U.S. and European leaders often talk about the importance of building China-free supply chains for transition minerals and other critical resources. While, for a lot of people, that may resonate among their constituents at home, the reality is that it’s not even remotely possible — at least for the foreseeable future.
China has spent the better part of two decades building an insurmountable lead in financing, extracting, and processing these resources. Using a combination of state-backed companies and foreign financial institutions, the Chinese are the pacesetters in this industry, with their rivals left far behind.
A first-of-its-kind report from the development research lab AidData at William & Mary College in the United States reveals the stunning breadth of China’s global mining strategy that spans 19 countries around the world. Two of the report’s authors, Brooke Escobar and Katherine Walsh, both from AidData’s Chinese Development Finance Program, join Eric & Cobus to explain why China is now so far ahead of its competitors in this critical competition.
Show Notes:
- AidData: Power Playbook: Beijing’s Bid to Secure Overseas Transition Minerals by Brooke Escobar, Ammar A. Malik, Sheng Zhang, Katherine Walsh, Alexandra Joosse, Bradley C. Parks, Jacqueline Zimmerman, and Rory Fedorochko
- Financial Times: Beijing-backed lending boosts China’s dominance in clean energy minerals by Edward White and Haohsiang Ko
- Carbon Brief: Q&A: What could a US-China trade war mean for the energy transition? by Anika Patel
About Brooke Escobar and Katherine Walsh:
Brooke Escobar is the Interim Director of AidData’s Chinese Development Finance Program, where she oversees the lab’s efforts to apply the Tracking Underreported Financial Flows (TUFF) methodology to opaque development finance flows. She previously served as the Associate Director of the Chinese Development Finance Program from 2021-2024; the Senior Program and Technology Manager, focused on Chinese and Middle Eastern aid analysis, from 2012-2021; and as a Project Manager from 2009-2011. She holds an MA in Public Affairs from the University of Texas at Austin and a BA in Political Science from Brigham Young University.
Katherine is a Senior Program Manager on the Chinese Development Finance Program team. She supports the team in tracking underreported financial flows by conducting quality assurance, managing research assistants, and contributing to data analysis. Prior to joining AidData, Katherine gained extensive experience through her work as a part-time resource and a student researcher for the team.
Transcript:
Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander and, as always, I’m joined by CGSP’s Africa Editor Geraud Neema, joining us today from the beautiful island of Mauritius in the Indian Ocean. A very good afternoon to you, Geraud.
Geraud Neema: Good afternoon, Eric
Eric: Geraud, just as we are coming on to air this week to record today’s show, some news broke from the team at Bloomberg that the Democratic Republic of Congo, your country, says it’s going to be suspending cobalt exports for four months to rein in oversupply of the battery metal on the international market. This is, of course, is a topic that you and I have been covering quite a bit over the past six months. This is going to be a major setback for the Chinese company’s CMOC Group that gave output guidance earlier this year that it was going to produce 100,000 to 120,000 tons of cobalt for the year. Now, that would be a new record if they did that.
Bear in mind that last year they produced 114,000 tons of cobalt, which that was a record. Now, what makes this so strange and so odd and why the DRC government is taking the actions that it’s doing is because, well, the price of cobalt about two or three weeks ago hovered at $11 a pound, about $24,000 a ton, which is at what? An eight-year low, Geraud? These prices are very, very low. Back in 2018, just to give you some context, cobalt was $40 a pound. Geraud, what are you hearing from your sources on the ground as to what’s going on and why the government chose to act now?
Geraud: There’s not much of a surprise, I believe, in that decision because since two years ago, they’ve been talking about introducing export quota in the DRC to be able to control production and the export on the market. Gecamines was pushing for that and the Congolese authority was still trying to figure it out, and there’s many pushback from international market investors saying that it was going to be a bad idea. But I know that different people from Gecamines and different companies involved were really trying to make that up because it was the only way for the DRC to control the price of the market. People needs to understand that DRC being the first producer of cobalt in the world, when you have cobalt prices crashing like that, it means that revenues are also lowering in the DRC part, which they don’t want to because they cannot control the price, they cannot control production. They cannot control production because they don’t have mining companies that are really mining those minerals and exporting them.
The only thing they could have done it was putting in place export quota to be able to control the flow in the market. But even in terms of export quota, they were not able to put that in place to implement that. And then we have that decision to be able to halt, totally halt export for four months. But let’s keep in mind it’s only halting export, not halting production. So, it means that if you believe that four months is going to be enough to control the price of the market, it will not stop CMOC or any other company to produce cobalt and to keep it in stock. When export will open again, they still can do the same thing they did in 2023. So, it’s not much of a solution, on the longer, run in terms of how much is going to impact the market.
