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China and South Sudan: economic engagement continues amid conflict

China’s economic engagement with South Sudan, the world’s youngest country, is growing rapidly since the latter’s independence in 2011. According to the Chinese and South Sudanese official statistics, around 100 to 140 Chinese enterprises currently operate in South Sudan. Since 2008, they have concluded agreements worth about 10 billion USD with the South Sudanese government, and the latter through official channels has expressed willingness to have Beijing’s support
for projects worth 8 billion USD. The outbreak of violent conflict in December 2013 poses challenges to China’s burgeoning economic engagement with South Sudan and the normal operations of Chinese
companies there.
 
Prior to the on-going conflict, oil evidently featured as the most significant component of the bilateral economic relations. With China National Petroleum Corporation’s (CNPC) large investment stake in the oil industry, South Sudan, at its full capacity, accounts for approximately 5 % of China’s imported oil.
 
The traces of Chinese companies’ involvement in non-oil sectors are also increasingly visible. They are particularly active in road construction, such as Shandong Hi-speed Group’s 1,043 km-long
Juba-Rumbek-Bentiu road project and Sinohydro’s project of upgrading poor roads in Malakal, to name but a few. Although both sides often identify agriculture as an important area for further cooperation, concrete results seem to be unimpressive. Some small-scale farms in which the Chinese have invested are reported to be located around the White Nile River region. Ningxia province also signed a MOU with the South Sudanese Ministry of Agriculture in 2012 on agricultural cooperation and rice planting.
 
In fact, bilateral economic cooperation was moving at full speed until December 2013. Five days before the conflict erupted, the Export-Import Bank of China (Exim Bank) and the South Sudanese
Ministry of Finance co-sponsored the South Sudan-China Development Cooperation Forum in Juba, attended by some 200 industrial and commercial representatives. Also, the Exim Bank was reportedly
preparing to offer 2 billion USD in loans to develop South Sudan’s fragile economic and social infrastructure; and China’s Ambassador to South Sudan Ma Qiang was planning to sign the Juba airport renovation deal with the South Sudanese counterpart after the SPLM’s party conference on that weekend of 15 December.
 
However, the realization of these plans appeared to lose momentum after the eruption of conflict, as Ambassador Ma conceded in his interview in February 2014, ‘[u]nfortuantely, everything has changed…So everything is on hold.’
 
Beijing’s focus is shifting to the protection of Chinese investments and nationals in South Sudan. Chinese leaders endeavour in every possible encounter to seek assurances from their South Sudanese counterparts. Furthermore Juba makes strong promises to China too. For instance, in July and August the South Sudanese Vice President and Foreign Minister both promised to ensure the security of oil workers and equipment during their meetings in Beijing with the Chairman of CNPC and the Chinese Foreign Minister.
 
CNPC had decided to evacuate personnel on non-key and non-productive positions on 20 December. Its operations in Blocks 1, 2 and 4 have completely shut down, while those in Blocks 3 and 7 operate with a minimum level of staff presence. South Sudan’s oil production has already dropped by over 30 %, from 245,000 barrels per day to 160,000 barrels per day.
 
China’s oil giant continues to be embroiled in an operational dilemma. On the one hand, it is becoming more conflict-sensitive and apt at evacuating its workers in case of emergency; on the other hand, it
still tries to keep a minimum level of staff presence on the ground so that oil production does not completely stop. The memory of a 15-month long oil shutdown in South Sudan – triggered by the dispute over transit fees between the two Sudans – the losses caused and the enormous efforts spent to resume the production remains fresh enough to factor in CNPC’s calculation of a whole-scale evacuation.
 
According to Foreign Policy, China also managed to garner support to charge the renewed peacekeeping mission (UNMISS) with the responsibility to protect South Sudan’s oil installations and workers in Resolution 2155. China will send an infantry battalion of 700 soldiers to the mission. Beijing’s effort to secure this arrangement should not come as a surprise, because the domestic discourse often regards its contribution to U.N. peacekeeping as an effective way to protect its overseas interests without contravening the mantra of non-interference. However, UNMISS has denied that the Chinese troops will be deployed to protect iol installations. The Chinese peacekeepers already in South Sudan have helped evacuate trapped Chinese workers, and there appeared to be active information sharing on security situation between them and both CNPC staff and the local Chinese embassy.
 
Sinohydro staff working in Malakal were also evacuated to Juba and further to Uganda on 21 December. The loans that Shandong Hi-speed secured from the Exim Bank are currently suspended and only a dozen staff-members have stayed in the camp. The on-going conflict prevents the development of much-needed social and economic infrastructure in South Sudan, an area in which Juba was likely to benefit most from its engagement with China.
 
Although the conflict is yet come to the end, South Sudan is already stepping up its efforts to rebuild Chinese investors’ confidence. Numerous visiting delegations from Juba were not hesitant to appeal for further investment from Beijing. In April 2014, on the visit of South Sudan’s Presidential advisor, Telar Ring Deng, its embassy in Beijing hosted the first South Sudan-China Investment Forum to identify and make effective use of investment and trade opportunities. There appeared to be mixed responses from the some 200 Chinese businessmen present, with the large Chinese companies still being interested in investing in South Sudan whereas the medium and small ones were deterred by the daunting security risks.
 
There are indications of a gradual recovery of economic cooperation despite the unresolved conflict. The Juba airport renovation deal that Ambassador Ma originally planned to seal in December 2013 finally moved forward. This Exim Bank-funded project was launched on July 7, and will be carried out by China Harbour Engineering Corporation, with funding worth 1.6 billion USD. The manager of the Chinese company however urged Juba to restore peace so that the project could be finished on time.
 
On 24 July, Exim Bank signed an agreement to provide 1 billion USD in loans and credits to South Sudan during the visit to Beijing by the Minister in the Office of the President, Awan Riak. As detailed
information of this agreement is not available, it remains unclear whether this is a scaled-down version of the 2-billion USD loans that the Exim bank was considering offering last December. Sinohydro was
also reported to have signed two contracts to build the Yambio water supply and Juba hydropower plant in May and August.
 
The need to protect its vested interest in the oil industry and its growing profile in non-oil sectors largely explains Beijing’s active diplomatic presence in the current mediation process. The on-going
conflict is unlikely to bring about a dramatic shift in China’s economic engagement with Juba, but it is certainly leading to more prudence by potential Chinese investors, as well as delays in project completion. In a country like South Sudan, where ordinary people are desperate to see a peace dividend, a continuous delay in development is not much different from deprivation.
 
ZHOU Hang is a researcher with the China and Global Security Project, Stockholm International Peace Research Institute (SIPRI). His research interests include China-Africa relations and China’s foreign aid.

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