Will Unravelling China’s VIEs Pull The Rug Out From Under Alibaba?

IS THE LAW of unintended consequences — or intended ones — in play with the new draft revisions to China’s foreign investment law? And if the later, whose intentions need to be examined?

What may be at stake is control of three of the fastest growing sectors of the Chinese economy — the internet, e-commerce, and cloud computing. Privately owned companies, not state-owned enterprises dominate all three. More to the point, these are about the only sectors of the economy to create large privately owned Chinese companies and from which state-owned behemoths are absent.

As Steve Dickinson of the China Law Blog points out, Baidu, Sina, and Alibaba are at risk of getting their wings clipped. To be fair, that is not the wording he uses. However, this Bystander sees it as a consequence of the significant implication he does note will result from the draft foreign investment law newly published by the commerce ministry: it will end a corporate governance structure known as the Variable Interest Entity (VIE).

All three companies and hundreds of others, particularly technology and telecoms firms, use VIEs to get round the investment regulatory rigidities of sectors of the economy the government deems strategically important and so proscribes or limits foreign investors.

The new draft revisions specifically set out to end VIEs. The revisions’ other main goals are:

• to lessen the red tape for foreign direct investors wanting to own businesses in China;
• to switch to a system of monitoring foreign investors via annual reports from pre-approvals for new foreign investments, save for in sectors of national significance; and
• to put Chinese companies with foreign investors under the same legal regime as domestic companies.

China’s foreign investment law is outdated, so modernisation is to be welcomed — even if the draft law runs to a weighty 179 articles across eleven chapters.

VIEs are a loophole that has let foreigners operate businesses in the country through Chinese front companies. They are a corporate sleight of hand by which an investor controls a company through contractual legal agreements rather than through share ownership.

In short, VIEs say to authorities in country A ownership resides in country A while at the same time telling investors in country B that ownership resides in country B. This Bystander doesn’t need to be a lawyer to see that doesn’t pass many smell tests for good corporate governance.

There have been a number of VIE-related scandals, including involving Alibaba, Sina.com, and New Oriental Education, as VIEs open too many creases along which any or all of regulatory, ownership and operational risk can spread.

Nevertheless, VIEs have become widely used. At first, they were a way for inward foreign investors to enter parts of the Chinese market otherwise closed to them. Increasingly they have been used by privately-owned Chinese companies that list overseas, especially those from industries in which having any foreign shareholders is forbidden or restricted, such as tech and telecoms.

They circumnavigate regulatory rigidities: the constraints on Chinese firms raising capital domestically and the need for private firms to get permission to invest overseas, and restrictions on foreign investors and firms having ownership of Chinese enterprises in certain sectors of the Chinese economy. But given those restrictions on foreign investment exist, VIEs aid and abet in breaking the spirit of the law, if not its letter.

The straightforward solution would be to remove the regulatory rigidities. However, Beijing is not going to abandon keeping sectors of the economy ‘off-limits’ to foreign investors. Its new draft foreign investment regulations use where ‘effective control’ of a company resides to determine ownership.

At a stroke of the legal drafting pen, VIEs becomes irrelevant. Any business that authorities determine to be effectively foreign controlled will be breaking the law if it operates in a restricted or prohibited industry.

All of which would leave the likes of Baidu, Sina and Alibaba and all the other internet businesses that operate as VIEs in China, in a pickle. So, too, foreign investors who bought into the initial public offerings with such gusto and who could end up holding the paper of a company that is illegal.

Now, we don’t doubt that between drafting and final promulgation of a new foreign investment law, accommodations will be made to resolve any such discomforts. While the regulators appear to have rejected lobbing from the companies to, in effect, grandfather them into legality, the draft regulations would let a VIE that is controlled by Chinese to be considered a Chinese company. That determination would be made by authorities on a case by case basis. It would be incumbent on the VIE to show it should be exempted from being put out of business like every other VIE.

Beijing has to walk a fine line if it is not to discourage the development of those industries in which Baidu, Sina and Alibaba operate. All of them could play critical roles in encouraging domestic consumption and thus help meet the government’s goal of rebalancing the economy away from infrastructure investment- and export-led growth. On the other hand, it can’t be too blatant in showing that there is one rule for the powerful and well connected and another for all the rest.

Such companies could also switch their governance to a two-share-class model, and keep the relationship between investors and owners as effectively separated as they are with a VIE. (We don’t approve of companies having A and B shares as a matter of good governance, but that is a topic for another day.)

