American Enterprise Institute

November 1, 2006

[Edited transcript from audio tapes]

8:45 a.m.	Registration and Breakfast
9:00	Panelists:	Carolyn Bartholomew, U.S.-China Economic and Security Review Commission
		Paul Hare, U.S.-Angola Chamber of Commerce
		Walter Kansteiner, Scowcroft Group
		Joshua Kurlantzick, Carnegie Endowment for International Peace
	Moderator:	Mauro De Lorenzo, AEI
11:00	Adjournment

Proceedings:

Mauro De Lorenzo:  Good morning, still people trickling in.  Welcome to the American Enterprise Institute.  Welcome to the Beijing Safari.  This will be the first in a series of events we will be having on this topic more broadly about China’s emerging role in the developing world, the interest in which, particularly on the subject of China and Africa, is by now enormous.  A magazine recently counted that it had been invited to 35 separate conferences over the past year on this topic.  So, this is now 36 or 37.  And it has attracted a lot of commentary from many people who previously had no known specialist interest in either China or Africa.  And I think that is actually a good thing.  It is a good thing for Africa in particular. 

But the interest, as evidenced in part by the turn-out here today, is in fact out of proportion with the actual value or current value of trade between China and Africa and its importance to either China or the world economy.  And this is good for Africa, because for the first time, I think, in a generation almost, it is being seen as a place that has something to offer the world rather than as a place that the world has to take care of.  But the visibility of China in the African landscape and the anxiety it is provoking in a very wide cross-section of opinion in Western countries, in particular, to try and understand why it is attracting so much attention even though if it disappeared it would not cause a recession, right? 

It is becoming a symbol of the decline, or the perceived decline, of Western influence and the marginalization in part of the kinds of bilateral and international institutions that the West has used since World War II to influence Africa and try and keep it and increasingly to try and promote good governance and transparency in economic relations.  So, I think this is not just a China-and-Africa issue.  It is an issue of China and the world as China being no longer just a power that has interests in the Pacific region. 

And it is a topic which is, at the heart of it, about the future of relations between Western countries and developing countries and how they are going to relate to each other in the future.  And one question to ask, which I think is what our first speaker is going to address, is whether China is ready to exercise its power and influence in a responsible way.  Another question one might ask is why, if China is scrambling to revive the sort of analogy to the first scramble for Africa in the 1880s, why Europe and the US are not? 

So, if there is an important prize to be had, why is it that only China seems to be scrambling for it and we are sort of commenting on it and not joining in the fray?  Maybe we will be pushed, too, soon but understanding better the economic incentives and trying to decide which things are being driven by some truly economic perspective and which have a political dimension is an important thing to tease out.  And that is really the purpose of today’s meeting. 

I think we want to try and enrich the terms of the debate by examining the topic in more depth than is typical from a variety of perspectives, from the consequences for doing business in Africa, from the consequences for US-China relations, US-Africa relations, and to try and understand a bit what African countries are getting out of this and whether it is good for them or bad for them in terms of economy but also in terms of the future shape of government. 

I’m going to introduce each speaker briefly before they speak.  Our first, briefly, we have Carolyn Bartholomew, Walter Kansteiner, Paul Hare, and Joshua Kurlantzick.  Carolyn Bartholomew is going to lead off.  She is the vice chairman of the US-China Economic and Security Review Commission and previously was chief of staff to Nancy Pelosi and a professional staff member on the House Select Committee on Intelligence.  Thank you very much for joining us today.

Carolyn Bartholomew:  Thank you, Mauro, and thank you to my colleagues up here.  And I want to acknowledge also, although he is not here, Dan Blumenthal, who is here at AEI and serves on the China Commission with me.  Mauro and I share an unusual background for people in this policy arena.  We both had training in linguistics.  Not that many people have and, not surprisingly, his training was in a far more conservative branch of linguistics than mine was.  This is the first time I have spoken [cross-talking] Noam Chomsky who will -- do not ever run for office if you are admitting that. 

This is the first time that I actually have spoken at AEI; in fact, I think, it might be the first time I have ever come to AEI.  Last year, I spoke at the Heritage Foundation for the first time and both the institution and I are still standing, so I suppose that bodes well for all of us. 

I was asked to focus today on enlarging the topic of China and Africa, to place it in a broader context.  The US-China Commission has just wrapped up our work on this year’s annual report.  It will not be officially released until November 16.  This is it right now; some copies are publicly out there.  One of the things we have tried to do this year was to begin to define expectations of how China should behave in the world, given its increasing economic strength, its growing global reach, and its expanding search for natural resources.  What in effect, we were thinking about, does a construct like former deputy secretary Zellick’s [spelling] responsible stakeholder look like in practice?  One place to start thinking about this, and some of you may very well know, those of you who have been in the city for a while, is to look at the goals espoused during the PNTR debate which was now six years ago. 

Leading up to the vote in Congress, representatives of two different administrations and leading members of Congress argued that bringing China into the WTO would lead to the Chinese government, among other things, adhering to the rules of a rules-based trading system; opening Chinese markets to American exporters, investors, businesses, and farmers; becoming a member of the community of nations that promotes democratic government and human dignity; permitting the spread of free thinking and ideas, and promoting peace and stability in the world.  We actually went back to the debate and to the things going up to it so I can attest to the fact that people actually put that out there as part of the promise of China’s WTO accession. 

We can move on from that to suggest that responsible stakeholders abide by rules, both the letter and the spirit, of agreements into which they enter.  In an economic sense, in addition to abiding by trade agreements, they promote free and fair trade and participate in international resource markets in ways that do not distort or destabilize those markets or deny other states’ access to natural resources. 

Geo-politically, they contribute to international security, good governance, transparency, and accountability.  They do not disrupt [indiscernible] of representative governments.  They also advance their own domestic development in ways that support international norms on issues such as human political rights, press freedom, religious freedom, and controlling corruption.

Examining China’s activities in Africa is one important way to gauge that country’s interest in and commitment to participating in the world as a responsible stakeholder.  The story, unfortunately, is not a good one.  In Africa, as elsewhere in the world, the Chinese government has shown that it is eager to embrace dangerous and/or unsavory regimes in order, among other goals, to secure access to oil.  While Sudan and Iran are pariah states for their support of terrorism, China has forged close ties with them. 

This strategy allows the Chinese government also to position itself as a counterbalance to US power.  It also gives Chinese state-owned energy companies a competitive advantage over US and other foreign companies excluded from those markets by altogether justified sanctions against unreasonable governments. 

Maintaining this competitive advantage means the Chinese government is not interested in solving the problems with these countries.  The longer the problems continue, the more they solidify their place in those markets.  Sudan is a perfect and a perfectly horrifying example of China’s foreign policy strategy.  It may also be the country which is giving the Chinese government its biggest public relations nightmare on the global stage.  Bolstering and even facilitating genocide is not a good way to demonstrate a commitment to participating in global affairs in a constructive way. 

In early August, the Commission held a hearing on China’s role in the world.  Among our witnesses was Dr. Eric Reeves, one of the driving forces behind the international campaign to stop the genocide in Sudan.  I do not normally quote people that much in length, but I think that part of his testimony is really important and I would like to just quote the following statement.  He said, “There is in all of Africa no more destructive bilateral relationship than that between China and Sudan.  Certainly when viewed from the perspective of US interests and those of the people of Sudan, Beijing’s relentless military, commercial, and diplomatic support of the National Islamic Front regime has done much to ensure that Sudan remains controlled by a vicious cabal of genocide heirs.” 

The Chinese government uses military equipment, money, technical expertise, and its votes in the UN Security Council to protect its partner from international sanctions.  Human Rights Watch, Amnesty International, and Doctors Without Borders have all documented the use of Chinese military equipment in attacks on the people of Darfur.  Meanwhile, China has invested at least $4 billion in Sudan and controls a significant portion of the oil fields.  In return, China opposes efforts by the international community, particularly through its vote on the UN Security Council, to stop the genocide in Darfur; and genocide it is. 

Elsewhere in Africa, the Chinese government allies itself with other despots and human rights abusers, undermining international efforts to promote sustainable, real development on that continent.  As major donor countries are trying to re-tool their development assistance to promote transparency, accountability, an end to corruption, and also instill good governance, and to make foreign aid more effective, the Chinese government proudly goes in the opposite direction. 

I give the Bush administration credit, and some of you who know me know that I do not believe there is much for which the Bush administration should be given credit, but establishing the Millennium Challenge Corporation was a bold step to trying a new way to do foreign assistance, focusing on economic growth and poverty reduction with an emphasis on transparency, accountability, and good governance.  But how can such an initiative succeed when it is competing with the deep pockets of the Chinese government that emphasizes that its aid comes with no strings attached? 

In 2004, Chinese president Hu Jintao said, “Providing African countries with aid without any political strings within our ability is an important part of China’s policy toward Africa.”  And just in case African leaders had not gotten that point, when he visited Africa in April 2006, he repeated China’s policy of making business deals without any expectations that governments will improve democracy, respect human rights or fight corruption. 

