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Old 10-01-2011   #1
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Mod's Note (starts)

Original post moved to this new thread 3rd October 2011.

A couple of posts have appeared in a thread on the war in Afghanistan, but raise questions and issues that IMHO need their own thread.

There is to my knowledge little history of China losing overseas investments, partly as it has exported people, not capital. Other nations have considerable history of losing investments, notably post-1945 either in giving up colonies or nationalisation of assets and quite a few small wars have ensued.(Mod's Note ends)

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Originally Posted by Steve the Planner View Post
Dahuyan's point about classic colonialism is strong, but why would China want the trouble or bother of managing "Afghanistan." They just want unfettered access and influence over the resources that matter to them (which are not really national, are they?).

In Africa, they are not out to control deserts or cities (no governance interest whatsoever)---just the resources.

The people, within what ever "terms of trade" allow, and protection of China's interests from harm, are free to do what ever they want culturally, socially, religiously, and politically.
It seems to me that because the 'western' approach in places like Africa (in general) and Afghanistan is totally insanely incompetent that somehow (mainly seemingly because it is different) the Chinese approach is smarter.

The Chinese approach has not been tested. When the regimes (who have been bought by the Chinese) fail to protect the Chinese 'investments' (which are being more readily seen as the looting of national resources) or the regime changes and the new one also wants a piece of the action we will see how the Chinese react. Of course one would expect western countries to throw the odd spanner in the works to make it more difficult for the Chinese.

I would be cautious in presenting the once isolationist Chinese as savvy international players.

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Old 10-01-2011   #2
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Default How will China react to lost investments?

JMA posed an important strategic question, albeit with application beyond Afghanistan:
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The Chinese approach has not been tested. When the regimes (who have been bought by the Chinese) fail to protect the Chinese 'investments' (which are being more readily seen as the looting of national resources) or the regime changes and the new one also wants a piece of the action we will see how the Chinese react.
This issue appeared once briefly at an Oxford conference on international terrorism, in the Africa session; remarks were made about the Tan-Zam railway and the social consequences with dual heritage / mixed race children.

We may have a test case in Zambia, where in a democratic election the new President has indicated a different stance on foreign investors:
Quote:
..he has frequently criticised foreign mining firms - often from China - about labour conditions. While the party has disputed media reports that it is anti-Chinese, his election is likely to shake up the way contracts are awarded, our correspondent says.
Link:http://www.bbc.co.uk/news/world-africa-15039094 For more on the new President: http://www.bbc.co.uk/news/world-africa-15034694
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Old 10-01-2011   #3
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David:

Good catches.

I just don't believe that the "Chinese" model is, in fact a development model.

It is a completely gratuitous and self-serving "economic" model intended exclusively to meet Chinese resource objectives (Did I say "purely market-based?).

If they, like our US industries in the 19th Century, need a railroad, they will get one built or more elsewhere. The railroad was not built to promote development outside the context it served. It was not built to win any hearts and minds (COIN), and it had no external purpose, objective or intention.

It did, however, have consequences, positive and negative, across the economic landscape.

To the extent that local and domestic "costs" increase in these resource areas, they will simply move on to other places. It is pure self interest.

The question of whether this tried and true economic model creates significant political consequences, induces or sustains local corruption and bribery, disenfranchises some, eradicates others, and, in the end, is sustainable or desirable, is a completely different matter.

Basic self-interest, as with China, is a negotiated and usually pretty transparent process with a host country, region or area. For them, the equation is simple, but that does not mean that it is for the counterparty,nor that there are not substantially different (or even more important) internalized counterparty issues.

Apples and Oranges cannot be interbred, but they can, sometimes, make a good fruit punch (or go stale).
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Old 10-01-2011   #4
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Quote:
Originally Posted by davidbfpo View Post
JMA posed an important strategic question, albeit with application beyond Afghanistan:

This issue appeared once briefly at an Oxford conference on international terrorism, in the Africa session; remarks were made about the Tan-Zam railway and the social consequences with dual heritage / mixed race children.

We may have a test case in Zambia, where in a democratic election the new President has indicated a different stance on foreign investors:

Link:http://www.bbc.co.uk/news/world-africa-15039094 For more on the new President: http://www.bbc.co.uk/news/world-africa-15034694
Zambia is a worthy case study to watch in this regard.

This article Thanks China, now go home: buy-up of Zambia revives old colonial fears has some interesting comments:

First the 'Oops' moment (when they realise they jumped from the frying pan into the fire):

Quote:
"Our textile factories can't compete with cheap Chinese imports subsidised by a foreign government. People are saying: 'We've had bad people before. The whites were bad, the Indians were worse but the Chinese are worst of all.'"
...well as they say in the classics... you make your bed now you must sleep in it.