However, the cost of that will be greater government regulation over them and possibly the promotion of state-owned enterprises to rival them, though perversely it may also give the big, established players some protection from new entrants who won’t be allowed to go the VIE route or anything that looks like it (though opening the capital account would mitigate the need to).

There are several parts of the political establishment, from the security and propaganda arms to the state-owned enterprises themselves, who would welcome reining in the big private Internet groups. Abolishing VIE’s might be intended primarily to kill a lot of flies, but, intentionally or not, there are some endangered tigers, too.

Trouble For Suspected Illegal Chinese Gold Miners In Ghana

New word of trouble for Chinese in Africa reaches us, if somewhat belatedly, this time from Ghana. A 16-year old Chinese boy was killed and more than 100 other Chinese arrested in a joint raid by police and immigration authorities on a suspected illegal gold mining operationin the Ashanti region. The raid took place on October 11th.

Ghana’s position as Africa’s second largest gold producer after South Africa is often forgotten. A third of Ghana’s gold is produced by small-scale illegal mining. The high price of gold has brought an influx of pick-and-shovel wielding Chinese, even though foreigners are banned from small scale mining in the country.

This is only the latest example of friction between local populations and large numbers of individual Chinese arriving in Africa on the coat tails of China’s mining and construction companies undertaking large-scale infrastructure projects in the continent. In late August, Angola deported a gang of suspected Chinese gangsters, while earlier in the month, there were protests in Nairobi against Chinese arriving on tourist visas then setting up as street hawkers. Local protests against Chinese mining operations in Zambia have turned violent on more than one occasion, sometimes fatally.

The foreign ministry says Beijing has demand an investigation into the raid in Ghana, and that the perpetrators be punished.

Zambia Sees The Ugly Side Of China’s African Investment

From Algeria to Zimbabwe, relations between Chinese companies in Africa and their local employees are often uneasy. Violence has broken out before at Zambia’s mines. This time it turned deadly.

A Chinese supervisor was killed at the weekend, and two others injured, after a riot broke out over pay at the Collum coal mine in the south of the country. Striking miners were angry that the company had ignored last month’s increase in the minimum wage introduced by the Zambian government. The mine is owned and run by Chinese investors from Jiangxi.

The supervisor died after a mine trolley was pushed at him as he and his colleagues fled underground. A dozen miners and local villagers have since been arrested in connection with the death. (Update: police said on Aug. 7th that one miner had been charged with murder and 11 others with rioting and theft.) Two years ago, Zambian police charged two Chinese supervisors at Collum with attempted murder following the shooting and wounding of 13 miners in an earlier pay dispute. The charges were subsequently dropped. Long before that, some 500 Zambian copper mine workers were sacked in 2008 after rioting and attacking a Chinese manager whose injuries required hospital treatment.

Despite its recent high-level charm offensive towards Africa–and state media making much in its reports of the weekend’s incident of the benefits Chinese investment has brought Zambia, is all this really what Beijing likes to claim are the “win-win partnerships” it strikes in its natural-resources-for-infrastructure deals with African nations?

Hu Woos Warily Welcoming Africa

China is giving the triennial two-day ministerial Forum on China-Africa Cooperation in Beijing the full-court diplomatic press. President Hu Jintao, seen above addressing the gathering against a backdrop of African flags, promised to have doubled China’s credit lines for African governments to $20 billion by the time the meeting reconvenes in 2015. The idea is to reinforce the notion that the Beijing consensus model of development is better for the continent than the Washington one.

Many African leaders have sufficient concern about Western development aid, with its baggage of conditionality and legacy colonial perceptions, to make Beijing a preferred partner on large-scale development projects. But it is a pragmatic choice, not unalloyed affection. Chinese investment is concentrated in natural resources and infrastructure construction (and in a relatively few resource-rich African countries), while cheap Chinese manufactures and workers flood in. That raises concerns among African policymakers that China’s trade and investment doesn’t necessarily boost the continent’s overall capacity and competitiveness or its intra-continental trade. Growing popular unease over Chinese insularity, labour practices and immigration has led to local violence on several occasions from Algeria to Zambia.

Aware that it has an image problem, Beijing is countering these concerns with a diplomatic charm offensive, and, inevitably, a five-point plan. Hu promised to diversify and rebalance China’s Africa trade and investment, and to create more local jobs by supporting African manufacturing. This Bystander, for one, will believe it when he sees it.