On July 2, 2005, hundreds of thousands of people around the world attended the Live Aid concerts designed to draw attention to African poverty.  On that very same day, China Great Wall Industry Corporation was announcing a deal with Nigeria to cooperate on future satellite launches.  The China Great Wall Industry Corporation was sanctioned by the United States in 1991 for selling missile technology to Pakistan.  Its actions to secure a satellite technology pact with Nigeria are part of the Chinese government’s strategy to ensure access to Nigerian oil and gas. 

And let’s look at China’s relationship with Zimbabwe.  Zimbabwe and President Robert Mugabe look to China for loans because the larger international community has shunned him due to his blatant human rights abuses.  While Zimbabwe faces economic collapse and its people face starvation, Mugabe’s government in 2004 and 2005 ordered 12 FC-1 fighter jets from China, six other jet aircraft, 100 military vehicles, and a radar intruder system for President Mugabe’s home.  The FC-1 sale was China’s most advanced military aircraft order from an African nation, a move that angered South Africa where many analysts feared that it could begin an arms race in sub-Saharan Africa. 

In Angola, which we will hear more about, a country with questionable human rights practices, China signed a $2-billion infrastructure loan program linked to oil deals.  It also provided a gift to Angolan officials of housing surrounded by a security fence presumably to keep out the shanty town dwellers that surround it.  Angola, of course, is China’s second largest supplier of oil. 

And what are we to make of China’s professed policy of non-interference in the sovereign affairs of another nation when just last month, in Zambia, after the main opposition candidate threatened in the run-up to the presidential elections to break off diplomatic relations with China, the Chinese actively supported the incumbent and offered new foreign programs?  In Zimbabwe’s 2005 election, if we can call it that, Chinese businesses provided radio wave jamming devices to be used against anti-Mugabe radio stations. 

There are so many actions by the Chinese government that have adverse consequences for the people of Africa.  Chinese government-funded infrastructure projects use Chinese labor, depriving the locals of wages and the transfer of skills.  Chinese textiles and other goods are swamping African industries; the South African Textile Union, for example, estimates a loss of 60,000 jobs from a tsunami of imports from China. 

For the Chinese government, Africa presents some particular challenges as it seeks standing in the world as a global player.  If it continues down the current path, it runs directly counter to the increasing recognition by major donor countries and multilateral institutions that sustainable development and an escape from decades of poverty require implementing transparency, accountability, and good governance as well as promoting democratization and basic human rights.  If, however, the Chinese government buys into these principles, it runs right up against the weaknesses in its own one-party system, which is plagued by corruption and lacks transparency, accountability, and good governance. 

And what does all of this mean for America?  We know that terrorist cells seek out safe havens in failed and failing states.  China’s habit of propping up corrupt regimes hinders America’s ability to stop rogue states and to help to create stable, prosperous, and open societies where governments respect the basic rights of their citizens.  When Western countries want to use the leverage of assistance or investment to encourage reform in African countries, the Chinese government is prepared to fill the investment hole without constraints.  When we want to use multilateral institutions to censure appalling human rights practices, even genocide, the Chinese government stands in the way. 

China’s strategy in Africa is driven by its need to obtain resources, its interest in strengthening its own influence and leadership in the developing world, its continuing interest in isolating Taiwan, and its creation of more markets for Chinese goods.  Yet, if it wants to demonstrate its seriousness of purpose in participating in the global order as a responsible stakeholder, it must learn to balance its narrow self-interest with the long-term needs of the African people and the interest of the world community in stopping genocide and human rights abuses and lifting the continent out of poverty. 

If China changes its current practices in Africa, it can demonstrate that it does want to play a responsible, effective, and positive role in the global community.  If it does not change its practices, it is sending a different and chilling message about how it intends to shape the future. 

I look forward to hearing the statements of my fellow panelists up here.  Thank you very much.

 Mauro De Lorenzo:  Thanks, Carolyn, very much.  Our next speaker is Walter Kansteiner, founding principal of the Scowcroft Group.  He held many senior policy-making positions across the government in African affairs and served for nearly three years as Assistant Secretary of State for African Affairs in the first part of Bush administration.  Thank you very much for coming.

 Walter Kansteiner:  Thanks, Mauro.  I’ll take a slightly different approach than Carolyn did and that is more from an African perspective and also more of a business perspective.  If you look back and see how China got involved in Africa in the late ‘60s and ‘70s into the early part of the ‘80s you saw China relatively busy in Africa, they probably had a dozen or two dozen embassies in some of the key countries, and they were supporters of liberation movements.  That is what they were there for.  It was ideologically driven.  It was politically mandated; it was part of the international socialist system of supporting your liberation brothers.  That has very, very radically shifted from the ‘60s and ‘70s to today. 

Today it is strictly driven by commerce.  Yes, there is a Taiwan component that probably still plays at the fringe and there is a political influence that China is still interested in, but this tsunami of China into Africa – I like that – [cross-talking] is about raw materials; it is about feeding the industrial base back in China.  So, what is this industrial base and what is it that they need?  They need raw materials - they need strategic minerals; they need hydrocarbons; they need iron ore and timber.  They need to keep their industrial base alive. 

It has been very interesting, these last five years as what we have seen.  I remember in 2003, when I was still at the State Department, I asked all of our ambassadors, all of our embassies in sub-Saharan Africa to do a kind of back-of-the-envelope sketch of what Chinese interests are in your country.  And out of 45 embassies, 45 came back saying there is at least something going on by Chinese business, by Chinese embassy officials that are here on a visit, remembering there are not that many embassies, actually, that China has in Africa today.

But there is some interest going on, and that was in early ’03.  From early ’03 to today, you have seen considerable ramping up.  In fact, just on the trade figures, every year since ’95, trade between Africa and China has doubled; every year it has doubled and doubled and doubled.  Granted, it was at a fairly low base in the mid-‘90s but, still, we are seeing these huge increases in trade. 

What is it that they are trading?  What is it that the Chinese need from Africa?  First and foremost, it is oil.  As it was mentioned, Sudan, Angola, Nigeria, Equatorial Guinea, are all places, in fact, that we have seen China make investments, spend time, spend resources trying to acquire hydrocarbons from those very prolific blocks that are primarily offshore in the Gulf of Guinea.  As you were mentioning to me on the phone, the very fact that China, I believe, tomorrow starts an Africa Conference inviting heads of state from every African country to visit Beijing is a sign that this is not a shot in the dark; this is not a one-time flash in the pan.  This is a long-term strategic interest that they have in this continent. 

Paul, you might talk a little bit about how China, in fact, moves into a place like Angola, which Ambassador Hare knows extremely well.  We are watching the Benguela Railroad, for instance, and seeing how China has come in and renovated what many of us thought would never be renovated, hat the Benguela Railroad was basically never going to come to life again in our lifetime. 

And, lo and behold, the reports are that half of the line from the coast to the Congo border is now complete; somewhere between 10 and 40,000 Chinese laborers, depending on who you want to hear, are in Angola building this railroad and in fact are going to end up with a very significant infrastructure project that will help the entire center part of the continent. 

Now, what do they get for that?  They clearly get political access; they get prestige in Luanda.  But most importantly they get a shot at the future blocks of oil and gas, offshore Angola.  Base metals – copper, cobalt, nickel, zinc; some of the precious metals – gold and platinum; but more importantly are those base metals, the copper and cobalt.  Heavily, heavily treaded [??] areas nowadays are Zambia, DRC, Chinese traders taking off-take agreements and being very effective at how they make long-term contracts. 

I was involved in an American copper mining company purchase of a potentially large copper mine in Southern Congo, and it was not 48 hours after we closed the deal that we actually had purchased the concession.  I got a phone call from a Chinese metal trader saying, “Are you the person to discuss off-take agreements?”  And I explained that “Well, actually there is no mine.  It is probably five to seven years away from initial production, and I’m not the right person to talk about off-take agreements, anyway.”  He said, “Well, that is no problem, five to seven years.  We can start talking now.”  Very intent, very focused, want to be first movers, want to get in on the deal. 

You mentioned the Zambian story -- very interesting how the politics and the business became very intertwined in Zambia this last election where clearly a presidential contender was speaking out about some of the working conditions that the Chinese companies were imposing upon Zambian workers.  They were long hours, tough labor conditions, poor pay, and he got quite a bit of traction on that. 

There was some real resonance there.  Iron ore, South Africa, Mozambique are both places that the Chinese are looking for off-take agreements in iron ore.  And in timber, you have Cameroon and Congo-Brazzaville particularly being often visited by lumber and timber traders from Shanghai and Beijing.  These are all interesting but they are all trade-related.  They are all off-take agreements.  They are all Chinese corporations and Chinese trading companies buying minerals, buying hydrocarbons. 

We have not really seen Chinese asset ownership start to take place.  And why is that?  Well, partially the Chinese are seeming to have a hard time kind of getting traction on, actually, buying assets in Africa.  They are getting there, and I think personally it is just a matter of time.  So we are seeing much more trade and much less FDI, foreign direct investment. 

You see in Sudan.  You see it a little bit in Angola.  You see it in the oil patch more than anywhere else.  You do not see very many Chinese corporations or Chinese institutions, financial or otherwise, making asset investments in Africa, but I think it is coming. 

Mauro, you mentioned something that why it is that China is doing this second scramble for Africa and we are just kind of sitting by and watching?  In fact, we are not.  I think we are competing.  We, the United States and our private institutions, our private sector, I think we are scrambling.  We have never had as many private equity funds focused on Africa as we do now.  Portfolio investing is increasing.  If you look at the IPOs that take place for instance on the London market, most African companies, when they go public, go public either on the JSE, or the AIM-listed London Stock Exchange. 

