Investing in US riskier than Africa, says China banker

Issues of nationalism in international trade relations were raised by a spokesman for one of China’s top policy banks at AsianInvestor’s and FinanceAsia’s inaugural Africa Investment Summit.

Speaking at the event in Hong Kong last week during a panel discussion on investor perspectives on Africa, the chief country risk analyst for China Eximbank, Zhao Changhui, framed his country's trade with Africa in terms of its rivalry with the US.

Painting the US, rather than Africa, as one of the world’s riskiest markets to invest in, Zhao said: “We don’t like to put one trillion dollars-plus just in US Treasuries and in return for the US not to feel grateful at all. It’s like Hillary Clinton – she’s instigating all the troubles for China. Why should we be so supportive of our rivalry for [the US] not feeling so grateful [to us]?”

Clinton made what was understood to be a thinly veiled swipe at China during her tour of Africa this August, when she said: “America will stand up for democracy and universal human rights, even when it might be easier to look the other way and keep the resources flowing.”

The fact is that China eclipsed the US in terms of trade with Africa last year, with deals amounting to $166 billion, according to China’s commerce ministry, compared with $126 billion between the US and Africa, by US Census Bureau figures.

“Whenever China is booming in investment or trade with any country, America will be very, very alert – even allergic [to that],” continued Zhao. “Therefore we think we should do something differently and that is to disperse Chinese investment in countries that America might feel is beyond its reach.”

Throughout his on-stage comments, Zhao remained resolutely optimistic about Africa’s potential, particularly in comparison with investment in developed markets.

“People might say there are a lot of uncertainties in Africa such as terrorism, but all these things are minor and can be easily contained,” he added. “These risks are smaller, lighter and more manageable compared with the geopolitical and economic conflicts with the US and some European countries.”

Speaking about Europe and Japan, Zhao sees no prospect of economic growth in either market, saying they have been “seriously plagued by financial and social crisis. I doubt, as a practitioner, that China will invest heavily in these countries”.

But he contrasts that with Africa, a continent he argues is on the verge of sustainable growth. “We would like to support this tipping point and [see it] materialise… grow [Africa] into one of the major drivers of the global economy for the next decade,” he stated.

He said he would like to see China invest at least $500 billion of its $3 trillion in foreign exchange reserves into Africa over the next decade.

China Eximbank made more than $67 billion in loans to sub-Saharan Africa between 2001 and 2010, according to Fitch Ratings estimates, while Chinese media report that China Development Bank – another policy bank – committed $13.7 billion in loans to Africa in the first half of this year.

Infrastructure and logistics is the starting point for investment in Africa, said Zhao, noting that the continent’s development wouldn’t get far without the necessary infrastructure in place. Pan-African railways, highways and canals form part of Zhao’s vision for the continent.

It was a point backed up during the panel discussion by Han Naizhi, deputy director of the international planning department at China Development Bank’s research academy.

“If you talk about the mining industry, even if you may have identified a very good mine, sometimes you don’t have water, you don’t have a power supply and you don’t have good infrastructure,” he reflected. “Then there may be problems with transportation.”

To solve this, he said CDB had financed infrastructure improvements such as adding roads and electricity on single projects, copying a blueprint for China’s rapid industrialisation and urbanisation.

He identified the lack of strong government and human resources as other weaknesses and risks when it comes to investing in Africa.

“We think it is very important to have a government that is strong enough to mobilise all the related resources,” said Han, “and after a plan is made to enable different departments to work together and execute a project. There is also a lack of middle or senior executives in Africa, especially those from less developed countries [in] making decisions.”

Asked by the audience how the bank deals with loan losses, Zhao explained that it tended to look at its loan portfolio as a whole rather than separately. “For one project, it might be a total loss or no prospect at all, but if we look at the combined whole, then it should be quite alright,” he said.

Zhao noted that China Eximbank had also been financing deals in Africa via its Angola model, referring to the $4.5 billion loan made to Angola for the infrastructure reconstruction in 2004-07 in exchange for oil supply to China’s Sinopec.