China's Silent Army
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Caracas argues that it wants to diversify its markets in order to become less dependent on the United States, although some former collaborators close to Chávez told the authors that “it would be a crime to lose the United States with its premium market just to give it all up to another country [China] at a discounted rate.” The reason behind this argument is the cost of transporting the oil, which is usually paid for by the supplier. These costs are much smaller when transporting oil to the United States (where it takes five days to arrive) than to China (forty-five days). Other countries selected by Chávez’s government to help reduce dependency on the West include Belarus, Iran and Russia.
65. As well as the January 2010 investment, China has other oil supply contracts in Venezuela. These contracts relate to certifying oil reserves in the Orinoco Belt, buying residues and other marginal investments or investments that were made before Chávez came to power.
66. Crude oil production has fallen dramatically over recent years. Before Chávez came to power, Venezuela produced 3.6 million barrels of oil per day; according to official figures, that figure has now dropped to 3.1 million barrels. However, the International Energy Agency and other secondary sources believe that the real production figure is closer to 2.7 million barrels per day. This decline in production has dramatic implications for Venezuela’s economy because of its great dependency on the oil sector. The productive sector has been hit very hard by chavista policies, including the expropriation of 3 million hectares of land and over 400 companies. “Venezuela, a Good Deal from China?,” Financial Times, March 16, 2011.
67. China currently imports around half its oil supplies from the Middle East. Beijing has been working hard to diversify its energy sector, traveling to every corner of the planet with the aim of ensuring that the instability of the Middle East will not be able to damage China’s energy security.
Despite its second-rate technology, China has made a dramatic entry into Venezuela’s Orinoco Belt. As such, CNCP is an associate of PDVSA in Junín 4 block, where the oil company will invest $16 billion to extract 400,000 barrels per day. Sinopec, meanwhile, is an associate of PDVSA in the exploitation of Junín 1 and Junín 8, where it aims to extract 200,000 barrels per day.
The progress made by Chinese—and Russian—oil companies in Venezuela is a result of the reluctance shown by Western companies to invest in the country because of the legal insecurity caused by Chávez’s regime. This is particularly true since the wave of nationalizations in 2007, when American companies such as ExxonMobil and Conoco-Phillips decided to leave the country. The limited interest shown in the tenders by other nations has led Caracas to turn to Russia and China for new investments in the oil sector, according to two former presidents of PDVSA interviewed for this book.
68. In 2011 PDVSA generated an income over $124 billion while its total investments in 2010 exceeded $11 billion.
69. Orimulsion is a technique used to mix low-quality extra-heavy crude oil—which dominates Venezuela’s oil reserves—with water, allowing it to be transported in cargo ships. This type of oil can be used to generate electricity and is sold at the same price as coal, because of its extremely low quality and because the costs of refining it into a high-quality product are very high.
70. Enrique Krauze estimates that “the gifts given by Chávez to the world amounted to 33 billion dollars between 1999 and 2007”: El poder y el delirio, op. cit., p. 294.
71. Source: “Cuba y China consolidan su alianza estratégica” [Cuba and China Consolidate Their Strategic Alliance], Mauricio Vicent, El País, June 8, 2011.
72. In July 2011 Hugo Chávez announced that he had been diagnosed with cancer, which left the country’s political future in a state of obvious uncertainty. Citing medical records provided by unnamed intelligence sources, Spain’s ABC newspaper reported in January 2012 that Chávez’s cancer had metastasized and that his life expectancy was only nine months.
5 THE FOUNDATIONS OF THE CHINESE WORLD
1. Led by the president’s right-hand man, Osama Abdullah, the DIU is a highly powerful organization in Sudan. It handles enormous budgets, manages infrastructure projects and has its own security forces, which have been accused of carrying out massacres linked to protests led by people affected by the dams. Recently elevated to form the Ministry of Electricity and Dams, the organization continues to operate under the direct supervision of President al-Bashir. Sources: “Black Gold for Blue Gold? Sudan’s Oil, Ethiopia’s Water and Regional Integration,” Harry Verhoeven, Chatham House Report, June 2011; “Climate Change, Conflict and Development in Sudan: Neo-Malthusian Global Narratives and Local Power Struggles,” Harry Verhoeven, Development and Change, 42 (3), 2011.