We have seen dozens and dozens of African countries do IPOs in the last two years, primarily on the LSE.  And most of those financial buyers, most of the buy side on those are Western institutions.  Those are mostly European, American, and Japanese institutions buying these IPO stocks. 

We do not see very many Chinese participating in the IPOs which is interesting.  And I think that will change too.  I think that will come too.  As I mentioned, foreign direct investment, we definitely see American and European companies looking very serious at assets.  And again, I think, that is where the difference between Western financial institutions and Western business and Chinese business is right now.  They are making the copper plays.  They are definitely bidding for the utilities that go with these hydrocarbon and these base metal plays, some of the telecom deals, the transportation deals.  So, we are increasingly seeing the Chinese trying to move into that but it is still dominated by European, American, and Japanese investors. 

Let me stop there for more time.  Thank you. 

Mauro De Lorenzo: Thank you very much.  Our third speaker is Paul Hare, who is the executive director of US-Angola Chamber of Commerce.  He was previously US Ambassador to Zambia during which time he actually initiated the first high-level dialogue with the ANC, then in exile.  He was later appointed as President Clinton’s special envoy to the Angola Peace Process.  He will talk to us today about what has been going on in Angola.  Thanks very much.

Paul Hare:  Thank you very much.   I am going to focus specifically on Angola and the Chinese involvement in Angola, and I will start with a little bit of history.  During the struggle against Portuguese rule, there were three major national liberation parties, movements, in Angola.  The Soviets aligned themselves basically with the MPLA who eventually came out on top; the Americans initially supported the FNLA, which subsequently got exterminated or evaporated as an effective military force and political force in Angola. 

And China, initially at least, had some relationship with UNITA and Jonas Savimbi, and UNITA received some training in China, as well as assistance from China.  So, the point is that the relationship between China and Angola at the beginning was not very close.  I think it is indicative that diplomatic relations between the two countries were only established in 1983; that is seven years plus after the independence of Angola. 

And after the establishment of relations the Chinese presence in Angola was very modest.  It was a fishing cooperative, a low-cost housing project, installation or establishing an electrical appliance factory.  I do not know if that is still functioning, I doubt if it is.  But in any event, this was basically a very modest fairly low-level type of relationship that existed between China and Angola.  Of course, at that time there was a whole host of different actors; there were Soviets, Cubans, Americans, and so on, and the South Africans. 

The turnaround, which has already been mentioned, I think, by Carol, came in March 2004 when the Chinese export-import bank offered a concessional but oil-backed loan of $2 billion to Angola.  It is not an accident that it occurred at that particular time because Shell was divesting itself of its oil interest in Angola for reasons which I do not quite understand.  But nevertheless they were divesting themselves of their interest.  Particularly, they had a 50% equity stake in Block 18, a deep-water block operated by BP - still not in production but it is going to come into production soon, probably 250,000 barrels per day or something like that; fairly substantial.  Shell negotiated an agreement or a deal with two Indian national oil companies.  Sonangol, the Angolan national oil company, exercised its right of first refusal and subsequently gave that 50% equity to Sinopec which has it today.

Another sort of indication of winds of change in the relationship came when Sonangol refused to extend the concession that Total had in one part of Block 3, also a highly prolific block.  I think that was because of the Anglo-gate affair, you know, Mitterand, Pierre Falcone, those people, the pique that the Angolan government had towards France at that time; and Sinopec got that concession as well. 

In the most recent round of bidding, earlier this year - and I guess this is to demonstrate that the Chinese are really going into getting the assets - the Chinese bid very aggressively for the relinquished parts of Blocks 15, 17, and 18.  These blocks are being operated, I mentioned, by BP, Exxon Mobil, and Total.  But this is the relinquished area, areas which, under the production agreements if the company did not actually go into those areas after a certain time, well, then they can subsequently be re-bid on.  The Chinese bid very aggressively.  Reports are about $2.2 billion in signature loans and social project funds.  They got substantial equity stakes in all three of those blocks. 

I should mention that Eni, the Italian oil company also bid very aggressively, bidding over $900,000 in order to get operating rights in Block 15.  Even in Block 18 where now Sinopec has the major equity stake, 40%, Petrobras, the Brazilian oil company is in fact [background noise].  They have 30% but this is merely to illustrate that the Chinese do not have the capability to actually develop deep-water blocks, at least at this time. 

Finally, I would like to mention that the bidding process, by all accounts, was open and transparent.   Now what do we know about the Chinese presence in Angola now aside from the oil patch?  Walter already mentioned that the Chinese are rehabilitating the Benguela railroad which will ultimately link up the Port of Lobito with the DRC and Zambia, the old copper route. 

I was just in Angola and I happened to be in Huambo and the Benguela railroad goes to Huambo.  I am afraid they are not there yet but they are making progress on that rail line.  They are also rehabilitating the railroad between Luanda and Malange and this is just an illustrative [sounds like] list.  They are constructing a new airport, although I heard that the work has stopped; according to one reporter it is because while they were doing some digging there, they found diamonds.  Sinopec, the Chinese oil company, and Sonangol have formed a consortium to construct a new refinery in Lobito which has previously been shunned by the oil majors mainly because they did not see the financial viability of that project. 

The Chinese telecommunications company ZTE, under a separate line of credit, is involved in a fixed-line telephone network with Telecom, the Angola National Telephone Company; and another Chinese company is operating is working on the production center for Angola’s television station.  Chinese companies are working on a host of infrastructure projects across the country. 

The Chinese have established a chamber of commerce in Luanda earlier this year; twenty-six companies joined that chamber.  I am happy to report that my chamber has 100 members and we are still out in front.  The Chinese Premier visited Angola in June of this year and extended an invitation to President dos Santos to attend the China-Africa Cooperation Forum, which dos Santos accepted, at least according to a communiqué.  I will have something more to say about that in a minute. 

Angola surpassed the Saudis and became the number one oil exporter to China in February 2006.  I do not know if that is still the case.  It might have been a blip but still they are a major oil exporter to China. According to China’s deputy commerce minister, whose name I will not try to pronounce, China-Angola trade will top $10 billion this year, and Angola is China’s largest trade partner in Africa. 

Now these are just some illustrations to give an indication of some of the things we know about the Chinese involvement in Angola at the present time.  Now, what we do we not know about the Chinese in Angola?  We do not know how much money is on the table.  I have already referred to the $2 billion but there are estimates that it is up to $9 billion.  When asked at a recent forum - and I also asked this when I was in Angola - what is the actual amount?  Is it $2 billion?  What is it?  The government sticks to the $2 billion figure. I suspect what has happened is that the $2 billion dollars still has not been used up.  But once it is, there will be further lines of credit extended. 

We do not know how many Chinese are in Angola, and Walter also mentioned that.  When I asked the Minister of Transportation that I had heard that there were 40,000 Chinese working on the Benguela railroad,  he jokingly dismissed the idea, saying, well, he wished that were the case because the rail line would be completed that much sooner.  But he never gave me a number, and we really do not know how many Chinese are in Angola at the present time. 

We do not know how contracts are awarded, except in a very general sense.  We do not know how many Angolans are employed by Chinese companies, although there is a fixed amount that they are supposed to under the agreement or how many Angolan companies received contracts under the export-import loan; they are supposed to get 30%, but I just do not know.  In other words, there is a lot of opaque and lack of transparency with respect to the Chinese involvement. 

Some of the implications, to conclude - I think the arrangement is in the interest of both parties.  China gets secure access to oil in Angola, while Angola gets its devastated infrastructure rehabilitated with, I think importantly, a minimum adverse impact on the economy. 

Another implication, the Chinese… it tends to diminish the influence of other actors, particularly, perhaps, with respect for having an arrangement between Angola and the IMF, but I think sometimes this could be exaggerated. Angola remains interested in having debt relief or its debt rescheduled at the Paris Club and continuing their dialogue with the IMF.  In fact the IMF is sending a team to Angola at the end of this month. 

And I think I would also like to note that the Angolans want high-quality, Western, and, particularly, United States goods and services.  Boeing recently sent, concluded a deal with Angola to supply nearly $ 1 billion worth of aircraft to the Angola National Airline, and the first batch of planes are going to land on November 11th in Luanda, which also happens to be Angola’s Independence Day.  So that will make a big splash. 

But also with respect to Benguela railroad, I suspect that the Chinese and the other rail systems will buy GE Locomotives and probably not Chinese locomotives.  There are some observers and I noticed that my friend Jardo [sounds like] is here among the opposition political parties who have said that they fear that Angola may be moving to the Chinese political model as a result of this close relationship and the fact that there has been no date set for elections to take place.  They were supposed to take place this year; people were speculating they would take place next year.  Now, my guess is it is not going to happen until 2008, if then, but even I do not happen to subscribe to that thesis but it is out there as well. 

On the downside, others claim there is a growing resentment of the Chinese role in Angola among the Angolans -- taking jobs and contracts away from the Angolans and speak of the Chinese invasion.  I think, perhaps, there is some increasing xenophobia against the Chinese. 

