Chinese state owned enterprises in west africa triple embedded globalization

Chinese State- Owned Enterprises in West Africa This book investigates the globalization process of Chinese state- owned enterprises SOEs in West Africa, primarily in Benin and Ghana,

Chinese State- Owned

Enterprises in West Africa

This book investigates the globalization process of Chinese state- owned enterprises (SOEs) in West Africa, primarily in Benin and Ghana, based on ethnographical studies It challenges the dominant vision of a powerful China

in Africa and argues that the so- called Chinese business advantages – the lithic Chinese state and Chinese low- cost advantages – are not viable for sustaining Chinese business development in the continent Considering the Chinese SOE globalization process in a relational approach, this book examines how the triple embeddedness (Chinese, African and managerial) shapes the Chinese SOE glo-balization process over time and space, in diverse dimensions and among different entities – the Chinese state, Chinese SOEs, Chinese expatriates, the African government, African business partners, African staff and the African society It illustrates that the Chinese central state has “retreated” deliberately from its SOE globalization in Africa The Chinese SOEs and Chinese expats are the major actors in initiating and inventing globalization strategies, facing limited Chinese state support and the African neopatrimonial governance and social contexts Besides, the personal trajectories (from expatriation to social promotion) of Chinese SOE expats interweave with the globalization- turn- localization of their SOEs in Africa Rejecting the linear, static and binary vision of a powerful China

mono-in Africa, the present study thus emphasizes power dynamics mono-in Chmono-inese SOE globalization process that are organic and pluralistic Time and local relations are key elements that constitute real Chinese advantages for Chinese SOEs vis- á- vis their ultimate competitors – not Western companies, but other Chinese companies

Katy N Lam, Assistant Professor, Department of Applied Social Sciences, The

Hong Kong Polytechnic University

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1 Chinese State- Owned Enterprises in West Africa

Triple- embedded globalization

Katy N Lam

Chinese State- Owned

Enterprises in West Africa

Triple- embedded globalization

Katy N Lam

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1.1 Triple embeddedness: a relational approach

of Chinese SOE globalization 3

1.2 Countries of focus: Chinese SOEs in Benin

and Ghana 7

1.3 Outline of the book 9

2 Retreat of the Chinese state: history of Chinese

2.1 Chinese SOE reform: changing relationships

with the Chinese state 16

2.2 Chinese SOEs in the construction sector in Ghana 17

2.3 Chinese SOEs in the construction sector in Benin 29

2.4 Telecommunications sector 33

2.5 Close down: Chinese SOEs in light industry 37

2.6 Conclusion: retreat of the Chinese state and globalization of Chinese SOEs in Africa 39

3 African embeddedness and vulnerable Chinese 46

3.1 African governance context for business 47

3.2 End of the so- called Chinese business advantage 49

3.3 Learning to play the game in Benin and Ghana 55

3.4 Cultivating government relations: politicians on the top 58

3.5 Local embeddedness and structural roles for business

development 61

3.6 Everyday administration, everyday negotiation:

offi cials from below 63

3.7 Conclusion: toward a reconceptualization of

the real Chinese business advantages 66

4 African managers and workers: workforce localization

and becoming a paternalistic employer 72

4.1 Labor issues of China in Africa: beyond the

racialized stereotypes 72

4.2 Strategies of workforce localization of

Chinese SOEs 74

4.3 Learning to manage African workers 80

4.4 Localization of management: Ghanaian managers

in Chinese SOEs 88

4.5 Complete management localization in Chinese SOEs 91

4.6 Workforce localization: from a bottom- up strategy

to a top- down discourse 94

4.7 Conclusion: African managers – another real

Chinese business advantage 96

5 Chinese expats: social promotion and localization

5.1 Dynamics of spatial- social mobility 102

5.2 Overview of Chinese SOE expats in Benin

and Ghana 103

5.3 Expatriation in Africa and fulfi lling social roles

in China 106

5.4 Africa, the best alternative 109

5.5 Intersection with SOE globalization- localization

and expatriation- migration in Africa 112

5.6 Globalization and expatriation: the limits

of social mobility 116

5.7 Conclusion: the paradox of social promotion

and localization 118

6 Competing for the “Chinese community”:

Chinese managerial agency 121

6.1 Imagined Chinese community in Africa:

a stigmatized concept 122

6.2 Not the same Chinese: who are suzhi di

(of low quality)? 123

6.3 Localized SOEs and Chinese expats: creating visible

space and institutions for social differentiation 126

6.4 Building the Chinese community: dynamics between

the Chinese Embassy and Chinese SOEs 132

6.5 Localized SOEs and expats: a new Chinese

community leader 138

6.6 Conclusion: asserting (image) control and emerging power

dynamics between the Chinese state and its SOEs 143

7 Conclusion: second- class Chinese globalizations

7.1 A triple embeddedness approach 148

7.2 Reconceptualizing Chinese business advantages 151

7.3 Toward second- class Chinese globalizations in

West Africa 153

1.1 Map of West Africa 10 1.2 Map of Benin 11 1.3 Map of Ghana 12 4.1 Ghanaian workers and a Pakistani technician of Sinohydro 77

Figures

2.1 List of Chinese construction SOEs active in Ghana as of 2014 20 2.2 List of Chinese construction SOEs (active/used to be active)

in Benin as of 2015 30 3.1 Business activities of some Chinese SOEs in Ghana 50 5.1 Minimum wage across Chinese provinces in early 2013 108

Tables

Abbreviation Defi nition

CAD China- Africa Development Fund

CSR Corporate social responsibility

CWE China Water and Electric Group

ENR Engineering News Record

FDI Foreign direct investment

FOCAC Forum of China and Africa Cooperation

GDP Gross domestic product

MEI Ministry of Electronics Industry

MPT Ministry of Posts and Telecommunications

NDC National Democratic Congress (party)

NPP New Patriotic Party

ODI Overseas direct investment

OFDI Outward foreign direct investment

PRC People’s Republic of China

RMB Renminbi (Chinese currency)

SASAC State Assets Supervision and Administration Commission SITEX Société Industrielle du Textile

SOE State- owned enterprise

WEF World Economic Forum

WTO World Trade Organization

ZTE Zhongxin Telecommunication Enterprises

Abbreviations

This book is a shortened and revised version of my doctoral thesis From research

to thesis and now to a book, throughout the journey I have received advice, support and encouragement from mentors, colleagues, friends and family, without whom this book would not have been possible I am grateful to every one of them, and I express my deepest gratitude especially to the following people: Antoine Kernen, my thesis supervisor, who recruited me into the passionate topic “China and Africa” The research subject of this book was born, developed and nourished by his insights in our numerous discussions Conducting the current research was possible thanks to the fi nancial support of the Swiss National Science Foundation, through the project

of “Chinese Presence in West Africa”, for which Antoine was the project leader

Françoise Bourdarias, Jean- Pierre Cabestan and François- Xavier Merrien,

my thesis jury, who provided valuable advice and encouragement for improving the research in several critical phases over the years

The Chinese in Ghana and Benin who welcomed me and generously shared their experiences, aspirations and struggles of their African journeys Without them and their collaboration, conducting the ethnographical

fi eldwork for this research would not have been possible A special thanks

to Marine Michel, who kindly shared her research network and efforts

on Chinese in Benin, which were crucial for me in conducting the

fi eldwork and developing the current research on Benin

A post- doctoral fellowship under the Joint Research Group of Max Weber Foundation of Germany and the Hong Kong Baptist University allowed

me to develop the current book from the thesis I am particularly ful to Adrian Bailey for his valuable comments on the book manuscript and to Sabine Dabringhaus and Ricardo Mak for their helpful advice and support during the fellowship

Members of the Chinese in Africa/Africans in China Research Network, notably Karsten Giese, Laurence Marfaing, Jamie Monson and Yoon Jung Park, for their fruitful comments and exchange of ideas for advanc-ing my research at different stages

Acknowledgments

My colleagues and friends at the University of Lausanne, Marion Repetti, Marine Michel, Guive Khan, Antoine Guex, Angèle Mendy, Justine Hirschy, Daniele Lopes, Pablo Diaz and Isabel Baumann, for making the long writing process full of laughter and for understanding exactly what I was going through