China In Africa: A New Model For Development

We made reference earlier this week, if not by name, to what some call the “Beijing consensus”. This is a development model for Africa in which private-sector investment by Chinese companies, albeit often state-owned enterprises, takes the place of traditional government or multilateral agency aid. As private investors, the Chinese firms don’t need to interfere with the domestic governance of the African countries in which they are doing business. For its part, Beijing can operate though the internationally less restricted area of trade and bank financing instead of official aid, and is less constrained by any needs to impose conditionality on its assistance, such as requiring human rights improvements and labor or environmental safeguards.

A new report from the African Development Bank (AfDB) on China’s trade and investment in Africa acknowledges these changing winds. “The emergence of China and other new development partners  requires us to rethink, and in some cases, gradually adjust our approach. The African Development Bank Group stands ready to engage in this process and help to leverage the financial, technological, entrepreneurial, and knowledge resources from China to the benefit of the African economies.” Other development partners refers to China’s fellow Brics, India and Brazil, who are pursuing a similar approach.

One value of the report is to take an (exhaustive) inventory of China’s trade and investment in Africa. It is not as ubiquitous as popularly supposed:

China’s burgeoning trade and investment relationship with Africa does not benefit all sectors or countries equally. About 70 percent of Africa’s exports to China come from Angola, South Africa, Sudan, and the [DR C0ngo], and are heavily dominated by raw materials (e.g., oil, copper, cobalt, and cotton). And 60 percent of imports from China, largely manufactures, are destined to South Africa, Egypt, Nigeria, Algeria and Morocco. Most other African economies have only a limited trade relationship with China. Chinese outward FDI to Africa shows a similar pattern of concentration, with 50 percent flowing to the mining sectors of just a handful of resource-rich countries (Nigeria, South Africa and Sudan).

Africa accounts for only 4% of China’s trade. The EU and the US are still the largest trade and investment partners for many African economies.

The report notes the “significant benefits” that China is reaping from its relationship with Africa, “through access to raw materials, expanded markets for exports of manufactures, the establishment of investment relationships which could generate significant profits over time and diplomatic influence.” But it also sends a call to action to the recipient countries:

Leadership from African governments, particularly to strengthen domestic policies and governance and to harmonize regional policies so as to improve the continent’s bargaining position with China, are required to ensure that the China-Africa relationship contributes to sustainable growth and poverty reduction.

The AfDB’s to-do list for African nations is:

• Improve coordination between aid and investments from China and from traditional development partners.

• Enhance technology transfer and maximize the positive spillover effects from foreign investment through local labor and content requirements, as is done in several African countries.

• Achieve greater export diversification by identifying niche markets for African manufacturing products in China, and by expanding preferential trade access to Chinese markets.

• Build negotiation capacity, for example by obtaining specialized legal services, to ensure that large, complex commodity deals with China can be negotiated with favorable terms for the exporting African country.

• Build backward and forward linkages between the domestic economy and the Special Economic Zones supported by Chinese investment.

China’s to-do list from the AfDB:

• Prioritize the development challenges of Africa within the established Forum on China-Africa Cooperation (FOCAC) framework, including addressing issues such as food insecurity, climate change and adaptation technology and infrastructure.

• Integrate “best practices” of traditional development partners, notably through the China Development Assistance Committee (DAC) Group, which would share knowledge on development finance.

• Coordinate Chinese aid and investment flows more centrally instead of the current practice where over 20 Ministries, public banks and agencies provide support to Africa. A good example might be South Korea, which is also an emerging development partner, where aid is coordinated jointly by the Ministry of Foreign Affairs and Ministry of Strategy and Finance.

• Support additional investment in Africa in labor-intensive manufacturing industries. Currently, as wages are rising in China, labor intensive manufacturing is “relocating” to other Asian countries such as Cambodia and Vietnam.

• Coordinate with multilateral and bilateral institutions on debt sustainability analyses and debt relief.

• Untie aid gradually and open bids to international tender. This approach would enhance transparency, development effectiveness and ownership by the recipient African country.

• Enhance communication between management of Chinese-owned enterprises in Africa and African civil society organizations, including labour unions. Often these tensions reflect different traditions in Africa and China concerning engagement with civil society organizations, as well as cultural and linguistic differences. One way to improve African understanding of Chinese policies is to expand scholarship opportunities for Africans to study in China.

• Expand the implementation of the Equator Principals, a voluntary set of standards for determining, assessing and managing social and environmental risk in project financing, to Chinese investments. This approach could reduce tensions with local civil society groups as well as improve the sustainability of projects financed by China.

