The Mumbai terror attacks, but business as usual for China

The Mumbai terror attack has dominated news headlines over the past week. Termed India’s 9-11, the reign of terror unleashed in India’s financial and Bollywood capital has exposed the weaknesses in India’s inland security apparatus. It also aroused an angry domestic public opinion against what was seen as the inertia and complacency of the Congress led ruling coalition in response the attacks. While India’s navy had successfully battled with piracy in the Gulf of Aden a week before, it took India’s security forces almost 72 hours to regain the offensive against the terrorists. And that only after India’s prestigious elite special forces, the National Security Guard or ‘black caps’ were called in to break the deadlock. With Mumbaikers and the rest of India demanding answers of their government around responsibility, the Asia Online Times reported that the terror attacks has indeed changed the complexion of geo-security in the sub-continent. As suspicion fell on the Pakistan-based terrorist group, Lakshar-e-Taiba, , even China has become concerned about the increasing tensions in the region and called for India to show restraint. Of course with Condolezza Rice’s visit to New Delhi on Wednesday to ease tensions between the two South Asian protagonists and prevent any nuclear threat from materializing, Beijing is perhaps also worried about the regional spillover along its border regions.

REFUELLING CHINA’S ECONOMY

China’s top brass still remain cautious about the country’s economic future. In an address to theCCP’s powerful political bureau, President Hu warned that the current financial crisis posed critical challenges to the government’s domestic policies and to the country’s competitive edge in global trade. This comes on the back of continued domestic uncertainty around employment security and factory closures as the manufacturing sector felt the impact of hi global weaknesses .

While the stimulus package continues to attract mixed reactions, the chairman of China’s sovereign wealth fund, China Investment Corp, has expressed concerns about investing in Western Banks . According to Mr. Lou Jiwei, China is trying to limit its own vulnerability and is worried about the viability of western financial institutions with what was seen as a ‘lack of consistency in government policies’.

Nevertheless, Mr. Lou reaffirmed that the sovereign fund will continue to seek more investments and depending on the outcome of Thursday’s (04 December 2008) Summit in Beijing with US Treasury Secretary, Hank Paulson, around US-China trade and a re-evaluation of the strong Yuan, will decide on the future direction of the fund.

INVESTING IN OTHER EMERGING MARKETS

The Summit in Beijing has definitely sparked an interest among other emerging powers. Even in India despite the terror attacks, one financial commentator was calling for investments from China’s US$2 trillion into Indian bonds and stocks . While China may be cautious of redeploying its reserves away from the US, Mr. Gao Xiqing, President of the China Investment Corporation who is responsible for about US$200 billion of China’s foreign assets called for that the creation of a sustainable financial system that changes the way that household and personal debt is avoided.

AFRICA CONCERNED

The African Union has also expressed concern that the slowdown in China may affect the continent’s strategic relationship with Beijing. With the 6th Forum on China-Africa Cooperation Summit to be held in Cairo next year, it is understandable that the AU is worried that there maybe less Chinese trade and investment . AU Commissioner, Jean Ping, warned that: “If you have a recession in China, which apparently will be the case, we will have a reduction in the demand of our raw materials". Yet, this does not seem to have affected China’s continued interest in Africa so far. According to the Lusaka Times China has increased its investments in the continent from US$70 billion to US$80 billion dollars this year.

THE SHOPPING SPREE CONTINUES…

At the same time, China appears to be increasing its competitive advantage for mining deals. Chinese mining companies have been holding talks with South Africa’s Standard Bank for M&A mining deals at bargain prices. The Bank’s head of mining and metals investment banking, Mr. Thys Terblanche, confirmed that the prospective companies were ICBC clients who had a keen focus on Africa as well as ‘seeking opportunities in Peru, Chile, Brazil, Australia and Indonesia’.

Telecoms is the other area of strategic interest. China’s state owned telecommunication corporation ZTE recently announced that it intends to offer cheap handsets to operators in West Africa. Going head to head with South Africa’s cellular service provider MTN, which recently also unveiled plans to source cheap handsets from China for its African operations, ZTE’s strategy reflects a more entrenched presence in Africa’s mobile device market.

NOT SO GOOD NEWS FOR THE CLOTHING AND TEXTILE MARKET

With South Africa’s clothing and textile quotas on cheap Chinese imports due to expire at the end of 2008, Director General, Tshediso Matona, in the Department of Trade and Industry, revealed that South Africa is unlikely to ‘extend Chinese import quotas beyond December 2008’ since there were no applications received to this effect. While this is good news for South Africa’s retailers, the South African Clothing and Textile Workers Union (SACTWU) will probably lobby for further restrictions, especially with unemployment being a central feature for next year’s national elections in South Africa.

IN OTHER NEWS…

As a response to the growing cholera epidemic in Zimbabwe, China has pledged to provide vaccines worth US$50 000 to assist the in the fight against the outbreak.

Africa’s fertile agricultural land continues to attract investors, this time from the Gulf states. Qatar is in talks with the Kenyan government to lease 100 000 hectares of arable agricultural land for farming . In exchange, the Kenyan government is pushing for investment in the Lamu port project. This, according to government officials, will help ease congestion in the Mombasa port.

On the other hand, chairman of the Bahrain Export Development Society, Dr. Yousef Mashal predicted that Africa could become a breadbasket for the GCC , particularly in the supply of water and food products. Dr. Marshal urged Gulf countries to strengthen the GCC-Africa-Cooperation Forum through incentives and said that “some countries in Africa could offer Bahrain joint ventures in exchange for technology and some might have industries that want to base production in Bahrain to utilise the US-Bahrain Free Trade Agreement”.

* Sanusha Naidu is Director of Research for Fahamu's China in Africa programme.

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