Then a more cerebral argument:

Quote:
"The government needs to be very clear about what kind of investment it wants. If it's just shipping out resources and shipping in cheap goods and people that's not to our benefit. We in Zambia need to be very careful of this new scramble for Africa. What's happening is that the Chinese are very aggressive. They have a strategic plan."
For those with a greater interest in this aspect:

China-Africa Economic Relations: The Case of Zambia
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Old 10-02-2011   #5
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Default How will China react to lost investments?

A couple of posts have appeared in a thread on the war in Afghanistan, but raise questions and issues that IMHO need their own thread.

There is to my knowledge little history of China losing overseas investments, partly as it has exported people, not capital. Other nations have considerable history of losing investments, notably post-1945 either in giving up colonies or nationalisation of assets and quite a few small wars have ensued.
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Old 10-02-2011   #6
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What interests me is less how China will respond to a "lost" investment than how they will respond to a threatened one. Suppose a government that the Chinese have purchased is threatened by social discontent and/or insurgency, with a significant anti-Chinese sentiment, possibly demands for nationalization of industries or land. Suppose the opposition or insurgents start looking likely to win. Do the Chinese go in with FID/COIN? If that doesn't work, do they commit forces? We all know that these things have a way of starting small and growing out of control.

There's no way to know what will happen, and the Chinese response will of course depend on the country involved and how critical the threatened investments are perceived as being... but I could very easily see the Chinese getting involved in something like that eventually.

I do not think they've discovered some magic method of exploiting the developing world without resistance. I suspect that their model has held up because it's relatively new and hasn't had time to generate a backlash... yet.
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Old 10-02-2011   #7
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A smart Chinese reaction would be if the central government cracks down on companies / managers who don't behave well.

The first crisis with an African investment should be (in their interest) the long-awaited opportunity to show that you're a good partner in times of crisis.
It's in China's best interest to resolve the issue in a win-win fashion or at least make sure there's not much the African government in question can complain about in regard to PRC government behaviour in the crisis.

Playing dumb and take the big stick from the drawer means to lose further investment opportunities, and that's not compatible with their intents.
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Old 10-02-2011   #8
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Quote:
Originally Posted by Fuchs View Post
A smart Chinese reaction would be if the central government cracks down on companies / managers who don't behave well.

The first crisis with an African investment should be (in their interest) the long-awaited opportunity to show that you're a good partner in times of crisis.
It's in China's best interest to resolve the issue in a win-win fashion or at least make sure there's not much the African government in question can complain about in regard to PRC government behaviour in the crisis.

Playing dumb and take the big stick from the drawer means to lose further investment opportunities, and that's not compatible with their intents.
Given how China has behaved in Tibet what are the chances they will choose the smart way (as you describe) in countries like Zambia?
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Old 10-02-2011   #9
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Rather good.
Tibet is in their opinion theirs, not a foreign power with whom to have relations.

This is the same with Russia, which can crack down brutally on Chechnya and at the same time negotiate with the West on treaties.


The Chinese Central government of the last 20 years has exhibited a pattern; they give actors a lot of freedom (corporations, for example), but they punish hardly those who hurt its power or national interest (such as mass executions of corrupt officials).

Besides, they cannot reasonably expect to gain anything with a heavy handed approach. The more heavy-handed, the more opposition they'll get from the West (Europe still has influence on the black continent) and the more will other developing country governments resist Chinese influence.
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Old 10-02-2011   #10
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I doubt that the possible loss of an investment in one country will provoke China to do something irrational, since they are adapt at calculating risk versus gain. Over time I suspect they'll simply adjust their policies to the point (and not beyond) that their activity will be tolerated by the foreign partner, just as many Western countries have done.

A couple of issues of interest that I didn't see in this discussion yet is that Africa as a whole has become a "Great Game" arena for both India and China, and both are aggressive in their efforts to gain access to needed raw materials, and both have a long history of engagement in Africa, so the competition is shaped by that history and emerging dynamics. In some ways this could play out like the Cold War for African nations if they tend to align with one country or the other.

Another issue is China's apparently unique approach of sending hundreds to thousands of Chinese to build and run their development projects in other countries, such as dams, power plants, and other large infrastructure programs. Not unlike the thousands of Chinese who mitigrated to the U.S. to help build our railroads, but this time they're state sponsored. I'm curious on your thoughts about why they do this? Is it to relieve pressure on the homefront (jobs, population pressure, etc.), or do you think they have a longer term goal of spreading Chinese culture and influence globally? If so, to what end? If this back fires, and multiple nations tell these Chinese expats to return home, could China effectively reintegrate them into their society, or would this lead to instability?

