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May 10, 2015

China-Africa in the news: Risky loans, Queensway, Zimbabwe’s tobacco, Djibouti, Mswati’s Taiwan trip, Tiens Group

Last week's brief highlighted three billion-dollar deals China signed in three African countries; Nigeria, Zimbabwe, and Equatorial Guinea. The three deals are worth $7.5 billion.

Somehow we missed this Financial Times article, which says China is "growing less tolerant" of its "cheque book" diplomacy strategy. The strategy has seen China become the biggest lender to developing nations, a good number of them unstable or poorly governed (like Equatorial Guinea and Zimbabwe). China has lent billions of dollars to the developing world so it can "win friends and commercial advantage," and also, ultimately, burnish its credentials as leader of the developing world. But the risks of the strategy might come to outweigh the benefits.

Many recipients of Chinese loans might fail to pay, which has forced China to rethink the model. The rethink will have "implications for the wider world" because it will cut crucial credit to the very poor countries that need it. Instead, China is turning to multilateral lending institutions whose formation it has championed - the Asian Infrastructure Investment Bank, the Brics Bank, and the Silk Road infrastructure fund - through which it can channel lending and spread the risk.

However, even lending through multilateral institutions is not without its risks, especially if the lending is to poorly run developing nations. That's the argument Michael Pettis makes in his blog post arguing that the AIIB - or the Brics bank and the Silk Road fund, for that matter - is "not nearly as important as everyone seems to think." The new institutions have generated a lot of excitement among pundits and observers who have heralded them as evidence of China's inevitable global dominance. Pettis says those expectations need to be checked.

Sam Pa and Queensway in the news, again. Tom Burgis at Financial Times writes about the "most detailed study to date" on the Queensway Group, a Hong Kong-based "business network" notorious for its shadowy dealings with some of Africa's worst governments. The report details the group's use of "offshore companies and proxy shareholders," which makes it difficult to obtain information about its operations.

China is now the largest buyer of Zimbabwe's tobacco. More than half of Zimbabwe's tobacco exports in 2015 (54%) have gone to China, according to statistics from Zimbabwe's Tobacco Industry and Marketing Board. In the same period last year Belgium had bought most of Zimbabwe's tobacco. Tobacco has over the last three years become the preferred crop for Zim farmers because it pays better, with many of them switching from maize and cotton growing.

Workers protest against Chinese company in Lagos. Labourers with China Civil Engineering and Construction Corporation (CCECC) protested their dismissal without compensation. They also claim they were mistreated while working for the company. CCECC is working on a road project in the Nigerian city.

China negotiating military base in Djibouti. The Horn of Africa nation's president, Ismail Omar Guelleh, told AFP that discussions with China about building a base in the country are ongoing. Djibouti already houses American, French, and Japanese bases due to its location on the Bab al-Mandeb straits, "the channel separating Africa from Arabia and one of the busiest shipping lanes in the world."

Meanwhile, the US' Secretary of State, John Kerry, was in Djibouti - which houses America's only military base in Africa - this week. Cue an American congressman, who wrote a letter to Kerry asking him "to warn Guelleh to cool growing financial and defense ties between Djibouti and China." The congressman told Foreign Policy that: "“It should worry him [John Kerry] and the president that China is trying to expand its sphere of influence in Djibouti. China is willing to do business and make investments that must be viewed cautiously and with a good degree of pessimism.”

Tanzania's navy commissions new ships. The war ships were supplied by a Chinese state-owned corporation, Poly Technologies. Tanzania's president, Jakaya Kikwete, said they will be used to fight maritime crime.

Swaziland's Mswati to visit Taiwan. King Mswati III, Swaziland's absolute monarch, will visit Taiwan later this month, according to Taiwan's Ministry of Foreign Affairs. Swaziland is one of the few African countries that maintain diplomatic relations with Taiwan - others are Sao Tome and Principe, and Burkina Faso - which China regards as its territory. A visit by Sao Tome and Principe's president to Beijing last year however shows how irresistible China's deep pockets are.

Chinese company pays for biggest-ever tour group to visit France. Tiens Group paid for 6,400 of its employees to go on a four-day holiday to France, according to BBC. The company "has business interests in a number of fields, including tourism, trade and cosmetics," BBC says. However, an investigation we published last year revealed a nefarious side to the company's operations. In Uganda it trades in health supplements whose effectiveness is debatable, and operates a multi-level marketing model (otherwise known as a pyramid scheme).

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