Chinese investment in the continent's mining industry comes in different forms and is crucial for both, as Andrew Moody reports in Cape Town, South Africa
The relative slowdown in China's economy was one of a number of factors casting a shadow over the recent Mining Indaba Conference in Cape Town. The mining sector in South Africa has other problems closer to home, including labor unrest and the threat of increasing government regulation.
But the demand for resources from the world's second-largest economy - as for the rest of the continent - remains an important lifeline for the mining industry.
The sector has been hit hard by the global financial crisis, and the Johannesburg Stock Exchange remains highly sensitive to economic data coming from China.
Last year was particularly bad for the iron ore industry, with prices slumping to $88 a metric ton, a three-year low, in September on fears about China's recovery.
China, the world's largest consumer of steel, is the destination for half of the world's iron ore exports.
Chinese investments still continue to be made, however. It was announced in February that a Chinese consortium, headed by the Chinese mining group Jinchuan, is taking a 45 percent stake in South Africa's Wesizwe Platinum. It is the first Chinese investment in the platinum sector and about $650 million of the capital is being provided by China Development Bank.
China's Hanlong Group is also set to complete a $1.45 billion takeover of Sundance Resources, the Australian company that owns important West African iron ore supplies, including the Mbalam mine straddling Cameroon and the Republic of Congo.
Another major Chinese acquisition could have been African Barrick Gold, Tanzania's largest gold mining concern, had talks between China National Gold Corporation and Canadian Barrick Gold Corporation over a $3.9 billion deal not collapsed in January.
David Humphreys, principal at DaiEcon Advisors, a London-based consultancy specializing in the mining industry and one of the keynote speakers at Indaba, said the mining industry, particularly in Africa, has become obsessed with China.
"As a result, any suggestion that China will slow down sends shockwaves through the thinking of the industry," he said.
He said the big fear is that China will follow the same path as Japan whose huge appetite for resources in the 1960s and 1970s leveled off and has been on a plateau since.
"That is where a lot of the debate is now focused, whether China will follow Japan or whether it is a false analogy. The difference could turn on just a small percentage either way."
Michael Power, investment strategist at Investec Asset Management, said putting the blame on China for any fall in commodity prices is perverse.
"The reason why prices have fallen across a range of commodities is that demand in the West has collapsed. You watch CNBC and Bloomberg and they have a hissy fit when China's growth rate is 0.1 or 0.2 points down, but it doesn't tell you what was going on in dollar terms."
Power, a veteran of the African mining scene who was speaking from his huge flat in central Cape Town bedecked with African artifacts, said many observers do not do their sums.
"People don't understand the mathematical mechanics of compound interest. China's growth might have slowed slightly but the base is huge. Last year China added another Australia to its GDP, by 2018 this will be another Germany and by 2021, another Japan and that will be every year. The volume demand for resources will not decline," he said.
The significance of China at this year's Indaba was further reinforced by the first-ever official Chinese delegation led by Wang Min, China's vice-minister of land and resources.
He told the conference the number of Chinese mining investment projects in Africa accounted for 34 percent of its global total and 22 percent by value.
"Mining is a traditional area for Chinese investment in Africa. Chinese mining companies have made progress in their mining investment projects in South Africa, Zambia, Angola, the DRC, Sudan and other countries promoting local employment and economic development."
He said there was a natural synergy between resource-rich countries in Africa and countries such as China that had huge markets.
"China and Africa need to deepen practical cooperation in the mining sector. We need to strongly implement the agreements on mineral exploitation, investment and mineral commodities trade," Wang said.
Chinese resources companies such as China Nonferrous Metal Mining (Group), CITIC Group Corp, China National Petroleum Corp, China Railway Resources Group and Beijing Haohua Energy Resources Co have been dominant players in Africa over the past decade or more.
Power at Investec said that in the first half of the past decade it was Chinese companies that were calling all the shots in Africa.
"The Chinese came in and pretty much did it 100 percent the way they wanted to do it. As a result, in this first generation of engagement they might have been a little brusque about local sensibilities," he said.
More recently, China has faced increasing competition in Africa from other players in the resources sector.
PPT Exploration and Production, the Thai state-owned group, acquired major oilfields in Mozambique with its acquisition of the Irish company Cove Energy last year.