2. The authors originally approached Sinohydro, the main contractor for the Merowe Dam, to request a permit allowing them to visit the dam’s facilities. However, the words of Peng, the head of the Chinese company in Sudan, to the authors’ Chinese guide made it perfectly clear how he felt about helping them: “I don’t like foreigners. The Americans and the English say lots of bad things about China. It’s a shame that you’ve come here with foreigners, because if you had come alone we would definitely have taken you to Merowe,” he said, right in front of the authors, in his office in Khartoum. After he refused permission, the authors applied for a permit from the DIU.
3. The analyst Harry Verhoeven argues that Khartoum is committing to the development of dams and the rebirth of agriculture for two purposes: first, to bring electricity to the capital and northern Sudan in order to fuel industrial projects; and, secondly, to facilitate the agricultural irrigation that will allow Sudan to become involved in “the global food crisis debate,” providing the regime with new opportunities and agro-dollars from Islamic countries interested in this type of investment. The real beneficiaries of this model will most likely be Khartoum’s Islamic elite.
4. Between 2004 and 2007, clashes between the people affected by the dam and the security forces led to an unspecified number of deaths and injuries as well as frequent confrontations, imprisonments and repressive measures, according to activists working in the area. In 2006, an Amri village was flooded with no prior warning, “so that the people had to run out of their houses like rats,” according to a local leader. It is also rumored that there were fresh outbreaks of violence in 2009.
5. In his 2007 presentation “Lethal Partnership: China Investment Destroying African Communities: The Case of the Merowe Dam, Sudan,” the activist Ali Askouri argued that the poverty rate among the affected communities had risen from 10 percent to 60 percent. This was four years after work on the dam began and two years before its conclusion. When the authors interviewed him in Khartoum, Askouri assured them that many of the younger displaced people had migrated to the cities, and particularly to the capital, where they were forced to beg in order to survive.
6. Other sources interviewed in Sudan estimated that the number of people affected was actually between 70,000 and 74,000. In the summer of 2010, around 600 families were still refusing to be relocated.
7. The lack of clarity surrounding the Merowe Dam prevented the authors from finding out precise details about the project. However, it is common knowledge that China has played a decisive role in both its financing and construction. During the authors’ visit to the area, Awad told them that “the Chinese are involved in the new infrastructure and the villages for the relocated people and in the new hospital project.”
8. The fact that Chinese companies carry out their foreign construction projects using their own contingent of employees who work extremely long hours and rarely leave the building site has fueled the myth that China is using prisoners as free labor. Some critics have even publicly denounced this practice, without providing any evidence whatsoever. Over the course of their investigation on the ground, the authors did not come across any proof to support this accusation.
9. One of the most important of the nine new dams that the Chinese are helping to build is the Kajbar Dam based on the Nile
’s third waterfall. In this project, the Exim Bank is providing 75 percent of the funding, while Sinohydro will carry out the construction work in a project that is expected to cost $800 million. Furthermore, a Chinese company will be the main contractor in another controversial project, the Roseires Dam on the Blue Nile.
10. At the beginning of the project, the dam had an official budget of $1.8 billion, $519 million of which would be financed by the Exim Bank. But the project’s official website states that China has provided $608 million out of the $2.381 billion which the dam has actually cost. The website also says that the Sudanese government financed another $550 million, while various Arab funds from the Persian Gulf provided the remainder of the total costs. However, in December 2010 the Sudanese minister of finance publicly announced that the total cost of Merowe had reached $3.5 billion, while sources consulted by the authors in Khartoum estimated that the actual amount could exceed $5 billion. Amid such a tangle of figures and lack of transparency, it is difficult to tell whether or not China has actually contributed a greater amount of funding than it officially admits to providing.
