China owns 5% of Ukraine

Originally posted on China Daily Mail:

Ukraine city scene

Ukraine city scene

Ukraine to be China’s largest overseas farmer. Three million hectares will eventually be used to provide grain and meat for Chinese consumers

China will plough billions of yuan into farmland in Ukraine that will eventually become its biggest overseas agricultural project.

The move is a significant step in China’s recent efforts to encourage domestic companies to farm overseas as China’s food demand grows in pace with urbanisation.

Under the 50-year plan, Ukraine will initially provide China with at least 100,000 hectares – an area almost the size of Hong Kong – of high-quality farmland in the eastern Dnipropetrovsk region, mainly for growing crops and raising pigs.

The produce will be sold to two Chinese state-owned grain conglomerates at preferential prices. The project will eventually expand to three million hectares.

Ding Li, a senior researcher in agriculture at Anbound Consulting in Beijing, said the deal…

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China invests in Greece, a gateway to Europe

In 2011, China held an estimated $3,2 trillion foreign currency reserves, of which 70% were US treasury bonds. In Europe though, after six consecutive years of recession, Athens, which is currently benefiting from the biggest bailout in western history, is under great pressure to privatize and sell its assets to try and curb a debt load  projected to reach 185% of GDP in 2013. China’s state-owned CIC (China Investment Corporation), which invests China’s monetary reserves abroad, has mostly invested in low-risk German euros and not in risky Portuguese and Greek bonds. However this opportunity to get a foothold inside the European Union is unprecedented and bilateral trade has risen to $3,38 billion in 2012. China is now a major investor in Greece, and is both seen as saviour and a menace throughout the EU.

As Europe’s biggest passenger harbour and one of its top 10 container terminals (20 million passengers and 1.7 million containers in 2011), Piraeus harbour is clearly the most strategic shipping gateway to southern Europe and the Balkans. In 2008, COSCO (China Ocean Shipping Company) acquired the rights to operate Piraeus for 35 years (with an extra 5 year option). This state-owned company,  the world’s fourth-biggest container shipping company by volume, administrates pier II since 2010 and is building pier III (due in 2015), pier I still being operated by a Greek firm. COSCO initially spent €4,3 billion on its deal with OLP (Piraeus Port Authorities – owned at 75% by the Greek government). It has also invested $400 million to modernise pier II in 2012 and is currently looking to invest a further €1 billion in OLP (acquiring up to 60%) during the Greek privatization plans. This massive investment is paying off as cargo volume has more than tripled since the dragon has settled in Greek’s historic harbour in 2010. From this point of view, the chinese takeover is well regarded in Greece, as the increased activity generates more taxes and COSCO pays €100 million each year to the Greek government for the lease. The drawback is that with its money, the chinese firm has brought what Greek Unions call “Chinese working conditions” to Europe. COSCO has managed to bring down the costs to 40% of what they are in the Greek Pier I. It has reduced Union power and wages, hiring unskilled cheaper workers. It has also reduced the number of workers: of the 1000 Greek workers in Piraeus, only 200 work for the Chinese and whereas the Greek Unions workers require 9 workers to operate a gantry crane, COSCO only requires 4. The Unions argues that too many risks are taken for the workers but COSCO insists Pireaus benefits not only the government but also the people by creating new jobs.

Pireaus also benefits the Chinese government which is thus gaining a foothold in the EU and expanding its control over maritime transport. For example in November 2012, COSCO signed a deal with Hewlett Packard, the world’s largest PC manufacturer, to transport its goods to Europe and the middle-east through Piraeus. This includes an average of 20 000 containers per year of computers and electronics made in China shipped directly from Chongqing to Athens. Other companies such as IKEA, Dell, LG and Sony are also interested in similar deals to shorten the shipping time from Asia to Europe (4 to 6 days less compared to Rotterdam). Through COSCO, China is establishing a new transport hub in the EU to compete with Europe’s first container harbour. To strengthen Piraeus’ position, train and plane infrastructure is being built around the port to dispatch the goods in the region and in the EU: China has bought a Ship-to-Rail transshipment facility and a packaging centre near Piraeus, but Greek companies are also flourishing to respond to the demand. Finally, Piraeus is also important on a political level: although not a military naval base, it asserts Chinese presence in the Mediterranean. It was for example able during the Lybian civil war in 2011 to evacuate 4600 Chinese citizens quickly and independently. This shows that besides stimulating the economy locally, China’s main incentive is to establish itself in the Mediterranean and in the EU.