• Elevate China’s status in the Infrastructure Consortium for Africa (ICA) from an observer to full membership. This would enable better coordination between various infrastructure projects financed by China and traditional development partners.

Addressing all these points would help answer some basic questions on the Beijing consensus. Is it effective for promoting development? Does it provide job opportunities for Africans? Does it improve the quality of the business environment in Africa? Does it improve governance and lessen corruption? Does it promote African industrial diversification? Does it fill Africa’s infrastructure gap meaningfully? Does it alleviate or magnify African nations’ debt problems? Does it harm Africa’s environmental and social conditions? Does it mostly serve China’s national interests to Africa’s cost? And is it sufficiently transparent so those questions can be answered accurately.

These are all questions that traditional western approach to aid, let’s tag it the Washington consensus to be inclusive of institutions based there such as the World Bank, needs answer, too. The fact that it doesn’t pass all these tests with flying colors is why there is room for Beijing’s approach to find favor. What strikes this Bystander most, however, is that both the Beijing consensus and the Washington consensus aim to promote economic growth in their separate ways and mirror their domestic expectations of governance.  While developed economies would hold that economic development leads to democracy, China would hold that democracy retards economic development, at least for lesser developed economies, even if democracy would to a better job of encouraging development in more advanced economies, a transition that China itself is heading towards so uncomfortably.

In the meantime, there is no consensus on which consensus is right for Africa now, but the arrival of the Beijing version has at least got western donors reconsidering their aid and development models, and African nations benefiting from competing sources of development aid.

Drought Diplomacy

A group of more than 40 officials from China, Africa and the U.N. have been in Beijing for three days discussing how to reduce the risks of drought. It has been technical stuff for policy makers on drought monitoring, water resource management and drought resilient farming, as well as dealing with the social and economic impacts of droughts. The meeting was part of Beijing’s overall dialogue with Africa, but these are all topics of obvious mutual interest, given the severe droughts that China has been experiencing such as the one continuing in the south and southwest of the country and the recurring ones on the North China Plain.

Africa’s droughts, like those in China, are expected to become more frequent and widespread as a result of climate change. The Horn of Africa is currently suffering the continent’s worst drought in 60 years, for which Beijing has promised $82 million in emergency grain and relief aid. Techniques and practices that China uses at home as well as farming methods such as film mulching to preserve for crops what water there is in arid areas are applicable in Africa (and vice versa).

Drought is one of the leading threats to Africa’s development as agriculture is the main means of livelihood for most of the continent’s vast rural population. Beijing is rarely rigid over what aid it will provide a country, and Chinese firms see investment opportunities in water management systems and export markets for technology they develop for home. More than 90% of Africa’s farmland relies solely on rainfall for irrigation.

The lack of water management systems in Africa means that drought also has a far more profound impact on food supplies there than it does in China, which is yet again forecasting a record grain harvest. However, this relatively greater vulnerability prompts a second-level concern among Africans, that China might divert grain and livestock production from the farmlands it owns in Africa to make up potential food shortfalls caused if not by its own droughts then by its growing food demands and changes in consumption patterns. That could put Africa’s ability to feed itself even further beyond it. Last year, African nations needed to import $34 billion worth of food to feed their growing cities. Apart from a potential need to increase the volume of its food imports, it also faces the risk that Chinese demand would drive up the cost of food on world commodities markets.

For the past two decades, Chinese companies have been buying African farmland, mostly but far from all, smallholdings and family farms. Chinese own farms in 18 of Africa’s 50 or so countries through at least 63 investments from Angola to Zimbabwe. There are at least 1,100 Chinese agricultural scientists and experts working in Africa, where China has at least 11 research stations, and at least 1 million farm laborers.  All those ‘at leasts’ are because the numbers are based on Chinese official estimates from 2009. They likely undercount the country’s current farming activity on the continent.

It is easy to scaremonger here and to be critical of China’s engagement with Africa. In fact, cheap credit, world-class infrastructure companies, political pragmatism and, as noted above, a willingness to build what is asked for make for a compelling case to many African leaders to accept Chinese aid and investment. That said, China has its national interests, as does any Western aid donor to Africa, even if it is likely to express those in different ways. There is also a lack of transparency which commingles China’s state aid, trade financing and private investment. Nor should the impact that Chinese aid and investment often has on local environmental, social and labor conditions be sugarcoated.