My parents and my elder sister, Shirley, for their love and for laying an important foundation of my education My family- in- law for fi lling my Swiss life with joys and warmth I am particularly grateful to my parents- in- law, Isabelle and Pierre, for caring for me as their own daughter and for always volunteering to look after their grandson so that I could concentrate on writing

Last, and most importantly, my husband, Simon, for his confi dence and support in every project I have pursued He assumed my parenting role during my regular and sometime lengthy absences from home for fi eld-work and conferences, as well as numerous working weekends and holi-days He and our son Élie are the sources of joy, courage and energy that brought this book to its completion

The idea that “China is powerful” has become beyond question since the ning of the twenty- fi rst century The “rise of China”, the “China threat” and

begin-“China’s plan to dominate” are among the popular topics of analysis and cussion 1 When it comes to Africa, China is even more prominently powerful The asymmetrical power dynamic is a prevailing feature over the decade of China- Africa literature since 2006, the same year that numerous African leaders participated in the high- profi le political Forum on China and Africa Coopera-tion (FOCAC) held in Beijing 2 Since then, the power relationship between China and Africa is often presented as unequal, with China being dominant and Africa being weak, which is considered to differ little from the colonial pattern

dis-of Western involvement in Africa (Tull 2006)

The perspective of “powerful China in Africa” can be subdivided into two schools: pessimistic and optimistic On one hand, the international attitude has been disapproving and dismissive toward the role of China in Africa The pow-erful Chinese presence in Africa is characterized as “offensive” (Niquet 2006, Richer 2008), a “new scramble for Africa” (Frynas and Paulo 2006), and Africa under control of China’s empire (Bertoncello and Bredeloup 2009, 46–47)

On the other hand, certain scholars maintain that China is the hope for Africa’s development They are positive about Chinese presence in the continent and believe that Chinese engagement will contribute to a better African development (like Brautigam 2009, Taylor 2009) These views about the encounter of China and Africa, either pessimistic or optimistic, consider that the globalization of Chinese investment is a decisive factor for Africa’s future, but the continent has been passively responding to it or even is unable to manage it (e.g., Carmody

et al 2010) The asymmetrical power dynamic has become a fundamental basis

in evaluating the role of China in Africa

So how has the production of the imbalance of power dynamics taken place

on the ground? In reality, the relation between China and Africa is often sumed as unequal, though without solid empirical evidence, especially when related to Chinese large or state- owned enterprises (SOEs) The Chinese large- scale business in Africa is sometimes framed as “China Inc.” (Fishman 2005)

pre-It is a famous icon of Chinese international business activities, implying that Chinese overseas fi rms are orchestrated by a monolithic Chinese state with a

Introduction

A relational approach of

Chinese SOE globalization

1

coherent global political and economic strategy (Taylor and Xiao 2009) The Chinese SOEs are presumed to enjoy the business advantages – Chinese political and economic advantages in the continent The role of the Chinese state in Chinese SOEs is supposed to be omnipresent and highly supportive Together with the fact that the Chinese government provides unconditional aid to Africa, Chinese SOEs are imagined to enjoy “competitive political advantage” (Alden and Davies 2006, 6) compared to companies of other foreign countries The Chinese SOEs in Africa are taken as the army of China’s Africa policy and strategy (e.g., Alden 2005, Carmody and Owusu 2007) and are seen as part of China’s grand plan for natural resources in Africa 3 The globalization of Chinese

fi rms in Africa is interpreted as the rise of the Chinese state in the continent (Carmody et al 2012) and characterized as the spreading of Chinese state capitalism (Davies 2010, The Economist 2012) Underlying this perspective is the assumption that a strong, organized and controlling Chinese state is behind the globalization activities of the Chinese SOEs

Another so- called Chinese business advantage is the “comparative economic advantage” (Alden and Davies 2006, 6), which is the low- cost advantage Using large number of cheap Chinese workers and mangers and inexpensive China- made products, the Chinese enterprises win projects through a lower bidding cost than Western companies These Chinese political and economic advantages are presumably “taken for granted” foundations about China in Africa in media reports and geopolitical analyses

China Inc (Silk and Malish 2006) and the “China shops phenomenon” (Laribee 2008) remain the two prevailing and contrasting focuses and objects

of the China- Africa study Most of the existing ethnographic studies focus on the highly visible Chinese private traders operating business in large urban markets in Africa 4 Their high visibility implies easily accessibility for research investigation The “hidden” ones – like the Chinese SOEs that do not operate

in visible markets – are rarely taken under the research scope for direct tigation The studies concentrating the small- scale business actors do not pose challenge to the dominant asymmetrical power dynamics, which often refer to large Chinese investments and SOEs

Being unable to effectively differentiate the Chinese government from its state- owned enterprises remains a key barrier in evaluating China’s role in Africa The only effort made in separating the Chinese SOEs from the Chinese state

in the literature is for explaining the ineffectiveness of the Beijing diplomacy in Africa, given that the negative image of China in Africa prevails The Chinese SOEs at the provincial level (省企), unlike the “good” Chinese central SOEs (央企), are accused of being the “bad enterprises” and “freebooters” (Xu 2014) because the Chinese central state has weaker control over them In other words,

it is claimed that their autonomy from Chinese central state control leads to unacceptable business behavior and creates international scandals in Africa (Gill and Reilly 2007, Chen et al 2010, Alden and Large 2011, Xu 2014) In reality, among the widely reported Chinese- related confl icts in Africa, the Chinese enterprises concerned are rarely related to Chinese provincial SOEs 5 The “bad

provincial SOE” argument refers to (but again, there is lack of empirical dence) the tension between Chinese central and provincial levels that is often recorded in the China studies (e.g., Chung 1995, Li 2010) This tension is, in fact, only one dynamic among many others 6 The internal Chinese ministerial struggle, in contrast, may explain better the Beijing diplomatic challenge in Africa (Brautigam 2009, Corkin 2011b)

Apart from a few eye- catching investment fi gures or labor confl icts with the Chinese companies, a huge gap still exists in understanding the Chinese SOEs

in the continent, as in the world Even for very simple information like who, doing what business, and in which African country the Chinese SOEs are, no study has ever been able to list out the Chinese SOEs and their business in an African country until now, let alone their globalization history and experiences

in the continent 7 Without that information, the understanding of China in Africa stays as the preassumed, untested asymmetrical dynamic – powerful China versus weak Africa This knowledge gap continues to hinder a more effective collaboration among the international community, African countries and China

on the continent’s development

This book is the fi rst study investigating the Chinese SOE globalization process in Africa through empirical research It aims to demonstrate and explain why many Chinese globalization patterns and dynamics take place, as to coun-terargue the dominant view of the asymmetrical power relation between China and Africa The book is based on fi rst- hand materials collected from ethno-graphical investigations (interviews and participant observations) of Chinese SOEs in Benin and Ghana of West Africa The Chinese in Benin and Ghana often express their diffi culties in dealing with African actors and the competition with other Chinese companies Collaborating and even compromising with African actors have been essential for the survival of Chinese businesses The revelation of an adaptive and struggling China, instead of a ruthless one, in Benin and Ghana challenges the dominant vision of a powerful China in Africa

1.1 Triple embeddedness: a relational approach

of Chinese SOE globalization

While “a totalitarian China state” 8 is a popular media icon, scholars in China studies have long rejected the idea that the Chinese state is a well- organized and centralized unit that solely and closely controls national politics and the economy The Chinese central state and other Chinese political and economic actors have developed complex and sometime confl icting relationships since the Chinese economic reform of 1978 The nature of Chinese governance, instead

of being monolithic, is often characterized as, for instance, “fragmented tarianism” (Lieberthal and Oksenberg 1988), “pluralized” (Mertha 2008), power decentralization/“federalism, Chinese style” (Montinola et al 1995, Li 210, 179), “local state corporatism” (Oi 1992) and “polymorphous” (Howell 2006)

If Africa is viewed as dependent or weak when facing foreign actors Africans

themselves have been active agents in the “ mise en dépendance ” of their societies