Benefiting from the privatisation program set by the EU-IMF bailout, China is also seeking to secure other assets in Greece and its islands. It has expressed interest in other ports in Crete and Thessaloniki (Greek’s second port mainly serving the Balkans) and no less than 37 regional airports. Especially, it has the highest bid for Athens International Airport in which Hochtief (a German construction company) holds 40% up until 2026. Indeed China is negotiating a €500 million 20-year concession contract  to take over from 2026 to 2046. Furthermore, the global economic downturn means that EU and US investment is not as readily available, a void eagerly filled by the dragon. China and Greece have set up in 2011 a joint $10 billion fund offering Greek ship-owners low-interest loans (who are struggling on the international market) under the conditions that new ships be built in Chinese ports ; a “tied-loan” technique already seen in Venezuela. HuaWei (a Chinese telecom company) has also invested in HTO (Hellenic Telecommunication Organisation), supplying telecom equipment and replacing traditional European partners. The bailout is having another unexpected effect on sino-hellenic relations as Athens seeks higher income from tourism, one of the pillars of its ailing economy. Like the other sectors, tourism in Greece has decreased in 2012 due to a lower number of European tourists and high-spending Chinese (around $1000 per trip, one of the greatest spenders in the world) are longed for to fill the gap. The government has eased visa procedures in an attempt to attract rich Chinese tourists resulting in an increasing number by 15-20% each year. Thus in most Greek economical sectors, China seems to be stepping in where the western partners are failing, on one hand helping the Greek to sustain their economy and earning their praise and on the other establishing themselves as an essential power in the country and inducing wariness.

solar panelBeyond infrastructure, another inovative sector interests China in Greece: solar power. The dry and sunny climate is ideal to harvest solar energy and China’s state-subsidised firms have invested heavily in the industry since 2011. Sky Solar Plants (Chinese) invested €250 million to acquire licence and construction permits to produce 70 MegaWatts and SinoSolar secured a €35 million deal with FylloEnergy to produce another 110 MegaWatts of electricity. Furthermore, the state-owned energy group Dongfang (from Chengdu) signed a €2,5 billion deal with Greek DTS (Digital Tracking Systems) to produce solar panels and wind turbines in two projects of 750 and 250 MegaWatts. DTS supplies patented technology that optimizes panel orientation, however, as in all the other deals, the solar panels must be Chinese manufactured, the shipment being facilitated by COSCO. The obvious drawback is the destruction of Greek production which cannot keep up with the Chinese competition. Beijing argues that it is sustaining and promoting Greek green energy during the economic crisis, helping to reach the EU low-carbon objectives and providing cheaper electricity in Greece. Also, being part of the EU electricity grid, exported solar power increases the Greek government’s income. This once again shows the ambivalence of sino-hellenic relations.

China is opening a new Silk road through the Suez canal to Piraeus thus gaining access to the EU trading bloc. By investing in the Greek infrastructure (ports, airports and rail) and reducing the shipping time by a week from Asia to Europe it hopes to control the transport and distribution of its goods to the EU and middle-East. This is emphasized by the transformation of Piraeus into a new major hub for transport from Asia to the EU. Making the most of the economic crisis and mass privatization, China is moving in where the EU and the US are moving out. Although this directly benefits the Greek government by sustaining growth, China cannot be portrayed as a saviour but as a country moving its pawns on a global scale to penetrate the EU market and position itself in the Mediterranean by conducting business in a vulnerable country with aggressive investment and tied-loans policies. Although Greece certainly needs strong partners and immediate cash-flow, it must especially, with the EU, promote its own production capacity.

