20110607
Allafrica
Beijing — Jasmine blossoms' fall from grace in the Chinese flower industry is not the only blow Chinese businesses have suffered as a result of the North African and Middle Eastern democratic uprisings this spring. China is evaluating the impact of the Jasmine revolution on its overseas investment and outward business expansion strategy.


Africa - once considered the lab for Chinese companies' reach outside - is being relegated into a destination with too many risk factors. Safer political destinations and countries closer to home are likely to benefit from the shift.

The readjustment has been in the works for some time but the uprisings in Tunisia, Egypt and Libya have made those subtle shifts more pronounced.

"North Africa's unrest and Libya's situation in particular are testing China's 'go out' strategy," says Wang Jinyan, research fellow at the Beijing Foreign Studies University. "This will have a definite impact on the future direction of our overseas investment."

According to press reports, China's Ministry of Commerce new five-year plan, which is being finalised at the moment, makes Asia and the new emerging economies the centrepiece of the country's "go out" investment strategy.

"The political risk aside, investment in Africa is no longer what it used to be," the Economic Observer quoted an unnamed official from the ministry in May. "Opening a mine there is not so easy any more, now you need to take into account the environment, local employment and benefits to local economy."

By contrast, Asia is perceived as a mature market full of economic potential and fewer political risks.

Determining the direction of China's future investment remains a full-time occupation of analysts the world over. Flush with cash from years of exports-driven economic expansion and sitting on top of the world's largest foreign exchange reserves, China has been on a shopping spree of late for commodities, oil, energy and agricultural land.

A study released in May by the Asia Society in New York forecast that by 2020 China's overseas direct investment could reach 2 trillion dollars. Last year the United States' foreign investment amounted to 300 billion dollars.

The financial crisis of 2008 has provided Chinese companies with impetus and opportunities to channel some of their money into most remote corners of the world, snapping minerals, securing oil fields and acquiring stakes in major companies.

But before spreading their wings further afield many companies, including major state oil firms like Petro China, have used Africa as their testing ground. Entering as contractors to build railways, roads and telecommunications, Chinese companies now boast a sizeable presence on the continent. By the end of 2010, some 2,000 Chinese companies operated in Africa with an accumulated investment of 32 billion dollars.

Last year China became Africa's largest trading partner, and its march into the continent seemed unstoppable. Not surprisingly, this has been met with criticisms by some that China is acting as a neo- coloniser, stripping Africa of its rich resources.

But the Arab spring has cast doubts over this relentless expansion. The figures of China's economic losses suffered during the civilian unrest in North Africa and Libyan conflict are beginning to emerge, giving officials cause to pause.

In Libya where China's involvement is quite recent, the losses suffered and the cost of repatriating some 36,000 Chinese employees is set to surpass 3 billion dollars. Since 2007 Libya had contracted some 50 engineering projects to Chinese companies, including several image projects to mark the 40th anniversary of the 1969 revolution.

Although China's role as a contractor has limited its exposure to direct losses in the unrest, some Chinese assets like Sinopec refineries in Libya were raided and destroyed. Experts say that on the whole Beijing has been left to deal with a messy aftermath of compensation claims, third party debts and the re-employment of all returned workers.

And Libya's fallout is only one piece in the big picture of Arab revolutions that have derailed Chinese business interests.

At a working conference in Shanghai in May, Sinosure, China's official export credit insurance agency, revealed that in the first three months of 2011 its reported loss claims from North Africa and the Middle East have risen by 167 percent over the same period of last year.

According to figures from the Ministry of Commerce, new Chinese contracts in North African countries in the first quarter have dropped dramatically, by 70.8 percent in Algeria and by 46.9 percent in Libya over the same period of last year.

The civil unrest and safety concerns have made the Chinese even more invisible in Africa, adding fuel to accusations that Chinese contractors are isolating themselves from the local population behind high walls, and remain aloof to local grievances.

But even as Beijing takes a closer look at its investments in Africa, China's involvement there is far from over.

"You may not see the Chinese but you can see the stadiums and the roads and everything they have built," says Lawrence Brahm, a Beijing-based political columnist. "The jury on their role in Africa's development is out. I still think that the great game between China and the West will be played out in Africa."