I think there are two points here of particular interest in this respect:  One is I heard that President dos Santos recently criticized the quality of Chinese goods and services, and in the end, he did not go to Beijing.  He sent his Prime Minster instead, and he happens to be in Moscow meeting with President Putin.  So, I mean, that is, I do not think, an accident.  The government also stresses its relations in similar lines of credit with Brazil, Portugal, Spain, Germany, Israel and other countries, I think, in part, to deflect criticism of their relationship with China.  They also maintained that Angola’s reconstruction needs are enormous, much larger than what the Chinese could possibly meet, and criticized [indiscernible] at the same time for failing to organize an international donor’s conference when the war ended in early 2002. 

To conclude, and I think this really to reemphasize what Walter was saying, China is in Angola for the long haul, at least as long as the oil flows, but the same can be said about other countries.  As a recent Economist report put it, before China mainly pursued influence in Africa, now it pursues commodities and that is, in the final analysis, a more durable interest.

I think I will stop with that. Thank you.

Mauro De Lorenzo:  That was fantastic, thank you very much.  Our final speaker is Joshua Kurlantzick, who has been following this issue for as long as anyone.  He is now a visiting scholar at the Carnegie Endowment for International Peace and is a special correspondent for the New Republic where a number of his articles on China’s role in the developing world have been published.  He has written for a number of other magazines and he will speak to us today about Chinese development policy. 

 Joshua Kurlantzick:  Yes, I’m in the process of writing a book that looks partly at China’s relationship with Africa and what I have tried to do is get some degree of specificity because obviously many elements of the relationship are relatively opaque, so I tried to do as much underground research with African officials and Chinese officials as possible.  And I’m going to talk a little bit broadly but also specifically about one element of the relationship that has gotten a lot of press recently.  You may have seen Paul Wolfowitz talk about it, and that is the Chinese aid to Africa which includes both aid that will be defined in the same terms that the bank would define it, and commercial loans, which some other people have discussed here. 

But first, just broadly, China’s goals in Africa - clearly you already heard a lot about the natural resources interests.  I do believe Angola is their biggest supplier right now.  But what is I think more relevant is that the high-level energy leading group in the Chinese government chaired by Wen Jiabao whose job is to set China’s energy policy in the long-term, clearly I think that they feel that China needs a much more diverse set of suppliers.  They have gotten resources from Angola, Sudan.  They have started to take an interest in Nigeria.  They have suppliers all over the world, but there is clearly still, I think, if you look at the energy leading group, a fear that China is too dependent on a few key suppliers and needs to significantly diversify its relationship; so that I think is something to watch for a long-term. 

Clearly in the long-term Chinese companies will want not only to be drawing resources from Africa but to be investing there.  I think one of the things that China has done quite savvily is although their actual investment in Africa is relatively small, when Hu or when Wen Jiabao come to the continent they advertise investment targets for the future or trade targets for the future.  And they tend to be quite large, and there is no guarantee that they will make that, but what they do is they cover over to some extent the fact that right now China is not a huge investor on the continent. 

However, one of the things that Africa offers Chinese companies, particularly smaller companies and particularly in post-conflict environments like Sierra Leone or Liberia or even Angola, to some extent, is markets where there is less competition from small and medium- sized Japanese, European or American companies, precisely because those companies are not willing to tolerate the degree of political risks in some of those areas.  That is not oil companies, but for the small and medium-sized Chinese trader you can see why Sierra Leone is a more attractive place than trying to compete with an American company in Thailand or Singapore or Malaysia. 

China needs a growing number of relationships at the UN, the WTO, other major organizations; Africa provides that.  I think the Taiwan factor is limited but a factor, particularly, since Senegal switched to Taiwan a few years ago; Senegal was probably the most important ally left in Africa for Taiwan, and a switch shortly after Chen Shui-bian had made a trip to Senegal.  And I think just generally in the long-term, although I do not think Africa is a place for China [indiscernible] amount of political influence. 

Now the idea that you can exert influence far from your neighborhood is a sign of a significant power and it is something that in a long-term would be relevant.  So since the ‘90s -- I think it was the late ‘90s, I think you started to see a somewhat more coherent Chinese strategy in its broader relations with Africa and in other parts of the developing world.  First, clearly, I think China has shifted the focus of its broader foreign policy away from just a focus on the US and other major powers as well as its neighbors.  You can see this by reading the shifting priorities of the Party’s work reports, by tracking the leadership travel of Chinese officials and particularly of Hu and Wen. 

I think there is also a recognition among Chinese leaders that since China is also a developing nation, it can use a kind of rhetorical South-South solidarity which I do not believe actually has that much merit in that China’s long-term interest in major world bodies like the WTO tracks more closely with Japan or the US or the EU.  But Chinese leaders I think suggest that they have a kind of interest in helping other developing countries.  Since China is not linked to the legacies of the Washington consensus in places like Africa and Latin America, it can also play on the fact that it is not linked. 

And I think in fact a major growing part of China’s strategy in Africa is advertising the idea that it has a somewhat different model of development that it can sell to the continent and to other parts of the developing world.  Some people call this a Beijing Consensus; it does not really matter what the name is, but the idea is, for one, it is a somewhat state-directed model of economic reform carried out by a degree of technocrats with some degree of separation from the state, but with no concurrent political realization [sounds like].  And you can see why in countries where the leadership is either authoritarian or faced with a transition from authoritarianism like Angola or is this sort of flawed democracy, this has a significant appeal.  China also advertises this by increasingly training African officials and political elites in China.  They aim to try to train about three-and-a- half thousand a year, mostly elite and economic professionals and other people who would be ascending to senior ranks in ministries of commerce or trade ministries in Africa. 

Finally, two other elements:  Clearly as other people have talked about it, I’m not going to get into a great length here.  There is an effort to forge relationships with African nations that are isolated from the world either because they are post-conflict societies or because, like Sudan, are essentially pariah states.  And part of that relationship is leveraging the idea that China is a powerful actor; it does not push for political reform in contrast, of course, to the US. 

And finally, just on that point - part of that growing engagement is a substantial shift in Chinese leadership travel to Africa.  I did an analysis in 2005 and 2004 of the trips by cabinet-level officials in a Chinese system to Africa and you see about twice as many trips of cabinet-level officials as you would see US cabinet-level officials, French cabinet-level officials or British cabinet-level officials. 

Now as China has developed a more sophisticated strategy, it has also developed more sophisticated tools of influence and investment is key, clearly, in trade but also I think chief among this is aid; China has developed a somewhat more coherent strategy of aid in the last few years.  From interviews with the Chinese officials what I found was that five years ago basically they decided upon aid disbursements by a small number of Ministry of Commerce officials before Chinese leaders’ overseas trip or at occasional semi-annual meetings of Chinese ambassadors to Africa held in Beijing in which aid disbursements were decided on a very informal sort of bargaining-type situation. 

Now, today China still does not have a formal aid bureaucracy, like USAID or DFID, but in the past few years as Chinese aid to Africa has increased, China has began to formalize its aid process within the Ministry of Commerce.  The ministry has established reviews of its aid disbursements; it has begun to assemble a policy planning staff, and it has begun to reach out to other nations, including the US and including the Millennium Challenge Corporation to study their models of aid.  At the same time, in the past 10 years, you have seen a vast increase in Chinese aid to Africa.  So in 2004, the last year with real data, China offered about $2.7 billion in aid to Africa that will be qualified by the development assistance committee definition.  That is up from about $100 million a decade before, so that is a substantial increase and puts China as a donor on the continent in a league with other major donors including the US, France and Japan. 

China has also become a major provider of commercial loans.  You have heard a little bit about Angola, so I’m not going to go into that but in general over the past three years they have given out what is estimated at least $11 billion in commercial loans.  And what is more relevant is that a lot of these commercial loans are quickly forgiven on a relatively short time schedule.  But they are not forgiven because countries have high indebtedness the way other donors have, but on a somewhat [indiscernible] basis after recipient nations fulfill certain political goals.  In other words, China is, I think, not hinting [sounds like] grants but preferring loans and commercial loans partly because they allow more leverage over countries’ domestic political environments.  China does not coordinate too much with other donors; they try to channel their aid to the China Exim Bank, the Ministry of Commerce, the China Red Cross Society and other institutions in which Beijing can exert direct control rather than contributing to pool donor funds within countries. 

And, also, they often focus on countries that the Ministry of Foreign Affairs has established as priorities, whether or not those countries are actually the neediest in a humanitarian sense. 

In terms of going it alone, China also continues to link aid to contracting.  You heard about Angola; about 70 percent of contracts in Angola are reserved for Chinese firms and actually if you look at Ministry of Commerce documents you see that China has increased its requirements that aid recipients use Chinese companies over the last three years.  However, I do want to make the point that despite China’s tendency to go it alone, there are also signs that China could become a more responsible donor. 

There has begun to I think develop within the Ministry of Commerce a small group of aid experts who think China’s aid strategies and its broader influence eventually are going to create blow-back against China.  If aid is not given with desire for better governance, if China alienates average people in Africa -- and the actuality -- if China contributes to failing states, it is not in the long run going to be great for Chinese investment either. 