China in Venezuela: loans for oil

Despite its frequent anti-american rhetoric (which should not stop with Maduro’s election), Venezuela remains largely financially dependant of the US. It does not brag about this and has been seeking throughout the Chavez years to escape the US sphere of influence. It is quite naturally that the socialist state, since Chavez’s election in 1998, has been turning more and more towards China. Indeed, Chavez visited China 6 times in his 14 year rule in attempts to integrate its alternative world system. The energy-hungry dragon on the other hand has very clear objectives in Venezuela: securing through investment and loans a fair share of the world’s largest recoverable oil reserves.

al jazeera

Chavez on the Great Wall

In the past decade but especially in the past 3 years, bilateral trade has soared more than exponentially from $500 million in 1999 to $7,5 billion in 2009 and over $20 billion in 2012 (PDVSA). China is now Venezuela’s second trading partner after the US  (Venezuelan trade ministry). In 2012, 65% of oil exports went to Venezuela’s traditional oil partner, the US, through its american subsidiary Citgo ; China was in second place with 20%. These numbers clearly show China’s new interest in the world’s 10th largest oil exporter (2012). More importantly, according to the US Geological Survey and the OPEC, Venezuela holds the world’s largest oil deposits in its Orinoco Oil Belt (although mostly heavy crude which needs important refining) and contracts are up for grabs. The oil industry, which accounts for 95% of the country’s exports, is controlled by PDVSA (Petroles de Venezuela), a state owned company created in 1976. The process of nationalisation of oil resources continued in 2007, when Chavez nationalised the Orinoco Belt projects, giving the state a minimum 60% ownership in all joint ventures. In these difficult conditions for foreign investors, China has two great advantages compared to its Western counterparts which are independence from the US and money.

Indeed, China is Venezuela’s biggest creditor. Venezuela’s difficult economic situation (growth of 6%, high inflation at 20%, budget deficit at 20%, growing public debt at 50% of GDP in 2012) means that it cannot easily borrow from global capital markets to pay for Chavez’ expensive social programs. Beijing and Caracas established a Joint Investment Fund in 2007 with an initial investment of $4 billion by China and $2 billion by Venezuela later boosted to a total of $12 billion in 2009. This fund is mainly used for investment in infrastructure, energy and agricultural projects. A study of Latin America funding by China in 2012 by Trufts University confirms another advantage of Chinese lending over the West as seen in Algeria: banks do not impose any policy condition on borrowing governments and generally have low environmental guidelines. These “tied loans” do however require equipment purchase and oil sales. For example the China Development Bank lent $500 million to PDVSA to buy machinery and equipment for oil drilling with contracts mostly awarded to Chinese-owned companies. Thereby, China serves as an alternative to international banks for financing with low rate loans, while securing access to Venezuela’s oil at a fixed low price and creating business opportunities. Beijing has lent $46,5 billion since 2008, which represents over half of the loans the country has received (95% are loans-for-oil).  Thus Venezuela is becoming oil-debt dependent which is naturally a great advantage for Chinese state-owned companies in trade deal and contract negotiations.

