China using capital as a strategic competitive advantage

Forget SoftBank. China is a great example of how you can use capital as a competitive advantage.

Yesterday, I came across a clip on China’s investing in one of Montenegro’s infrastructure projects and using it to benefit itself geopolitically. The European country doesn’t have sufficient infrastructure and badly needs capital assistance. China came in and loaned a huge sum of money to the country. The loan came with a few catches. Chinese suppliers would have to be involved in the project. The loan came with interest after the first few years. Failure to pay back the loan could result in China’s repossession a part of Montenegro.

The same thing happened with Sri Lanka. The country had to give China 99-year access to a strategic port due to its inability to pay back what was owed.

African countries such as Kenya and Djibouti face the risk of losing strategic ports to China as a payment for their outstanding debt.

Securing maritime keypoints isn’t the only thing China is after. In Africa, China also lends capital to help with infrastructure projects in exchange for natural resources.

“The Chinese come and they want your iron, your bauxite, your petroleum. In return, they’ll deliver you turnkey projects, where they supply the materials, the technology and the labor, with salaries that are mostly not paid in the country and do not contribute to the economy”

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

A booming natural resources exporter, with large exports of gold, cocoa and now oil, Ghana was one of a rapidly growing number of African countries where China had recently structured a huge package deal of loans and investments in order to gain a seat at the banquet. Early in their discussions, it appeared likely that Ghana would agree to a resource-for-infrastructure swap, similar to big financing packages that had been pioneered a few years earlier by Angola and Congo, both large African countries that were immensely rich in oil or minerals, and, significantly, lacking in any meaningful practice of democracy.

In Ghana’s much more vibrant political system, though, public debate helped nudge things in a different and arguably more prudent direction. The country’s recently tapped commercial oil production would not be used as a direct collateral, but paid into an escrow account, as had been the case in Angola. Ghana would remain free to sell its oil on the international market, even if under the contract terms China legally reserved the right to pocket income from its production if Ghana fell behind in its payments

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

In Zambia

There, the state-owned China Nonferrous Metal Mining Company bought the mothballed Chambishi Copper Mine, once one of the crown jewels of Zambian mining, for a mere $20 million…

The new Chinese owners poured over $100 million into rehabilitating and modernizing Cambishi, where production resumed in 2003. By 2008, the Chinese buyers had reportedly recoued their investment. And by 2010, according to the Chinese newspaper Southern Weekend, the Chambishi mine was producing a regular profit

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

China is in Africa for not only natural resources, but also for food security.

This doesn’t mean, of course, that China doesn’t need African farmland, or indeed that it doesn’t aim to eventually obtain control of as much of it as it can. China has 20% of the world’s population, and only 9% of its farmland. There were only two large developing countries with less arable land per capita: Egypt and Bangladesh, and massive construction, pollution and erosion were whittling away at China’s farmlands all the time.

Vaclav Smil, a prominent environmental scientist who studies China’s land use and food security, has said that as the country’s living standards rise, by 2025 its food needs will far surpass what is available on today’s open market.

Africa alone has 60% of the world’s uncultivated arable land and whatever Beijing declares, it stands to reason that China will come to see its food security as increasingly bound up in bringing that land into intensive production.

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

China uses its massive capital to gain influences around the world, help Chinese companies with new businesses and secure natural resources, strategic checkpoints as well as food security while putting in place measures to protect its investments. What’s there not to like? What’s the point of accumulating capital if you can’t put it to great use?

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