(i.e., they have actively made themselves dependent on others) (Bayart 2000,

219) This mise en dépendance has been a long- term process dating back to

1870, when a large- scale colonization by European countries, “Scramble of Africa”, took place The external environment has been seen as an important resource for political centralization and economic accumulation by African lead-ers, known as the politics of belly or extraversion strategies (Bayart 1989) Mohan and Lampert (2013), for instance, introduce “African Agency” to the China- Africa studies and highlight that facing the Chinese, African actors within and beyond the (African) state level are able to exert agency power in order to advance individual interest Nevertheless, this prominent African governance structure has yet been taken into account suffi ciently in the China and Africa study

Highlighting a fragmented Chinese state and that power exists on the African side is not to suggest a reverse asymmetry (a powerful Africa and a weak China), but it emphasizes the “problem of embeddedness”; diverse contexts and social relations play a signifi cant role in shaping economic activities (Granovetter 1985, Polanyi 2001) Economy has never been independent, but rather it is subordi-nated to society – its politics, religion and social relations cannot be autonomous and separated from it (Polanyi 2001)

The present study takes a relational approach to look into the Chinese SOE globalization process Social relations are crucial to economic outcomes because

of their roles in information fl ow and verifi cation, generating social capital, 9 gaining trust and thus discouraging malfeasance, to name a few (Granovetter

1985, 2005) Power is a “relational effect of social interaction” and is ted only through “a succession of mediated relations” (Allen 2003, 2) Power

transmit-is not in things or just resources because we should not confuse “the exerctransmit-ise

of power” with “the resource capabilities mobilized to sustain that exercise” (Allen 2003, 5) Social relation is the basis for mobilizing resources to sustain the exercise of power Social relation, for instance, is the ultimate business competitive advantage (Burt 1992), 10 and it can offset legitimacy issues of a new company (Zaheer 1995) Storper (1997, 28) suggests a guiding metaphor

on understanding economy as “relation” and economic process as “conversation and coordination” Apart from material assets, the nature of economic accumu-lation is, more importantly, about “relational assets” (Storper 1997, 28) Most Chinese SOEs in Benin and Ghana, as well as in Africa, are in fact provincial in nature – they are either provincial SOEs or provincial branches of Chinese central SOEs Most of the Chinese SOEs are active in construction and telecommunications sectors and operate outside the oil or natural resources businesses Close relation with the Chinese central state does not necessarily produce globalization success in Africa The key factor is the business duration

in the host country Time is the ultimate variable of the Chinese SOE’s mance in Africa The role of time refl ects that the embeddedness of diverse contexts and local assets in Africa, like relations and knowledge that require time to cultivate and accumulate, are crucial in shaping globalization experience and performance for Chinese SOEs

Therefore, this book investigates how embeddedness shapes the Chinese SOE globalization process over time and, thus, refl ects the real and changing China- Africa power dynamics on the ground In other words, it looks at how relations and the ongoing dynamics condition Chinese SOE experience in Africa Local-ization (or local embeddedness), however, “is not the only spatial logic of embeddedness in globalization” (Hess 2004, 180) Embeddedness of globaliza-tion (spatial embeddedness) should be considered in three types: social, territorial and network (Hess 2004) In this book, I rename them Chinese, African and managerial embeddedness

Chinese embeddedness (societal embeddedness) is the “genetic code” of a Chinese SOE (Hess 2004, 176) It “signifi es the importance of where an actor comes from, considering the societal (i.e., cultural, political, etc.) background” (Hess 2004, 176) Chinese embeddedness refl ects where Chinese contexts – including cultural, political and social- economic contexts –come from and how these contexts shape globalization

African embeddedness (territorial embeddedness) “considers the extent to which an actor is ‘anchored’ in particular territories or places Economic actors become embedded there in the sense that they absorb, and in some cases become constrained by, the economic activities and social dynamics that already exist in those places” (Hess 2004, 177)

Entering into a new African country and market, a Chinese SOE has to face two kinds of barriers: liability of newness and liability of foreignness Older organizations are in stronger relationships with local entities, especially the power actors, and are viewed as legitimate This legitimacy guarantees, for example, a better access to resources that in turn increases their survival chances (Singh et al 1986, 173) Therefore, legitimacy is an age- dependent external process, in other words, a time process This explains why young organizations usually have lower levels of legitimacy, which is a main challenge for their adaptation (Singh et al 1986) Additionally, being foreign companies, the Chinese SOEs have to overcome one more barrier than a young domestic organization: liability of foreignness (Zaheer 1995) Liability of foreignness is the cost “of doing business abroad that result[s] in a competitive disadvantage for an MN[C] subunit” (Zaheer 1995, 342–343) This competitive disadvan-tage is all the additional costs that a local fi rm does not need to incur, for instance, the cost of unfamiliarity with and the “lack of roots in a local envi-ronment” and the “lack of legitimacy of foreign fi rms” (Zaheer 1995, 343) Lack of legitimacy refl ects that a new Chinese SOE subsidiary arriving to Africa has insuffi cient local relations and, thus, trusts If trust in this sense is

an essential element for the Chinese SOEs adaptation, part of the adaptation process is to build and maintain trust, which is a time- consuming process In addition, both new and established Chinese SOEs may face one extra barrier –

“legitimacy spillovers” 11 – because of the general negative Chinese image in the continent (Mawdsley 2008)

Managerial embeddedness (network embeddedness) highlights the actors’ agency and interaction with other actors in local networks and trust building

(Hess 2004, 177) In the present case, the actors are the Chinese SOEs African subsidiaries and their Chinese directors and managers (Chinese expats) who actually control the subsidiaries.

The local network of a Chinese SOE in Africa indicates how successful its adaptation as well as its relationship with the headquarters are The degree of

“local embeddedness” – local relations and business dependence in the hosting country – is an indicator of successful adaptation for a multinational subsidiary (Andersson and Forsgren 1996, 489–490) The more locally embedded a sub-sidiary is, the more successful is its business, and consequently the more autonomy

it gains from its headquarters As a result, the degree of subsidiary local dedness refl ects its relationship with its headquarters (Andersson and Forsgren 1996) Apparently, a more locally embedded subsidiary enjoys greater autonomy from its headquarters With a higher degree of local embeddedness, a subsidiary’s local business performance is in general better (Andersson et al 2002) The subsidiary’s success in turn modifi es its relationship with its headquarters (Anders-son and Forsgren 1996, 504)

The substantial level of autonomy raises the question of agency problem Nonetheless, if the headquarter inserts too much direct control over the sub-sidiary, it will hinder the subsidiary in developing local embeddedness, and thus business Direct control, such as sending representatives from headquarters or changing the subsidiary management regularly, will have a negative impact on local embeddedness (Andersson et al 2005, 524–525) In sum, the relationship between a headquarters and its subsidiaries, in terms of control autonomy, depends substantially on the degree of local embeddedness, which is critical for

a subsidiary’s business success (Andersson and Forsgren 1996, 493)

The three types of embeddedness – Chinese, African and managerial – shape the Chinese SOE globalization process in Africa continuously and simultaneously across time and space Relational assets require time to build and to accumulate (Storper 1997, Faist 2004), which means the power positions of the Chinese SOEs and their Chinese managers will constantly reposition with time Rejecting the linear, static and binary power hierarchy of the powerful China and power-less Africa, I still emphasize that a power hierarchy does exist in the Chinese SOE globalization in Africa However, this China- Africa power dynamic is not

in a neat hierarchy but a chaotic and organic one It is organic because actors are positioned to act and react to change across time, because relational assets can be cultivated and accumulated with time It is chaotic because the action

of an actor depends on what resources are available for this person/SOE to act

on or react to or, in other words, what limits the person faces (Barth 1981, Rosental 1996, 145) The result of such action is concurrently subject to parallel actions or reactions of other actors; therefore, an individual is often uncertain about the result of his or her action (Rosental 1996, 146) As Jessop put it, globalization is a result of “the complex, contingent interaction of many dif-ferent causal processes” (2002, 97–98) Chinese SOE globalization is not a process with a single pattern or result; rather, there should be many and multiple globalization dynamics taking place in Africa