PDVSA

Venezuela oil fields – Orinoco oil belt

In the Chavez era, China has invested heavily in raw material. First and foremost in oil: China imports about 10% of its global oil imports from Venezuela – 600 000 barrels per day in 2013 aiming to reach 1 000 000/day in 2015. Of these, 270 000 barrels/day are to repay debts, for a price sometimes as low as $5/barrel according to wikileaks. Chinese state-owned companies have also been awarded many prospecting, drilling and refining contracts offshore and especially in the vast Orinoco belt. Sinopec and CNPC both have established joint ventures to exploit reserves and build refineries in the Junin area while CITIC (China Internatioal Trust and Investment Corporation) and Sinohydro agreed to build condominiums in the Junin and Carabobo areas. China has also invested heavily in Venezuelan mining.  Aside from contracts to build industrial condominiums and 33 000 homes in the belt, CITIC has also been awarded a joint ventures in 2012 to explore the Las Cristinas gold and copper mine in Bolivar state, which is one the world’s most important gold reserves. Chavez nationalised the gold industry in 2011, in effect expropriating Canadian “Crystallex” from the mine, who is still at the moment seeking compensation with the help of the World Bank. This is a good example of the shift from Western to Chinese investors and especially to CITIC which is one of Venezuela’s Chinese creditors. Furthermore, like with PDVSA, Venezuela’s stade-owned mining company CVG (Corporacion Venezolana de Guayana) agreed in 2010 with WISCO (Wuhan Iron and Steel Corp – China’s 3rd steel company) on fixing long-term iron ore under the market prices compared to other South American competitors (such as Brazil’s Vale). This shows China’s ability to negotiate cheaper raw material and secure new important contracts after years of domination by the US and other Western powers.

China’s investments are not limited to natural resources and are diversified. Many projects are under way enabling technological transfer to Venezuela.  A joint venture railway company was launched in 2009 controlled at 40% by CREC (China Railways Engineering Corp). More importantly, China has built and launched Venezuela’s two satellites. The first, a geostationary telecommunication satellite called Simon Bolivar, was launched in 2008 from Sichuan in China. The controls were handed over to the Venezuelan government in 2009 after the training of Venezuelan engineers. The second, a monitoring satellite called Miranda, was recently launched in 2012 from Gansu also in China and was widely greeted in Latin America as a great technological leap. China has also launched many joint ventures in electronics with factories built in Venezuela allowing a full transfer of Chinese know-how. In 2009, Venezuela’s first cellphone company, VTELCA (Venezolana de Telecomunicaciones), was set up as a joint venture between the government and Chinese state-controlled telecommunications company ZTE. The factory produces the “Vergatario” for Venezuelan and Caribbean markets which, highly subsidised by the Venezuelan government, is sold about $7 and may well be the world’s cheapest cellphone.  Most workers (housewives and labourers) come from surrounding villages and are trained and supervised by the Chinese while ZTE supplies parts and know-how. A last sector where China is operation a technological transfer is in the Agricultural sector with the establishment in 2011 of a joint venture in between PDVSA (70%) and Heilongjiang Beidahuang Nongken Group (30% – China’s largest agricultural company). Indeed, China which has a poor amount of arable land, is expanding its agricultural companies abroad to diversify its imports. In Venezuela, the company provides machinery and labourers as well as a greater variety of seeds in return of approximately 20% of the harvest. Again, China’s main priority is to secure resources and conduct business but Venezuela is thereby achieving a great technological leap.

Indeed, China is investing in Venezuela for energy security but also for business and profit. Beyond the numerous bilateral benefits, it has two main negative aspects on China and its international relations with the US, but also on Venezuela and its economy. For example, due to the transport distance (it takes about 40 days to ship oil to China) and refining problems, Chinese state-owned companies sell up to a third of Venezuelan oil locally for profit (there is a noticeable gap in between PDVSA export and Chinese import figures). China however wishes to conduct business in South America without raising tensions with the US, either by enforcing Venezuela’s anti-american rhetoric or by challenging their presence in their “back yard”. Thus, although mainly conducted by state-owned companies, China has to put great effort into separating its business from its politics contrarily to Venezuela. As for Caracas, one of the consequences of raised dependence on oil exports is the decrease of other business due to the “Dutch Disease”. This effect takes place when important natural resources export increase the value of a country’s currency, thus making other exports more expensive and less competitive. A good example in Venezuela is in the textile industry, where it is becoming cheaper to import Chinese textile than to produce it locally (which once again indirectly benefits China).