China has plenty of challenges, and while someday in the future they may be an enemy, they are are far from being 10 feet tall. Now they are a strong economic competitor, but even in that regard their methods for competing seem pretty vulnerable to me. If you only look at China from the military perspective you can create an inaccurate picture of their strengths and vulnerabilities, and as Robert Kaplan noted in this book "Monsoon" we tend to view the world based on our map biases. You can't understand China or India without understanding their activities in Africa and the rest of the globe, and you can't understand Africa by just looking at Africa. You'll miss too many big trends that are shaping these areas if you look at them in isolation which the military often does.

A couple of articles on China's foreign aid if you're interested:

http://news.xinhuanet.com/english201...31102329_4.htm

Quote:
The Chinese people adhere to the social system and path of development chosen by themselves and will never allow any external forces to interfere in China's internal affairs. China promotes friendly and cooperative relations with all the other countries on the basis of the Five Principles of Peaceful Coexistence. It does not form alliance with any other country or group of countries, nor does it use social system or ideology as a yardstick to determine what kind of relations it should have with other countries. China respects the right of the people of other countries to independently choose their own social system and path of development, and does not interfere in other countries' internal affairs. It is opposed to the practices of the big bullying the small and the strong oppressing the weak, and to hegemonism and power politics. China calls for settling disputes and conflicts through talks and consultation and by seeking common ground while putting aside differences. It does not impose its own will upon others and acts in the fundamental interests of the Chinese people and the common interests of all peoples throughout the world. China bases its decision on a particular issue according to its merits. Upholding justice, China plays an active and constructive role in international affairs.
Sounds like the first couple of sentences could have been written by George Washington.

http://www.guardian.co.uk/global-dev...-policy-report

Quote:
While Chinese involvement in large-scale industrial and infrastructure projects abroad has attracted considerable attention, the report says that industrial aid in particular has decreased in importance since the 1980s, when many developing countries turned to the private sector to finance industrial projects and Beijing began to shift its priorities.


More recently, "China has been increasing its aid for agriculture and grain production in particular", says the report. The white paper also emphasises Beijing's interest in technical training programmes, highlighting that Chinese aid in 2009 paid for 1,324 medical professionals to work at 130 institutions in 57 developing countries, and for 11,185 scholarships to foreign students studying in China.
A lot more at the link, to include a link to their white paper on foreign aid.
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Old 10-02-2011   #11
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Afaik they need their workers because their managers and engineers can't get the jobs done with indigenous workers.

Algeria did IIRC begin to push for indigenous workers because of unemployment/underemployment and so on, though.

The Chinese managers might want to cling to indigenous workers that are productive and kind of recommend them to some form of Chinese-host state trade agency,for later employment.
This could create a sub-set of China-loyal indigenous worker (familie)s.
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Old 10-02-2011   #12
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I generally agree with Fuchs. It would be very difficult to ascribe a single Chinese way of things.

China has, arguably, beaten the US senseless in trade and manufacturing competition through effective lobbying, and delivering services which the US consumer (in the short run) believed were purely beneficial (cheap flat screens through WalMart).

In Iraq, they were some of the earliest technical support on the ground in KRG to help with oil/gas issues.

In Africa, they are in continuous competition with Euro/US interests for resources.

The circumstances as to location, competitive response and resource is very different, from, perhaps, bribery where that is the way, commandeering host governments where that works, or just buying into or building whatever they need. If it serves their purpose to improve local education or infrastructure, then they do that. If the hoist location is smart enough to compel more favored terms of trade, they will pay them if justified.

The agricultural map of Africa, in the best circumstances, is being carved up into forward contracts that assure farmers the resources (seed, fertilizer, funding, etc...) to produce optimum quantities for whoever holds the contract (Archer Daniels Midland, or a Chinese or Euro syndicate).

Iraq's best agricultural output always came from this kind of a regional agri-system applied to its products (dates, grains, local market crops), typical of, for example, Chicken production in Delaware and Maryland (Perdue, Tysons).

The big international frozen chicken "category killer" is Brazil, which is under no threat from China. If China wanted to compete, it would study what Brazil does, and copy it.

Iraq has comparative advantage in oil; agriculture (and chickens) is a subsidized activity which helps to defray unemployment and foreign trade balance sheets (but is not where its advantages lie or wealth derives).

Brazil is a bread basket, which it turns into frozen chickens to trade to the likes of Iraq for oil, while a thriving market continues in agri-based oil substitutes so that more wealth than waste results from the oil trades.

This is all International Trade 101.

Dahuyan's point is very good: It is not the resources lost, but the resources threatened. China's biggest threats do not come from Drones (our main tool), but from global competition (which we need to become adept at, and apply as powerfully as China).

That competition can take many paths, from heavy-handed if nobody else is looking, to a light (but effective) touch as with their US strategy through K Street lobbyists and DC power brokers.
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Old 10-02-2011   #13
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Quote:
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Rather good.
Tibet is in their opinion theirs, not a foreign power with whom to have relations.
That may well be correct but that does not make it true.

