State support gives china advantage in mining
14 February 2011

This article first appeared in Business Report

One of the advantages of potential Chinese investment in the mining sector in South Africa was that the deals were normally underpinned by government support, as most international banks were tight on lending to large-scale projects, Denys Reitz attorneys said yesterday.

Wang Yi, a corporate finance lawyer based in Beijing, said it was difficult to predict the scale and timescales of potential Chinese investment in mining, but she believed that mining investment “will be going up very strongly” in line with growing commodity demand in China.

Wang, who specialises in foreign direct investment in China and by China and cross-border merger and acquisitions, was speaking at last week's Investing in African Mining Indaba in Cape Town.

“Chinese firms are encouraged by the government to grow their investments in Africa - and South Africa,” she said.

Pressed on whether he thought that Chinese investors were put off by talk of nationalisation of mining, as well as the indigenisation law in Zimbabwe, her colleague Shaun McRobert believed that the impression left after the indaba vas that the ANC would “manage the process” and there was generally a feeling in the ruling movement that it did not want the mining sector damaged.

Zimbabwe, however, is in a different position, McRobert, a corporate and resources lawyer based in Hong Kong, said. Investment in Zimbabwe would be dependent on whether President Robert Mugabe survived the contest for power by Zanu-PF and the Movement for Democratic Change.

If Mugabe lieutenant Emmerson Mnangagwa ascended to power there was likely to be a continuation of the indigenisation policies.

However, he noted that this week China had offered Zimbabwe a $3 billion (R22bn) facility through the Export-Import Bank of China for a share in that country's platinum reserves, the largest in the world after South Africa.

Wang said it was important to understand that in China about 70 percent of the potential investors in mining were state-owned firms and about 30 percent were private firms.

If the Chinese government wanted to develop a particular business relationship with South Africa, there would first be a high-level dialogue between the governments of the two countries. The intentions in the case of the private firms were, understandably, “more commercial”, Wang said.

She explained that in significant investments, such as in mining, Chinese government support was critical.

“Mining and energy projects require large amounts of funding which cannot necessarily be provided by international banks (outside of China)... it gives them (Chinese banks) traction.”