Beyond these difficulties, prospects are good for China-Venezuela relations, even after Chavez’s death. Since his election, Maduro has already promised that his first trip abroad would be to China. He even said “the best tribute that we could give to our Comandante Chavez is to deepen our strategic relationship with our beloved China”. China seems evermore poised to secure new deals in Venezuela’s oil-economy and eventually buy stakes in debt-ridden PDVSA if it is denationalised. Talks have also started in 2012 to establish a free trade agreement with Mercosur. The dragon’s strategy of tied loans and loans-for-oil means it is at the same time securing resources and creating business through its investment. Although not risk-free, it is clear that Venezuela will need Chinese funds in the future and should respect the deals even in the case of a collpase of Maduro’s government. It is also establishing itself as the second power in the Caribbean region and in Latin America. China will have to be careful not to push the continent into a bipolar balance of power and not confront the US but rather build partnerships with it, so as not to hinder its “peaceful rise” global strategy.

Quotations from Chairman Mao

A selection of the 427 quotations from Chairman Mao – The little Red Book published in 1964.

>> Chapter 21: Self-reliance and arduous struggle

1956- The hogs of the commune must be raised to be fat and big!

1956- The hogs of the commune must be raised to be fat and big!

  • In times of difficulty we must not lose sight of our achievements, must see the bright future and must pluck up our courage.
    - “Serve the People” (September 8, 1944), Selected Works, Vol. III, pp. 227-28.
  • We must thoroughly clear away all ideas among our cadres of winning easy victories through good luck, without hard and bitter struggle, without sweat and blood.
    - “Build Stable Base Areas in the Northeast” (December 28, 1945), Selected Works, Vol. IV, p. 84.
  • What is work? Work is struggle. There are difficulties and problems in those places for us to overcome and solve. We go there to work and struggle to overcome these difficulties. A good comrade is one who is more eager to go where the difficulties are greater.
    - “On the Chungking Negotiations” (October 17, 1945), Selected Works, Vol. IV, p. 58.

Cuba and China: a communist understanding?

The Caribbean’s largest island and China have natural political ties. The fall of the Soviet block in the 90s, in addition to the US embargo, has lead to a business boom in between both countries, especially in the last decade. China is now Cuba’s second trade partner (after Venezuela) and its share is rising as traditional European and Mexican partners decline. The dragon is evermore becoming an alternative to the US and its allies.

Political ties have always been strong, as Cuba was the first Latin american nation to recognize China and establish diplomatic relations in 1960. However both countries started to interact and intertwine over a century before that. After England’s abolition of slavery in 1833, many southern Chinese labour workers migrated to Cuba, from 1850 to 1880, on 8 year contracts to work in the plantations. Although work conditions were deplorable (prompting the Chinese government to intervene), the Chinese community flourished giving birth to “el barrio Chino” in La Havana, Latin America’s largest Chinatown. By 1959 and Castro’s revolution, 50000 Chinese lived and worked there, mainly owning small businesses such as restaurants and shops. Castro’s mass nationalisation and expropriation naturally put an end to this way of life and pushed most of the Cuban Chinese to migrate abroad. Nowadays the Chinatown is very small and has very few links with China. International relations also went sour in the 70s when Cuba sided with the Soviets in its ideological confrontation with China. It is only after the collapse of the USSR that a new Sino-cuban relationship took off, the Cuban Chinese even benefiting from small-scale private rights (small restaurants and groceries).

Indeed, China has launched many bilateral deals in the past fifteen years in cultural, medical and technical fields and has taken on the Soviet’s legacy as Cuba’s main manufacturer. Bilateral trade has risen from $440 million in 2001 to $1,9 billion in 2010 (official Chinese figures), mainly due to Chinese exports. While China imports nickel, sugar, tabaco and biotechnology, Cuba mostly imports electronics and construction material. China has also repeatedly offered interest free loans and credit lines to Cuba as it opens its markets. These Chinese funds are in many cases used to buy Chinese products: in 2001, a $200 million loan was used to modernise telecommunication and $150 million to buy Chinese television sets. However the particularity of Sino-cuban trade is that it includes two communist state-controlled partners. This benefits Chinese goods directly as they are coordinated and distributed nation-wide by the Cuban government. For example China has recently exported many low consumption electronics (refrigerators, washing machines, televisions and air conditioners) which were directly put on the government and domestic markets with virtually no competition. In exchange of these official state channels for Chinese goods many joint ventures include Cuban based factories and technological transfer. The first was in 1997 with a bicycle factory using Chinese capital and expertise, followed by electric fan factories, slippers, etc. This gives China great control over its trade with Cuba, from the production to the distribution of goods and even funding.