Quote:
This is the same with Russia, which can crack down brutally on Chechnya and at the same time negotiate with the West on treaties.
and like China in Tibet they are allowed to get away with it because of some trade off. They know and exploit the fact that certainly with the US everything... and I mean everything is negotiable.

Quote:
The Chinese Central government of the last 20 years has exhibited a pattern; they give actors a lot of freedom (corporations, for example), but they punish hardly those who hurt its power or national interest (such as mass executions of corrupt officials).

Besides, they cannot reasonably expect to gain anything with a heavy handed approach. The more heavy-handed, the more opposition they'll get from the West (Europe still has influence on the black continent) and the more will other developing country governments resist Chinese influence.
They have an agenda and they are sticking to it (see the quote in post #5 above). In addition to massive bribery as the leading edge of their so called 'investment' in Africa they are dumping peasants (being workers from completed projects) by the tens of thousands.

I am not sure one needs to water down the threat to underdeveloped countries from the Chinese but it would be more intelligent to monitor what they are doing on the basis of the old Chinese strategy being "death by a thousand cuts".

Do not for a moment think that they believe that African labour is anywhere near capable of allowing agriculture, mining and associated industries to reach maximum potential. There is nothing they would like more than for the locals to refuse to work on the mines and agricultural projects that they now effectively own. A briefcase or two of US$ shared out to the local ministry of immigration officials and very soon there will (like in Zambia) be no accurate records of Chinese nationals resident in the country.

So really there is no competition because how do you compete when the market has been bought and effectively closed to outsiders.
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Old 10-02-2011   #14
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JMA:

The Chinese, like the Vikings, are masters of assimilation in some instances, and, at other times, as with British Colonial Indians in Africa, just come in large numbers and carve out a place for themselves (Chinatowns).
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Old 10-02-2011   #15
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A smart Chinese reaction would be if the central government cracks down on companies / managers who don't behave well.
Would that include something like, say, this incident?

http://www.nytimes.com/2011/04/05/wo...mbia.html?_r=1
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Old 10-02-2011   #16
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Would that include something like, say, this incident?

http://www.nytimes.com/2011/04/05/wo...mbia.html?_r=1
Well from that incident the Gemstone and Allied Workers Union of Zambia will not be organising any protest marches at the Collum Coal Mine anytime soon now that they know the Chinese bosses are armed and prepared to use them.
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Old 10-03-2011   #17
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Well from that incident the Gemstone and Allied Workers Union of Zambia will not be organising any protest marches at the Collum Coal Mine anytime soon now that they know the Chinese bosses are armed and prepared to use them.
Maybe they'll get some guns and shoot back, which is what you or I would likely do under the same circumstances.

It seems they've taken another step first: electing a government that's promised to be less inclined to roll over and do what the Chinese want. If that doesn't work, picking up guns and shooting back seems a reasonable next step. Shooting the workers has rarely produced long-term labor peace.

Overall, I see little evidence to suggest that the enlightened scenario proposed by Fuchs is emerging on the ground, or is likely to emerge.
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Old 10-03-2011   #18
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I doubt that the possible loss of an investment in one country will provoke China to do something irrational, since they are adapt at calculating risk versus gain.
I would not ascribe to the Chinese some superhuman capacity to see into the future and dispassionately calculate potential for risk and gain. Vulcans they are not. I don't think they're about to suddenly march vast armies off to conquer resources, but that's not how these things start. They start with fear that if this government falls and the successor nationalizes assets, some others might do the same. The rebels have to be suppressed, pour decourager les autres. Surely this government can accomplish that, with a bit of military aid... and then some advisers, and then a few more advisers, and then just a little bit of air support, and then of course you need some troops to secure the air bases and support people, and then since you have the troops there it makes to have them take care of a few things that the locals don't seem able to do...
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Old 10-03-2011   #19
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Bill is right, though that China itself is pristine.

That's why we never hear about corruption, improprieties from the institution. It is always some bad actor, or a State owned trading company gone bad.

Out in these lonely outposts, there is little to do but read Ian Fleming, fear the consequences of failure to your trading company, and get on the shoe phone to Spectre (or Dr. Evil, hi M&A successor).

Fear the sea bass!
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Old 10-03-2011   #20
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Bill is right, though that China itself is pristine.

That's why we never hear about corruption, improprieties from the institution. It is always some bad actor, or a State owned trading company gone bad.

Out in these lonely outposts, there is little to do but read Ian Fleming, fear the consequences of failure to your trading company, and get on the shoe phone to Spectre (or Dr. Evil, hi M&A successor).

Fear the sea bass!
'Pristine'? By what definition of the word?

The Chinese remain largely inscrutable to most outsiders.

The obverse is that to most Chinese the intentions of the western countries are difficult to understand and likely to be misinterpreted.

Is your last paragraph an attempt at humour or what?
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