11. http://www.internationalrivers.org/campaigns/sinohydro-corporation.
12. A report carried out by the Financial Times showed that the two Chinese development banks granted loans worth at least $110 billion in 2009 and 2010, while the World Bank granted $100 billion between mid-2008 and mid-2010. Source: “China’s Lending Hits New Heights,” Geoff Dyer and Jamil Anderlini, Financial Times, January 17, 2011.
13. There is no denying the fact that the Three Gorges Dam has had a positive impact in terms of the volume of electricity generated, flood control and the navigability of the river. However, the project has been fiercely criticized for its environmental impact, the destruction of a cultural legacy and the traumatic forced relocation of 1.7 million people. A report published by Chinese scientists in 2010 demonstrated that the number of earthquakes in the regions close to the dam had multiplied by thirty since 2003, when work began on filling the dam’s 600-square-kilometer reservoir. Some sources have linked the dam to the effects of the powerful earthquake that devastated the Chinese region of Sichuan in May 2008, causing the deaths of almost 90,000 people. Source: “China’s Admission Spotlights Three Gorges Woes,” Dan Martin, Agence France-Presse, June 29, 2011.
14. In May 2010, Ali Askouri and the European Center for Constitutional and Human Rights (ECCHR) presented a lawsuit at a court in Frankfurt against various executives from the German company Lahmeyer International. Like the French company Alstom and the Swiss ABB, the company was involved in the Merowe Dam project. The lawsuit, which is still pending resolution (the hearing of witnesses is due to start at the end of 2012), was presented as a result of the German company’s alleged role in the flooding of villages close to Merowe which forced thousands of families to lose their homes and caused the death of hundreds of thousands of cattle. In 2006, the German company was also excluded from receiving World Bank contracts during a seven-year period as a result of corruption.
15. According to several sources consulted in Sudan, the opaqueness and the immunity from scrutiny enjoyed by Chinese companies make them ideal associates in the web of corruption which allegedly lies behind the Merowe project. Ali Askouri argued that “the whole point of the dam was to make room for corruption,” while environmental expert Asim al-Moghrabi made the following statement: “Why has this dam been built? The answer is plain and simple: because of corruption. The Chinese are corrupt and we’re corrupt. We can’t hold the Chinese responsible for having been contracted to do a job, but we can hold them responsible for being corrupt.” The lack of transparency in terms of the total cost of the project, which was budgeted at $1.8 billion but ran to an estimated final cost of around $5 billion, clearly supports the hypothesis that Merowe was in fact a front for a money-laundering network. An American diplomatic cable published by WikiLeaks referred to evidence of corruption which the International Criminal Court’s chief prosecutor, Luis Moreno Ocampo, was said to have against President al-Bashir, who allegedly possesses $9 billion in savings stashed away in secret foreign bank accounts. Source: “WikiLeaks: Sudanese President ‘Stashed $9bn in UK Banks,’ ” Afua Hirsch, Guardian, December 17, 2010.
16. Out of all the Chinese dam projects at the eye of the storm in 2011, the most striking of all is the Gibe III Dam in Ethiopia. The Industrial and Commercial Bank of China (ICBC) agreed to finance $500 million to provide equipment to build this dam, which will affect half a million people as well as impacting on areas classified as World Heritage sites by UNESCO. The World Bank, the African Development Bank and the European Investment Bank all refused to take part in a project considered to be “the most destructive” of all the dams under construction across the world, according to International Rivers.
17. Source: “” [Li Fusheng: Overseas Investment Should Care About the Local Complaint], Global Times, January 11, 2011 [in Mandarin].
18. According to various interviews carried out in Ecuador, the loan consisted of $1.682 billion to be repaid over fifteen years with a five-and-a-half-year deferral period and a 6.9 percent interest rate. This figure represents 85 percent of the budgeted cost of the dam, as the Chinese side demanded that the Ecuadorian state should fund the other 15 percent. However, Quito was able to provide the $300 million needed thanks to a previous loan agreed between the two countries for $1 billion, which means that China effectively financed 100 percent of the dam.