If they believe that four months going to be enough, we’ll see. But if in four months China is… even now, China’s still controlling the quantity that’s available in the market. So, I don’t believe that that’s going to have a long-term effect in terms of controlling the price for. Four months, we may see a slight change. We’ll not go for $24,000 to 35 or 40,000 — no, we’ll not see that. We may see a bit of a change, but after four months, CMOC will do exactly the same thing it did in 2023, just flood the market again with all the stockpile it did in DRC. We’re going to go back to where we are today, and maybe even worse than what we have today.
Eric: And, of course, Geraud, there are other demands being placed on cobalt, which is the fact that fewer companies are using it in their cars. So, General Motors is going to be releasing vehicles this year that use lithium phosphate batteries, not nickel, cobalt, manganese batteries. A lot of automakers are making that shift again reducing the demand for cobalt. I want to get your take on One other quick story before we get to our guest today? Chinese arms manufacturer, Norinco, has apparently sweetened its deal for the copper and cobalt assets of Chemaf. Now, this is a $1.4 billion deal to buy those assets.
And for those of you who are not familiar with this story, Chemaf is the Congolese subsidiary of the Dubai-based firm Shalina Resources. Chemaf is also a very close partner with the Swiss trading conglomerate, Trafigura, that’s also very active across the critical resources sectors in southern Africa. Chemaf is selling at stake in the DRC copper and cobalt sector, in large part, because of those low prices that Geraud was talking about earlier that’s just made it unprofitable to be in this sector. Geraud, when I read this story, it brings back these memories of 2016 in the first Trump administration when U.S. mining giant Freeport-McMoRan sold the Tenke Fungurume Mine, and American officials told you and I directly that this was a strategic mistake of just magnificent proportions.
Here we are with another major Congolese mine going up on the market, and it looks like Chinese companies like Norinco are in the poll position to snap it up.
Geraud: Yes, but few correction here because we’d like to have the naming and the words really correct. First of all, the Chinese who are listening to us, when they say Norinco, they’re going to get mad because it’s Norin Mining, even though it’s one of the branch companies.
Eric: It is a subsidiary of Norinco, though, that is technically correct, though.
Geraud: Technically correct, but that difference needs to be made just to avoid the kind of conviction that we can have on that. yes, it was an interesting project that China Norin wants to acquire. They’ve put on the table $900 million as offer to the DRC government. When they made the first offer last year in June, Gecamines came out and say, to Chemaf, they cannot sell the asset because two of the permits are still on Gecamines lease. Because Gecamines own permit, but Chemaf was leasing them from Gecamines. And Gecamines said, “As long as it’s mine, you cannot sell them without my authorization.” Which Chemaf said, “Basically, I got authorization from the minister of mine and the government whether I can sell it.” At the end, Gecamines just put its feet on the ground and said you cannot move forward.
After a few months of discussion, this is where geopolitics also comes in into kind of understanding because we heard from D.C. and different people from Washington that the State department at that time really also tried to being behind Gecamines to encourage them to say, you know what? Hold on to the asset. We don’t want you to be good for us for you not to sell. But Gecamines, on his own, wanted to have the permit on for itself. Gecamines was searching for money, trying to find resources. So far, they’re still looking for resources to be able to start the operation themselves. But so far, they’ve been unsuccessful to secure fund from New York, from Washington or from London, or from Switzerland, any matter. That’s why Norin came back again and say, “You know what, I’m still going to put $900 million on the table, but your shares will go from 5% to 15%, and we can still discuss different elements into this shareholding structure as long as we maintain majority shareholding in the project. That way, maybe you can find a way, we can find a way to acquire that.”
Given the current circumstances, given the fact that Gecamines is still struggling into finding the resources for that, given the whole political instability right now in the DRC, at the end, Norin might have a good deal on the table, to put on the table if they really want to move forward because, on the other hand, there’s no other funding coming from Gecamines. And the U.S., as you mentioned in 2016, the U.S., big talks, a lot of promises we want to do something, but when it comes to deliver to put the cash on the table, the cash is not following through. So, that’s why China is still there trying to acquire another key asset. A very interesting one, not major, but a very interesting one, a promising one.
Eric: Well, $1.4 billion is still a pretty big asset. And let’s talk about that name, Gecamines, that Geraud is referring. That might be a name we’re going to talk about quite a bit today. That, of course, is the state-owned mining company for the Democratic Republic of Congo that is partner to many, if not all, of the mining joint ventures in the Congo today. This is a perfect transition that we’re talking about the financing and the money on the table because we’re now getting our first insights into how the Chinese are financing transition mineral deals around the world. There’s a groundbreaking new report that came out from the research lab AidData at William & Mary College, and it’s called Power Playbook: Beijing’s Bid to Secure Overseas Transition Minerals.
