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China in Africa: The Real Story

China Africa Development Fund Not Attractive Enough in China

Deborah Brautigam

China Africa Development Fund, the equity investment arm established by China Development Bank and launched at the 2006 Beijing Summit of the Forum on China Africa Cooperation, has failed in its effort to raise $2 billion on the capital markets. Instead, says a story published by China's vigorous economics newspaper Caixin, the state will arrange a second injection of foreign exchange:   "The fund’s parent, China Development Bank (CDB), arranged the US$ 2 billion worth of eight- to 10-year loans at bargain interest rates after CADF’s cash injection plan, some two years in the making, won State Council approval in March."

Chinese private funds and investors were not tempted by the potentially high returns on offer in Africa. And they were put off by the CADF's mission of holding shares for at least five years and potentially longer, to give projects a chance to mature. Caixin's analysis reinforces some of my points about China following the Japan path. Here's Caixin again:
"Nevertheless, economists say CADF’s initiative underscores China’s shift from exporting products to exporting capital – a path Japan followed in the 1980s after coordinating government and commercial agencies to promote overseas development."
One mistake in the article. An anecdote said to be about Libya is actually about Liberia (below). This interesting story illustrates the independence of state-owned companies. They couldn't be compelled to take over a politically important project. But it also shows something unfortunate about CADF: apparently, it could be compelled.
"A private company from China had signed a US$ 2.6 billion contract with the government of Libya [Liberia] for a mining project. But the Chinese side couldn’t fulfill its obligations, so it put the project up for sale. At the time, state-owned steel companies were unwilling to get involved partly due to perceived risks of doing business in Africa. CADF assumed 85 percent of the project and negotiated a settlement with the Libyan [Liberian] government, making the project more appealing to potential Chinese buyers. Later, Wuhan Iron and Steel Group bought a 60 percent stake."
See the original story on China-Wire.org, a great website that aggregates stories on China themes.