China has also heavily invested in raw material, mainly nickel and oil. Cuba is one of the world’s important nickel producers and the metal, used in the production of stainless steel and other corrosion-resistant alloys, is its leading export. China on the other hand, which consumes 40% of the world production of nickel wishes to secure some of these reserves. In 2004, China decided to invest $500 million in a nickel processing facility of Las Camariocas which is jointly owned by Cubaníquel (51%) and Minmetals Corporation (49% and Chinese). Likewise, although Cuba is a net oil importer (notably from Venezuela), China has chosen to invest in Cuba’s oil infrastructure. Since 2008, China has been exploring offshore oil in the Pinar del Rio region with Sinopec and Cuba’s oil company CUPET. The Scarabeo 9 $750 million deep-sea drilling platform recently built in China for Saipem (subsidiary of Italian energy company ENI) is also operating in the same sector. CNPC, the other major Chinese oil company also runs explorations in the gulf of Mexico (Camarioca Norte 100 exploration well) and has launched a joint venture in 2011 with Cuven Petrol SA (Venezuelo-Cuban company) to invest in the Cienfuegos refinery. China’s investment is not, as in a most cases, a way to secure oil resources in Cuba, but an opportunity to establish itself as an alternative to Western powers and gain experience in offshore drilling and refining.

the best way to travel in Cuba

In the past 10 years China has been modernising Cuba’s Soviet-era infrastructure, from transport to IT and communications. HuaWei and ZTE, two Chinese telecommunication equipment companies, are omnipresent in bringing up to date the Cuban internet infrastructure. HuaWei for example has been updating the very slow inland internet system and China  helped build Venezuela’s underwater ALBA broadband cable to Cuba in 2011. A number of deals were made in between both countries to modernise all types of  transport. From 2006 to 2008, 100 Chinese locomotives and 1000 Yutong buses were delivered. Indeed, after the end of the Soviet era, bus spare parts stopped being produced and Cuban bus mobility was reduced to 20-30%. Today though, bus transport has been restored and Cuban buses are sometimes even referred to as “Yutong” by the population.  In 2011, The China Harbor Engineering Company also started work on the Santiago port project. This is important for China as it thus gains the capacity to use Cuba as a pivot for its trade in Central and South America.

China has also invested in Cuba’s innovative medical field. In 2008, president Hu invested $70 million in health infrastructure to upgrade Cuban hospitals. Many joint ventures have also been created in Cuba or in China such as an ophthalmology hospital in Hefei. One major success in the domain is BPL (Biotech Pharmaceutical Co Ltd), established in 2000. The company is dedicated to monoclonal antibodies and vaccine research, and produced the first approved genetically engineered monoclonal antibody in 2007.  In 2011, Cuba’s MIC (Molecular Immunology Center) announced that the anti-lung cancer vaccine CimaVax EGF made by BPL would be conducting trials in China, thereby sealing the partnership between both countries in biotechnology.

Both countries have a different vision of communism. China has achieved growth while embracing open market and is now investing and imprinting Chinese-style market orientated reforms in Cuba (especially since Raul Castro has taken charge). Thus it has both a political and economical objective in Cuba: it is establishing itself as an alternative to the US (and showing this to the other Latin-american countries) and is securing an outpost in the Caribbean for trade. China-Cuba relationship is not based on socialist solidarity but on business.

Quotations from Chairman Mao

1966- Criticize the old world and build a new world with Mao Zedong Thought as a weapon.