If this is a topic that you’re interested in, and I know there are a lot of you watching and listening to this that are interested in it, you are going to want to check out this report. It’s a first of its kind dataset that systematically tracks China’s official sector financial commitments for copper, cobalt, nickel, lithium, and rare earths. It tracks both the extraction and the processing operations. Again, this is really impressive — across 165 low-income and middle-income countries over a 22-year period. Now, that sounds impressive, but this is the kind of work that AidData does, and we are thrilled to have two of the contributors on that report.
Brooke Escobar is the Interim Director of the Chinese development Finance program at AidData, and also Katherine Walsh is a Senior Program Manager on the Chinese development finance program team as well. Both of them are joining us from beautiful Williamsburg, Virginia. A very good morning to you and welcome to the program.
Brooke Escobar: Thanks, Eric.
Katherine Walsh: Good morning.
Eric: It’s great to have you both here and to shed light on this amazing piece of research that you’ve done, your research revealed that Chinese lenders of various kinds have provided $57 billion of aid and subsidized credit to various transition mineral projects in 19 Belt and Road countries. Brooke, let’s first start with you to help us understand, how did you pull this all together? What was the methodology to find this? Because again, this kind of report’s never been done before. AidData has a long track record in mapping out Chinese development finance, but I think in the context of the transition mineral sector and the critical resources sector, this has never been done before. Maybe you can just start our conversation about what you guys did, where were the sources? How did you find this information to be able to tell this story about how the Chinese are financing their critical resource operations abroad?
Brooke: So, we actually leveraged our existing dataset, which this is one of the many sectors that we track in our existing global Chinese development finance dataset. We track over 24 sectors, this is one of them. But we really wanted to understand exactly what China was doing in this particular sector. So, we were able to leverage the data that we already had, the existing methodology that we already have to really do a deep dive specifically in this sector and then augment it with new information that’s helping understand what are the mining sites that these financing are going to? How does China extend, and what patterns or what playbook is it using in the transition mineral sector specifically?
So, we use a lot of primary sources. Katherine spent a lot of time, she’s actually our data professional and was behind the methodology to build out exactly, what are the new fields that we need to capture so that people can understand what is China doing in this sector? How is it different from the other flows that we see in the broad BRI financing scheme, and what are the effects that we find from Chinese official finance in this sector?
Eric: Katherine, can you tell us a little bit about the sourcing that you use for this data so people can get a sense again of how reliable is it? Where did you get it from? What’s the basis for all the conclusions that you came to?
Katherine: So, the data collection methodology that we use is available on our website. It’s called Tracking Underreported Financial Flows. And we also have methodology document related to this particular project as well. But as Brooke mentioned, this builds on our global Chinese development finance dataset, which is built with the Tracking Underreported Financial Flows methodology. We really prioritize going to the most reliable sources that we can find that report on Chinese state-backed financial flows channeled to countries all over the world. So, this would involve sources from the Chinese government, Chinese state-owned companies that are involved in these transition mineral operations overseas, as well as reporting from recipient country governments.
So, if there’s a mine in the Democratic or public of Congo, we would look into the official source documentation available there as well and other organizations that are involved directly in these flows. And then we supplement that with other media sources. But the core of our dataset is built off these official sources from involved governments and companies.
Geraud: Looking into the data because, in your report, you went from 2000 to 2021, it was really fascinating the amount of data you were able to collect and to isolate out of your main dataset, did you get the same feeling that many used to have and still have when we talk about China engagement in the critical mineral space in Africa or in the world, saying that there was a plan, a long-term planification behind that? The data telling you that when you look into the financing you have the sense that yes, it was something they’ve planned, they’ve put in architecture behind, and they worked into to making that up. And oh, it was just like, at the end, after 21 years, you had… somehow it was random. Do you get that feeling it was much more planned, much more full of randomness somehow?
Brooke: It’s definitely planned, I would say. And what we found in the data is that China is very methodical and strategic. And similar to what you talked about recently in the cobalt prices, how China thinks in decades, right? Not just in years. You definitely see that. And not only do they have the rhetoric from Xi Jinping, from other state official ones saying that this is a priority for China, but then you see that followed up by a network of financiers that are providing financing to transition mineral operations. But they’re providing it in a specific way that’s very different from how the rest of the official finance from China is extended. For example, it’s extended specifically to Chinese official finance, or sorry, Chinese state-owned firms that either have a stake already in a transition mineral operation, so at a mining site or a processing site.
Or the official finance is providing the acquisition loan first and then it provides a series of loans that actually support the development of that mine and the working capital needs of the firms. And so you see, over time, there’s definitely a specific shift to how can we acquire more mines, how do we support the existing mining operations? And, in general, just increase those access to minerals over time.