So you have seen the Ministry of Commerce in the last few years begin to think more seriously about how to establish a permanent Chinese aid bureaucracy.  It has begun to seek advice from DFID which is t British aid organization, from USAID and from people in the US government knowledgeable about the Millennium Challenge Corporation about how China should structure its own aid programming.  It has occasionally begun to participate with donor groups in pooling funds in a few countries in Asia and in Africa. 

And finally two other less important but I think relevant elements of Chinese assistance:  One, China is focused increasingly in trying to increase knowledge of Chinese culture and language studies in Africa and in other parts of the developing world.  So this means ramping up scholarships for African students to come to China and study, setting up Confucius institutes which is Chinese language and cultural programs at local universities in Africa or other areas, and creating a growing visitor program similar to what the State Department has a long time had for African elites, with economic and rising political elites, so that they can come to China for short term courses, the idea of course being then, if they have a good time, if they like it they will be good allies as they rise in the future. 

So I think, clearly, China has enjoyed from significant success in its interaction with Africa.  If you look at polls by the Program on International Policy Attitudes and other pollers, over 60 percent of people in key countries in Africa see China as a positive global image which to be fair is a much higher percentage than you see of the US.  The number of African students attending Chinese language programs in China has tripled in the past five years.  By 2010 China plans to have 120,000 overseas students, up from about 8,000 a decade ago. 

As I mentioned, Taiwan has been increasingly isolated and is left with no real allies of significance in Africa; Chad just switched recently, as well.  China has diversified its oil and gas supplies so that its oil and gas imports from Africa rose from about 15 percent a decade ago to some 30 percent today.  I do think they are still clearly concerned about their diversity of suppliers, but that is a significant change. 

China’s model of development is getting increasing media coverage and study in Africa.  It has been the focus of study sessions at the African Development Bank.  It gets some positive media coverage, and it has been praised by officials in East Africa and West Africa.  But as other people clearly referred to, I think China is also beginning to face serious blow-back in Africa. 

For one, its aid delivered without a real aid bureaucracy often simply vanishes into thin air.  So if you talk to potential African aid recipients of Chinese projects or you read African papers, there is repeated complaints that aid that was announced when Hu or Wen arrived for a visit, or lower-level officials, simply never materialized.  And probably this is because they do not have a permanent structure to track it and they are giving aid bilaterally to governments with really no way to tell how the money gets used. 

Also clearly I think African liberals - and I use that in the broader sense - do have concerns that Chinese aid, given without any coherence or better governance, is going to contribute to the poor governance in countries, or, particularly if combined with arms, will prop up some of the continent’s worst regimes.  China’s commercial loans - and this has gotten a fair amount of press recently - are adding debts to some of the continent’s nations that have just escaped because of a recent series of debt forgiveness, relatively high indebtedness; Wolfowitz and other bank officials have been talking about this a lot.  China has become a major source of higher-interest commercial loans in Ethiopia, Sierra Leone and other countries. 

Also, I think there is a growing perception, particularly in Southern Africa, in places like Zambia and South Africa where there is a strong trade union movement, that China’s environmental and labor policies of its investors are contributing to significant problems.  In Zambia one of the reasons why the opposition candidate was able to whip up a lot of popular sentiment is that almost 50 people had died in accidents in Chinese-owned mines over the last two years. 

I think the other greater concern is that Chinese investment could not only export poor labor and environmental policies but the presence could foresee international financial institutions, particularly the Bank, to make more questionable environmental decisions.  Already, for example, in Asia, the World Bank had decided not to support a major dam called Nam Theun 2, which is in Laos, and probably for environmental concerns.  Then the Chinese indicated that they would potentially be willing to provide significant concessional financing for the dam, and the Bank reversed its position.  My understanding from talking to officials why they reversed their decision is because they fear that if they did not fund it and China funded it, the environmental consequences would be worse, even though they clearly had significant concerns about the environmental consequences. 

Finally, as evidenced in Zambia, I do think that there is going to be a shift in the longer term as China begins to have not only trade relationship but much more substantial equity investment in Africa.  They are going to be more concerned about the nature of domestic politics, and there is going to be more direct interference or influence in domestic politics as you saw recently in Zambia.  So I’ll stop there.

 Mauro De Lorenzo:  Thank you very much.  We have a lot of time for discussion and I want to start off the discussion by asking each of you to comment on something which was touched on but I do not know if it was ever directly addressed, which is what if there are any dangers for US energy security now or in the future as a result of these investments that we have just been discussing? 

 Walter Kansteiner:  Danger in the sense that we will have to compete.  Yes, China is obviously an increasingly large importer of crude and so we are going to have to compete with them no matter where the oil actually happens to be coming from.  And in the case of the Gulf of Guinea ownership of those blocks, the competition is increasing as well.  I do not think we are threatened in the sense that the world global hydrocarbon supply is the world global hydrocarbon supply and it is going to be in competition, no matter what.

 Joshua Kurlantzick:  I would just say that is accurate, except that I do think if you look at the Chinese energy security strategy they just have a very at this point somewhat different view of the world’s oil and gas supplies.  I think there is a clearly a view that they have a fear that somewhere down the road, if there was some conflict from the US, and I’m not saying that this is an accurate view, that the US main supplier who also have been long-term allies, like the Saudis, would cut the tap for the US, or that the US will be able to control key sea lanes like the straits in Malacca and in the Gulf. 

So pursuant to that, I think also they have increasingly pursued a strategy, and you see this more in Latin America, in which they want to not only get the oil and gas but pursue purchasing the infrastructure that stands behind it.  So ports, tankers, getting it to market - you see this to some extent in Venezuela.  That does not necessarily threaten the US but it is just a very different strategy of how you approach the oil and gas industry. 

 Carolyn Bartholomew:  Two things I would like to comment on there.  One, I think that Josh touched on certainly the protection of the sea lanes issue, which takes us into other energy issues.  But there is increase of security issues, increasing concern or interest in Chinese intentions of its military projection, its interests and ability to be able to protect the sea lanes. 

But I think another issue on the energy front is that China has a significantly different strategy for how it is dealing with energy resources.  Its interest is in controlling the resources at the well head.  It is not participating in the global market place the way that other countries are, and so interest in getting China into the IEA or getting to at least comply with some of the IEA framework, I think, is really important.  And so my concerns about China’s energy interests in Africa, putting aside all of the human rights issues and all the good governance issues that I mentioned, I think are reflected in bigger concerns about how China is dealing with and manipulating energy resources. 

 Mauro De Lorenzo:  Thank you.  I’m going to call on people at random more or less.  A microphone will come to you if you would wait until it comes, and then there are three points of protocol we always observe.  One is to state your name and affiliation; the second is to ask just one question, and the third is to ask a question, actually, and not give a speech or a long comment.  So anyone who would like to comment… this gentleman right here, please?

 Bill Hawkins:  Bill Hawkins with the US Business [tape glitch] but I do not think made it explicit, this Chinese model, what it means for the African countries because I have seen this also in Latin America and I think it is more [tape glitch] in Africa, that this model of trading Chinese manufactured goods and in some cases weapons for the raw materials is sort of an old [tape glitch] regime [tape glitch] money from the raw materials is sufficient to keep the regime happy.  But it does not develop the overall economy, which would require industrialization, services, things that you would have to have ties and trade with the West for.  But that comes with the price of reforms and democracy, which they do not want. 

The regime -- your comment on this tie between the regimes and [tape glitch] and this sort of imperial trading pattern [tape glitch] trading off that sense of stability, if you will, in exchange for under-developing or non-development of the overall economies in Africa.

 Joshua Kurlantzick:  When I talked about the China model I do not mean… that is not what I mean.  What I mean is that China has a model of economic development it has pursued since ’79, in which they essentially allowed a certain amount of state directed control, created elite technocrats who were to some degree isolated from politicians and to pursue that without political liberalization. 

And that they have increasingly, I think, particularly as some of the free market liberalization of the Washington consensus did not necessarily work in some respects, they have increasingly advertised that through leadership speeches, through training of African officials and in Latin America and South East Asia and through other elements that they have a model that could work and in that way it would appeal to some extent to elites but also presumably to average people if it delivered growth. 

I think the failure of that is that you just do not have very many countries like China where you had, first of all, a relatively clean leader in Deng, a relatively far sighted leader economically, and Deng actually allowed the very elite technocrats in China to make policy.  He did not then step in repeatedly and change policy on certain key issues like the progress of opening to the West, the institution of special economic zones, et cetera.  You have a lot of African governments, including governments in South East Asia as well, where the leadership is not necessarily, I think, as far sighted as Deng and also the walls between politics and economic are even lower.  So I’m not sure that the model is an effective one, but that is what I meant.

 Carolyn Bartholomew:  Bill, thanks.  I think you have touched on a really important point and you mentioned, actually, Latin America, which again there is growing unease in Latin America and I think in some places in Africa about is this essentially just a new form of colonialism, that it is about resource extraction and it is not about development?  And that gets to the issues of governance transparency, about the importance of building sustainable development.  By that, I mean not just the way we usually talk about sustainability in terms of environmental sustainability, but I mean economic growth that that can continue, that can lift the countries and the continent out of poverty. 

