ZTE Corporation, Lenovo, TCL - ICT.
Claim to be private, but state dominance over them?
Energy security - international acquisition, particularly in Africa.
Chinese FDI - $37 billion, of which $4.5 billion in Africa.
State-owned China National Petroleum Corporation - oil assets in Sudan, Chad.
CNOOC - energy interests in Morocco, Nigeria, Gabon.
28% of oil and natural gas from Africa, mostly from Sudan, Angola.
Acquire assets, exert political influence in recipient markets.
'When the Chinese make a decision to start-up a strategic relationship, there are obviously
going to be strategic implications,' says Riordan Roett of Johns Hopkins University.
Diplomacy, with frequent high-profile visits by senior government officials as well as
invitations to politicians and businessmen in the target country, are a common feature of
the Chinese approach.
Challenges - high levels of debt, not much international experience. Failure to turn around
Thompson (French DVD/Television), Britain Rover Group, US firm - Maytag.
Acquisition of Unocal - political resistance.
Struggling to gain traction - negative publicity vs. protectionist lobbies in manufacturing.
Kroeber - 'unique combination of First World infrastructure and Third World labour costs
and its focus on capacity building rather than technological innovation mean that corporate
successes are more likely to be component manufacturers of processors of intermediate
goods than global consumer brands such as South Korea's Samsung.
Other problems - cultural differences, politically influenced strategies, different
management standards.
Stellar domestic economic performance, but few competitive multinationals outside energy,
heavy industry.
Short term profit/diversification of businesses, rather than longer-term technological
development, innovation.

Contrast with India - highly regulated, but never as closed as China. Large private sector,
globe-trotting elite of English-speaking executives. Can integrate into international
economy more easily.
Nandan Nilekani, CEO of Indian high-tech giant Infosys, states that Chinese managers
'think large scale, have tremendous drive and are quick at execution, but lack experience
dealing with global stock markets, marketing profit-making and communicating a vision.'
Criticised for lack of collaborative business models, no contribution to capacity building,
sustainable business practices.
Pressure - labour practices, environmental concerns, human rights.
Often questionably accountable.
Strategies in Africa - resource security, petroleum, gas. But also a late-comer. without
much involvement compared to Western countries.
In the words of He Jun, a Beijing-based energy consultant: China does not have a
competitive edge over its Western counterparts in an open market. But in a closed market
like Africa's, Chinese companies are able to gain from government influence."'
What can they benefit from? Chinese strategy centred around:
- Competitive political advantage - work with any state, including pariah states, because of
foreign policy precept of non-interference in domestic affairs of other states.
- Comparative economic advantage - use low-cost bidding, lower skilled labour, lower
managerial costs.
- Symbolic/economic diplomacy. Lavishing of diplomatic attention, prestige project,
development assistance.
>800 Chinese state-owned firms now active in African economy.
Davos, Jan 2006 - a session was dedicated to evaluating China's commercial role in Africa
in which Elizabeth Economy noted:
Whether oil in Angola, timber in Mozambique or copper in Zambia, China is breathing new
life into these African economies. All over Africa today you will see Chinese construction
firms building railroads, highways, telecoms, enormous dams, even
presidential palaces.
CNOOC - 45% stake in offshore Nigerian oil field for $2.27 billion, even though they may
have over-stated the potential returns on it.
Energy presence strong in Angola, Sudan -both states criticised, sanctioned by West.
China projects commercial power abroad - increasing strategic competition with US,
Europe.
Strategy in operation - Chinese MNC, CNOOC, failed bid to acquire controlling stake in US
oil company with large production interests in SE Asia.

$18.5 billion cash bid in June 2005. Higher than that offered by Chevron - competitor.
Chief executive of CNOOC - We aim to be a participant in the global industry, like all the
international majors, supplying the global marketplace as well.'
But American fears - US congress introduced legislation to block the takeover.
Angola. Indian state-owned oil, ONGC, thought it had a deal with Shell to assume the
lease for its oil fields from Sonangol (Angolan owner), but at the last minute, deal goes to
China.
Crucial to this - Chinese government gives a $2 billion loan to Angola (frees it from
conditional IMF lending), and provides finance, expertise, labour force to reconstruct
shattered infrastructure - $500,000 refurbishment of Benguela railway, new airport in
Luanda, building refinery in Lobito.
Nigeria - promise of $7 billion in investments, rehabilitation of two vital power stations,
willingness to sell arms to be used in Niger Delta.
Sudan - 1996 - massive program to create export industry, military hardware, diplomatic
support vs. South, Darfur.
More regulated environment, like South Africa, different role.
- Joint ventures - Sasol Synfuels International
- Lengthy negotiations that conform to international legal norms, responsibilities.
But increasingly scrutinised by media, civil society, e.g. impact of textiles on established
clothing industries in Lesotho, Kenya.
Surge in low cost consumer goods, white goods, cars - appeal to middle class consumers.
But significant impact on local labour, industries. South Africa - trade unions say 800 firms,
60,000 workers unemployed because tariffs were removed.
Employing own nationals in construction projects - denies African labour, economic/
political implications.
Not very high adherence to recipient countries labour, environmental standards.
Low wages paid to African staff in mining sector in Zambia.

Presence of Chinas businesses in Africa - quickly becoming one of the permanent

features of African economic landscape. Controversy in Africa, Western firms.
some - inevitable parts of globalisation.
Western actors - find their once undisputed influence in Africa challenged by aggressive
Chinese MNCs, in collusion with the state.

Also - undermines good governance? Concerned civil society in Africa..

The dilemma thus facing Western MNCs and donors, as well as African governments and
concerned civil society actors, is how to successfully preserve their economic interests
without undermining the structures and emerging institutions which, at least in their view,
are crucial to building successful market economies within the framework of a liberal
constitutional state. China's aversion to the promotion of the latter is a challenge to this
agenda.
But - Chinese MNCs trying to embrace parts of the corporate responsibility agenda,
especially as they become marketised.