Geraud: Brooke, allow me, I hope I’m not throwing a curve ball on that because reading the report, and this is also something because you’ve mentioned in that it’s really something interesting when you look into China in that space in terms of China Inquisition. There’s not much of a Greenfield Chinese project in the mining sector in this part of the world. It means that they’re not acquiring new projects to do exploration and then operation. Most of them are Brownfield project where they want to acquire, as you mentioned, they want to acquire stake on an existing project or they want to start something that’s already happening on the ground. Have you seen any sign of Greenfield operation on financing? Like they start on ground zero where there’s nothing, money goes on exploration and then it goes on moving?
Katherine: Yeah, I would say Peru and the DRC are the top two destinations for these Chinese state flows for transition mineral operations. And an interesting piece of that story is Peru where the top two mines that received financing during this 2000 to 2021 period are Toromocho and Las Bambas. I would say they’re not building it from ground zero, but these are two greenfield mines. And actually Toromocho is the first greenfield copper mine developed by a Chinese company overseas. And while the Aluminum Corporation Of China or Chinalco acquired this mine using its own capitals.
This is an investment flow, it’s not included in our loan dataset. We find that Chinese state-owned on banks then funneled billions of dollars over 10 loans over a span of many years to support the actual building of this mine and then the operations thereafter. And Las Bambas, the Chinese company got involved quite late. But in terms of the acquisition of that project, the financing that was provided around $10 billion worth of loans related to the acquisition covered the costs of the development of the mine that other companies had already kind of funneled into this project, other Swiss companies, Glencore and Xstrata from whom it was acquired, and then they finished up the development and then launched this kind of greenfield copper mine in Peru. So, I would say Peru’s in particular an interesting example of Chinese companies getting involved at a quite an early stage of the project.
Brooke: I would add that acquiring a Brownfield project is also one strategy, right? To acquire into a mine that already has a more established production capacity, you know what the reserves are. So, it’s just a different type of strategy.
Eric: Geraud, just clarify for everybody what the differences between a greenfield investment in a brownfield investment.
Geraud: So, a greenfield investment is basically when you start from ground zero it means that you’re going on somewhere and you say, I’m going to start with exploration. Exploration, I’m going to find deposit, reserve deposit, and then I’m going to start operation, mining operation. Brownfield are the kind of project where someone has already done the groundwork. It’s the kind of project where you minimize your own risk because exploration costs a lot of money and you may not find anything after that. So, brownfield, you go to someone, say, “I already have done the ground work, there’s this much of deposit, this much of reserve,” and then I’m going to put money in there so we can move forward. For Chinese, that was a kind of strategy allowing them to go to risky places like the DRC to be able to acquire mining project without having to pay the risk of putting a lot of money in exploration and then find yourself in a political turmoil or political instability that’s going to just have your millions of dollars wasted in exploration.
Eric: For example, when CMOC took over the Tenke Fungurume Mine, that’s a brownfield. Okay, so it seems that risk mitigation is a major priority for the Chinese and when it comes to the financing of this, typically Katherine you’ve been talking a lot about the lending and the loans, but that’s a sensitive issue in many of these countries given the debt sustainability problems that many countries in the global south face. Some from Chinese loans, a lot from Euro debt and many other sources. You said in the report that the Chinese are transitioning away from bilateral lending agreements to syndicated lending instruments. Can you explain what that shift is and then also what is the difference between a bilateral lending agreement like a loan and a syndicated lending agreement?
Katherine: Yeah, I can speak to that. In particular, a bilateral loan is involving one creditor providing financing to one borrower, and then a syndicated loan is when multiple creditors are involved in providing financing to a borrower. So, in this case, and I would say in terms of these large-scale infrastructure projects that we see with these mines and also the acquisitions which are quite costly, this is a way to pull resources across many different creditors to one project. And we also find, and we’ve spoken about this in the Belt and Road reboot report in particular, that you can also find through AidData that using syndicated loans involving non-Chinese creditors is also a way that they can outsource environmental, social and governance risk in terms of how they can manage these projects.
Eric: Can I just stop you right there? When you’re saying non-Chinese creditors, one of the things that we’ve been hearing from folks that say the Boston University Global Development Policy Center is that they’re bringing on board banks like HSBC, Standard Chartered, is that what you’re talking about is bringing on other financial partners even from the West?
Katherine: In this particular sector, we’ve found that they’ve brought on other creditors, including from the West, not just creditors like HSPC. I think Brooke might be able to speak to this in a bit more detail.
Brooke: The syndicated lending, there’s two types that we see in transition minerals from China, and one is syndicated lending with Chinese actors, or Chinese state backed funders together. And we really see a surge in this in the early BRI years around 2014 to 2017, and most of that money were syndicated with only Chinese financiers is going to Chinese firms and Chinese operations. So, that’s really a way for the Chinese banks themselves to spread out the risk. And also as Katherine mentioned in our previous report, we found that some of the policy banks for China had very low standards for enforcing environmental, social and governance risks. But a lot of the state owned Chinese banks actually have much higher standards.
