China Blazing Its Own Trail in Africa

China's trade with Africa has increased ten-fold over the past decade, as the rising Asian power has rapidly matured into a political and economic powerhouse. And with China still in the thralls of an epic growth spurt, its designs on Africa's resources are beginning to conflict with those of the West.

Indeed, Africa – with its abundance of natural resources – is shaping up tot be the most hotly contested battlefield of the 21st century. And the next battle could be over Nigeria's oil reserves.

China's state-owned CNOOC Ltd. (NYSE ADR: CEO) is in talks with Nigeria to buy 6 billion barrels of oil – equivalent to one-sixth of the country's total reserves – the Financial Times reported.

Acquiring one out of every six barrels of Nigerian oil equivalent could cost between $30 billion and $50 billion. It would also put China at odds with western oil groups, including Exxon Mobil Corp. (NYSE: XOM), Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), Chevron Corp. (NYSE: CVX), and Total SA (NYSE: TOT), which partly or wholly control and operate the 23 blocs of interest, the paper said.

The FT learned of China's intentions through a letter from the office of Nigerian President Umaru Yar'Adua to a CNOOC representative. The letter, dated Aug. 13, said an initial offer from CNOOC was "unacceptable," but that the company's interest in all the listed blocs would be considered if its revised offer were favorable.

In all, 16 licenses agreements are up for renewal, but it remains unclear whether any Western groups would be forced to relinquish stakes to accommodate the Chinese suitor.

"We want to retain our traditional friends," Tanimu Yakubu, the Nigerian president's economic advisor told the FT. However, Chinese interests "are really offering multiples of what existing producers are pledging [for licenses]."

With government backing, Chinese firms have been able devote billions of dollars to the development of African resources. Chinese oil companies alone have announced plans to spend at least $16 billion to gain access to the continent's energy assets.

"The Chinese are desperate to feed their economic growth with African oil, including Nigeria's, and they need new markets for their consumer and industrial output," Arild Nodland, chief executive officer of Bergen Risk Solutions AS Ltd., told Bloomberg News.

China's oil consumption has doubled in the last decade, soaring to 8 million barrels per day (bpd) last year from 4.2 million bpd in 1998, according to BP PLC's (NYSE ADR: BP) Statistical Review. China imported 3.6 million bpd last year, equivalent to about 45% of its needs.

Sinopec Corp. (NYSE ADR: SHI) in June agreed to buy Swiss oil explorer Addax Petroleum Corp for $7.24 billion in a deal that will China access to high-potential oil blocs in West Africa and Iraq. And a month later, China's largest oil refiner and CNOOC agreed to purchase a 20% stake in an oil block offshore Angola from Marathon Oil Corp. (NYSE: MRO) for $1.3 billion.

Partnering or Plundering?

It's not just oil China is interested in, either. China has made huge investments in Africa in exchange for large supplies, of iron ore, nickel, copper, cobalt, bauxite, silver, and gold.

Last year, China vaulted over the United States to become Africa's largest trading partner, as two-way trade between the two parties totaled $107 billion.

China has invested in 49 African countries, Chen Jian, vice minister of commerce, told the China Daily.

"Since bilateral trade volume exceeded $10 billion in 2000, the annual growth rate averaged 32%, and last year reached a record high of $106.8 billion," Chen said.

China has also hosted numerous conferences to help foster stronger ties between the Africa and the Mainland, including the Touchroad China-Africa Investment Forum and the China-Africa Cooperation Forum.

However, several Western authorities – some of which are concerned about the security of their own operations – have accused China of plundering the continent for its resources with little or no concern about its citizens.

For instance, China's friends in Africa include President Omar Bashir of Sudan – who is currently wanted by the International Criminal Court for war crimes – and Zimbabwe President Robert Mugabe – who has been accused of driving his country into economic ruin and starvation and is heavily sanctioned by the United States and European Union.

"The People's Republic of China (PRC) aids and abets oppressive and destitute African dictatorships by legit­imizing their misguided policies and praising their development models as suited to individual national conditions," said a report from The Heritage Foundation. "Moreover, China rewards its African friends with diplomatic attention and financial and military assis­tance, exacerbating existing forced dislocations of populations and abetting massive human rights abuses in troubled countries such as Sudan and Zimbabwe."

China is the largest supplier of arms to Sudan, which received $7 billion of Chinese defense exports between 2003 and 2007, according to the U.S. Department of Defense.

Still, Beijing insists that its relationship with Africa is mutually beneficial. And the accusation that China's aims are purely self-serving is "not fair," Zhong Jianhua, a Chinese ambassador to South Africa told the Reuters.

"Fortunately, [African nations] don't just follow that Western media perception of Chinese investment," he said.

And that perception means even less in Beijing, according to Money Morning Investment Director Keith Fitz-Gerald, who believes China will continue to pursue advantageous business deals around the world, regardless of political fallout.

"It's a virtual certainty that China will maintain this policy going forward," Fitz-Gerald said. "My contacts in China and Africa have told me point blank that China's leaders ‘don't care about human rights or nukes or hostile governments.' What matters is anyone who provides oil to China no matter what the rest of the world thinks."

News and Related Story Links:

• Financial Times:
  China seeks big stake in Nigerian oil

• Bloomberg:
  Cnooc Holds Talks With Nigerian Government Over Oil Licenses

• Money Morning:
  What Companies Are Profiting From China's Commodities Crusade?

• Money Morning:
  The Heart of Darkness: What's Really Behind Asian Investment in Africa

• Money Morning:
  China Tightens Grip on Africa's Energy Resources with Stake in Offshore Field

• China Daily:
  Africa ripe for investment opportunities, say Shanghai experts

• Money Morning:
  Three Reasons China is Positioned to be the Oil Sector's Next Big Profit Play

• Money Morning:
  Iraq's Oil Bounty Ripe for Chinese Investment

• Money Morning:
  Gunfire in the Gulf, Rebel Bombings, and Labor Disputes Fire Up Oil

• Reuters:
  China partnering, not plundering, in Africa