The result of the Beijing meeting will likely be the emergence of some consensus on priority areas for co-operation between China and Africa on drought alleviation, and more infrastructure contracts related to that for Chinese firms in Africa. No doubt critics will deride them as further Chinese colonization of Africa this time by way of “drought diplomacy,” but this is increasingly the modern face of development assistance, which looks a lot more like commercial investment.

Agri-Colonialism In Africa

Chinese agribusinesses are a familiar sight across Africa, not always one welcomed by locals, but a new scheme in Zimbabwe is proving particularly controversial. Under the so-called twinning program, investors from Hubei would be paired with farmers in Mashonaland East, one of the most fertile regions of Zimbabwe. The farmers would provide land and labor, the investors capital and equipment; the crops grown would be shipped to China.

It is unclear who would own the land. Some reports suggest the Chinese investors would be given all or some of the land, others that they would just own the farm business they operate on it. The twining program is a provincial government-to-provincial government agreement and the details have been kept quiet.

Provincial officials from Hubei have recently returned from a visit to Mashonaland East. Much of the land in question was originally taken from white farmers in 2000 after independence and redistributed to friends of the regime regardless of whether they had any experience of agriculture. Since independence Zimbabwe’s once-prosperous farming based economy has collapsed, with the country facing food shortages. Hence the need to import expertise and finance to get fallow and failing farms back on their feet.

How much benefit this scheme would provide to local farmers or put food on local tables is questionable, given the crops will be exported to China. There is already a backlash against investors from China, South Korea and some of the Gulf states buying up farmland across Africa to produce cash crops for export at the expense of local subsistence farmers. Giving it away smacks of a bizarre reverse new colonialism.

Footnote: Chinese business have stepped into an economic void caused by U.S. and European sanctions imposed in 2002 against Zimbabwe’s human-rights record. Chinese-made goods are a common sight in local stores. Trade between the two countries totaled $560 million dollars last year, with three-fifths of that accounted for by Zimbabwean imports of Chinese products, particular mobile communications hardware.

Zimbabwe’s leading export to China is apparently tobacco, a surprise for such a minerals-rich country, though that may change with the easing of international restrictions on sales of Zimbabwe’s diamonds. Two of the five companies with diamond-mining licenses are Chinese. However, we note in passing trouble at one of them, Sino-Zimbabwe, state-owned cement maker China Building and Material Co.’s joint venture with Zimbabwe’s state-owned Industrial Development Corp., which reportedly fired local workers at its diamond mining operation earlier this month (via Bloomberg).

Political relations between Beijing and Harare are warm. In February, Foreign Minister Yang Jiechi called for the lifting of sanctions against the country. The following month, China provided Zimbabwe with a $700 million loan, to be used primarily to develop farming. Meanwhile, Chinese-owned businesses have been exempted from a recent law requiring Zimbabwean businesses to be 51% indigenously owned.

China Defends Its Trade And Investment Record In Africa

China’s growing trade and particularly investment in Africa has its critics. Now China has come to its own defense. Its first policy paper on the subject says the fast growth of Chinese trade and investment has helped African countries meet UN Millennium Development Goals and is transforming the continent by building infrastructure and creating a new class of consumer.

Two-way trade only reached the $10 billion mark in 2000. In the first 11 months of this year, it was worth $115 billion, a 43.5% year-on-year rise, with that growth rate likely to accelerate in coming years. Natural resources flow east with low-cost manufactures coming in the opposite direction, with the balance of trade in Beijing’s favor. According to U.S. embassy cables published by WikiLeaks, the imports have also included some arms and other security related equipment.

Beijing is pushing Chinese companies to expand their investment from the extractive industries, where it has been concentrated as China has sought to secure supplies of natural resources, to manufacturing, construction and real estate, finance, tourism and agriculture. The policy paper says the stock of China’s investment in Africa at the end of 2009 was $9 billion,  a surprisingly low looking number to our eyes. It is spread across 49 African countries, but mostly in (resources-rich) South Africa, Nigeria, Zambia, Sudan, Algeria and Egypt. The policy paper says there is a matching stock of African investment in China, though the multinational brewer SABMiller, the SA standing for South Africa, probably accounts for a big chunk of that.

The $9 billion reckoning of Chinese investment in Africa will also likely not include the ports, roads, railways, dams and sports stadiums built with preferential loans and credits provided by China, $5 billion worth in 2007-09 with another $10 billion in 2010-12. Chinese aid is also going into schools, wells, hospitals public housing and agriculture. It has also cancelled $2 billion of African nations’ debts over the past decade.