Considering Chinese SOE globalization in a relational approach, this book investigates how the triple embeddedness shapes the globalization process over time, in diverse dimensions and among different entities – the Chinese state, Chinese SOEs, Chinese expatriates, the African government, African business partners, African staff and the African society It argues that the Chinese central state has “retreated” deliberately from its SOE globalization in Africa The Chinese SOEs and Chinese expats are the major actors in initiating and invent-ing globalization strategies, facing the limited Chinese state support and the African neopatrimonial governance and social contexts (Bratton and van de Walle 1997) Besides, the personal trajectories (from expatriation to social pro-motion) of Chinese SOE expats interweave with the globalization- turn- localization of their SOEs in Africa The triple embeddedness has made the power dynamics of Chinese SOE globalization in Africa hierarchical, but in a chaotic and organic sense The so- called Chinese business advantages should be reconceptualized from comparative (compare with other foreign companies) to competitive (among Chinese SOEs) Apart from the fact that the Chinese state support is limited, the Chinese low- cost strategy is not a viable advantage for sustaining business given the fi erce competition among Chinese SOEs in the continent As a result, the globalization process of the Chinese SOEs in Africa can be characterized as “second- class” Chinese globalization Second class is not about a good or bad globalization; it is about how the Chinese SOEs in Africa, with limited support and resources, have to cultivate and accumulate assets to make their globalization succeed

1.2 Countries of focus: Chinese SOEs in Benin 12

and Ghana 13

Benin and Ghana in West Africa are selected as countries of focus in the book There are a few reasons for the choice of Benin and Ghana First, the economic development and political stability of Benin and, especially in Ghana, and their long- established diplomatic relations with China are favorable factors for Chinese business development, thus providing substantial materials for the current study Second, Benin is not oil- producing and exporting country and Ghana was not yet one at the time of my visit (2009–2010) The Jubilee Oil Field in Ghana was discovered in 2007, and oil extraction started at the end of 2010 Chinese business dynamics in Benin and Ghana have not yet been infl uenced or even distorted too much by the controversial Chinese oil strategy in Africa, given that most of the Chinese SOEs in reality do not operate in the African oil sector Benin established diplomatic relation with the People’s Republic of China (mainland China) in 1964, several years after independence from French rule in

1960 However, the diplomatic tie was disrupted unilaterally by Benin in 1966 Benin shifted its diplomatic ties with Taiwan In 1972, the government of Mathieu Kérékou restored the relational ties with the People’s Republic of China 14

In 1957, Ghana was the fi rst country in Africa to gain independence from British colonial rule Strongly infl uenced by socialist ideas, the fi rst Ghanaian

president, Kwame Nkrumah, was close to communist countries Those countries included the People’s Republic of China, which established diplomatic relations with Ghana in 1960 Chinese aid to Ghana started soon thereafter, in the form

of technical assistance on agriculture and manufacturing in the early 1960s 15 After the Nkrumah government was overthrown by a military coup during his state visit in North Vietnam and China in 1966 (Buah 1998), the Ghana- China diplomatic link was suspended and then reestablished in 1972 16

The total Chinese investments in Africa account for only a tiny fraction of China’s global trade and investment, around 4 percent and 2.7 percent respectively (Chinese State Council Information Offi ce 2010, cited in Corkin 2013, 55) In

2010, only 3 percent ($68 billion 17 ) of Chinese overseas direct investment (ODI), which is 0.16% of the world ODI (Corkin 2013, Pairault 2013a), went to Africa Ghana ranks fourteenth among the top 15 African countries sharing this 3 percent

of the Chinese overseas investment Benin is not in the top- 15 list

As of 2015, China ranks second largest in importers to Benin; France is the largest China receives the most Benin exportation after Niger, Bangladesh, India and Vietnam 18 According to the Chinese Embassy in Ghana, total trade volume between China and Ghana in 2013 is $5.15 billion, out of which Chinese exportation to Ghana amounts to $3.95 billion, with a decrease of 17.6 percent compared to 2012, while Ghanaian exportation to China is $1.2 billion, an 86.7 percent increase from the previous year 19 Among the top 10 foreign investor countries in Ghana, in terms of number of investment projects, China (with 52 projects) ranked second in 2013 (after India and before Leba-non) In terms of total fi nancial volume, China ranks seventh (the fi rst three largest foreign investors in Ghana are the United States, Britain and Egypt) (Ghana Investment Promotion Centre 2013)

In 2009 and 2010, I investigated the Chinese SOEs in Benin and Ghana using an ethnographical method – semi- structured interviews and participant observation 20 I conducted two fi eld studies in Ghana and one in Benin that stretched over more than a year

Many written resources document the Chinese SOEs experience in Africa, and most are in the Chinese language However, secondary resources became useful only after my fi eldwork in Benin and Ghana, as without the fi eld investigations

I could not have verifi ed which Chinese SOEs were actually present in the African countries The website of the Chinese embassies in Benin and Ghana provided some information and several lists of Chinese enterprises 21 The lists either mix

up state- owned and private enterprises (which I was only able to verify later during fi eld studies) or, if they are only about Chinese SOEs, they are incomplete and outdated Some Chinese SOEs that left upon termination of a project are still present in the offi cial list of the Chinese SOEs Some SOEs are subcontrac-tors of other Chinese SOEs in Benin and Ghana and are absent in the list 22 Websites of the Chinese SOEs provide extensive details on their history of enter-prise restructuration and ownership transformation as well as internationalization experiences The information is essential to retracing the history of Chinese SOE development and taking stock of their business in a particular African

country The Chinese embassies in Benin and Ghana frequently release public communications on their activities, which regularly involve Chinese SOEs and Chinese associations The communications are helpful for analyzing the dynamics between the Chinese SOE subsidiaries and the Chinese state representative – the Chinese Embassy Besides, Chinese media at the national, provincial and sectoral levels report the Chinese SOE activities and experiences in Africa In addition,

I also consulted Benin and Ghana media reports on Chinese business Therefore, from these resources, I had regular updates on Chinese SOE development in the continent after my fi eld trips terminated in 2010 Apart from these Internet resources, I also relied on annual reports of the Chinese construction, fi shery and telecommunications sectors at the national and provincial levels since 1980,

as well as special reports and books on certain Chinese companies

1.3 Outline of the book 23

Chapter Two retraces the trajectories of how the Chinese SOEs in construction, telecommunications and light industry sectors have arrived in Benin and Ghana since the 1980s It seeks to understand how and why the Chinese SOEs’ choice

of Benin and Ghana (and sometimes of Africa in general) as a destination for globalization is situated in the Chinese institutional context, especially the context

of the history and evolution of Chinese outward foreign direct investment (OFDI) policies and Chinese state sector reform

Taking the Chinese SOEs as main actors in globalization, Chapters Three and Four investigate how Chinese SOEs deploy business development strategies

in the African context Chapter Three explores how their interactions with the Beninese and Ghanaian government offi cials and business partners fi nanced projects and fi erce competition among Chinese companies Chapter Four inves-tigates to what degree and how Chinese SOEs hire and manage local workers and why some SOEs use local managers and target “complete localization” in their African branches

Chapter Five goes further to disaggregate Chinese SOEs by examining the Chinese expatriates who run and possibly control the Chinese SOE subsidiaries

in Benin and Ghana It illustrates the intersection of the Chinese SOE staff trajectories of expatriation- social promotion and the Chinese SOEs’ globalization and eventual localization in the African countries

Chapter Six examines how localized and socially promoted Chinese SOE directors have acquired leadership roles through their efforts to build a good and socially acceptable Chinese community in collaboration with the Chinese Embassy in Ghana It provides another dimension for understanding of how power relations are under constant negotiation and evolution in the Chinese globalization process in Africa

To conclude, in Chapter Seven I will propose three considerations for a new perspectives on Chinese globalization in Africa

Maps of West Africa (Figure 1.1), Benin (Figure 1.2) and Ghana (Figure 1.3) are provided for the readers’ convenience

Source: The World Fact Book, Central Intelligence Agency, United States 25

Source: The World Fact Book, Central Intelligence Agency, United States 26

Notes

1 See, for example, Timperlake and Triplett (1999), Gertz (2000), Mosher (2000), Kynge (2007), Li (2008)

2 See www.focac.org/eng, accessed on 22 Apr 2016

3 See, for example, Davies (2008), Lee and Shalmon (2008), Soares de Oliveira (2008), Power and Alves (2012)

4 Numerous scholars have conducted excellent studies on nuancing dynamics and differentiating actors in the China and Africa encounters based on empirical studies, though mainly on actors in small- scale businesses See, for example, Haugen and Carling (2005), Hsu (2007), Bredeloup (2008), Kernen and Vulliet (2008), Dobler (2009), Strauss and Saavedra (2009), Bourdarias (2009a, 2010), Park and Huynh (2010), Giese (2013), Khan Mohammad (2014), Monson and Rupp (2013)

