When the China International Fund (CIF) recently struck a US$7 billion deal to invest in Guinea’s minerals industry, there were criticisms that China was just exploiting another African country for its natural resources. A spokesman for China’s Ministry of Foreign Affairs denied the allegations, saying that CIF was a private company not controlled by the Chinese government.
That doesn’t mean it doesn’t have close connections. The US-China Economic & Security Review Commission, created by the US Congress to examine the security implications of US-China trade, found that CIF, its parent company, Dayuan International Development, and many of Dayuan’s subsidiaries, while still technically private companies, had strong links to the Chinese government and state-owned enterprises, most notably state-owned oil firm Sinopec. CIF Chairwoman Lo Fong Hung was cited as a director of Sonangol Sinopec International, a joint venture between Sinopec and Angolan state oil firm Sonangol, in the 2009 annual report of China Sonangol Resources Enterprises, and a US Congressional report listed CIF director Wu Yang as an independent executive director for a Sinopec subsidiary called Beijing Yanhua Up-Dated High-Tech.
Even in countries that stand to benefit from Chinese investment, those kinds of connections are bound to raise questions amid rumors of Beijing’s impropriety. The Chinese government allegedly gave university scholarships to the children of senior Namibian government officials, including the current and former prime ministers, the inspector general of the Namibian police, the justice minister, the defense minister, the home affairs and immigration minister – who is in charge of approving work and residency permits for Chinese workers in the country – and the minister of mines and energy, in charge of issuing mining rights. Both the Namibian and Chinese governments deny any wrongdoing, but things still look fishy.
And appearances are the problem: The questions and rumors surrounding both the CIF and Namibian scholarship cases may or may not reflect reality, but a lack of transparency makes determining the truth difficult, whatever the motives of the government and state-owned enterprises.
Private firms with government connections are not unusual, and are not necessarily improper. But by not openly revealing these connections, Chinese companies can easily give the impression of under-handed dirty dealing in their overseas operations. If they want their investments abroad to be above suspicion, they must be transparent about their relationships.
Chinese companies need to learn that people and governments aren’t worried about Chinese investment in their countries per se – many would probably welcome it given the economic climate – but they are worried about Beijing trying to control their assets for its own gain. This fear would be lessened if Chinese companies, both state-owned and private, were clear about their relationships with Beijing – and how much of a role, if any, the government plays in their decisions.
Doing so would show foreign governments, business associations and unions that Chinese companies are willing to play by international rules. Foreign companies entering China are expected to alter their operating strategies; Chinese companies should understand that the same is expected when they go overseas.
This should not come as a surprise to Chinese companies, and it is in their own best interests. Increasing transparency would help them move above the rhetoric that they are simply following Beijing’s orders to exploit African or other foreign resources. If they cannot – or choose not to – their foreign investment plans will falter, met everywhere with apprehension and distrust.