Risks of Guinea coup to Chinese projects manageable

Military takeover tests China's ability to protect overseas interests

The coup in Guinea will test China's ability to protect its overseas interests, Chinese analysts said on Monday, as the world's second largest economy pours increasing amounts of resources into Africa, which totaled $110 billion as of 2019.

Chinese Foreign Ministry spokesperson Wang Wenbin said at a routine press conference on Monday that China opposes any attempt to seize power via coup and calls for the immediate release of Guinea's President Alpha Condé.

"We call on all parties to exercise restraint, bear in mind the fundamental interests of Guinea and resolve issues through dialogue and consultation," said Wang.

As Guinea is abundant in iron and aluminum ore, some observers believed that Chinese projects in the African country are aimed at reducing its reliance on the ore imported from Australia. Observers also worry that the situation in the country will impact China's cooperation with the previous government. However, Chinese experts noted that there is no need to be too worried.

The political change in Guinea has attracted worldwide attention, as the country plays a vital role in providing industrial feed material to China, the world's factory. Roughly 50 percent of all China's imported bauxite is shipped out of the country. Bauxite is the raw material for aluminum, the world's most needed nonferrous metal used in a long list of modern products from iPhones and airplanes to cars and furniture.

The political unrest has already resulted in market jitters. Aluminum prices soared on Monday with the most traded contract for October delivery rising to its highest level since July 2008 during intraday trading on the Shanghai Futures Exchange.

The coup has closed Guinea's airport to foreign nationals but has so far not affected shipments at several ports involved in bauxite exports, an industry insider familiar with the matter told the Global Times on condition of anonymity on Monday.

China is the world's largest producer and consumer of aluminum. In 2020, China imported 52.7 million tons of bauxite from Guinea.

A total of 14 Chinese state-owned and private companies are involved in the aluminum businesses in Guinea, according to aluminum industry research firm Antaike.

Besides aluminum, the coup has also put iron ore under the spotlight. Guinea is home to the Simandou project, the world's largest undeveloped iron ore deposit. The project has accumulated reserves of more than 10 billion tons of high-grade iron ore, and Chinese companies have invested heavily in the mining project.

On June 10, 2020, the SMB-Winning Consortium jointly established by Singapore Willy International, Yantai Port Group, Shandong Weiqiao Venture and Guinea United Mining Supply Group officially signed an agreement with the Guinean government, acquiring the mining rights to two blocks in the north of Simandou worth $14 billion.

Business concerns

Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Monday that since China's Simandou iron ore project was signed with Guinea's previous government, China's strategic investment in Simandou iron ore may face certain risks, and the extent of these risks needs to be further examined based on the position of the new government.

A Chinese citizen surnamed Yuan, who works for a China-Africa trade company in Conakry, capital city of Guinea, told the Global Times on Monday that his company has been temporarily closed due to the instability in the city, and all the Chinese people he knows have stopped going out.

"My friend who lives near the presidential palace saw bullets shooting by their windows," said Yuan, noting that the Chinese people in the country are more concerned about relations between the new government, if any, and China, and whether it will affect the two countries' collaboration on national natural resources.

"Now the country has set up a transitional committee, with the former deputy head of each ministry temporarily in charge, and at government level, there has been little impact on Chinese enterprises," an official with the economic and commercial office of the Chinese Embassy in Guinea told the Global Times on Monday.

However, the official warned of several possible adverse effects that the coup could have on existing and future Chinese investment in the country.

The new government may seek to review the signed contracts and propose altering existing terms, including diluting the shares held by Chinese investors, the embassy official said. "Or there could be higher taxes and local involvement in mining projects."

As the military government has been criticized by international organizations and major countries, possible international sanctions on Guinea will also have collateral damage on Chinese enterprises' projects, said the official, who also listed other potential impacts such as the solvency issue of the potential new government, rising security hazards and a general economic slowdown.

The Chinese Embassy in Guinea has required all Chinese enterprises to launch emergency plans and improve security awareness, while the office suggested Chinese companies there actively track the potential new government's requirements for mining enterprises, handle inquiries well and strive for stable and sustainable mining cooperation.

However, a Conakry-based source close to the matter told the Global Times on Monday that "what really needs to be resolved at the moment seems to be not economic and trade issues, but political demands, and attitudes toward the mining project have not been mentioned so far."

Nevertheless, the coup in Guinea has raised the lingering question of how to protect China's interests overseas, given China does not use force like colonial powers used to do.

Analysts pointed out that China's stance remains the same as that of the UN, the African Union and most countries in the international community, so this won't necessarily make the military hostile against China specifically.

The Conakry-based source noted that whoever is in power, there will always be certain demands for external cooperation with other countries, because the internal drive of the Guinean economy is inadequate.

Some information on Twitter appeared to show that Mamady Doumbouya, the military leader who launched the coup, has connections with the US, and speculated that the US is behind this coup despite Washington condemning it.

Zeng Aiping, research fellow with the China Institute of International Studies, told the Global Times on Monday that Doumbouya's US and French training background alone does not prove that he is pro-American, nor does it say anything about his future policy inclination.

However, Zeng warned all relevant parties to be careful of potential foreign intervention that could worsen the situation.

"China is fully aware of the wavering political situation in the region and has experience in handling this kind of surprise change. It's hard to predict how much China will be impacted, because China's activities in the country have not been involved with local politics," He Wenping, director of the African Studies Section at the Institute of West Asian and African Studies under the Chinese Academy of Social Sciences, told the Global Times on Monday.

"If the military leaders want no damage to their country's economy, there is no reason for them to make trouble with China," He said.

The Democratic Republic of Congo is reportedly reviewing a $6 billion infrastructure-for-minerals deal with Chinese investors as part of a broader review of mining contracts, Reuters reported on August 28.

The move was attributed by some analysts to Western pressure to go after Chinese companies, the report said.

He Wenping said that the situation in Guinea shows that military coups are still common in some parts of Africa, and the Western democratic system has failed to improve political modernization among those former Western colonies in the continent.

"The problem behind this turbulence is that the COVID-19 pandemic has seriously damaged the economic development in the region and caused poverty. What China needs to pay attention to is that the instability, conflict and poverty will make the region a hotbed for terrorism, and China needs to protect its interests and personnel there," He said.

While some mining contracts are protected by international law and can be arbitrated in international courts if necessary, Zeng does not think that the arrival of the new government will affect Chinese projects in the country, as China is the largest customer of the country's mineral exports, and cooperation with China will be most beneficial for them, both in iron ore and aluminum, whose biggest market is China.

Trade between China and Africa grew 20 times from 2000 to 2019, when trade was worth $200 billion. Foreign direct investment grew 100 times during the period, and China's accumulative investment in Africa worth $110 billion, contributing 20 percent of the continent's growth, according to a statement posted on the website of the Chinese Ministry of Foreign Affairs.