5 The copper mine in Zambia where Lee (2009) investigates the causes of labor confl icts is owned by a subsidiary of a Chinese central SOE Sinohydro, which was the subject of a labor complaint reported in the media for its hydroelectric power project in Ghana, is a Chinese central SOE Similarly, in another widely reported case of labor confl ict in Zambia, the owner of the company concerned

is ethnically Chinese but naturalized Australian (Sautman and Yan 2014)

6 Other dynamics include negotiation, collaboration and competition at central, provincial and sectorial levels (see, for example, Zweig 2002, Li 2010, Hsueh 2011)

7 Several studies provide initial attempts to understand Chinese large enterprises

in Africa Pairault (2013b) focuses primarily on central SOEs using Chinese government statistics on foreign investment and argues that the level of autonomy

of the Chinese central SOEs is greater than generally assumed Two other researchers, Gu (2009) and Corkin (2011a), report fi eldwork on Chinese enter-prises in Africa Gu (2009) interviews representatives of Chinese enterprises, mostly private, to understand their motivations in investing in Ghana, Nigeria and Madagascar Corkin (2011a) investigates the investment strategies of both Chinese private and state- owned enterprises in Angola, though without a clear separation among them

8 See www.nytimes.com/ref/college/coll- china- politics.html, accessed on 11 Feb

2015

9 Bourdieu defi nes social capital as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more less institutionalized relationships of mutual acquaintance or recognition” (Bourdieu

1985, 248, cited in Portes 1998, 3)

10 A richer social network enhances the advantages of information arbitrage to allow things to been seen early and broadly and to allow for translatation of information across groups (Burt 2000, 2004)

11 “The lack of information on a particular MNC may lead to the use of typical judgments based on the legitimacy or illegitimacy of certain classes of organizations to which the MNC is perceived to belong The stereotypes used

stereo-to judge MNCs may arise from long- established, taken- for- granted assumptions

in the host environment regarding MNCs in general, or of MNCs from a ticular industry or a particular home country” (Kostova and Zaheer 1999, 75)

12 The investigations on the Chinese SOEs in Benin benefi ted from the research efforts and network of Marine Michel, with whom I conducted the fi eld work

in Benin

13 The current study focuses mainly on Chinese large and state- owned enterprises

in Benin and Ghana Several studies look into Chinese private entrepreneurs in Ghana, but almost none look at Benin For information on Chinese private

entrepreneurs in Ghana, see, for example, Giese and Thiel (2012), Ho (2012), Lam (2015), Marfaing and Thiel (2011)

14 See www.china.org.cn/english/features/focac/183583.htm, accessed on 22 Apr

2016

15 For example, technical experts were sent by the Shanghai and Guangdong inces, for example, from Guangdong: www.hprc.org.cn/gsyj/wjs/gjyz/201304/t20130416_216826.html, accessed on 4 Feb 2014; and from Shanghai: www.shtong.gov.cn/node2/node2245/node74728/node74737/node74881/node74885/userobject1ai89785.html, accessed on 4 Feb 2014

16 See “Introduction of China- Ghana relations” (中加关系简介), http://gh.chineseembassy.org/chn/zjgx/t183747.htm, accessed on 4 Feb 2014

17 Throughout the book, fi gures in dollars (e.g., $1 million) are given in US dollars

18 See “China becoming the second largest import trading partner in Benin in the

fi rst quarter of 2015” (2015年第一季度中国为贝宁进口贸易第二大伙伴), http://bj.mofcom.gov.cn/article/ddgk/201506/20150600999473.shtml, accessed on

11 Mar 2016

19 See “China and Ghana bilateral trade volume in 2013” (2013年中国加纳双边贸易额) , www.mofcom.gov.cn/article/i/jyjl/k/201402/20140200487026.shtml, accessed on 18 Nov 2014

20 Unless specifi ed, interviewees quoted in the book are anonymous and pseudonyms are given if necessary

21 See Chinese Embassy in Benin: http://bj.china- embassy.org/fra/; and in Ghana: http://gh.china- embassy.org/eng, accessed on 22 Apr 2016

22 Like the central enterprise Sinopec, which subcontracts their work to other Chinese SOEs, but this information is only communicated by the SOE itself, see www.sinopecweekly.com/content/2013–01/17/content_1253300.htm, accessed on 18 Nov 2014

23 Unless specifi ed, in this book, local and localization refer to people and processes

taking place in Benin and Ghana or generally in Africa

24 www.un.org/Depts/Cartographic/english/htmain.htm, accessed on 6 June

This chapter retraces the globalization trajectories of Chinese SOEs in Benin and Ghana since the 1980s It aims to understand the fi rst step of their global-ization process: why the Chinese SOEs choose the two West African countries (or Africa in general) as globalization destinations and to what extent the Chinese state initiates, or hinders, the process It allows for a better appreciation of how opportunities and strategies of Chinese SOE globalization situate in the Chinese context: relations of the Chinese state with Chinese economic actors at diverse levels and the Chinese institutional context of outward foreign direct investment (OFDI, 海外经营权)

This chapter aims to illustrate that the presence of the SOEs in Benin and Ghana is consequential to the lack of Chinese central state support Many SOEs

in the two West African countries are not in privileged positions of the Chinese central government OFDI policy and do not receive much of resource support from the Chinese state The Chinese SOEs in the two countries, as well as in Africa, are dominantly from land- locked and less affl uent provinces of China or are bureaus from interior provinces of Chinese central SOEs These SOEs choose Benin, Ghana or even Africa as globalization destinations because they are in weaker positions to negotiate support from the Chinese central state and must compete with larger and better- endowed SOEs for business opportunities in China and other developed countries African countries are the only regions where they can develop beyond the already very competitive Chinese domestic market, as the Beninese or Ghanaian markets are less tempting for the privileged Chinese central SOEs or those from richer Chinese coastal provinces Moreover, the Chinese cooperation projects play a limited role in bringing SOEs to Africa and are even less of a factor in sustaining their business development there The chapter focuses on the globalization history of Chinese SOEs in Benin and Ghana in the following three sectors: construction, telecommunications and light industry The construction sector is the fi rst sector in China that received the right to conduct overseas business (Hong and Sun 2006), and the telecom-munications sector is a strategic sector for the Chinese central state (Hsueh 2011) Most Chinese SOEs in Africa are active in these two sectors Their activeness contrasts with Chinese SOEs in light industry that came to the West Africa in the 1990s and all eventually closed down

Retreat of the Chinese state

History of Chinese SOEs

in West Africa

2

In the early 2010s in Benin, the majority of Chinese SOEs are active in the construction sector (around three to fi ve) and one is in telecommunications sector (plus Huawei, a large private company that is often mistaken for a Chinese SOE) In Ghana, the number of Chinese SOEs is currently around 30, 1 out of

a total of 562 Chinese companies present in Ghana 2 Chinese SOEs are mostly active in the sectors of construction (around 20), telecommunications (two plus Huawei), fi sheries (four), and pharmaceuticals (one) Several SOEs in the light industry sector were active in Benin and Ghana in the 1990s, but all of them have since been closed down

2.1 Chinese SOE reform: changing relationships

with the Chinese state

Successive waves of Chinese economic reform since 1978 3 have considerably shaped the relationship between the Chinese state and Chinese SOEs from wholly state- owned and directed to much more complex ownership structures and dynam-ics During the initial phase between 1978 and 1993, SOEs were granted mana-gerial autonomy in developing market- oriented business, though they continued

to play signifi cant social roles in urban China 4 Weakness of control 5 by the Chinese central government and continuous social burden of the Chinese SOEs in the

fi rst phase of the reform led to many state enterprises with poor fi nancial mance In 1996, the Chinese government adopted the policy “keep the large and let the small go” (抓大放小) in order to reinforce and concentrate control over enterprises in strategic sectors (like the oil and telecommunications sectors) To keep the large, the largest Chinese SOEs at the national level were merged into groups This merging process still continues, and it has resulted in a total 112 central SOE groups today 6 These groups, which are also called “central enter-prises” (中央企業), are now under the supervision of the State Assets Supervision and Administration Commission (SASAC) These groups can often take advantage

perfor-of a monopoly situation and still benefi t from preferential access to credit The rest of the SOEs were let go (sold or leased) and have undergone diverse corpo-ratization processes 7 modeled on Western- style corporations Many SOEs were also transferred to be under the supervision of provincial governments 8