I was really thinking as you were talking that some of what I think is happening is a distinction between the leadership of these countries and the people of the countries, and that is one of the reasons why democratization is really important so that people have made reference to some places where there is this ground-sweller, this anxiety about what is happening in terms of jobs.  In fact, not only is the Chinese development… the Chinese investment seemingly not creating jobs but the flood of low-cost Chinese goods is actually shutting down textile industries, bicycle factories, Vespa factories, things like that.  As the other donor nations are trying to create a model of development that works, it really remains to be seen whether the Chinese government is going to change it to be in line. 

I was particularly interested that Josh said that the Chinese government is consulting with DFID, and you see it in the MCC and would certainly like to hear more about that, about whether this is a real commitment to doing this.  And then what happens when it puts the Chinese government directly in conflict with the way it is and the way that it is ruling China?  There are some certainly some inherent contradictions in all of this.

 Walter Kansteiner:  Just a couple quick, interesting footnotes on what some of the Chinese commercial projects in this model actually look like.  I mean if you look at the Lobito refinery on the coast of Angola that has been out there for probably eight years, and no one in the private sector has touched it because the IRR on that is so low; it just commercially did not make any sense. 

Or you take the Benguela railroad.  I mean to get a return on investment of the Benguela railroad, what the Chinese are doing, it would be probably 50 years.  Well, no venture capitalist is going to do that.  So they are kind of odd commercial/development projects that the Chinese model is doing.  Now you could say there are some real benefits to the African on having a refinery on the coast of Angola and certainly the Benquela railroad.  Other projects that the Chinese take on, for instance, the parallel pipeline in Sudan, that will have an IRR very quickly; they will get that paid for very, very quickly. 

One other thing that is implied in this, though, is Chinese technology and I think, Ambassador Hare, you mentioned there is some worry among Africans that Chinese technology is just not capable of maximizing the extractive industries in mining or oil and gas or Chinese goods.  So there is a technical capability worry that the Africans have. 

 Paul Hare:  One point on Angola.  I think any Angolan or people in leadership positions in the government or the opposition would agree; at this time, after God knows how many years of war and total devastation of the country’s infrastructure, the imperative is to get the infrastructure rebuilt, otherwise, the economy is just not going to go.  To that extent I would give credit to the Chinese because they are the only ones who are on the horizon that were willing to come in, admittedly with their own equipment, their own companies and manpower, but to get the job done. 

It is a short-term issue but it was a big imperative in the Angolan case.  The issue is what Walter was saying is whether or not the roads and bridges will start to crumble and have potholes within a couple of years, or not. 

 Carolyn Bartholomew:  And I would actually like to comment on this because I think that there is an important question about who is seeing the benefits of this.  I mean, who is seeing the benefits of this refinery, for example?  Do we have any idea if the profits that are coming out of it are going into benefiting the people of that country, or are the profits just disappearing into a handful of leaders?  Well, that is actually a good question right there. 

Are there profits and once the profits are coming forth, if they do, where are the benefits going?  I think that this is an issue elsewhere in the continent, which is about wrestling to make sure that the proceeds of the natural resources that are being extracted -- we see this in Nigeria , are actually making it into the hands of the people, that there is increase investment in health and education, and that the proceeds are not just going into the hands of a handful of people.

 Mauro De Lorenzo:  Thanks.  Gentleman in the corner here.

 Hi Shau:  Hi Shau from Chinese Embassy.  I have got a question just regarding the US policy and Chinese policy.  I remember not a long ago, Chris Hill made a famous remark saying that China’s [indiscernible] from seeing Asia does not necessarily mean the decrease of US seeing [indiscernible] Asia.  I do not know whether the same works in Africa.

 Walter Kansteiner:  I think we are all a little schizophrenic on that, the competition from a business point of view.  Businessmen are capitalists and we espouse this free market but you know what?  We really hate competition.  We really like monopolies and we want it to be our monopoly.  So when other actors come in onto the game board, no, no one likes that.  No one likes competition. 

On the other hand, from a more macro government point of view, does it worry the US government that China is aiding and abetting Robert Mugabe?  Yes, it does and it should.  He is a bad guy doing bad things to his people.  And so and Beijing is supporting and helping him from a policy maker’s point of view, that is counter productive.  So I think it is a mix and you have to separate the pure business from the politics. 

 Joshua Kurlantzick:  I would add to that actually; I think Africa has a better opportunity for US corporations with China in that there are so many higher interest security issues in Asia.  And then you also have the long-term factor that there are two major powers there who have never been powerful at the same time. 

In Africa you do not have so many of the same issues and a lot of the issues relate to other third party actors like the bank or even other major powers like France that do not necessarily see themselves in competition with China.  So there are a lot of issues I think for example, you can apply Zelic’s concept, too, in Africa, that when you bring those into Asia you get into a whole lot of other issues that are much more difficult to resolve.

 Carolyn Bartholomew:  And I think it is a very interesting question.  I do not think that it is a zero-sum game but I do think, as I said in my comments, that China in Africa is really an opportunity for the Chinese government to demonstrate its maturity and its interest in serving as a responsible stakeholder and working with others in the world community to achieve some of these needs.  I suppose in some ways it is one of the reasons there are so many people here right now which is that question and that challenge of as China is playing a greater role on the world’s stage, how is that role going to be defined?  And I think that Africa is a very important test case for them. 

 Mauro De Lorenzo:  This gentleman back there.

 Arlon Herfendol [phonetic]:  Yes, Arlon Herfendol from the International Trade Commission.  I was just wondering if there is any potential positive benefit for poverty from the availability of cheap consumer goods that people may not have been able to afford previously from China.

 Joshua Kurlantzick:  Yes, I think clearly there is a benefit, and you see that by China’s popularity on the continent.  That is clearly a benefit; and also I think in the long-term you do have an issue where the Chinese government has I think begun to recognize some of the potential problems that it is going to have in Africa, particularly in Southern Africa with competition, in that I think they recognize that in South Africa there. 

And, to some extent, in Lesotho [phonetic] their competition in the textile industry was damaging local perceptions, so they gave South Africa a deal in which they would delay down the road essentially the textile relationship with South Africa in order to, I guess, win better public opinion.  Clearly, there is a benefit from cheaper consumer goods and I think that is reflected when you look at surveys of African opinions. 

Also I think that in technology in the oil and gas industries, clearly, China lags significantly.  But if you look at some of the other industries they are invested in, like mobile telefono, they are relatively competitive with the US, Japan and South Korea.  And so I think that there is a perception in Africa that if the Chinese bid is competitive or cheaper in those industries, they will take it.  Oil and gas, totally different; they do not have anywhere near the technology.

 Carolyn Bartholomew:  The issue of the benefit of cheap goods, of course, is one that we talk about and grapple with here in the US, but I always think it is important to remember that in order for people to be able to purchase cheap goods they need to have work; they need to be able to work and to have the income that comes in.  And I think that we are seeing that challenge in a lot of communities in the United States and I think that we are going to be seeing more and more of that challenge in a lot of communities in Africa.

 Mauro De Lorenzo:  Ambassador Shinn. 

 David Shinn:  David Shinn, George Washington University.  The panelists did not say very much about the China-Africa military relationship.  What really is known about military aid, military sales, visits of high-level personnel going both directions, and something which fair amount is known about, Chinese peacekeeping in Africa, their participation in it?

 Joshua Kurlantzick:  I did not look that much at the military relationship because my research is basically about Chinese diplomacy, but the second part, I think that is very interesting.  There is a good article.  I think it is in the National Interest this quarter about how China has actually become the largest contributor of the P5 Nations to peacekeeping, including peacekeeping in Africa. 

However I do not think at this point - and you see this in West Africa to some extent - that Chinese troops, they participated but they are not yet, I think, ready to assume sort of the more sophisticated responsibilities that you see countries that have had a long, long experience with peacekeeping like the South Asian countries have. 

However, I do think the fact that there does not seem to be any significant problems with them doing peacekeeping there or, for example, in Haiti indicates a fair level of comfort among African nations and African leaders with them on the ground.  The military relationship, I just do not [indiscernible].

 Carolyn Bartholomew:  I would really only add in some ways, having just finished our annual report, that on the number of issues that we realized we did not know enough about, we were going to say this is an issue that we will mark for our next cycle to be looking more at it.  I think, certainly, in terms of China’s arm sales rather than the military cooperation, they also raise a serious number of questions, as you know. 

I mean, their willingness to sell arms to rebel groups that are seeking to overthrow governments, their willingness in some cases to supply both sides in these conflict raises some serious concerns, but I think you have identified an issue that we need to look at more.

 Ernie Preeg:  Hi.  Ernie Preeg, Manufacturers’ Alliance.  I have a question for Miss Batholomew.  You made a rather convincing case that China is acting as a thoroughly irresponsible stakeholder in Africa, particularly Sudan, Zimbabwe. 

My question is what if anything should we do about it?  And if I could just put that in a little historical context, in the early ‘90s I spent a couple of years almost full-time on US economic sanctions related to foreign policy objectives.  After China, it was to link human rights improvement, to renew all of MFN and a strong congressional initiative; it was a link.  President Clinton tried it for a year-and-a-half, failed totally and we looked very bad in the Chinese eyes.  I should also say those were the last two years where the Democratic Party controlled both Houses and my recollection is even that Congresswomen Pelosi played a leadership role. 

So the question is at this stage do we consider sanctions or all or just [indiscernible] ourselves to diplomatic language in responding to this?

