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China Tightens Purse Strings in Guinea and Other African Nations

         Date: 2011-10-10

           Tag: China, China Tightens Purse Strings

Summary: This city is littered with such tokens of a friendship that first flowered when Guinea was an isolated and struggling socialist state in the late 1950s.

This city is littered with such tokens of a friendship that first flowered when Guinea was an isolated and struggling socialist state in the late 1950s.

But so far Guinea has not gotten what it really wants from the world’s fastest growing economy: a multibillion-dollar deal to build desperately needed infrastructure in exchange for access to the impoverished nation’s vast reserves of bauxite and iron ore.

As global commodity prices have plummeted and several of China’s African partners have stumbled deeper into chaos, China has backed away from some of its riskiest and most aggressive plans, looking for the same guarantees that Western companies have long sought for their investments: economic and political stability.

“The political situation is not very stable,” Huo Zhengde, the Chinese ambassador here, said in an interview, explaining the country’s hesitation to invest billions in Guinea, where a junta seized power after the death of the longtime president in December. “The international markets are not favorable.”

Just a year ago China appeared to be upending the decades-old order in Africa, stepping into the void left by large Western companies too timid to invest in the continent’s resource-rich but fragile states as the market for copper, tin, oil and timber soared to new heights. In the new scramble for Africa’s riches, China sought a hefty share.

With a no-strings-attached approach and a strong appetite for risk, China seemed to offer Africa a complete economic and political alternative to the heavily conditioned aid and economic restructuring that Western countries and international aid agencies pressed on Africa for years, often with uninspiring consequences. Rising China, seeking friends and resources, seemed to be issuing blank checks.

Today, China’s quest for commodities has not stalled. State-owned companies are bargain-hunting for copper and iron ore in more stable places like Zambia and Liberia. But Chinese companies are now driving harder bargains and avoiding some of the most chaotic corners of the continent. African governments facing falling revenues are realizing that they may still need the West’s help after all.

“We have seen in the recent past Chinese companies wade into countries nobody else would,” said Philippe de Pontet, an analyst at the Eurasia Group, a private research firm. “That may be changing.”

In 2007 China announced a $9 billion deal with Congo for access to its giant trove of copper, cobalt, tin and gold in exchange for developing roads, schools, dams and railways needed to rebuild a country roughly the size of Western Europe and shattered by more than a decade of war.

But that deal is now in doubt as falling prices have left Congo in a much weaker negotiating position. It also suddenly finds itself needing the help of the International Monetary Fund, which has objected to writing off the country’s old debt even as Congo takes on what amounts to new mineral-backed loans from China. Congo’s political and ethnic turmoil remains deep, and its economy is near collapse.

A year ago those factors seemed irrelevant. Chinese companies did not flinch from making deals to search for oil in the pirate-infested waters off Somalia, or to mine industrial metals in places like Zimbabwe.

China espoused a new model for African investment: mutually beneficial trade between sovereign nations with none of the meddling so common among Western donors and investors, with their demands for labor and environmental standards, as well as respect for democracy and human rights.

These policies proved popular among African governments, and trade between Africa and China grew to more than $100 billion by 2008, from less than $10 million in the 1980s. African leaders spoke openly about China’s offer of an alternative to the edicts of Western-dominated institutions like the International Monetary Fund and the World Bank.

But here in Guinea, which has some of the world’s largest deposits of bauxite, an ore needed for making aluminum, that hope has all but collapsed.

“The Chinese have changed their strategy,” said Ibrahima Sory Diallo, a senior economist in Guinea’s Ministry of Finance and an advocate for Chinese investment. “They are not going to inject $5 billion into an unstable country in an uncertain market climate.”

So it is no surprise that Guinea’s government, first under Lansana Conté, the strongman who ruled for 24 years until his death last year, and the junta that replaced him, wanted to tap China’s cash and building expertise.

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