Even though Chinese SOEs are still called “state- owned”, the role of the state has evolved considerably and varies greatly in terms of ownership and control The multi- shareholder ownership structure of Chinese SOEs has trans-formed the relationship between the Chinese central state and the Chinese SOEs For the Chinese central SOEs, it is being questioned how an enterprise’s autonomy can coexist with central control (Brødsgaard 2012) and how SASAC can effectively balance rising corporate power (Naughton 2007) In addition, many Chinese SOEs are listed on Chinese and international stock markets; therefore, the domestic and international markets exert non- negligible infl uences

on SOE international development Despite the oil sector being strategic in China, Downs (2007) underlines the low level of coordination and control between the Chinese national oil fi rms and the Chinese government, as well as

the fi erce competition among Chinese oil fi rms in overseas investment Some scholars of Chinese studies even worry that these companies may hijack Chinese foreign policy and undermine Chinese diplomatic efforts (Zweig 2009) Howell (2006) underlines the intense rivalries among Chinese provincial states and among sectors for markets and resources, which result in uneven and unequal development across Chinese regions in the era of globalization The unevenness

is not only due to provincial competition, but also to the Chinese state’s erate control of liberalization and openness Zweig (2002, 23) highlighted that Chinese domestic internationalization started with segmented deregulation, for example, opening the coastal region and setting up special economic zones in certain areas (Zweig 2002, 23) Such initial segmented deregulation shaped the subsequent pattern of uneven domestic internationalization across China Similar control fragmentation can be found in different business sectors Hsueh (2011) found that the Chinese state intentionally plays either regulatory

delib-or deregulatdelib-ory roles across sectdelib-ors – what she calls as a “bifurcated strategy” (Hsueh 2011, 3) She considers that the Chinese central state’s selective control

is exerted by managing the levels of competition and participation of domestic and foreign players in a particular sector

Nonetheless, while the Chinese state deliberately makes an effort to control the pace of liberalization, it is no longer a “totalitarian” state since the Deng era of the 1980s (Chevrier 1996) The Chinese central state’s capacity to enforce and implement policy is often undermined by competition, confl ict of interest and resistance at lower administrative levels (Wright 2007) Rocca (2006) sees that the policy- making process in China is a negotiation between the Chinese central government and other lower- level government actors He argues that

implementation of policies ( zhengce, 政策) is systematically conditioned by the emergence of counterpolicies ( duice, 对策) at the local level (Rocca 2006, 46) 9

2.2 Chinese SOEs in the construction sector in Ghana

globalization process

Chinese OFDI started to be gradually liberalized at the beginning of the Chinese economic reform in 1978 After foreign economic relations had been suspended for several decades during the Mao era, the initial reform on international invest-ment was experimental The construction sector was the fi rst one selected to develop business abroad, given its previous international experience through Chinese aid projects during the Mao era, as well as the project bidding oppor-tunities in the international construction market (Larçon 2008)

Only four Chinese SOEs obtained the OFDI right at the beginning of the reform They were all newly set up construction- related enterprises and ministerial- level corporations (Hong and Sun 2006, 618) 10 These corporations were previ-ously the units of their corresponding ministries or administrative units responsible for the Chinese foreign assistance project before the economic reform in 1978

They are (1) the China State Construction Engineering Co Ltd (中国建筑工程公司), which is associated with the State Construction and Engineering Bureau ( 国家建工局 ); 11 (2) the China Civil Engineering and Construction Corporation

Co Ltd ( 中国土木工程公司 ), which is associated with the Ministry of Railways ( 铁道部 ); (3) the China Road and Bridge Corporation ( 中国路桥工程有限责任

公司 ), which is associated with the Ministry of Transport ( 交通部 ); and (4) the China National Complete Plant Import and Export Corporation ( 中国成套工程有限公司 ), which is associated with the Ministry of Foreign Economic Relations and Trade ( 对外经济贸易部 ) and was merged into the Ministry of Commerce ( 商务部 ) established in 2003

Gradually, similar OFDI rights for overseas business were granted at the nese provincial level Provinces were allowed to establish corporations for inter-national economic and technical cooperation at the provincial level ( 省/地方国际经济技术合作公司 ) beginning in the early 1980s (Liu 2002) However, unlike the previously mentioned ministerial corporations at the central government level, these provincial fi rms lacked resources and support from the Chinese central government and expertise in the international construction market (Liu 2002)

In addition, a series of licensing processes have been in place for further eralizing and regulating the right to conduct international business at the sectorial level For the construction sector, only enterprises that possess a “main contractor license” ( 总承包特级企业/建筑工程总承包资质 ) and relevant qualifi cations for obtaining overseas projects ( 对外承包工程经营资格许可 ) 12 can bid on interna-tional projects directly from the project host/owner ( 业主 ); others can only participate as subcontractors In the 2000s, there are around a couple thousand Chinese enterprises that have licenses for international project contracting 13 Furthermore, to participate in bidding for Chinese cooperation projects, an SOE must have obtained a license as a qualifi ed corporation for undertaking “a com-plete set” (which means as a main contractor) of (Chinese) foreign aid projects ( 对外经援项目经营权 ) 14 Depending on the grade of the license awarded, the SOE can undertake either projects valued at less than RMB 50 million or projects

lib-of any value All the previous licenses must be renewed regularly

The administrative requirements can be considered as institutional instruments (McCubbins et al 1987) to control the pace of liberalization and regulate competition in OFDI at the sectorial level The Chinese institutional context has contributed to globalization strategies and patterns of not only the ministe-rial SOEs but also those which were not granted with the relevant rights Those which did not receive the OFDI and sectorial license rights at the beginning

of the reform found ways to initiate globalization in the continent Similar dynamics of policies and counterpolicies (Rocca 2006) also take place in Africa

construction SOE in Ghana

The oldest construction SOE in Ghana 15 is the China State Hualong tion Engineering Co Ltd 16 (hereafter, Gansu Hualong or Hualong) It was a

Construc-joint subsidiary of the Gansu Construction and Engineering Corporation, from Gansu province, and the China State Construction Engineering Co Ltd (here-after, China State Construction) The latter was the fi rst enterprise that obtained OFDI rights

The fi rst international project of the Gansu Hualong was a Chinese aid project

in Togo following a bilateral agreement between the Togolese and the Chinese governments signed in 1974 A deputy director of Hualong recalled why they started to plan to explore the African market:

at that time, due to the Togo project, we had already brought the team, the machines were here We decided not to send them back to China Because we discovered that Africa was an empty place They didn’t have their own construction sector or companies Their construction technique was very backward So we set up a company here and the locals welcomed our stay 17

Due to its lack of rights to directly take up overseas construction projects, Hualong formed a partnership with China State Construction to develop the market in the subregion In 1985, China State Construction won the project

of building the Chinese Embassy in Ghana and subcontracted the whole project

to Hualong This was Hualong’s fi rst Ghanaian project After the embassy project, Hualong decided to develop its Ghanaian market and thus formed a subcontracting partnership with the China State Construction Engineering Co Ltd The two companies then set up a new company called the China State (Hualong) Ghana Co Ltd in 1987 It was mainly the provincial SOE (Hualong) that operated in Ghana; it had to pay 2 percent of its annual business volume

to China State Corporation as a management fee The cooperation was ceased

in 2001 because Hualong, like many other SOEs, had been granted rights to operate directly overseas

subcontracting

Most of the Chinese construction SOEs present in Ghana are provincial – 12 out of 20 However, the four previously mentioned ministerial construction corporations have not been active in Ghana Even for the eight central SOEs,

it is often their provincial bureaus that are sent to Ghana The provincial SOEs

or provincial bureaus of central SOEs are often from interior and relatively poor provinces such as Gansu ( 甘肃 ), Shaanxi ( 陕西 ), Jiangxi ( 江西 ) and Guizhou ( 贵州 ) These provinces are not the traditional ones active in OFDI 18 Examining closely the business profi les of these noncoastal provincial enter-prises, the African market represents an important overseas business area and even an essential part of their core business Table 2.1 lists the Chinese con-struction SOEs active in Ghana 19 chronologically by their year of arrival in Ghana