So, when project review the financing agreements, they just had naturally more stringent safeguards built in. And so, by syndicating with some of these other state-owned creditors, the lending itself has stronger safeguards and it’s a way to de-risk the project overall. What we see in the final or the next four years of the BRI, so 2018 to 2021, is you see an increasing amount of the syndicated lending with non-Chinese financiers. Again, as you’re mentioning with Western banks, so China is putting its money together in a collaborative way to extend money to transition mineral operations. But one of the key differences here is that money is most often going to transition mineral operations that have no Chinese ownership.
And so I would say those actually look much more like an investment where China is looking for a return on its investment and not necessarily part of its strategy to gain access to more transition mineral outputs.
Geraud: Talking about ownership, Brooke, because in the report, we see that in the data that the bulk of money are going to mining project where Chinese has a majority ownership, and we can see it’s a kind of strategy where they want to make sure that it’s going back home in that space. Can you tell us much more about the profile of those company receiving the money of those Chinese lenders, being state-owned or commercial lend, are we seeing a connection, in terms of profiling, of those receiving the money and the lenders in those operations?
Brooke: Yeah, so most often they’re joint ventures. So, it’s a Chinese state-owned company that about 70% of the transition mineral financing goes towards an operation where the Chinese counterpart has majority ownership, and then a smaller portion, 10%, is going to an operation where China has, or a Chinese firm has a minority. So, it has less than 50%. But overall, 80% of Chinese financing is going to operations where they have at least significant majority ownership. So, what we were able to find is it’s most often going to state-owned operations, but there are a couple or a small portion that’s going to private Chinese companies with a stake in the transition mineral operation.
Eric: Katherine, this week, there was a report that came out on the Africa Report Magazine, or maybe it was last week, where it said that Texas Republican senator Ted Cruz met with African ambassadors in Washington. Not surprisingly, and again, just for background reference, Senator Cruz is now the chairman of the Senate Foreign Relations Subcommittee on Africa. So, he kind of brought everybody together and said we are still committed and engaged with Africa. One of the points that he brought up, and this should come as no surprise to you, is that China engages in debt trap diplomacy. Those are his words. And I wanted to talk about whether or not the senator may be reading your report and saying, well, debt is being used to finance a lot of these projects. Should the borrower default on the debt? Can the Chinese take the assets in lieu of payment?
Did your research on the financing validate any of the debt trap narratives that we’ve seen come out of the United States? And I want to be very clear here, AidData, BU, Johns Hopkins, Chatham House have all done extensive research that have debunked the debt trap narrative. And so there is no verifiable evidence. But I’m wondering if someone like Senator Cruz will look at your report and take inspiration from it based on if some of the defaults happen, what then becomes of the resources that the borrower owes to China?
Katherine: In this particular case, I would say I am not seeing evidence of that could be used to support that kind of narrative. As Brooke mentioned, much of the financing is going to joint ventures or special purpose vehicles, which are majority or wholly Chinese. So, in this particular case, there is a smaller portion of the portfolio that would even be considered public or publicly guaranteed debt in terms of the host government being on the hook, repaying that. So, more so what we see is the host government reaps benefits in terms of in some cases when it holds some equity in the project. But otherwise, things like tax revenue and like social investment, a portfolio for social investment projects that the company needs to maintain in the country, things like that.
I would say the most controversial project that you’d see in the dataset would be on Sicomines, which has been the subject of much question around like the sovereign guarantee that was initially provided for a certain portion of the financing and later removed reportedly from the actual loans for the mining project itself. Yeah, Brooke, would you have anything else you would add to that?
Brooke: I would add a couple things. One of the unique pieces of financing joint ventures or special purpose vehicles, which is it’s basically a limit, it’s called a limited recourse project finance. And which means that if the project fails, if they cannot repay their loans, China cannot come in and just force the host government to pay back the loan. And it can seize assets from the actual project company, but not the mineral resources necessarily. The other thing that’s really important about the way that transition mineral financing is different from what we see in the other BRI financing is that a lot of these loans are actually guaranteed by Chinese companies.
So, usually in developing countries, you might have a sovereign guarantee, which means if it’s a toll road, the project fails and can’t repay the sovereign government, the host government will come in and actually pay the loan back. That’s how it would normally work if it were to fail. But we actually see in the transition minerals space that often the guarantee is coming from the Chinese company. So, if there is a loan default or something like that, the host, usually it’s like a parent company to the Chinese firm that has a stake in the operation, they would actually be on the hook to repay the loan. And so, it wouldn’t involve the host government at all.
Eric: And let me just give a little plug for another AidData report. We’ve been plugging a lot of a data reports on this show today. But there is a fantastic report called How China Lends, and it really lays out in detail all of the mechanics of Chinese lending, touching on a lot of the things that Brooke talked about. Geraud, we have a lot of concerns about Chinese mining in the DRC, debt trap is not one of them. When you hear Senator Cruz talk like this to the African ambassadors, what do you think?
