China Is Reaping Africa's Riches

TAIPEI, Taiwan (TheStreet) -- Face it, Western countries, China is leading -- in Africa.

Beijing's foray into the resource-rich continent has met with write-ups of neo-colonial ambitions as the stronger country uses aid to form alliances with weaker ones. China's efforts over the past decade, such as dam in Ghana and peacekeeping vessels in the pirate-ridden waters off Somalia, have been rewarded with oil, ores and even cocoa.

Does the U.S. wish it had thought of the Africa strategy first? It should, because Chinese companies from here onward will just dig deeper into the continent's natural resources, outstripping American competitors.

Under China's new President Xi Jinping, Sino-African relations are expected to get only stronger, and it's not because the peoples love each other so much. News reports say the president will visit Africa early in his term, signaling high priority, following Foreign Minister Yang Jiechi's visit in February amid pledges to keep friendships cemented.

Some 2,000 Chinese enterprises are invested in projects to develop African telecommunications, energy, farming and manufacturing, China's official Xinhua News Agency reported in December, noting 38.2 billion in contracts in the first 10 months of 2012.

Chinese foreign direct investment, or FDI, in Africa reached $1.5 billion in the same period, up 17% year on year.

Trade between Africa and China was worth $91.3 billion in the first half of 2012, compared to about $50 billion in U.S.-Africa trade over the same period.

In the latest example, Italian energy firm Eni ( E) said on March 14 it had reached a deal with the China National Petroleum ( CNPZ) to sell a 20% stake of a natural gas field off the coast of Mozambique.

Gas and oil tell a big piece of the China-Africa resources story. China gets about one-third of its oil imports from Africa, which has 9%-10% of the world's oil reserves, the U.S. think-tank Council on Foreign Relations said in a report last year. China's top African oil suppliers include Angola, Sudan and Nigeria, the report says.

China also surpassed the United States in 2009 as Africa's biggest oil trading partner.

In 2006, China's herculean state-run offshore oil driller CNOOC Ltd. ( CEO) announced it would buy a $2.3 billion stake in a Nigerian deep-water oilfield, according to the Japan External Trade and Development Office's Institute of Developing Economies. A few months later, the institute said, China Petroleum & Chemical ( SNP) secured claims worth $2.4 billion to look for oil in waters off Angola.

To supply minerals for China's quick development, Africa is there again. China relies on sub-Saharan Africa for cobalt imports and looks to the same continent for much of its manganese, the Institute of Developing Economies says.

In one landmark tie-up, African Minerals (AMI:L) made a deal with China Railway Materials Commercial three years ago for extraction of steel-related products.

China has stymied the West, despite its traditional and often longer-standing ties with African countries, with its approach: giving development aid to the places where it seeks resources.

Beijing has extended grants and zero-interest loans to Zambia, for example, since the 1960s, and what a payoff: China now has 99-year rights to the African country's Chambishi Copper Mine, the largest foreign nonferrous metal mine approved by Beijing for development and construction.

For sub-Saharan countries China has donated drought-relief supplies even during its own periods of natural disasters.

"China's 'new foray' into Africa is attracting much international attention and contentious debate," the Centre for Chinese Studies under the University of Stellenbosch in South Africa said in a 2008 report -- and the nation's position is only stronger five years on.

"China is seemingly engaging Africa on new terms -- terms that are not shaped by traditional powers, nor perhaps even by Africans themselves," the report says. "It represents a new approach to the continent...a collaborative state-business approach to foreign policy. China's foreign aid forms an integral component of this paradigm."

This is what puts China in the lead. Western countries where other companies are seeking resources in Africa don't feel the pinch that China does, as their GDPs aren't growing as fast while oil and minerals may be available closer to home. So they're not doing anything that's ambitiously special to help African countries develop.

But what if some day they suddenly need a new source of oil and minerals?

An African pivot toward China isn't assured. Some African nations are wary of neo-colonialism and others too caught up in domestic problems to give China any long-term guarantees in return for largesse. But China can't afford to give up, and as long as the world No. 2 economy keeps giving aid Africa will eventually become clear who its benefactor is.

More cemented ties could hurt competitive bidding between Chinese and Western companies in Africa. Not saying that's happened yet to anyone in particular, but look out if you're invested in North American mining companies such as Barrick Gold Corp. ( ABX) and equipment makers Cummins ( CMI) and Caterpillar ( CAT), which already has a smoldering issue in China.

In the oil department, consider what might happens if Royal Dutch Shell ( RDS.A) goes up against a Chinese oil giant.

The Western contestant might need to offer a dam or a peace-keeping fleet with its bid.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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