China is building six economic trade and cooperation zones across Africa in which Chinese firms build the infrastructure for Chinese and other foreign firms to move in to create industrial clusters. It says the first of these in Zambia has attracted 13 companies, investment of $600 million and created 6,000 local jobs — the lack of employment for locals being a widespread complaint of Africans against Chinese firms. Regardless of the unease it causes others inside and outside the continent, China’s presence and influence in Africa is only going to get larger.

Five Principles For China’s Miners In Africa To Live By

Ngozi Okonjo-Iweala (left) is not only a managing director of the World Bank but also a former Nigerian finance and foreign minister. Thus she brings a singularly well positioned perspective to the controversial question of Chinese investment in Africa, and particularly investment in the extraction of the continent’s natural resources.

Speaking to a mining industry conference in Tianjin, she outlined five principles to create what she described as a mutually beneficial and lasting marriage between Africa’s investment needs and resources and China’s interest and demand. (Full text of speech.)

More than 1,5000 Chinese firms are now estimated to have set up shop in Africa. Given the contentious nature of some of their operations, including those from Algeria to Zambia that have caused a local backlash that has on occasion turned violent, Okonjo-Iweala laid out a set of recommendations that bluntly address the most frequently leveled criticisms of Chinese companies operating in Africa.

1. Make investments consistent with national development priorities.

Above all, this means to create jobs locally. The only labor brought in from outside must be those people whose skills are clearly missing in a country.

2. Practice transparency.

In the event of problems with the population or government, you want recourse to adequate legal support to resolve the issue. That can’t and won’t happen if transactions are mired in secrecy. You need to let the people know the scope and broad terms of your engagement. If the public doesn’t know what you do, they will turn against you as they do not see the benefits of the investment or when accidents happen.

3. Support the development of a value chain.

Mining companies should not just come in to extract natural resources in a raw form and ship them away. This is colonial history. Today, they should establish some degree of processing adding value to the raw materials. This creates employment, develops skills, and leads to more buy-in from the local people.

4. Pay what is due and do what is right.

Investors must pay taxes and avoid falling into well known tax evasion techniques such as transfer pricing or bribes to a few high level officials. Bribe paying is not only abhorrent but is counterproductive in the longer term. Many developing countries need tax revenue to invest in their people – a move which will lead to easier investment for you, but for that to happen, you must pay your proper taxes and royalties.

5. Engage with local communities and communicate your values.

Ensuring workers and community safety is an important part of this agenda. Mining companies must operate with the highest safety and environmental standards. It is your company’s reputation at risk if you ignore these standards. You must adhere to them and seek to establish them.

These amount to a decent set of best practices for any foreign direct investor anywhere. When it comes to Chinese investors in Africa, though Okonjo-Iweala didn’t explicitly say so, we suspect that her five principles are now mostly honored in the breach — which, of course, would be precisely the point of stating them.

Zambia Mine Shootings Likely To Resound Into 2011

Two Chinese managers of the Collum coal mine in southern Zambia, Xiao Li Shan, 48, and Wu Jiu Hua, 46, have been charged with attempted murder following a shooting incident at the mine that left at least 11 workers injured. The shootings happened during a protest by miners on Friday over pay and conditions. The two managers allegedly opened fire on the protesters though whether they were shooting at or over the heads of the crowd is unclear.

China has invested heavily in Zambia’s mining industry. As in other African countries, those investments have been accompanied by rising tensions between locals and Chinese expatriates who arrive along with the investment cash from China. Some 500 Zambian copper mine workers were sacked in 2008 after rioting and attacking a Chinese manager whose injuries required hospital treatment. However, the tensions are more politicized in Zambia than anywhere else in Africa; it was a campaign issue in the presidential election in 2006 following an earlier shooting that had left five Zambians wounded by managers during pay riots at the Chinese-owned Chambishi mine the previous year.

With a general election due next year, this latest incident is likely to remain politically prominent for a while with opposition parties using it as a stick to beat a government they feel they can unseat after five consecutive terms of office. This will cause an extended and trickily public relations problem for Beijing.

Update: From the Foreign Ministry’s Oct. 19th press briefing:

[Foreign ministry spokesman Ma Zhaoxu] said the matter was largely resolved but China would keep cooperating closely with Zambia to ensure any outstanding issues were settled according to law and safeguard the security and legitimate interests of Chinese companies and personnel.