1966- Criticize the old world and build a new world with Mao Zedong Thought as a weapon.

A selection of the 427 quotations from Chairman Mao – The little Red Book published in 1964.

>> Chapter 6: Imperialism and All Reactionaries are Paper Tigers

  • I have said that all the reputedly powerful reactionaries are merely paper tigers. The reason is that they are divorced from the people. Look! Was not Hitler a paper tiger? Was Hitler not overthrown? I also said that the tsar ofRussia, the emperor of China and Japanese imperialism were all paper tigers. As we know, they were all overthrown. U.S. imperialism has not yet been overthrown and it has the atom bomb. I believe it also will be overthrown. It, too, is a paper tiger.
    - Speech at the Moscow Meeting of Communist and Workers’ Parties (November 18, 1957).
  • U.S. imperialism invaded China’s territory of Taiwan and has occupied it for the past nine years. A short while ago it sent its armed forces to invade and occupy Lebanon. The United States has set up hundreds of military bases in many countries all over the world. China’s territory of Taiwan, Lebanon and all military bases of the United States on foreign soil are so many nooses round the neck of U.S. imperialism. The nooses have been fashioned by the Americans themselves and by nobody else, and it is they themselves who have put these nooses round their own necks, handing the ends of the ropes to the Chinese people, the peoples of the Arab countries and all the peoples of the world who love peace and oppose aggression. The longer the U.S. aggressors remain in those places, the tighter the nooses round their necks will become.
    - Speech at the Supreme State Conference (September 8, 1958).

Algeria: Africa’s largest chinese community

AFP - La tribune.fr

China-Algeria friendship goes back to the Algerian war of Independence. China recognized the interim Algerian government as soon as in 1958, four years before full independence and also supported the liberation movement. Since then, the diplomatic ties between both countries have continued to grow, throughout the cold war, Algeria helping China to regain its seat at the UN and acting as an Ambassador to China in Africa. However, after a decade of civil war, it is especially since 2000 that bilateral trade has soared. Trade value estimated at $200 million in 2000, has boomed to over $8 billion in 2012. This change is mainly due to China’s direct investment in Algeria.

Indeed, China in 2012 accounts for 12,5% of Algeria’s global imports with $5,8 billion (just behind France with $6 billion), a 25% rise compared to 2011 (Algerian customs). China even overtook the historical colonial power in the first five months of 2012, only to be caught up by French wheat imports. On the other hand China remains far behind, in only tenth position of Algerian exports with a 3,6% share ($2,7 billion and an increase of 20%).

This can be explained by China’s poor share of Algeria’s oil and gas resources, which accounts for 97% of Algerian exports. Although open to foreign investment since the late 90s, the industry is dominated by US (mainly Anadarko) and European companies. China, which has been a net oil importer since 1993, has been trying to increase its presence through its two main state-controlled companies: Sinopec and CNPC (China National Petroleum Corporation also known as Petrochina). Algeria has the 3rd largest oil reserves in Africa after Libya and Nigeria and has an average capacity of 1,2 million barrel/day which makes it an envied partner. Both companies have invested in different oil fields in cooperation with Sonatrach the Algerian state-owned oil company. For example, Sinopec has a 75% stake in the Zarzaitine oil field since 2002 and CNPC has a 70% joint venture in the Adrar refinery (one of six Algerian refineries). However investment remains meager compared to western counterparts.

China’s main strength in Algeria is through its imports, mainly building material and textile. Since Mr Bouteflika launched a 500 billion petrodollar construction plan from 1999 to 2014, China has hunted down and been awarded many contracts, ranging from social housing, to the Foreign Office, the Constitutional Council, prisons, dams and luxury hotels (Sheraton Hotel in Algiers amongst others). China even imported and organized the 50th Algerian Independence anniversary fireworks display! Chinese companies have been collecting a vast number of  building contracts, to the demise of western competitors for a number of reasons. Mainly, they usually offer low cost and short deadlines, very important since the post- Arab spring where visible results are expected swiftly. Also, China does not make human rights and corruption-free procedures a condition for investment. Everything is imported from China, from the material to the workers: companies frequently prefer Chinese workers to Algerians so that three teams interchange every 8h to work 24/7.

