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The democratic republic of Congo is home to 10% of the world’s copper reserves, and one-third of the world’s cobalt, not to mention vast reserves of niobium and tantalum. Throw in some nickel and uranium and you have a shopping list for resource-hungry Chinese manufacturers.

Which explains why Beijing recently gave $5 billion in development loans to the Congo. The mining concessions China is getting in return will help guarantee its industrial companies a stable supply of key energy and mineral resources. This $5 billion loan is not an isolated example of Chinese
assistance to the resource-rich Congo. In September 2007, China Exim Bank agreed to provide some $8.5 billion for infrastructure to support the country’s mining industry. In return China was granted rights to copper and cobalt reserves said to be worth $14 billion. In October, Kinshasa
signed a loan accord with the China Development Bank to finance development of the promised resources.

The key to the Chinese loan is the formation of a Congolese incorporated company, Socomin (Société Congolaise Minière), which will be jointly owned by Congolese (32%) and Chinese state-owned companies (68%). Socomin will invest in D.R.C. mineral resources with the profits used to pay for the promised infrastructure. The intention is that over a 15 year period, Socomin will mine 10 million tons of copper and two million tons of cobalt and
the profits from this should more than cover the $12 billion investment China has promised. Aware of the problems elsewhere in Africa caused by local resentment over the influx of Chinese workers, the Socomin Agreement limits the Chinese workforce to 20% of the total. The agreement also requires the joint venture to set aside 0.5% of all investments for training and technology transfer while 3% is to be spent on social amenities for the local community. The agreement is specific in requiring up to 12% of work to be subcontracted to Congolese companies.

Mr. Komesaroff is a mining-industry consultant with more than 30 years of experience. He is based in Australia.

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In a strange twist of fate, the Chinese have agreed to Socomin drawing a $100 million loan under which ex-employees and companies associated rimarily with Belgium, the D.R.C.’s former colonial master, will be paid monies owed to them from previous failed ventures. Only after the Belgians have been paid will the Chinese be able to access 66% of Socomin’s net profits so that it can recover the costs of the mine and other promised infrastructure. The remaining 34% of net profits will be distributed among Socomin’s shareholders.

The agreement requires a sovereign guarantee from the D.R.C. government that it will not expropriate the mine nor will it hinder loan repayments. Any disputes are to be arbitrated by the International Chamber of Commerce in Paris.

The loan details that have been made available suggest that the Socomin Agreement is not unreasonable—indeed it could be argued that it provides a useful model for future African resource development, even those involving Western companies. Because it seems to be a win-win arrangement it is easy to understand why in his recent state of the nation address, President Joseph Kabila hailed cooperation with China as key to reconstruction of the

D.R.C. He went on to claim that “for the first time in our history, the Congolese people can see that their nickel and copper is being used to good effect.” The magnitude and structure of the Chinese loans, as well as President Kabila’s address have caused a stir in the international mining community and multilateral financial agencies such as the International Monetary Fund. For its international competitors, the loans are further examples of the financial support Beijing is prepared to offer its national champions. The imf can see its rigorous— some would say burdensome—lending criteria
undermined by Chinese largesse. But for the D.R.C., which is struggling to recover from decades of kleptocratic leadership, civil war and invasion by its neighbors, warnings of macroeconomic instability from Chinese loans seem surreal.

The D.R.C. is a weak democracy still plagued with corruption and social instability, so the prospect of Chinese companies gaining preferential access to its treasure trove of mineral resources is of concern to the international community, especially the mining industry. Such concerns have been accentuated with a recent review of mining concessions that were approved by the D.R.C.’s interim government during the transition period before the multiparty elections of 2006. The D.R.C.’s interim government approved 35-year mining concessions worth billions of dollars with a complete lack of transparency and against the recommendations of a D.R.C. parliamentary commission and the World Bank.

In June 2007, under pressure from international ngos, the D.R.C. began reviewing 61 mining concessions that were awarded between 1997 and 2003 and which have been described as extremely one sided to the advantage of foreign mining companies. Companies affected by the review include
some of the big names in mining such as bhp Billiton and Freeport McMoRan, but mining juniors including Gold Ashanti, Central African Mining and Exploration or Camec, Copper Resources Corporation, First Quantum, Gem Diamonds, Metorex, Moto Goldmines, Mwana Africa and Katanga Mines are also affected. The review process was expected to take three months but eventually took nearly a year to complete. Initially, the minister of mines
claimed that aside from correcting some minor contractual anomalies, existing titles and operations would not be interfered with. Similar assurances were made by President Kabila who was reported to have gone as far as to personally assure Freeport McMoRan that their lucrative $900 million
Tenke Fungurume copper-cobalt project

39China Eyes Congo’s Treasures

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would not be cancelled.

Despite such high-level assurances, the holders of all the 61 concessions have now been told that they will need to renegotiate their leases and in most cases the renegotiation will include terms and conditions similar to those that were conceded by the Chinese in the Socomin Agreement. For example,
a greater share of each project will need to be reserved for the state-owned mining companies who will be required to have significant operational responsibilities. As with the Socomin Agreement, when the companies renegotiate their concessions they are expected to expand their social development programs.

