RITA TRICHUR
RTGAM



China Minmetals Corp.'s plan to take over Canada's Equinox Minerals Ltd. marks a turning point in China's ambitions to create a world-class mining giant, while signalling the country's growing influence as a "soft power" in a slew of resource-rich African countries.

With a voracious appetite for natural resources, China is taking a leading role in the developing world as it works furiously to strengthen commercial and diplomatic ties with some of the world's poorest countries. In the process, China is showing an increasingly savvy and bold approach as it secures control of some of the world's richest resource properties.

Minmetals Resources, three-quarters owned by state-owned China Minmetals Corp., this week launched a surprise $6.3-billion plan to bid for Equinox, a Canadian-Australian company with a prized copper mine in Zambia. The Chinese company's decision to launch a hostile bid stands in sharp contrast to the country's previous cautious overtures, often met with heavy resistance, for Western-controlled international resource assets.

In accelerating its drive into Africa, China is also showing enviable competitive advantages and a tolerance for risk as it jockeys with mining companies worldwide for the most attractive properties.

First, China has deep pockets. With nearly $3-trillion (U.S.) in foreign exchange reserves, China desperately wants to diversify its massive holdings of U.S. treasuries and is pouring billions into development aid, infrastructure and scholarships across Africa, while forgiving some loans. That opens doors and burnishes China's image, while allowing it to outbid others when it chooses to.

"There is a broader strategy of cultivating relations with Africa and African leaders that has to do with diplomacy as much as it has to do with a resource strategy," said Yuen Pau Woo, president and CEO of the Asia Pacific Foundation of Canada.

China is also willing to take on high risks and a long payback horizon for African investments because it needs to maintain a minimum 7- to 8-per-cent annual economic growth to create stability in its own country, said Sarah Kutulakos, executive director of the Canada China Business Council.

A North American-based publicly listed company would have a "hard time" taking that sort of long-term view because of shareholder pressure. "This is a problem with Western business in general - they are not actually very long-term thinking. And it can be detrimental."

China's long-term approach makes it easier to tolerate potential risks such as civil strife.

"They (the Chinese) have the same situation in the countryside themselves. So, when you have an environment that has that, then you are just more comfortable and better-equipped to deal with the situation," said Joyce Lee, co-chair of McCarthy Tetrault LLP's China Group in Vancouver, which represents a number of Chinese companies in mining deals. "Given the long friendly relationship between China and Africa ... to them the risk can be more 'manageable' if I can put it that way."

China, itself a developing country, has been doling out aid since the 1950s and supported the efforts of various African countries to liberate themselves from colonial rule during the Cold War when China, Russia and the United States battled for influence on the continent. Today many African countries, eager to advance their economic performance, welcome China's growing investment in business.

"They have big, big industries with great appetites for what Africa has to offer," Zambia's President Rupiah Banda told the Reuters Africa Investment Summit in March. "In the process, they are making it easier for us to achieve what we want. What we want is to rebuild our countries." Zambia is one of Africa's biggest copper producers and is expected to see about $2.4-billion in Chinese investment this year, according to Reuters.

According to the 2009 Statistical Bulletin of China's Outward Foreign Direct Investment, China's total outward foreign direct investment reached $56.53-billion (U.S.) that year, with African countries receiving $1.43-billion. While that is significantly less than the $40.40-billion earmarked for Asia, Africa's share is predicted to grow rapidly in the coming years.

A recent report by the International Monetary Fund found that Chinese companies ramped up their investments in natural resources in sub-Saharan Africa between 2003 and 2007, with some 81 projects in 25 different countries.

Among the most notable resource deals, Bosai Minerals Group bought an 80-per-cent interest in Ghana Bauxite for $1.2-billion (U.S.) in 2010. That followed a 2009 move by Zhonghui Mining Group to spend $3.6-billion (U.S.) over five years for the exploration and mining of copper in Zambia, while China Union announced that year it had earmarked $2.6-billion develop a iron project in Liberia over a 8 to 10 years. In 2008, China National Petroleum Corp signed a $5-billion deal for oil exploration, drilling and construction with Niger.

Moreover, she noted, Africa has been a willing recipient of Chinese investment. "How many investment overtures have been spurned by the U.S. You don't see that happening in Africa."

"The Chinese, in a sense, not only have the appetite to go into more-risky areas, more fundamentally they have no choice because all of the good assets are spoken for by the Western multinationals," said Mr. Yuen of the Asia Pacific Foundation of Canada.

Paul Evans, director of the Institute of Asian Research at the University of British Columbia, says Africa and South America are becoming increasingly important to "Global China" even though that rankles the West as it does business with some of the world's most despised despots.

"It is an issue that has been highly politicized because China sometimes works with regimes, sometimes regimes that are not likeable - thuggish regimes," he said. "And also because their approach to governments has been rather different than some of the consensus positions that have been developed by Western countries."

While some African countries are rife with political instability and corruption, they do offer some upsides to Chinese resource firms. In addition to less-stringent environmental protection laws, the cost of equipment, wages and housing is much lower than in other countries.

That makes it much cheaper to relocate local populations from project sites, while providing them with upgraded housing and more secure supplies of water and electricity.

Just this month, a Chinese official boasted to the African press that trade between China and Nigeria hit a record-smashing $7.76-billion (U.S.), while Zimbabwe and China signed a memorandum of understanding to facilitate intellectual exchanges and joint research.

"Relations between us and China started when we were fighting colonialism and after independence we consolidated the relationship," Zimbabwe's President Robert Mugabe told All Africa Globe Media on April 2.

"We are glad our co-operation has become multi-dimensional, multi-faceted and it is very beneficial to us."

Those moves comes on the heels of Liberia and China signing a co-operation agreement for a grant of 50 million yuan ($7.65-million U.S.) for projects that will be mutually decided by the two countries in late March.

Earlier this year, Huawei Technologies Co. withdrew a request for U.S. government approval of $2-million asset acquisition from 3Leaf Systems following a firestorm of opposition.

Chinese nerves, meanwhile, are still raw after U.S. political opposition forced China National Offshore Oil Corp. to nix its $18.5-billion (U.S.) bid for U.S. oil producer Unocal in 2005.

Minmetals also faced a barrage of political resistance in Canada in 2004, forcing it to ditch plans to launch a takeover of Canadian miner Noranda Inc. and its majority share of Falconbridge Ltd.

But it hasn't always been smooth sailing. In recent years, Chinese companies have faced accusations of human rights abuses and been the target of protest in some African countries.

For example, earlier this month, Zambia dropped attempted murder charges against two Chinese managers who were originally charged after 11 local coal workers were injured in a 2010 shootout at the Collum Mine, located about 325 kilometres south of Lusaka. The workers had reportedly staged a protest over poor pay at the time of the shooting.

That followed a similar incident in 2005, when five Zambian workers were shot at a different Chinese-owned mine also during a dispute over pay.

In February, demonstrators also protested a Chinese-funded dam project in Ethiopia, known as Gibe III, located in the lower Omo Valley.

Additionally, the recent evacuation of tens of thousands of Chinese workers from Libya has prompted China to take a more sophisticated approach to their African investments - including showing more sensitivity to local business practices and the interest of the Africans they employ.

China is "increasingly seeing how complex it is to generate long-term stability. That means you are going to have to deal with groups other than the central government, you are going to have to have a better knowledge of local institutions and players," said Paul Evans, director of the Institute of Asian Research at the University of British Columbia.

"And recognizing that sometimes democracy, sometimes popular voice are essential to stability rather than threats to stability. And that's sometimes mildly ironic considering what some of their views are at home."