This came not long after Pertamina, the Indonesian state-owned energy company, paid a record price for an Angolan oil block, beating off competition from its Chinese rival Sinopec.
"These investments show that China is no longer the only kid on the block. It might still be the main kid on the block, but it is certainly not the only one," Power added.
"You not only have the Indonesians and the Thais, but the Brazilians have also come in. Even the copper belt in Zambia is now more Indian than it is Chinese."
The Chinese attendance at Indaba proved that Chinese companies are still very much part of a major presence in the market.
Huang Haiwei, associate director of The Beijing Axis, a consultancy that provides strategic advice to Chinese companies in the resources sector, said Chinese companies are still very much active in the market.
Huang said most of his clients - both State-owned enterprises and private companies - are looking to take complete ownership of existing facilities or enter into strategic equity partnerships rather than develop greenfield sites. A typical investment would be $100 million.
"It is a very capital-intensive business. The investors are not looking for short-term cash-generating projects but are looking to get cash flow over five, six or nine years," he said.
Duncan Clarke, an oil industry strategist and author of Africa: Crude Continent: the Struggle for Africa's Oil Prize, said China's role in the resources sector in Africa is often exaggerated.
"There are probably between 700 and 800 companies in the oil and gas sector in Africa, and among these are just four or five Chinese State-owned companies. I know that these companies are large, with an increasingly growing portfolio in exploration and development, but they are still among many other players."
Clarke, also chairman and CEO of Johannesburg-based Global Pacific and Partners and who was speaking on the windy terrace of the Best Westin hotel in Cape Town, said Chinese activity is surrounded by too much mystique.
"Many people think the Chinese have some mega-plan, but I think independent observers don't see it that way because they do often stumble and run into brick walls. Companies like Sinopec, for example, have had bad luck both in Angola and in North America," he said.
Martyn Davies, chief executive of Johannesburg-based strategy and research Frontier Advisory who advised on the recent Wesizwe platinum deal, said the rhetoric about China is often "overblown".
"Chinese mining companies certainly have a very strong home game (in China), but they have had a less successful away game."
Davies, who is an authority on the China-Africa relationship, said China is not the colonial resources power in Africa some assume.
"We are not in the 19th century anymore. There will be no more Cecil John Rhodes in Africa. The market mechanisms are so much more entrenched," he said.
Humphreys at DaiEcon Advisors said that while some believe China is the neocolonial power in Africa, that does not fit the facts.
"When Western countries did this in the latter part of the 19th century, they ended up running the countries, and I think this is the supposition that surrounds all of this," he said.
"There is an assumption that China is taking one step in the process of getting involved in the politics of Africa. There is, however, very little evidence of this. I just think it reflects on the West's own sense of vulnerability."
Humphreys believes that what really is happening is that China is moving away from going it alone and cutting its own deals in Africa.
"International mining is not a matter of putting a plate on the door and hiring a few people. Rio Tinto, which I used to work for, have always been an international company, and it is companies like these that have the expertise that China needs," he said.
He said Shandong Iron and Steel Group's recent $1.5 billion acquisition of a 25 percent stake in London-listed African Minerals' Tonkolili iron ore mine in Sierre Leone is a case in point.
"By harnessing onto these guys and taking a strategic shareholding, China gets the resources it wants but doesn't have to get strategically or politically involved," he added.
Whether having resources is a bonus or a curse for Africa is often debated.
Because of the commodities boom over the past decade, many African countries have experienced double-digit growth.
However, in a recent study by the United Nations Conference on Trade and Development, the share of manufacturing value added in Africa's GDP fell from 12.8 percent to 10.5 percent, indicating that its economy was actually going backwards.
During the same period, manufacturing value added in Asia increased from 22 to 35 percent.
"What this means is that African economies are moving down the value chain and becoming more resource dependent. I find this deeply concerning," said Davies at Frontier Advisory.
China, however, is likely to need Africa's resources for a long time.
It remains easier for it to import iron ore from many parts of Africa than mine it in western China and transport the resource to its coastal steel plants.
Humphreys at DaiEcon believes China will eventually reduce its own iron ore production from 300 million to 100 million tons and seek to bridge the gap by importing from Africa and elsewhere.
"When China was growing fast, it couldn't get these raw materials, but now with all the concerns about environmental problems and pollution, it makes sense to do this. If it can buy raw materials cheaper than it can produce itself that is what it will do."