Name and parent SOE (if any) Home province Year of arrival and entry

project

1 Gansu Hualong (Ghana) Group

Corporation, subsidiary of Gansu

Construction and Investment

(Holdings) Group Corporation

华陇建筑（加纳）集团有限公司

母公司： 甘肃省建设投资（控

股）集团总公司

Gansu(甘肃)

1986, Chinese Embassy in Ghana, subcontractor of the China State Construction Engineering Corporation

2 China International Water

and Electric Group (CWE),

subsidiary of China Three Gorges

1994, World Bank project

4 China Geo- Engineering

Corporation, subsidiary of

China Energy Conservation and

Environmental Protection Group

中国地质工程集团公司

母公司：中国节能环保集团公司

5 Henan Geological and Mineral

1997, Subcontractor

of Geo- Engineering Corporation

6 China Jiangxi Corporation for

International Economic and

Technical Cooperation

中国江西国际经济技术合作公司

Jiangxi(江西)

2002, French aid project

7 Coal Geological Bureau of

2002, International aid project

2003, Chinese cooperation project

9 Zhonghao Overseas Construction

Engineering Co Ltd

中昊海外建设工程有限公司

Beijing(北京)

2005, International aid project

10 Yantai International Economic

and Technical Cooperation

2006, Chinese Embassy

Yantai(山东/烟台)

2006, Chinese Embassy

12 Qingjian Group Co Ltd

青岛建设

Shandong(山东)

2007, Chinese cooperation project

13 Shenzhen Energy Group

深能源集团

Shenzhen(深圳）

2008, Natural Gas Power Plant, co- fi nanced/invested by Shenzhen Energy (60%) and Chinese Development Fund (40%)

14 Sinohydro Group Ltd (Bureau

8)

中国水利水电建设股份有限公司

(水电八局)

Central SOE (Hunan Bureau 湖南)

2008, Chinese cooperation project (loan provided by China Exim Bank)

15 China Gezhouba Group Co

Ltd., subsidiary of China Energy

Engineering Group Co Ltd

2011, Ghanaian government directly

Name and parent SOE (if any) Home province Year of arrival and entry

$3 billion loan and cooperation agreement between China and Ghana in 2011)

19 Sinopec Group Ltd

中国石化集团公司

cooperation project (a project under the

$3 billion loan and cooperation agreement between China and Ghana in 2011)

20 China Henan International

Cooperation Group Co Ltd

河南国际合作集团

Henan(河南)

2012, Ghanaian government directly

on the continent Starting then, a signifi cant portion of Chinese foreign aid has gone to the African continent (Shen 2009) At the same time, offi ces of eco-nomic and technical cooperation were set up at the level of Chinese provinces and major municipalities in order to share the work of the expanding foreign aid programs in Africa (Xiao et al 2002) The corresponding provincial con-struction bureaus (省建工局) usually took responsibility for implementing Chi-nese aid projects These bureaus were then transformed into provincial construction SOEs (省建筑工程公司) following the Chinese economic reform initiated in 1978

Due to previous experiences of implementation of Chinese cooperation ects in the 1970s, Africa became the natural and only choice for provincial construction enterprises to internationalize after 1978, whereas SOEs based in Beijing focused their international development on more affl uent regions in the 1980s and 1990s Apart from the Chinese cooperation projects, the central SOEs like China State Construction were less interested in Africa and much

proj-more focused on their development in Asia (like Hong Kong and Singapore) and in the North American markets 20 As a result, it was possible for less com-petitive and resourceful provincial SOEs to grow in the African continent without needing to compete directly with larger Chinese enterprises

Seeking to internationalize in Africa, however, provincial SOEs found that they were not given priority and had no OFDI rights The provincial SOEs had

to fi nd inventive solutions in order to gain overseas investment opportunities 21

In the 1980s, provincial construction SOEs had to form partnerships with the large pioneer SOEs in order to operate overseas Although the Corporations for International Economic and Technical Cooperation (国际经济技术合作公司)

at the provincial level were allowed to set up to run international businesses, they were not specialized in construction, and so they still lacked the qualifi ca-tions to bid on construction projects directly, like Jiangxi International Without international reputation, capital or permission to invest overseas in the early days of the economic reform, provincial SOEs became subcontractors

of the ministerial corporations at the Chinese central government level in order

to participate in the international market This strategy was common among provincial SOEs in Ghana, Benin and elsewhere in Africa, depending on where their fi rst African cooperation projects were

“Borrow a ship to sail” (借船出海) is an expression which signifi es forming

a partnership with a central SOE with exclusive OFDI rights In other words,

it is an internationalization strategy through subcontracting It was the initial

“going out” strategy among provincial construction groups in the 1980s and 1990s Their main international market was always in developing countries, and it was quite commonly in Africa due to their prior Chinese aid project experiences

Another experienced provincial SOE in Ghana, Top International Engineering Corporation or Huashan (hereafter, Huashan), from Shaanxi province, has a similar internationalization path to that of Hualong from Gansu province presented earlier Its fi rst international project was a Chinese aid project in Cameroon – the construction of the Cultural Palace (喀麦隆文化宫) in 1978 22 The parent SOE

of Huashan was the Shaanxi Construction Engineering Group Corporation, which was the Shaanxi Construction Bureau before the reform In the early period of the reform, the Shaanxi SOE did not have OFDI rights, as was the case for other newly established provincial construction corporations After the Cultural Palace project, the Shaanxi SOE obtained other projects in Botswana and Cameroon through being the subcontractor of the ministerial- level China State Construction and China Overseas Construction Corporations (中国海外工程总公司) 23 In

1993, Huashan obtained OFDI rights, and it won a World Bank school building project in 1994 as its entry point to Ghana 24

The African market has been considered one of the most important for the provincial construction SOEs, especially those from inland provinces For Huashan, a subsidiary of the Shaanxi Construction Engineering Group Corpora-tion, Africa represents 90 percent of its overseas business 25 With a strong focus

on Africa, certain provincial construction SOEs have now become important

international contractors The African market became an important base for provincial SOEs to develop into big international groups like Jiangxi Interna-tional and the Qingjian Group Even though the fi rst projects of Jiangxi Inter-national and Qingjian in Ghana were in the 2000s, the two groups started their subcontracting and internationalization processes in Zambia 26 and Botswana, 27 respectively, in the 1980s In the Engineering News- Record’s (ENR) Top 250 International Contractors List, the China Jiangxi Corporation for International Economic and Technical Cooperation (hereafter Jiangxi International, from Jiangxi province) ranks 157th Qingjian Group Co Ltd (hereafter Qingjian, from Qingdao, the capital of Shandong province) is in the 95th position The African market is often the largest international business area for these provincial SOEs 28 More concrete help these provincial groups can receive from the central government is to win Chinese cooperation projects as internationalization step-ping stones Nonetheless, only 4 of the 12 provincial SOEs in Ghana interna-tionalized through Chinese- fi nanced projects, and three of the four in fact came

to build the Chinese Embassy, a relatively small project compared those of central SOEs

On the other hand, for the Chinese central construction SOEs in Ghana (eight SOEs), their “centralness” to the Chinese central state is only relative to those of provincial SOEs In fact, it is mainly the provincial bureaus of the central SOEs that are active in Ghana These provincial bureaus often highlight that they are autonomous fi nancially and operationally from their headquarters

in Beijing under the continuous SOE reform, which emphasizes effi ciency and competitiveness 29 The African market is becoming more attractive to the pro-vincial bureau of the Chinese central SOEs The provincial bureaus often have strong geographical bases in their own provinces and are sometimes unable or unwilling to compete outside in other Chinese provinces (Zhang and Bouf 2005) While provincial bureaus from inland provinces are not in a position to bid for projects in more affl uent areas of China, profi t margins of international projects in Africa are more tempting for them than for those based in richer Chinese provinces One of the reasons is that the Chinese staff from these inland provinces are often less expensive and more willing to go to Africa for a higher salary (as illustrated in Chapter Five )