Geraud: I think he’s just a natural follow up of the rhetoric and the schools that we’ve been hearing in Washington for the last three years about Chinese engagement in Africa, especially in-
Eric: Oh, it goes back more than three years, Geraud. It goes back a lot longer than three years.
Geraud: It’s just a follow up on that in a sense where there’s no much of interest given to facts, to data, to what’s really happening on the ground because there are datas that are much more nuance, much more complex, even debunking the political narrative, and people don’t want the political narrative to be debunked because it needs to serve a certain purposes. So, for me, it’s not really surprising. Hearing him talking, I was like, yeah, you’re going to do that, you’re going to say that. But for people like us following what’s happening on the ground, knowing what’s happening on the ground, we can tell you, nah, it’s not exactly that. It’s totally not what you’re saying. It’s completely not what you’re saying.
And this is in the case of minerals. And we’ve been hearing that a lot about minerals as well that China’s using minerals to… It’s like no, because when you look into minerals, Chinese loans in the mining operations, they’re completely different. And at the end, as Brooke mentioned, basically it’s the parent company coming out who’s on the hook into paying back. It’s basically saying those company needs to prove that the mining project is very valuable, it’s commercial, it’s really making sense for them to receive the loan from Chinese banks.
Eric: I’d like to pick up on where Geraud left off that in the U.S., and I think it’s also elsewhere as well, there’s a difficulty in understanding the logic of how the Chinese are approaching this. And you wrote in the report, Beijing is following its own playbook rather than a set of rules and norms established by and for its Western competitors. And is that maybe part of the problem here is that at the end of the day, people in Washington, London, Brussels, New Delhi just don’t understand the way the Chinese are approaching the critical mineral resource investment sector that they’re going into?
Brooke: It’s not that they don’t understand, but they’ve chosen to build a different type of financing infrastructure than what China has chosen to build. And so, decades ago, the OECD countries came together, they all agreed to what it’s called a gentleman’s agreement and said that we are not going to engage in kind of a race to the bottom to subsidize our own companies that have operations in other countries. So, there is, for officially supported export credits, is basically providing loans to companies in other countries. The OECD countries agreed not to provide cheap credit or subsidized credit, and instead they’re supposed to just let the market play out.
And what we see in China is they’ve decided that doesn’t make sense for us. They have a strategic need and want to open doors in developing countries for Chinese firms to be active and to get market share. And so what China does is provide subsidized credit or export credits to its own firms that have operations in developing countries or want to have operations in developing countries. And so, it provides a leg up for those Chinese firms to expand their operations in the developing world. And the other thing is that we also see, and we talked about this in the report, is there’s a diverse set of lenders on the China side, right? So, you don’t just have one or two official state backed lenders that are active in providing credit to these Chinese firms.
You see a lot. We track over 26 of state-backed lenders that are providing some form of financing, or there’s one grant as well in the dataset to, again, provide that leg up. And it’s money that is much cheaper than what the firm would be able to get on the private market. So, it really is an advantage for Chinese firms. And Western countries have just decided not to do that. And also they don’t have the infrastructure in terms of this diverse set of network that’s state-backed to provide the financing to their own firm.
Eric: So, while Western companies or Western governments are not doing this, this model doesn’t feel that exotic if you are sitting in the Emirates, for example. And the Emiratis seem to be pushing their state champions, the Turks to be pushing their state champions, Kazakhstan as well, Geraud, correct me if I’m wrong, they’re active in the DRC pushing their state champions. Do we see other maybe middle power states following the Chinese model and using state-backed companies and state funds to promote their mineral interest in the global south?
Geraud: No, we have seen the Emiratis, as you already mentioned, we’ve seen the Emiratis trying to emulate what China is doing on the ground. And it’s really something that, when you think of it, it really makes sense, especially in the context of geopolitical competition and trying to gain access to natural resources and critical minerals. This is the question I wanted to ask Brooke. Bringing all of that in the context of the geopolitical competition that we have today, when you look into how Western governments really are putting policy out there, they’re really encouraging private companies to go into countries like in the global south to try to invest in critical minerals, company are saying we don’t have the resources because the countries are risky, the jurisdictions are just murkier as you can imagine. And we don’t have the background, we don’t have the support that we’re going to need to compete with Chinese.
Do you see in the future where, what would be the tool for Western companies to be able now to exist in a competition where China is moving like this? Do they have to emulate or to also start to do like the Emiratis are doing, or do they stand a chance to remain the way they are and still win against Chinese companies?