 Carolyn Bartholomew:  Mr. Preeg, it is always a pleasure to see you and I would note for those of you who have not necessarily followed the China debate, one of the interesting things is while 10 or 15 years ago, we might have been on different sides of some of this, I think that your concerns with the people that you represent and our concerns have become quite similar, which I think is very interesting to think about the unfolding. 

I think we could talk for hours about what happened during that linkage.  I’m going to put that aside; we will talk about that for hours at some point.  But I think, again, looking at this concept rather than going into the sanctions issue, though as I mentioned in Sudan what has happened of course is that the Chinese government is taking the opportunity to solidify its position, which is disadvantageous to American companies.  But I believe that the sanctions are fully justified in this case.

 But I really am choosing right now to see this as a more positive opportunity for the Chinese government to make decisions that would put it into the role of responsible stakeholder.  And we have some reasons to believe that they are indeed concerned about the way that they are being perceived in the world, particularly about Sudan, but elsewhere in Africa.  And I think that rather than saying we need to be punishing right now, that the challenge is to say to the Chinese government, “Here is the chance.  This is a very important time.  It is a very important role that you could and should be playing, and demonstrate to us that indeed you are interested in being a responsible stakeholder.” 

If it does not happen then I think that we really are going to have to ask some serious questions about what is it that the future holds, and what is the shape of the US-China relationship going to be as well as the shape of China’s role elsewhere.

 Nadia Chow:  Hi, I’m Nadia Chow with the Liberty Times, Taiwan.  Some of the panelists, like Josh, mentioned Taiwan has been increasingly excluded in Africa because of the Chinese effort and presence.  We know China and Taiwan have been competing for diplomatic recognition neck-to-neck for many years.  So I have a question about, did you see this change due to the strategic change of China’s policy, or you see there is a different need or demand from African countries themselves?  Thank you.

 Joshua Kurlantzick:  Well, I think several things happened.  The China – Taiwan relation, competition, pre-democratization in Taiwan, pre – DPP was on a different level than what you have today.  Not only in Africa but in Latin America and in South Pacific, partly because once the DPP came to power they had made their bones partly on the fact that they were going to be cleaner; whether or not that is true I do not know, but they were going to be cleaner than [indiscernible]. 

And part of that cleanness was going to be, “We are not going to stick money into the back pocket of officials in the developing world.”  There were a number of scandals, as, of course, you know, particularly in Central America.  So if China is willing to essentially - and you see this clearly in the South Pacific - use commercial interests to further relationships with countries that previously supported Taiwan, it is much harder for Taiwan to respond in that way.  Now, for democracy’s sense, that might be a good thing. 

Secondly, I think in a lot of these countries they have just recognized that their long-term commercial interests depend on a much closer relationship with China.  And I just think that that combination of those two is irreversible. 

 Walter Kansteiner:  From an African point of view, it is the latter.  It simply, if you are sitting in Libreville, Gabon, you have no idea, this Taiwan-Beijing rivalry.  You do not understand it; you do not care about it.  What you do care about is what is the long-term relationship, how it is going to benefit me the most?  Simple as that.

 Wayne Botha [phonetic]:  Thank you.  My name is Wayne Botha and I’m here with ISCCOR, and today we have been talking about loans.  We have been talking about grants.  We have been talking a lot of assistance and aid in money.  Interestingly enough, when you try to invest in China they require knowledge transfer.  They want to know how you are doing something so they can do it themselves.  Is China offering the same technical assistance in its own dealings with Africa?  Is it allowing the African nations to know how to industrialize themselves in their aid and investment there?

 Walter Kansteiner:  “Not yet” is really the answer.  It is interesting you are seeing it.  I was negotiating a PSA production chain agreement in an East African country a couple of weeks ago, and we got to the part of local purchases and local manpower hiring.  And production chain agreements today cover everything, including where you buy your goods and services and who you hire.  And this particular government official was very, very strident on this, and usually not a big issue in a PSA, just kind of roll through it. 

But we ended up spending about 45 minutes or an hour on it, and we finally said, “You know what is behind this?  Why are you grilling us on this?  We are happy to accommodate.  Of course, we will buy local whenever we can.  We want to buy materials local and we want to hire as many local people as we can.  But what is driving you on this?”  And they said, “Well, we did a PSA with a Chinese company about two years ago, and they are starting to roll out some of their construction on their exploration, and they are buying nothing locally and they are hiring none of our people.  And they are certainly not doing capacity transfer, skill transfer, technology transfer, and we are not going to have any more of it.” 

So it was interesting what was driving them, so I think in the past that, from the Africans’ point of view, they have not been demanding that and they are going to start.

 Carolyn Bartholomew:  If you just look at the fact that it is Chinese labor that is participating in these projects in Africa means that not only is there sort of no intentional transfer of technology or skills, but you are not even getting a secondary benefit of people getting job training while they are doing infrastructure construction and getting that kind of transfer.  And I think unless that link is broken, it is pretty clear that they are not interested in transferring anything, from the lowest kind of skills that we are talking about to the highest kind of skills.

 Elizabeth:  Hi.  Elizabeth [indiscernible].  I’m with the Institute for National Strategic Studies and I was wondering if one of you could speak a little bit about the genesis of the forum on Africa, China, or China-Africa cooperation, and perhaps its potential influence?

 Joshua Kurlantzick:  Well, I think the genesis is that generally in a number of regions of the world, China has, I think, quite savvily realized that the US often prefers bilateral relationships with countries and does not particularly love regional multi-lateral organizations.  And so China has an opportunity to both interact with regional multi-lateral organizations that already exist and create their own.  And so this is just one similar to Shanghai Cooperation Organization or the China-Arab Cooperation Forum that provides an opportunity in which the US is not necessarily there and China can show off its best side. 

Second to that, I think that you will not see really that much of exciting interesting things in the summit in Beijing just because that is the way these big forums, summits are.  But the fact that they got so many major leaders to come I think is a sign of their growing influence. 

And then I think what is important in the long-term is that China uses these organizations in other parts of the world, particular in Central Asia, to some extent in Southeast Asia, to build these bilateral relationships on the side.  So you can have a multi-lateral meeting but it is always going to come with on-the-side bilaterals.  And it is an opportunity to get face time, and the more meetings you have if you can get leaders from other countries to come to you, you are going to get more bilateral face time on the side, kind of a multi-lateral to build bilateral strategy. 

 Carolyn Bartholomew:  And just late last night on the wires, there was this interesting story about how the Chinese government is controlling in Beijing.  It is not a big philosophical comment, but it is controlling in Beijing access, and they are really controlling what is happening with this.  They are shutting down.  They are going to prevent public traffic going on certain freeways.  They are really micro-managing and controlling the population there to insure that it is a very carefully stage-managed meeting that is taking place.  And I think that is a kind of interesting reflection on the Chinese government. 

 Joshua Kurlantzick:  From the African point of view, what motivates the Africans to do this is the alternative; instead of looking West you look East and so it is their way of also saying we can go East as well as we can go West.  And, yes, we do the G8 but we also we do the Beijing Summit.  It is their way of showing that they are globalists, too.

 Mauro De Lorenzo:  Someone all the way in the back.

 Mr. Timmermann [phonetic]:  Thank you very much.  [indiscernible] Timmermann, German Embassy here in Washington.  I pretty much agree with everything that has been said but I would really appreciate it if you could take the discussion one step further in the sense of maybe formulating some recommendations you would give to the administration, or to, say, Western donors or governments what we should do to face this new challenge of China in Africa?  Thank you.   

 Carolyn Bartholomew:  [Tape glitch] I think first and foremost, right now, Sudan, I think that Chinese cooperation in stopping the genocide is a really critical test case and how countries get the Chinese to do that, if I knew that answer I think would be, I do not know where I would be, but I think to me that that really is one of the first things.  And one of the most obvious things which is stopping Chinese sales of military equipment into Sudan and getting Chinese participation in pressuring the Sudanese government to stop this genocide would be a very significant action on the part of the Chinese government.  And then the rest of it, I think that we are all going to have to work out together. 

I think, particularly, for the OECD countries that are interested in promoting transparency and accountability, getting the Chinese to promote some of those concepts in their aid programs.  Again, Josh seems to think that there is some interest in that which I think is encouraging and I sincerely hope that that is the case.

 Paul Hare:  I will just say [indiscernible] at this point leaving aside Sudan, possibly Zimbabwe, is, one, not to get too excited about this issue and to exaggerate the challenge or the threat; I mean, it is a baseline.  And, secondly, what Carolyn was saying and Joshua also, seek out the opportunities for cooperation.  It seems to me if you follow those two premises you will be headed in the right direction.

 Joshua Kurlantzick:  I think there are some specific things that the US could do now.  I think [indiscernible] and we and the strategic dialogue could expand it to include discussions of how the US and China would cooperate on aid and then in a longer term how are strategic energy outlook would or would not coincide with their strategy.  I think that clearly down the road, I do not think there is necessarily competition but the outlooks are so different. 