19. Ecuador’s strategic sectors minister, Jorge Glas, announced that there are currently fifteen planned projects in which China may soon be participating with its companies and funding. In September 2010 a consortium led by China Gezhouba Group closed a $672 million contract to build a mine in the Latin American country, which would be partially financed by the Chinese Exim Bank. Meanwhile, Rafael Quintero, the Ecuadorian undersecretary of foreign affairs responsible for Asia, Africa and Oceania, told the authors that “Ecuador needs infrastructure in order to diversify our industry, and so we are interested in Chinese investments in hydroelectric power stations, petrochemical complexes and the modernization of our ports.” Quito and Beijing are reportedly in conversations over the partial financing of the country’s biggest infrastructure project to date, the so-called Pacific Refinery, an installation which requires an investment of $12.5 billion.
20. “China has an enormous capacity for investments, which is what our country needs. Furthermore, we need investments which don’t make us overly dependent, and which don’t come with too many conditions. We are working to ensure that the investments that come into our country aren’t reliant on the support of the IMF or the World Bank, which have restricted the development of our country over recent decades,” said Ricardo Patiño, the chancellor of Correa’s government, when the authors interviewed him in Quito.
A combination of two factors risks leading Ecuador into a dangerous position of international isolation: first, the country’s refusal to ask for help from traditional financial institutions and, secondly, its dependency on China. “While Chinese financing in infrastructure projects has played an important role given the lack of [Ecuador’s own] public funds, it also highlights the lack of alternative financing available,” argues the Ecuador Infrastructure Report Q4 2010 by Business Monitor International.
21. Ecuador Infrastructure Report Q4 2010, op. cit.
22. The Ecuadorian mining sector has an enormous amount of potential but is “frozen” pending the approval of an appropriate legal framework. Nevertheless, in 2011 the Canada-based mining company Ecuacorriente, controlled by China Railway Construction Corporation and another Chinese company, Tongling Nonferrous Metals Group, announced its plans to invest $2.8 billion in a copper project in Ecuador. This investment will include the construction of a hydroelectric plant, several bridges and roads as well as a port. Source: “DJ Ecuacorriente Plans to Invest $2.8 b in Ecuador up to 2016,” Dow Jones, March 29, 2011.
Furthermore, the $2 billion loan was gran
ted by the China Development Bank. The total amount of Chinese loans granted to Ecuador amounts to around $7 billion. Source: “China, Ecuador Sign $2 billion Loan Deal,” Wall Street Journal, June 28, 2011.
23. This is a reference to the “go out strategy,” the official directive given by the Chinese government to its companies in order to encourage them to go out to foreign markets.
24. “China’s Foreign Aid,” Information Office of the State Council of the People’s Republic of China, April 2011.
The 2,025 projects mentioned in the report are included under the title “Complete Projects,” one of eight categories of foreign aid. “Complete projects” refers to “productive or civil projects constructed in recipient countries with the help of financial resources provided by China … The Chinese side is responsible for the whole or part of the process, from studies and surveys to design and construction, provides all or part of the equipment and building materials, and sends engineers and technical personnel to organize and guide the construction, installation and trial production of these projects. After a project is completed, China hands it over to the recipient country.” According to the report, this type of project makes up 40 percent of China’s total expenditure on foreign aid. Among other projects mentioned in the document, the most striking involve the construction of 85 sporting complexes, 201 transport infrastructure projects and 236 scientific, educational or health complexes.
Beijing anticipates three types of financial resources for foreign aid: subsidies, which are mainly put towards humanitarian aid and the construction of hospitals, schools, low-cost housing and water-supply projects; interest-free loans, which are planned for developing countries and which normally include five years of use, a five-year deferral period and a ten-year repayment period; and concessional loans, which are awarded by the Exim Bank with low interest rates and a repayment period of between fifteen and twenty years. Beijing had granted concessional loans for 325 projects in 76 countries by 2009, according to the report.