Brooke: It’s a bit of a reading of the tea leaves. But I do think that if Western companies want to compete, then they’re going to need more access to credit, and credit that is less expensive, right? If you’re competing on a bid and the other company is able to get more cash on hand at a cheaper price than you are, then it’s just going to be more difficult to compete, not only in the short term but especially in the long term. And if China is continuing this support on a consistent basis into the future, then I think Western governments really need to think about how critical is the access to these transition minerals, and how much do they want to be dependent on a supply chain where China is in every piece of it, rather than having its own domestic companies who have access to those?
Eric: I mean, the Western governments talk excessively about removing China from these supply chains, but yet when you ask that question of, will they provide access to lower-cost capital to do this? The answer seems to be no. And the question is not whether or not the United States or Europe has the money, the money’s there. It’s just not being allocated for this purpose. I guess Katherine, in terms of wrapping up our discussion looking forward, when you look at the trends, you looked at 22 years of financing, when you look at the trends, what are we seeing going forward with the Chinese? Are they going to continue this pace even as prices for some of these minerals and metals are very low? And do you see Western governments, or even Japanese, Korean, and other governments getting into the space to compete with the Chinese with this low-cost capital and this low-cost financing that Brooke talked about?
Katherine: I would say we certainly see this trend continuing and, as we’ve mentioned in the report, it looks like they’re ramping up financing for lithium mining and acquisitions in particular. In our dataset, you can see one significant case in which Chinese state-owned banks provided financing for Tianqi Lithium to acquire a very significant stake in an SQM, which is one of the world’s largest lithium producers based in Chile. And if you were to move forward the timeline past 2021, we see additional financing. We’ve seen it in the news for mines in places like Mexico, lithium-ion battery production facility in Turkey backed by Chinese banks. So, certainly, we see this trend in financing continuing. I’m looking forward to updates to our dataset as well to throw in additional more recent flows.
Eric: And we are looking forward to those updates as well. The report is Power Playbook: Beijing’s Bid to Secure Overseas Transition Minerals. If you are interested in how this race is unfolding, this is absolutely essential reading for all of you. And again, it brings the nuance that is often missing from the discussion about critical minerals that we see coming out of the U.S. and Europe quite a bit. The team at AidData put it together, and we were thrilled to have two of the contributors, Brooke Escobar, who’s the Interim Director of the Chinese Development Finance program at AidData, and Katherine Walsh, a Senior Program Manager also on the Chinese development finance program teams. Thank you so much to both of you for taking the time this morning to join us and help explain this fascinating yet very complex topic.
Brooke: Thank you.
Katherine: Thanks so much.
Eric: Geraud, AidData has done it again where they’ve taken a topic in the mainstream conversation about what the Chinese are doing in the global south, whether it’s on debt in this time on critical minerals and added a level of complexity and nuance to it that really challenges the reductive simple narratives that are out there about these issues. And AidData’s contribution to the conversation is absolutely invaluable. And if you haven’t checked out their other work, cannot recommend it enough, but when it comes to this critical minerals report, you are somebody who’s been in this business for a very, very long time. You’ve been following what the Chinese are doing not only in the DRC but elsewhere in Africa, and then now increasingly elsewhere around the world. What did you learn from this report that you didn’t know already?
Geraud: First of all, for a nerd like me following those, reading a report like that, that was really a real pleasure because you do find some gems, you do really find some very informative data. It’s one thing to look into those topic from an outsider when you draw conclusion based on point one and B, and trying to connect to say that, yeah, this is part of a larger plan. It’s another thing to really have data numbers backing them up really, with details of showing you that it started in 2000 and went to 2021, and still continue happening. And again, it was really something that really, when you’re someone want to be informed and know more and having the data, that report is something very valuable.
One other thing I’ve learned that was really interesting for me is the emergence, we didn’t talk about that in the show, but the first part we saw China EXIM Bank and CBD, China Development Bank being the first one, the main contributors in terms of lending and financing. And over the years, we’ve seen a change happening where we see commercial bank, ICBC, China Commercial Bank, China Industrial and Commercial Bank being now part of those syndicated loans and being part of the financing of those projects. It was really something eye-opening, and to see that you really have a whole apparatus, a whole infrastructure put in place to get where they want to go.
And it’s really confirming the fact that where China is today is not just a fluke, it’s not something just happened, it’s just not something we open our eyes one day, we realize, oh, they’re there. No, it’s something that where many of us, or if not all of us, were not paying attention to that. China was literally working into making that happen. And we see that today.
Eric: And on that topic of the syndicated loans, it makes me laugh a little bit because over and over again we hear this us versus them narrative out of the United States in particular on critical minerals. The Biden administration was tough on this, certainly Trump in the first Trump. I imagine he’ll be like this in the second Trump administration — we still don’t know yet. But this idea that private companies, including Elon Musk’s Tesla, do not align themselves with the interests of the U.S. government. And so when we talk about this syndicated financing and you see international financial institutions, many coming from the West are participating in a lot of this financing of Chinese critical minerals. It shows once again that the us versus them narrative of the West versus China on critical minerals in these strategic issues really starts to break down.