We could help China if they want to develop a more significant aid presence.  The United States and other major donors like the Germans and the Japanese could help them develop it; DFID has been involved in this to some extent but I think other donors could play.  I think that on the ground, where there is very little known about Chinese investment and aid, people in the embassy on the ground are going to have to reach out.  Well, there must be a guy in the Chinese embassy who is responsible for aid or other things.  Let us try to get him into the donor group.  Let us have someone on the ground on the embassy who is not only an African [indiscernible] but has some expertise in China, perhaps did a tour there and can interact with them.

 Josh Katzman [phonetic]:  Josh Katzman, Asahi Shimbun.  I’m trying to get a better understanding on the ground how Chinese corporate entities and the government in our country work together.  For example, Mr. Hare in Angola with the Syncope country manager.  [Indiscernible] the Chinese ambassador have a greater connection to Beijing and how would one [indiscernible] support the other?  But that might be a general question for the entire region, really.

 Carolyn Bartholomew:  Can I actually add as something to your question before the answers come, which is I was just saying is the nature of Chinese participation coming mostly from state-owned enterprises, which helps to then link up to your question of, essentially, who is in charge and what is happening?

 Walter Kansteiner:  The negotiations of off-take agreements - just take that as an example - is driven by the state-owned enterprises.  It is driven by the two or three major metal companies of China.  But, remember, that is very different; an off-take agreement is very different than an FTI.  When you start looking at Chinese making capital investment on a long-term basis then you are probably going to get Chinese embassy assistances, at least setting up meetings and not unlike what we do.  When the private sector of the United States goes into an African country we often use our ambassador to set up meetings and get the commercial attaché to help us.  I think it would be probably fairly similar on investment opportunities. 

On off-take agreements I think that the metals trading companies are pretty much doing that themselves.  They have their own links.  That is just kind of anecdotal from what I have seen. 

 Paul Hare:  I would just say in the case of Angola, clearly the Chinese government made a strategic decision at some point there before March 2004 to move and make Angola a major target, and then the rest flowed from that.  But it was clearly a significant change. 

 Walter Kansteiner:  And as Paul has said, that was a $2 billion line of credit, that is probably more like $5 billion, or whatever it is.  So that obviously is going to have Chinese Central Bank input and that is going to have… that is a big deal.  There are hundreds of smaller deals going on in Africa right now involving Chinese companies and Chinese traders that do not have that kind of Beijing influence.

 Carolyn Bartholomew:  Actually, I have another question which is in the discussion about Chinese commercial loans to Africa, obviously one of the issues in the Chinese bank sector is the issue of non-performing loans, and what is happening as the Chinese banking system has been making loans within China, are we seeing that these commercial loans that are taking place in Africa are to credit-worthy institutions, or are we seeing that it is a set of completely different considerations taking place?  And if that is the case, do you think the Chinese government is just figuring it is going to end up having to eat the loss?

 Paul Hare:  Well, I do not have a breakdown.  I think you have to look at the portfolio there.  Certainly in the case of again of Angola it is backed by oil and that is pretty reliable.  So they are not actually going to have a problem there.  They might in some other places.

 Walter Kansteinter:  Basically on the hydrocarbon side they are selling forward.  The African companies, the African state-owned oil companies are selling forward their production.  That is the guarantee for the note.

 Mauro De Lorenzo:  We will take two more questions.  Any from this side?

 Steve Paris [phonetic]:  Steve Paris, USAID.  Just a quick question for Josh.  I think this was implied, but do you see any movement on the part of the Chinese to begin to observe Paris declaration principles on aid effectiveness and is that a possible area around which something… we could engage?

 Joshua Kurlantzick:  Well, I think that is a possible area and I think there are a few countries in Asia where the Chinese have… particularly Cambodia and East Timor where the Chinese have participated more actively in donor groups.  And that does not necessarily mean that when, then, the donor group decides they are going to say in the case of Cambodia, potentially, move back because the government has had some problems and the Chinese are not going to. 

But there is a much greater willingness in some of those places to learn about Paris [sounds like] and just generally about how other major donors cooperate and how they work on aid effectiveness.  I think that that is partly because China has been giving substantial aid in Southeast Asia slightly longer than in Africa.  And you also have larger embassies and generally more sophisticated Chinese diplomats.  So you often sometimes have people in the embassy who actually are responsible for aid and they have some background.  They have been giving aid in Cambodia for eight or nine years.  And then they have also seen sometimes that their aid gets truly wasted and they have also had, actually, complaints about it. 

Whereas I think in Africa the aid cycle is a little bit newer so you do not have as many people in China [indiscernible] know anything about aid.  So, anyway, I think that there are some lessons to be learned.

 Mauro De Lorenzo:  Is there a last question?

 Jardo [phonetic]:  My name is Jardo from Angola.  The question is more going back to the whole question of the employment, the Chinese bringing in their own people.  If you look at the Benguela railway, we are talking about 14 to 40 thousand, depending on whose numbers you believe in.  Really, the question becomes is this simply a pursuit of maximizing their benefit on the Chinese side, or is this really a long-term policy of exporting people? 

And let me just say on that, if you have a railway road being constructed with over 40,000 people, roads construction without technology transfer, you face two problems.  You either have to keep those people there to maintain those things, or if they leave one day those things will break down because nobody is there to maintain it.  So is this just another side, or is it really part of the strategy?

 Mauro De Lorenzo:  And if I could just add to that.  I mean, this is not the first time the Chinese people have been brought to Africa to build a railway.  The first time was in the 1890s to build the railway in Congo.  And I think one question we might ask is how many of these people are going to go home?  Not all the people who built the Congo railway went home.  The first President of Congo was part Chinese, Youlou.  And all throughout Africa now, in towns and cities in the most obscure places there are Chinese diaspora communities which have every sort of appearance of being in it for the long haul. 

And I think there is a human story here, which sort of in addition and on top of the investments, and that is also a form of influence as Africans come to know Chinese people on a human level more and more.  I think it is good.  The way I phrase that same question is why are they bringing tens of thousands of Chinese people?  Is it because it is cheaper?  Is it because they cannot find labor or are they are doing it even though it is more expensive and even though it causes some irritation on the countries that they are investing in?

 Paul Hare:  I mentioned I think this is a source of concern, at least in the case of Angola, an increasing source of concern.  But I suppose you could also… it is interesting to compare what the Chinese are doing in Angola, say, with what the American and the other international oil companies are doing with respect to the issues of the transfer of technology, human capacity building and so on. 

My concern about the Chinese is that it might be all bricks and mortar, and what do you have there of enduring substance?  The major oil companies, the amount of money that they are investing in training and so on is significant.  What they are trying to do in terms of local content for their operations is significant.  And, quite frankly, I do not see that with respect to the Chinese.  On the other hand, I suppose I did mention that the fact that they do bring things in, lock, stock and barrel basically, it does have a minimal adverse impact on the economy, which is something that should not be dismissed entirely. 

But I think this is a huge concern.  I think if you talk about relations between the Chinese and the West, donor things, I think the whole question of human capacity has to be at the core of the discussion because that is what will bring results in the end. 

 Carolyn Bartholomew:  It is I think a very interesting question and I do not know that we really know the answer about why the Chinese decide that they want to sort of control all aspects of what is taking place, but it seems that unlike the intentional placement or movement of Han Chinese into Tibet that it does not seem that it is quite a strategy of population transfer.  You sort of asked a piece of that question.  I do not know that it is that.  And it is certainly not only in Africa that it happens. 

One of the ultimate indignities for American communities that lose manufacturing plants is that, often, when the Chinese buy the plants and dismantle them to take them back to China, they bring workers over here so the American workers do not even get the opportunity to get the wages of dismantling their own jobs.  It is not just something that we are seeing in Africa but I do not really have the insight into exactly why it is that they feel this need to control all aspects of it. 

 Joshua Kurlantzick:  I do not think there is any particular, in many cases, need or anything that you could attribute that.  It is just simply if you look at a lot of places, in Africa or all over the world, particularly for small-medium sized businesses – here is a woman from Yunan province.  You do not speak much English, definitely do not speak Portuguese or French.  You get an opportunity because of perhaps some connection.  You are going to bring in all the people you know, and if they can get out of Yunan province or some other poor province, they are going to come. 

And the problem in the long-term is if they do not go back we have a significant problem if they do not then integrate into the society.  But I do not think it is necessarily such a base reason at first.  It is just you have a business opportunity, you are going to bring in everyone you know from your home area because you trust them and you are operating in a place where you do not know that much and you probably do not speak the local language.

 Carolyn Bartholomew:  I still think in a lot of ways the question is not so much why Chinese workers participate in a system like this.  The question is why there is no inclusion of African workers into these kinds of projects.  So for me that was what I really got out of your question because, again, there is no wage benefit.  There is no skills transfer.  There is nothing that these countries get, other than the infrastructure which is being built, and I do not mean to diminish the significance or the importance of that infrastructure. 

Of course, none of us have said that one of the reasons that the Chinese government is investing in this infrastructure is because it is often about its own ability to access the resources that it wants to take back to China.  Again, people have their different motivations for this.  I think it is particularly interesting that some of these infrastructure projects have essentially no rate of return. 

So there are questions about [tape glitch] why, what is the point of this?  But I think you have really gotten to the heart of some of this.  For those of us who have been interested in development issues for our careers, too, what positive aspect is taking place?  How is this moving forward at a time when there really seems to be so much interest?

 Mauro De Lorenzo:  Thank you.

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