The greatest Chinese projects range from the Great airport of Algiers (Houari Boumedienne) completed in 2006 for $2,6 billion, to two-thirds of the East-West 1216km long motorway for over $11 billion and the new Algiers Great Mosque for over $1 billion. When completed, the mosque will be the 3rd largest in the world (after Mecca and Medina) with a library, a museum and a 270m high minaret.  The Mosque project was expected to create 17000 jobs, namely for Algerians. The contract was awarded to CSCEC (China State Construction Engineering Corporation) in 2011, which is otherwise known for having built the Beijing National Aquatic Centre for the 2008 Olympics, and has also built the five largest hotels in Algeria. This Chinese construction company is ranked 3rd largest in the world, but suffers from negative publicity since the World Bank has disbarred it from bidding after corruption allegations in 2009. In an effort to complete the Mosque under Bouteflika’s reign, CSCEC has agreed to work quickly and cheaply, but on its own terms. In 2012, Air Algérie announced it had passed an agreement with CSCEC to transport at least 10000 Chinese workers on site. The employers argue that the Chinese workforce is  more qualified, punctual and hard working than Algerians.

As a consequence, the building activity has attracted many Chinese workers throughout the decade, and the Chinese population in Algeria is now the largest in Africa, and Algiers has the only Chinatown in the Arab world (Boushaki in the Bab Ezzouar area east of Algiers). Official figures show that at least 40000 Chinese live in Algeria, making it the largest foreign community (local media suggest the number is closer to 100000). This massive immigration with entire Chinese families include construction workers but also many shopkeepers from southern China selling low-cost products, especially textile and electronics. Also, in the past 10 years, the Algerian customs have confiscated a soaring number of counterfeit goods, and in 2011, 95% were “made in China”. The counterfeit goods are primarily cosmetics, followed by clothes and textile. All these cheap products find their way to the very busy Chinese stores where the shopkeepers haggle in a mix of Mandarin, Arabic and French: shirts in Chinatown can be 5 times cheaper than in Algiers’ souk. The Chinese are generally accepted by the local population with variable feelings  from admiration for their hard-working qualities to xenophobia especially from the unemployed (11% of the population in 2012, and up to 25% of youth). Tensions sometimes arise with disputes about religion and work, for example riots in 2010 against the Chinese population required police intervention. However the shopkeepers shake off this problem and rather stay because Algeria is as they say a “business haven”.

The upcoming 2013 partnership between both countries will be in the health field. Chinese medical aid also dates back to newly independent Algeria in 1963 when Chinese medical teams were sent to assist the country. After 50 years of growing medical cooperation, China is going to help Algeria become the new African pharmaceutical hub. China, the world’s first manufacturer of pharmaceutical raw material (drug ingredients and excipients, mostly made synthetically) is going to invest heavily in the sector and share its know-how. In exchange, the Algerian health minister Mr Ould Abbès has already promised important tax breaks for Chinese industries. Algeria, which today imports 75% of its medication, wishes to produce 70% of its drug consumption by 2020.

Although China’s boom in Algeria started a decade ago, its foundation was laid down 50 years ago when China was the first non-arab country to recognize Algerian independence and to send aid. Diplomatic and economic ties have since then been strengthened. This friendship is coined by the Chinese gift, to fund and build the $30 million Algiers Opera House (started in 2012). The trade boom, which will surely soon place Chinese imports in first place in front of France, is an unequal one. Chinese companies seldom employ Algerian workers and share their knowledge. The technological transfer and employment Algerians long for seems to come second to Chinese business objectives and the Algerian government’s haste for growth. The new grand pharmaceutical project might bring back balance.

For more information, please read this excellent 2012 brief by the African Development Bank (www.afdb.org)
Economic brief – China and North Africa