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China’s Return To Libya

China had commercial interests in Gaddafi’s Libya and will pragmatically rebuild its presence in the country once the end-game of the overthrow of the colonel has played out. Before the civil war started, some 75 Chinese companies, including 13 large state owned enterprises, were working on $19 billion worth of projects, mainly in oil services, railways, housing construction and telecoms. Evacuating more than 35,000 Chinese nationals from these in March was a source of some pride in Beijing.

What they left behind was contract work so there would have been billions of yuan of business losses and damage to work camps. The three big oil SOEs, CNPC, Sinopec and CNOOC, all had engineering projects in Libya, but no oil production. China was buying oil from Libya, not extracting and shipping it. China gets 3% of its oil from the country, a significant if not critical supply (and accounting for about 10% of Libya’s exports).

Some within the new Libyan leadership have suggested that China could be punished for backing the Gadaffi regime. In response, China has urged the new leadership to protect its interests in the country and promising “to play an active role in future reconstruction” under the aegis of the U.N. Wen Zhongliang, deputy head of the trade department in the Ministry of Commerce, says “we hope to continue investment and economic cooperation with Libya…China’s investment in Libya, especially its oil investment, is one aspect of mutual economic cooperation between China and Libya.”

China, along with Russia and Brazil, which also neither supported NATO airstrikes against Libya nor provided the anti-Gaddafi forces with military aid, will be attending the Libya reconstruction conference being convened in Paris by French president Nicholas Sarkozy on Sept. 1. “It is true that some Chinese companies are considering exploring opportunities or resuming their business in Libya, but the time is far from ripe, as there are still short-term risks,” Xie Yajing of the Commerce Ministry’s west Asian and African affairs department told the China Daily. Beijing has yet to officially recognize the Transitional National Council (TNC) as Libya’s government, though it is signaling that that will come, and it has maintained back-channel contacts with the TNC throughout the conflict.

Beijing has a lot of experience in operating in politically volatile parts of the world. It knows how to change horses, as it has shown in post-Saddam Hussein Iraq.

Update:  Representatives of the Gaddafi regime visited three Chinese state-owned arms manufacturers in July, long after the imposition of UN sanctions on Libya, China’s foreign ministry spokesman has confirmed, but neither contracts were signed nor any arms shipped, she said. The firms involved are China North Industries Corp. (Norinco), China National Precision Machinery Import & Export Corp. (CPMIC) and China XinXing Import & Export Corp.

Leaders of the National Transitional Council in Libya say that they have evidence that other shipments of weapons were made. “We found several documents that showed us orders, very large orders, of arms and ammunition specifically from China, and now we do know that some of the things that were on the list are here on the ground, and they came in over the last two to six months,” according to Abdul Rahman Busin, NTC’s military spokesman.

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Adding Up The Business Cost In Libya

Beijing has now evacuated all Chinese nationals from the chaos of Libya, 35,860 people including Taiwanese, according to the foreign ministry. What is left behind is what looks like adding up to billions of yuan in business losses not just from the cost of evacuating staff but also from damaged property and disrupted contracts.

Most if not all of the 13 state-owned companies operating in the country have had facilities looted or destroyed. The commerce ministry has said 27 Chinese construction sites and work camps had been attacked in the first days of the unrest. Having evacuated all its employees, China Railway Construction Corp. has suspended its 28 billion yuan ($4.2 billion) of contracts, as has China State Construction Engineering Corp., which has 9 billion yuan of active construction contracts in Libya, and China Gezhouba Group which has 5.5 billion yuan of housing building contracts. China National Petroleum Corp., which has services and exploration but not extraction operations in Libya and whose facilities are among those that have come under attack, has also stopped all work there.

In all, 75 Chinese companies had been operating in Libya, mostly in the energy and construction industries. They signed a reported combined $1.8 billion of new contracts last year, which will be most at risk from disruption. The commerce ministry and the agency responsible for state-owned enterprises say the are toting up the losses incurred by the SOEs. With China’s off-shore construction and natural-resources businesses giving no indication that events in Libya are diminishing their intention to work in some of the most politically volatile parts of the world, these may be regarded as no more than a necessary, if hopefully infrequent, cost of doing business there.

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