China Special Report: Enter the dragon
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21 February 2014
As a country with few natural resources, China has always had to look abroad for investment. Margaret Taylor reports on the Sino-African special relationship
Cash-rich China’s interest in resource-rich Africa has grown enormously over the past 20 years, with Chinese companies investing in everything from mining to infrastructure projects.
In recent years China’s focus has changed, developing from an interest in mineral-rich countries to include those involved in trade and infrastructure projects. For the lawyers advising on the deals this can only mean one thing – increased workloads.
Kian Heong Hew, head of Pinsent Masons’ Shanghai office, says the firm is experiencing a surge in opportunities to work for Chinese construction and engineering companies on international projects that span countries such as Algeria, Botswana and Sudan.
Certainly the African demand for new and better roads, school buildings, computer networks, telecoms systems and power generation has seen a raft of Chinese companies rush to the region.
Although Hew feels that domestic Chinese firms will benefit to some degree from this increase, he believes that in general Chinese companies are looking to international firms with a presence in China for their legal needs.
“Our experience is that most Chinese companies going international, including to Africa, generally prefer international players – in particular those with a presence in China as well – because of their international experience and also wider network,” he says.
As Chinese investments often arrive in Africa via the Middle East, Hew adds that an international footprint that includes Gulf offices can be an advantage for firms advising on Sino-African matters.
“Until very recently, the United Arab Emirates was very popular with Chinese companies. Qatar, Iran and Saudi Arabia are also very popular destinations,” he says.
That said, Haibin Xue, managing partner of Chinese firm Zhonglun W&D, says Africa-related work has also increased for his firm in recent years, with the scope of that work varying depending on the type of Chinese investment being made.
“With the increasing investments from China into Africa, the legal work increases accordingly,” he says. “For Chinese law firms the work generated is mainly associated with the investment, such as pre-investment restructuring of the investing companies to suit the specific investment needs, dealing with numerous official approvals processes, advising on compliance issues under Chinese policies and law and negotiating on the client’s behalf with the relevant parties on investment terms.”
In terms of the type of work Chinese companies are focusing on in Africa, Pinsents’ Hew points out that infrastructure has always been a focus, but adds that this focus has increased recently because the Chinese government is looking to finance a growing number of projects.
“The Chinese government is garnering support from less developed countries by financing infrastructure construction in these countries through the China Exim Bank,” he explains. “The construction of these infrastructure works inevitably goes to Chinese construction and engineering firms, so the monies China spends really go back to China. The financing of infrastructure projects is also a means for China to make friends with resource-rich countries.
Chinese construction and engineering companies made up at least 20 per cent of the top 225 contractors working internationally last year, possibly the most from one country.”
Xue agrees that China, which is not a country rich in natural resources, has been pushing its relationship with Africa as a means of gaining resources in exchange for work on projects.
“Historically China has assisted a lot of African countries in building roads, railways and power stations when the world was in the Cold War stage and this has gradually changed into being more on commercial and economic grounds in the post-Cold War stage,” he explains.
Looking to the future, Xue believes the Sino-African bond will get stronger with foreign direct investment from China into Africa set to continue. With M&A and project finance work involving Chinese investors almost certain to keep the lawyers busy in the medium term, Xue believes the relationship could develop even further in the long term.
“It’ll gradually lead to a two-way process to potentially include investments from suitable African investors into China,” he says.
Hew agrees, adding that domestic Chinese firms are positioning themselves to be able to handle a larger portion of that work in the future.
“In our specialist area of construction and engineering, there are a few Chinese law firms that are making headway representing Chinese companies on projects,” he says.