Caixin
Oct 17, 2011 04:44 PM

A Legacy of Dirty Deals

To curry favor with the Angolan government, China International Fund (CIF) dealmakers Sam Pa and Lo Fong Hung have laid out grand plans for more than 30 infrastructure and construction projects nationwide since 2004.

These proposals for projects ranging from apartment complexes to railroads to an international airport were the bait that put Angola on the hook for oil drilling rights won by CIF on behalf of Chinese oil concerns.

For most projects, CIF received a down payment from the Angolan government and forwarded the money to Chinese contractors, who imported laborers from China and started building. Oil and mineral revenues were ultimately expected to cover the project costs.

A Chinese Ministry of Commerce report obtained by Caixin cited this sort of dealmaking as a CIF trick used to win oil, mineral and infrastructure development contracts in Angola as well as other African countries and South America.

The report called CIF a swindler run by lawless Hong Kong business interests who work alongside greedy mainlanders. It says the company introduced clients to phony "envoys" of Chinese President Hu Jintao, and bribed high-level officials in several countries.

CIF staffers reportedly met senior Venezuelan officials in 2003, the report said, claiming to represent the Chinese government and the state-run oil giant Sinopec. They said they wanted to buy 4 million tons of oil.

Venezuelan diplomats were arranged to travel to Beijing for contacts with the Chinese government officials, but the oil deal were canceled after China's embassy in Venezuela confirmed that CIF was not tied to the Chinese government.

In 2008, CIF used high-level relationships in Nigeria to insert itself into an oil field contract competition and squeeze out the Chinese state-owned oil China National Offshore Oil Co., allegedly with bribes. The oil field was eventually won by the Angolan oil concern Sonangol.

The commerce ministry report said CIF's conduct has undermined Chinese state oil firm operations in Nigeria.

Critics have wondered about CIF's possible links to the Chinese government. A 2009 report by the U.K. foreign policy think tank Chatham House called CIF a "firewall" between the Chinese government and African countries with resources. The report claimed China's military and intelligence agencies worked with CIF.

But in October 2009, Chinese Foreign Ministry spokeswoman Ma Zhaoxu told reporters that the government had nothing to do with the Hong Kong concern run by Pa and Lo.

Collapsing Scheme

A source close to Pa said that, over the years, construction projects launched with Angolan government money have been winding down as soon as the down payment cash runs out.

That's because CIF's oil and mining interests provide far too little revenue to finance the bulk of these massive projects, the source said. Moreover, Pa and Lo have shown little interest in investing their own money in Angola.

With every halted project, Chinese construction companies with laborers in Angola have found themselves mired in financial mud. Unpaid Chinese workers have demonstrated outside China's embassy in the Angolan capital, and the commerce ministry has accused CIF of "damaging China's image abroad." 

Many infrastructure contracts awarded to CIF have been seized by angry Angolan government authorities. But to smooth relations, the source said, the Chinese government has offered loans to keep these projects on track.

Lo has told business friends that emerging markets such as Angola are a logical target for Chinese enterprises that in recent years have found it difficult to buy into the resource and energy sectors.

Governments in these countries are often willing to deal with private companies, Lo reportedly has said, which are more flexible than state concerns and can offer benefits to local governments. Private firms also tend to win political and public support more easily.

CIF and its venture with Sonangal, China Sonangol, now find themselves in the spotlight with a global reputation for flexing corrupt, private sector muscles to win public sector support and access to valuable African resources. Thus, Lo's theory about popular support for private companies has its limits.

Yet observers say CIF successfully built a new business model based on infrastructure promises and Chinese bank loans to African countries, which in exchange sold oil and mineral rights to China.

And despite the Chinese laborer demonstrations and bitterness among Angolans, the business of extracting African resources for China continues to roll forward.

Because state-owned oil giants such as Sinopec are continuing to do business with Pa and Lo to this day – and continue pumping oil from Angola and other African countries with similarly unfinished infrastructure projects – CIF's reputation has tainted the Chinese government's image in some circles.

A source said that, as of June, Sinopec controlled six oil fields in Angola and rights to about 820 million barrels of oil reserves. Most of these assets were bought by Sinopec from the Angolan government through Pa.

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