The provincial bureaus of central SOEs that are present in Benin and Ghana are often those from noncoastal and economically less privileged provinces, as

is the case for provincial SOEs For example, for the Sinohydro Group Ltd., its No 8 Bureau from Hunan (湖南) is responsible for implementing the widely advertised Bui Dam project in Ghana Similarly, for another central SOE, the China Railway Group Ltd., its No 5 Bureau based in Guizhou (贵州) has been expanding in the West African region – including Ghana – since the early 2000s 30 Other inland provincial bureaus are active in Southern Africa, such as the Chinese Railway No 4 Bureau based in Anhui (安徽) province and No 7 Bureau based in Henan (河南) province Likewise, the large central SOE Sinopec was awarded a project for building oil transportation infrastructure

in 2012 It subcontracted the project to provincial Chinese SOEs for

implementation in Ghana 31 and is believed to be relatively uninvolved in daily implementation

2.2.4 Chinese- fi nanced projects: privileges, limitations

and failures

The famous “going out” strategy (走出去) was offi cialized for implementation

in the report of the Tenth Five- Year Plan for National Economic and Social Development in 2001 32 as an outcome of China’s entry into the WTO The objective of the going out policy is to increase the competitiveness of state fi rms through encouraging their participation in the global market, which is a primary driver for the Chinese economy (Liou 2010, 53) Since then, many preferential policies have been adopted to facilitate and simplify overseas business activities, especially for large SOEs (Liou 2010, 91) The going out policy marks the end

of the self- centered economic model characterized by the fear of capital fl ight (Smyth 2000, Ding 2013) Simplifi cation of outward investment procedures is

a step toward marginalization of the role of the Chinese state in controlling its economy

Before 2000, there were around fi ve major Chinese aid- related construction projects given to Ghana (involving agricultural infrastructure, the National Theatre,

a hospital and a youth training center) None of the contracted SOEs stayed on

to develop business in Ghana afterward 33 Eight Chinese central construction SOEs are active in Ghana The two central SOEs that came to Ghana before the introduction of the offi cial going out policy were China Water and Electric (CWE) and China Geo- Engineering Corporation Their fi rst Ghanaian projects were

fi nanced by the Japanese aid agency and the World Bank

The central SOEs became active in sub- Saharan Africa following the tation of Chinese fi nancial instruments for African projects in the second half

augmen-of the 2000s (like the creation augmen-of the China- Africa Development Fund in 2006) The central SOE construction groups are in a better position to benefi t from preferential access to credit and central government resources Following intro-duction of the going out policy in 2001, six more central SOEs came to Ghana for projects related to the Chinese fi nancial instruments or the fi nancing frame-work of the China- Ghana bilateral agreements In sum, the instruments are in three major ways: (1) through loans provided by the China Export and Import Bank (Exim Bank); (2) through the China- Africa Development Fund; and (3) through bilateral agreements between China and Ghana Although these projects are fi nanced by China (or Chinese loans), the Ghanaian side also plays a signifi -cant part in the selection of particular projects and thus SOEs (more details in Chapter Three )

Exim Bank: Sinohydro and Bui dam

The Bui dam for generating hydroelectricity has been a development goal

of Ghanaian society since the 1960s Several decades later, after declining

a series of expensive Western proposals, the Ghanaian government found a more affordable proposal from China The project was contracted to a subsidiary of the central SOE Sinohydro and was financed by a loan pro-vided by the China Exim Bank, which is to be repaid by the Ghanaian government

The Bui dam started to be considered before the Ghanaian independence and in the 1960s by countries like Austria and Russia However, due to political issues, it was put aside Then in 1997, a feasibility report was made Western countries proposed a project cost of $1.5 billion However,

it was too expensive to undertake In 2006, the Chinese side proposed a project cost of $0.5/0.6 billion The cost difference lies in two aspects: the operational cost and management cost We import the machinery and materials from China which are cheaper than in Ghana or Western countries 34

Ninety percent of the project is fi nanced by an Exim Bank loan of around

$0.5–0.6 billion The loan is a mixture of two kinds of loans: half of it is a concessional loan with a preferential interest rate of 1 to 2 percent The other half is a commercial loan with a normal interest rate of 6 to 7 percent The remaining 10 percent of project investment will be fi nanced by the Ghanaian government 35

The China Export and Import Bank (Exim Bank), set up in 1994, is wholly owned by the Chinese government and under direct leadership of the Chinese State Council 36 It was created as the fi rst institutionalized funding source for supporting overseas activities, like overseas contracting of Chinese SOEs (Liou 2010, 89) Increasingly, the Exim Bank is considered a foreign policy instrument, especially in Africa, through providing concessional loans (Corkin 2011b) It is estimated that over half of the China Exim Bank’s lending has gone to Africa since 2001 (Corkin 2011b, 69) Researchers estimate that over 80 percent of these African loans go to resource- rich countries like Angola, Nigeria, Zimbabwe and Sudan (Broadman 2007, 275, Corkin 2013, 63–64) 37

However, a country’s richness in energy resources is not the only condition for obtaining a loan For example, Ghana, before its discovery of oil in 2007, negotiated to repay the Exim Bank loans for the Bui hydroelectric dam using shipments of cocoa as repayment guarantee (Corkin 2013, 64) In relation to this point, a Chinese manager of Sinohydro said, half- jokingly, “People said that

we are coming to steal their natural resources, but see, what are we going to

do with all the cocoa?” 38

Chinese companies should be chosen as the main contractors for tion of China Exim Bank’s infrastructure projects (Corkin 2013, 64) 39 Never-theless, Corkin (2013, 66) considers that the role of the China Exim Bank as

implementa-a fimplementa-acilitimplementa-ator of the internimplementa-ationimplementa-alizimplementa-ation of Chinese compimplementa-anies is similimplementa-ar to those

of import- export banks of other nations

China- Africa development fund: Shenzhen energy and power plant

In the Beijing Summit of FOCAC in 2006, the Chinese government announced the establishment of the China- Africa Development Fund (CAD) This fund aims to reach $5 billion in total to encourage and support Chinese enterprises’ investment in Africa 40 The CAD has four offi ces in Africa in South Africa, Ethiopia, Zambia and Ghana The Ghana offi ce is responsible for investment and development in West African region 41

The Sunon Asogli Kpone power plant is the fi rst project in Ghana to be fi nanced (but partly) by the China- Africa Development Fund The Shenzhen Energy Group

is the main investor in the project, which is the fi rst overseas project of this enterprise 42 The Shenzhen Energy Group holds a 60 percent share of the whole investment, and the China- Africa Development Fund holds the remaining 40 percent According to the branch director, Shenzhen Energy provides all three elements of electricity production (capital, knowledge and management), and so

it plays three roles in the electricity generation plant – investor, organizer (who builds the plant) and operator (electricity generation) – and it has signed a 20- year power purchase agreement with the Ghanaian government

Togbe Afede XIV, the chief of the Asogli state (near the Tema region, where the power plant is built), initiated the project collaboration at the fi rst place The chief visited China in 2006 and was introduced to Shenzhen Energy; the chief then secured investment funding from Shenzhen Energy and from the China- Africa Development Fund

In 2006, the Chief [Togbe Afede XIV] brought a group of offi cials of commerce to visit China Since in 2006, there was a serious shortage on electricity supply in Ghana In the China Africa Summit of 2006, China promised to provide loans to Africa Ghana depends exclusively on the Volta dam for electricity When the water fl ow was low (not enough rain) it affected the electricity production Therefore, they looked for more electric-ity sources So, we came to Ghana [because of the Chief’s invitation] to study the possibility We discovered that they had a rather complete system

of electricity production, both in regulations and technique So we decided

to invest here We use natural gas to generate electricity which is then sold to local electricity companies 43

Even with the involvement of the China- Africa Development Fund, since the Shenzhen Energy Group, a listed company, is the main investor, the Ghanaian government presents the project as a successful example of public- private part-nership in Ghanaian development 44

Bilateral agreements and internationalization

A highway construction and expansion project was agreed to during a visit to China of Ghanaian President John Kufuor in 2002 The project was contracted