Diverse investment the tool of choice

Change of emphasis seen as beneficial to both sides as china focuses beyond resources

Industrial and Commercial Bank of China Ltd announced recently that it had reached an agreement with Standard Bank Group Ltd to buy a 60 percent share of Standard Bank PLC, one of South Africa's largest fiancial services providers. The deal is said to be worth about $750 million.

ICBC, a 20 percent shareholder of SBG, wants to use the business to focus on money flows between China and Africa, as well as in other emerging markets.

Jiang Jianqing, chairman of the Chinese bank, says more pressure for Chinese banks to change the way they do business is coming from the large volume of commodities trading and the consequent need for hedging resulting from the development of the Chinese economy; financial reforms such as the deregulation of interest rates and foreign exchange rates; and the two-way opening-up of capital markets.

ICBC, also the world's most profitable lender and largest bank by assets, is not alone in extending its reach into Africa, which is now a hot investment destination for Chinese businesses. The trade imbalance between China and Africa is unlikely to change in the short term, and China's increasing investment in Africa is expected to bring greater benefits to both sides, experts say.

"In future, China will not only expand trade with Africa, but also increase investment in the continent," says Li Wentao, a researcher with the Institute of African Studies at the China Institutes of Contemporary International Relations.

"Chinese businesses will co-develop with locals and put down roots locally. Bilateral trade is not significant enough to bring win-win benefits. Chinese investment in Africa will increase local employment while relocating China's excess industries to ease overcapacity at home."

Li says boosting China's manufacturing businesses in Africa, as well as speeding up technology transfer, will "greatly advance the continent's industrial upgrading and bring about true benefits, which is of most concern to locals".

"Chinese businesses will intensify their efforts in exploring African markets, and China's investment in Africa will remain robust. The rapid growth momentum of China-Africa economic ties will not change."

While China is Africa's largest trading partner, the continent is China's fourth-largest destination for overseas investment. By the end of 2012, more than 2,000 Chinese businesses had accumulated direct investment of more than $20 billion in Africa and employed more than 80,000 locals, according to a white paper published last year on China-Africa economic and trade cooperation. In the first 10 months of last year, China's direct investment in African non-financial sectors rose 71.6 percent year-on-year to $2.54 billion, the Ministry of Commerce says.

Vice-Commerce Minister Li Jinzao said last year that China-Africa economic cooperation was going through a key moment of transformation and upgrading because of increased mutual interest and demand as well as the greater scope for collaboration as the continent integrated economically.

The two parties' different positions on the global industrial ladder is the fundamental force boosting bilateral trade as well as China's investment in Africa, Li said.

Africa is an important market for China in project contracting, a key destination of overseas investment and a crucial energy supplier, while Africa needs China's expertise, technology, capital and talent for development.

In March last year, Chinese President Xi Jinping chose the African continent as one of the destinations in his first foreign trip after assuming the presidency. During the visit to Tanzania he said that China will work more closely with African countries in fields such as agriculture and manufacturing and help African countries to translate their advantages in resources into development advantages to achieve internally driven development that is sustainable.

Li says Xi's visit has helped expand economic cooperation between China and the continent. Cooperation will extend into sectors such as finance, aviation and services and take full heed of building a better environment, and projects will focus more on improving the lives of Africans.

"The trend is becoming more obvious," says Dou Hongen, a senior engineer with China National Petroleum Corporation, who spent many years in Africa and South America. Of China's investment in Africa, a higher percentage is going into local infrastructure construction to promote investment and raise local people's living standards, he says.

Guo Xia, a consultant with China Overseas Investment Institute, says helping African countries build infrastructure benefits both sides.

China now faces overcapacity in certain industries, such as steel and coal production, and transferring part of the production to Africa where infrastructure construction is in dire need of them is seen as a wise move. "In that way Africa will accelerate its development and China can better deal with challenges of overcapacity," Guo says.

"In future, China's investment in Africa and other continents will focus more on the secondary and tertiary sectors of the economy."

Talking about long-term prospects for Chinese overseas investment, Guo says agricultural processing, light and heavy industries, and other industries that need materials and labor have the potential to be moved to Africa, creating jobs there.

The Ghanaian embassy in Beijing lists oil and gas, infrastructure, real estate development and manufacturing among the fields to which it hopes Chinese investors will be drawn.

Ahmed El Ghernougui, minister counselor with the embassy of Morocco, also welcomes moves to vary China's investment in Africa, seeing it as better able to promote local economic growth.

"As far as Chinese investors are concerned, there are exceptional opportunities in industries such as aerospace, automobiles, electronics, textile and leather, off-shoring and agro business," he said in an address to a recent high-level forum on China's overseas investment, adding that "substantial investments in the telecommunications, industrial, real estate, tourism and banking sectors have seen the Moroccan economy grow significantly in recent years".

With oil and gas investment, North Africa would love to bring in more capital, but political disputes and safety issues have hindered Chinese investment.

Even though Africa has rich natural resources, its refining technology is years behind that found elsewhere, and refinery capacity is limited.

Last year, Africa's refining capacity remained flat compared with the previous year, but many countries in the region have plans to build new refineries.

CNPC Economics and Technology Research Institute says Africa plans to build new crude oil refining capacity of 80 million metric tons by 2020.

Libya plans to invest $60 billion to expand its refining capacity from the current 380,000 barrels a day to 1 million barrels a day to meet growing domestic demand for fuel and to reduce its dependency on oil product imports.

Recently, Libya had inconclusive talks with Chinese companies, BP, Royal Dutch Shell, Eni and Total on possible collaboration. The country plans to start a new round of oil and gas block bidding this year, the institute says.

During the Forum on China-Africa Cooperation in Beijing in 2012, China committed to providing $20 billion in loans to African governments by next year. China's loans to Africa amount to between $30 billion and $40 billion, of which the China Development Bank and the Export-Import Bank of China have financed roughly half each, Simon Freemantle, senior Africa analyst of Standard Bank Group, and Jeremy Stevens, Standard Bank Group's Beijing-based economist, said in a research note.

"China's policy banks still have capital available to commit to Africa," the note says. "These loans to Africa play an important role in creating opportunities for Chinese construction and engineering firms and exporters eager to move up the value chain. China Development Bank is an ideal funding source for Africa, providing more capital to the continent than any other global financial institution across all sectors. We expect loans to Chinese companies with ambitions in Africa to remain elevated, and Chinese loans to African government entities against future commodity-related revenue streams to continue."

Contact the writers at lijiabao@chinadaily.com.cn