China Minmetals Corp.'s plan to take over Canada's Equinox Minerals Ltd. marks a turning point in China's ambitions to create a world-class mining giant, while signalling the country's growing influence as a "soft power" in a slew of resource-rich African countries.
With a voracious appetite for natural resources, China is taking a leading role in the developing world as it works furiously to strengthen commercial and diplomatic ties with some of the world's poorest countries. In the process, China is showing an increasingly savvy and bold approach as it secures control of some of the world's richest resource properties.
Minmetals Resources, three-quarters owned by state-owned China Minmetals Corp., this week launched a surprise $6.3-billion plan to bid for Equinox, a Canadian-Australian company with a prized copper mine in Zambia. The Chinese company's decision to launch a hostile bid stands in sharp contrast to the country's previous cautious overtures, often met with heavy resistance, for Western-controlled international resource assets.
In accelerating its drive into Africa, China is also showing enviable competitive advantages and a tolerance for risk as it jockeys with mining companies worldwide for the most attractive properties.
First, China has deep pockets. With nearly $3-trillion (U.S.) in foreign exchange reserves, China desperately wants to diversify its massive holdings of U.S. treasuries and is pouring billions into development aid, infrastructure and scholarships across Africa, while forgiving some loans. That opens doors and burnishes China's image, while allowing it to outbid others when it chooses to.
"There is a broader strategy of cultivating relations with Africa and African leaders that has to do with diplomacy as much as it has to do with a resource strategy," said Yuen Pau Woo, president and CEO of the Asia Pacific Foundation of Canada.
China is also willing to take on high risks and a long payback horizon for African investments because it needs to maintain a minimum 7- to 8-per-cent annual economic growth to create stability in its own country, said Sarah Kutulakos, executive director of the Canada China Business Council.
A North American-based publicly listed company would have a "hard time" taking that sort of long-term view because of shareholder pressure. "This is a problem with Western business in general - they are not actually very long-term thinking. And it can be detrimental."
China's long-term approach makes it easier to tolerate potential risks such as civil strife.
"They (the Chinese) have the same situation in the countryside themselves. So, when you have an environment that has that, then you are just more comfortable and better-equipped to deal with the situation," said Joyce Lee, co-chair of McCarthy Tétrault LLP's China Group in Vancouver, which represents a number of Chinese companies in mining deals.
China, itself a developing country, has been doling out aid since the 1950s and supported the efforts of various African countries to liberate themselves from colonial rule during the Cold War when China, Russia and the United States battled for influence on the continent. Today many African countries, eager to advance their economic performance, welcome China's growing investment in business.
"They have big, big industries with great appetites for what Africa has to offer," Zambia's President Rupiah Banda told the Reuters Africa Investment Summit in March. "In the process, they are making it easier for us to achieve what we want. What we want is to rebuild our countries."
A recent report by the International Monetary Fund found that Chinese companies ramped up their investments in natural resources in sub-Saharan Africa between 2003 and 2007, with some 81 projects in 25 different countries.
Among the most notable resource deals, Bosai Minerals Group bought an 80-per-cent interest in Ghana Bauxite for $1.2-billion (U.S.) in 2010. That followed a 2009 move by Zhonghui Mining Group to spend $3.6-billion (U.S.) over five years for the exploration and mining of copper in Zambia, while China Union announced that year it had earmarked $2.6-billion develop a iron project in Liberia over a 8 to 10 years. In 2008, China National Petroleum Corp signed a $5-billion deal for oil exploration, drilling and construction with Niger.
But it hasn't always been smooth sailing. In recent years, Chinese companies have faced accusations of human rights abuses and been the target of protest in some African countries.
For example, earlier this month, Zambia dropped attempted murder charges against two Chinese managers who were originally charged after 11 local coal workers were injured in a 2010 shootout at the Collum Mine, located about 325 kilometres south of Lusaka. The workers had reportedly staged a protest over poor pay at the time of the shooting.
China is "increasingly seeing how complex it is to generate long-term stability. That means you are going to have to deal with groups other than the central government, you are going to have to have a better knowledge of local institutions and players," said Paul Evans, director of the Institute of Asian Research at the University of British Columbia.