When I was in Singapore a couple of weeks ago, I talked to some folks from Trafigura, also some of the investment bankers there, and a lot of this syndicated financing is going through Singapore. And Singapore is very much a part of the global West in some parts of it, some aspects of it. And it just makes me think that again, this reductive attitude that we see coming out of Washington, people like Ted Cruz, is just not really very productive. The other thing I want to point out, which I’m sure you were thinking of as well, is this is talking only about the extraction of these critical resources, not about the processing of it. As far as I could see from the report, this is about extraction. So, as long as you hear, and we’re hearing Donald Trump talking about getting rare earth from Ukraine, I mean, that’s his latest thing right now.
As far as I know, and correct me if I’m wrong, the U.S. and Europe really don’t have very robust processing facilities to do anything with these raw materials should they get ahold of them one day.
Geraud: Exactly, they don’t. When you talk about rare earth, China process like 95% rare earth heavy and light rare earth in the world. So, it’s really going to be interesting in the case of Trump and Ukraine and the rare earth to see where they’re planning to build the processing and refining of those minerals. But in the report, talking about the reports, and this is something I’ve noticed myself, when you look at the graphs, you realize that the bulk of the money are going to extraction operation. Really few, very, very little are going to processing or to advanced processing. We don’t see that. The only place where we see that it’s in the copper because the processing of copper is much more easier. And that’s what they’ve done in DRC Chile and elsewhere in Zambia. But for the rest of the minerals, when you look into them, the bulk of the money are going to extraction.
And this was one of the points that I’ve noticed. Was it going to extraction because there was no demand for it all because there was no incentive for the Chinese companies to do that? I think it’s a mix of both, a mix of like the fact that there was just no demand, no strong demand at that time in 2010. No one was talking about processing lithium in Zimbabwe. It was not a part of discussion. And DRC, it was part of the discussion because of copper. Yes, but elsewhere, it was not the case. And then later on, we see now there’s the demand. And that’s why I’m expecting when they’re going to have new data, maybe in five years from now, we’re going to see that a part financing now going much more in certain aspect of processing that’s starting to happen in certain part of the global south.
But as we see, the bulk of the money is still going to extraction. And this is the part where a huge effort needs to be made for money now to be invested in local processing and transformation on the ground.
Eric: Well, that may start to happen first in Indonesia. One thing that you’re going to start looking at is the new law that passed through the parliament last week that they’re going to try and force more of the… I think it’s the midstream processing in Indonesia and for that to occur domestically. This is very important because Indonesia, in many respects, on the policy side, has been a leader that has set an example for other developing countries. So, we’re going to keep an eye on that. Just looking forward, we’ve got a number of very exciting projects that you’re going to be working on here at China Global South Project. Maybe you can talk about your cobalt dataset. When can we expect to see an update of that on the site?
Geraud: For the cobalt dataset, expecting that we do have new funding allowed us to have that, but we are walking into having the data updated around mid-June or July. We’re going to have new data for 2024, so we can update and so people can really see the new trend that’s happened in last year, the changes of CMOC, the confirmation how CMOC became the largest producer of cobalt. And in terms of other project we are working on, we are working now into really mapping our Chinese presence in the critical minerals in Africa. We’re going to start by a few countries. And from there, we’re going to be expanding to a larger spectrum to allow us to have a wider perspective and a clear understanding of what China is doing in the critical mineral space in Africa.
So, this year is going to be really interesting for us because you’re going to have a lot of product and output related to China and critical minerals in Africa.
Eric: And in other parts of the world as well, we’re in the process of hiring a transition minerals editor. We’re also in the process of hiring a Latin American and Caribbean editor in Spanish. We’re going to be launching a Spanish edition later this summer. And we’re launching a new Fellows Program where we’re going to have scholars, journalists, analysts, the others from different parts of the global south to contribute to the work that Geraud and the team are doing. So many exciting things happening at the China Global South Project. If you’d like to check out the work that Geraud and the team are doing, go to chinaglobalsouth.com/subscribe. And of course, if you’d like to support us, and we really, really need that support to do this amazing work, especially now that the China knowledge space is shrinking, getting more contested, getting smaller, and the independent fact-based agenda-free work that we do is even more important than ever — go to chinaglobalsouth.com/subscribe.
And if you are a teacher or a student of any kind, even high school students are subscribing to us — this is fantastic — send me an email eric@chinaglobalsouth.com, and I will send you the links for the half off discounts. So that’ll do it for Geraud and I. We will be back again next week with another edition of the China in Africa Podcast. For Geraud in Mauritius, I’m Eric Olander, thank you so much for listening and watching
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