GUINEA: Team China Begins to Swing its Weight
May 17, 2011
RIO Tinto’s Tom Albanese always knew he needed Chinese help to unlock Simandou, in the impoverished and corruption-plagued West African country of Guinea, and turn it into the world’s third great iron ore-producing province. But there must have been a moment when he wondered if he’d picked the wrong Chinese dance partner.
Chinalco was angry and embarrassed in 2009 when Rio dumped their global joint venture in favour of a short-lived affair with BHP Billiton. The aluminium giant lost its mercurial president, Xiao Yaqing, and then two of its three experienced deal makers and replaced them with an executive whose abilities were found wanting.
Chinalco and its listed subsidiary, Chalco, seemed to lose their way. The 2010 Simandou joint venture, which will cost Rio and Chinalco (and Chalco) up to $US20 billion ($A18.9 billion), very nearly did not happen. But since then, Chinalco president Xiong Weiping has found his feet, replaced the overseas acquisitions chief and mobilised the Chinese bureaucracy.
In January, Xiong received the most important regulatory approval, from the National Development & Reform Commission. In February, Foreign Minister Yang Jiechi dropped into Guinea capital Conakry and received an extraordinary reception.
“We are following China’s road of opening and reform, just like Deng Xiaoping did for China in the past,” President Alfa Conde told Yang, according to Phoenix Television. “For the moment, what is important is not only what China can bring to Guinea but also what Guinea can give China.”
Last month, Vice-Minister for Commerce Fu Ziying toured Guinea and returned to scold Western journalists who asked whether China’s generous development aid was linked to its appetite for resources.
“Who are the largest iron ore owners?” he said. “Not Chinese, but Western countries who colonised the place.”
A week later, Fu took off his overseas aid hat and told the China Daily about what he had been doing in Guinea: “There are preferential policies tailored for Chinese companies under the new mining law.”
The China Daily also interviewed President Conde: ”We will open the door widely to Chinese companies and provide what China needs.”
Chinalco is demonstrating that it holds the political cards in Guinea. It is about to demonstrate that it has the financier, the infrastructure developers and guaranteed buyers for every boatload of iron ore that Simandou can produce.
Xiong has sewn up all the finance he needs from the China-Africa Development Fund – essentially a division of the China Development Bank. He has organised a consortium tipped to include Baosteel, China Railway Construction Corporation and a port-building company that will be unveiled after gaining final approval from the Ministry of Commerce and the foreign exchange regulator.
In short, Xiong Weiping is setting up the most formidable demonstration of “Team China” that the investment world has seen. Lately, Xiong has been telling colleagues that he intends to build Chinalco into one of the world’s top-five mining companies.
At this point, Xiong’s natural humility and caution will be his greatest assets. It will require some force of character to pause and remind his Chinese colleagues that they have no track record of managing complicated mining ventures overseas.
Yesterday, for example, Caixin reported that Xiong’s rival at Sinosteel, Huang Tianwen, had been removed from his job after a string of problem investments, including paying $US1.4 billion for Midwest at the top of the market in 2008. This particular project is hostage to a rail and port development, which keeps being pushed back over the horizon. And Sinosteel’s investment record looks positively good alongside some of its competitors.
In Africa, Chinese managers are demonstrating that they lack the sensitivity and patience required to managing long-term, co-operative relationships with local workers and communities. A low point was set last year when Chinese nationals at a copper mine in Zambia shot and wounded 11 workers in a riot over working conditions. (The case was thrown out of court last month because of a lack of witnesses.)
Similarly, Chinese officials and executives have often locked on to particular leaders and regimes at the expense of more enduring ties.
While Guinea’s President Conde was elected in his country’s first democratic elections in November, Guinea has yet to break the cycle of dictatorship. Last week, government troops raided the house of the Opposition Leader. Will Conde’s successor honour his opaque deals with China?
Rio Tinto has spent decades learning from the kinds of mistakes in unstable countries that Chinese companies are repeatedly making now. Chinalco needs Rio’s corporate knowledge and long-term investment horizon every bit as much as Rio needs Chinalco’s cash, energy and geopolitical leverage.
Last month, Guinea suspended Vale’s efforts to build a rail link to the northern half of Simandou, which the Brazilian iron ore company brazenly acquired through an Israeli diamond miner at the expense of Rio Tinto. An intriguing test will come if, as some investors predict, Guinea goes further and strips Vale of its mining rights.
If Conde takes the northern tenement from Vale and offers it to, say, Chinalco, would Xiong pass it on to the Rio-Chinalco joint venture as the legal documents anticipate? Or would he be tempted to repay Rio Tinto for its earlier infidelity and punt that he can make it work alone?