China has a long history of involvement in the D.R.C. dating back to the 1960s, when Mao Zedong provided material support to Congolese rebels seeking to overthrow the Western-backed postcolonial government. China’s recent incursions have been less ideological; one of their more ambitious
projects involves China National Overseas Engineering Corp., a subsidiary of China’s largest construction company, China Railway Group Limited, which recently listed in Hong Kong. cnoec has a 71% stake in the Kalumbwe-Myunga copper-cobalt mine and has agreed to give its local partner access
to $60 million line of credit with which to fund its share of the development.

The China National Machinery Equipment and Export Corporation is negotiating an agreement with the state diamond concern Miniere de Bakwanga or miba, to form a partnership. A memorandum signed by both parties grants cnmeec the right to mine chrome and nickel deposits discovered on miba’s properties.

Unlike copper where Chinese investment supports large government-controlled enterprises, China’s interest in the D.R.C.’s cobalt resources has largely come from small private companies who generally do not benefit from direct government support, especially concessional finance. Ore

supplies to these companies were interrupted last year when the local government in Katanga banned exports of concentrates. It is generally believed that the export restriction reflects the D.R.C.’s desire to add value by processing the ore within the country but probably of greater concern is a wish to better control the hoards of artisanal miners who illegally mine ore and sell it to Chinese traders. By banning exports, the government is forcing the Chinese to invest in the country and by so doing they hope to replace the inefficient subsistence mining practices with large-scale, resource-efficient operations that add to government coffers through taxes.

Chinese investors in Africa, especially the small private companies, have been frustrated by what they perceive as the low quality of indigenous labor which they claim is unreliable and even lazy. To overcome this difficulty, one company has staffed its D.R.C. cobalt investment with workers from its China operation. The workers are offered two-year contracts at $1,000 per month plus food and accommodation. Families are not permitted to accompany the workers and they remain in China where the company pays them the worker’s normal Chinese salary. Similar employment practices are not uncommon for African-based Chinese projects and they have engendered great resentment from local African communities, but this is not the case in the D.R.C. where the number of Chinese migrant workers is still small. However, this could change as Chinese investment increases and the need for
reliable workers expands.

As in other parts of Africa, the D.R.C. government has welcomed Chinese investment because unlike Western aid, Chinese loans tend to be much larger and the approval process is swift. China’s loan to the D.R.C. was approved in a matter of months where a much smaller $150 million assistance
package for a $425 million copper

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project took years for African Development Bank approval. President Kabila has also been critical of the level of assistance provided by developed countries which he claims falls short of his country’s needs.

The speed at which the Chinese are able to execute projects once they are approved is another attraction for the D.R.C. leaders, who are annoyed with the slow pace at which other foreign investors begin to work their allocated reserves. Since 2002, 4,000 exploration permits have been
granted but less than 500 of the permit holders have sought to convert their permits into mining licenses.

Mashamba and Dikuluwe, two copper concessions granted to the Chinese, demonstrate the difference between Chinese approaches to mining and those of their Western competitors. Previously these deposits were owned by Katanga Mining, a Toronto listed company that intended to warehouse them until 2020, when mining was scheduled to begin. By transferring the leases to the Chinese, the D.R.C. will see more rapid development and be able to borrow money that can be used to fund essential infrastructure.

Also, unlike Western companies who are required to generate returns for their shareholders, Chinese investment is usually accompanied by support for peripheral social infrastructure. For example, China has regularly sent medical teams which include specialists in pediatrics, gynecology and anesthetics to work in remote parts of the country. China also built Ndiji General Hospital, arguably the D.R.C.’s biggest and most modern hospital

China has 118 military personnel attached to the United Nations’ peacekeeping mission in the D.R.C. and they have been appreciated for their reconstruction work which has included the building of a modern hospital and the provision of health services. The 80 engineers in the group have
also worked at maintaining water and pow

er supplies as well as repairing bridges and highways. China also has training programs where D.R.C. officials visit China for training in poverty reduction. Other low-cost, but very prestigious projects funded by Chinese loans include the national parliament, known as the People’s Palace, and the Stadium of the Martyrs which is the D.R.C’s largest outdoor venue.

Most of the interest in China’s recent loans to the D.R.C. have centered on rehabilitation of the mining sector which is seen as in China’s interest, but less attention has been given to the $8.5 billion in loans that that have been allocated to a vast list of infrastructure projects including a high-voltage power distribution network, and highway and railway extensions. Nor has much been said of the funds that have been earmarked for the construction
of 31 hospitals, 145 health clinics, 5,000 houses and two universities or the Chinese money that is being used to repair and extend the D.R.C’s water supply system.

China’s African policies have been criticized by some, including African elites, as reminiscent of an earlier period where European powers used less subtle forms of engagement to access Africa’s vast mineral wealth. The Chinese counter such claims by pointing to Zheng He, a 15th century Ming dynasty emissary whose travels around the Indian Ocean took him to the coast of Africa. Beijing says Zheng He did not colonize any of the land he discovered,
even though he had the power to so.

But Chinese attitudes toward the continent have not always been so benign, and China’s emissaries are reluctant to acknowledge a comment on the Congo attributed to Mao Zedong. Tung Chi-ping, a defector from the Chinese embassy in Burundi has written that after observing that it sprawled
across the heart of the continent, with nine countries round its borders, Mao is said to have pronounced, “If we can take the Congo we can have all of Africa.”

41China Eyes Congo’s Treasures