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As US fights the Taliban, China gets down to business in Afghanistan
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As US fights the Taliban, China gets down to business in Afghanistan
Published  12/31/2009


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By MICHAEL WINES
Dec 30 2009

Behind an electrified fence, blast-resistant sandbags and 53 National Police outposts, the Afghan surge is well under way.

But the foot soldiers in a bowl-shaped valley about 30 kilometers, or 20 miles, southeast of Kabul are not fighting the Taliban, or even carrying guns. They are preparing to extract copper from one of the richest untapped deposits on earth. And they are Chinese, undertaking by far the largest foreign investment project in war-torn Afghanistan.

Two years ago, China Metallurgical Group, a state-owned conglomerate, bid $3.4 billion—$1 billion more than any of its competitors from Canada, Europe, Russia, the United States and Kazakhstan — for the rights to mine deposits near the village of Aynak. Over the next 25 years, it plans to extract about 11 million tons of copper—an amount equal to one-third of all the known copper reserves in China.

While the United States spends hundreds of billions of dollars fighting the Taliban and Al Qaeda here, China is securing raw material for its voracious economy.

The world’s superpower is focused on security. Its fastest-rising competitor concentrates on commerce.

S. Frederick Starr, the chairman of the Central Asia-Caucasus Institute, an independent research organization in Washington, said that skeptics might wonder whetherWashington andNATO had conducted "an unacknowledged preparatory phase for the Chinese economic penetration of Afghanistan." "We do the heavy lifting," he said.

"And they pick the fruit." The reality is more complicated than that. The Chinese bid far more for the mining rights to the Aynak project and promised to invest hundreds of millions more in associated infrastructure projects than other bidders.

It is a risky venture that has not yet proved to be economical, and it has already been dogged by allegations of bribery.

But the Aynak investment underscores the way China’s leaders, flush with money and in control of both the government and major industries, meld strategy, business and statecraft into a seamless whole. In a singlemove, Beijing strengthened its hold on a vital resource, engineered the single largest investment in Afghan history, promised to create thousands of new Afghan jobs and established itself as the Afghan government’s pre-eminent business partner and single largest source of tax payments.

AN ODD GLOBAL PAIRING Afghanistan is not the only place where the United States and China find themselves so oddly juxtaposed in the post-9/ 11 world. China is investing more in extracting Iraqi oil than American companies are. It has reached long-term arrangements to buy natural gas from Iran, even as the government there comes under the threat of Western sanctions for its nuclear program. China has also become a dominant investor in Pakistan and volatile parts of Africa.

But it is in Afghanistan where China’s willingness to take risks for commercial and diplomatic gain are most striking.

China Metallurgical Group, often called M.C.C., will build a 400-megawatt generating plant to power both the copper mine and blackout-prone Kabul.

M.C.C. will dig a new coal mine to feed the plant’s generators. It will build a smelter to refine copper ore and a railroad to carry coal to the power plant and copper back to China. If the terms of its contract are to be believed, M.C.C. will also build schools, roads, even mosques for the Afghans.

The sweeping agreement has some experts rubbing their eyes in disbelief.

"It’s almost as if the Chinese promised too much," said one international expert who, like some others interviewed, refused to be identified for fear of alienating the Afghans or the Chinese.

But even if elements of the agreement fall through, the Chinese have already positioned themselves as generous, eager partners of the Afghan government and long-term players in the country’s future. All without firing a shot.

Nurzaman Stanikzai was a mujahedeen in the 1980s, using American-supplied arms to help drive the Soviet Red Army from his homeland. Today he is a contractor for M.C.C., building the Aynak mine’s electric fence, blastwall, workers’ dormitories and a road to Kabul.

"The Chinese are much wiser. When we went to talk to the local people, they wore civilian clothing, and they were very friendly," he said recently during a long chat in his Kabul apartment. "The Americans — not as good. When they come there, they have their uniforms, their rifles and such, and they are not as friendly." American troops do not, in a narrow sense, protect the Chinese. The U.S.

Army stations about 2,000 troops in Logar Province, where Aynak is located.

But anarmy spokesmansaid they generally patrolled well south of the mine area and had not provided direct security for Chinese investors or mine workers.

The Afghan National Police, which does protect the mine, was largely built and trained with American money. The 1,500 guards the police have posted in and around Aynak are special recruits not drawn from the main force, according to Maj. Gen. Sayed Kamal, who heads the National Police.

But the conclusion is inescapable: American troops have helped make Afghanistan safe for Chinese investment.

And there is no sense that either government objects to that reality. As diplomats and soldiers alike stress, the war in Afghanistan was never motivated by commercial prospects. Had an American company won Aynak, some Afghans noted wryly, critics inevitably would have accused the United States of waging war to seize the country’s mineral wealth. Moreover, if China succeeds in developing Aynak and generating revenue for the Kabul government, that helps achieve an American goal.

"To the extent that the Chinese bring Afghanistan up to speed and start paying a billion dollars a year in royalties," said a Western government official who has followed the Aynak project, "that would mean that Afghanistan is on a firmer ground to start paying for its own security."

CHINA STAYS OUT OF WAR EFFORT

 The Chinese, meanwhile, have rebuffed requests to join the Afghan war effort, saying that national policy forbids military action abroad except as part of a peacekeeping force. Instead, China’s foreign policy is based on commerce. Its state-owned companies have been snapping up energy and mineral resources worldwide for years now, often by overwhelming competitors with lavish offers.

In 2006, for example, another stateowned goliath known as C.M.E.C. swept the bidding for one of the world’s largest known iron ore deposits, in Gabon, by offering to build a 580-kilometer railroad to the nearly inaccessible mine site, two hydroelectricdamsto power the mine and a deepwater ocean port to export the ore.

Such splurges are both national strategy — China’s goal is to control long-term access to critical commodities— and a matter of necessity if Beijing is to keep its industrial empire running.

With 700 to 1,000 steel mills to feed, China is the world’s largest importer of iron ore. Similarly, China already imports 40 percent of the world’s copper.

If the Aynak venture differs from those in the past, both international and Afghan experts say, it is because it appears to be as much a strategic coup as a commercial one.

OPPORTUNITY IN SOUTHWEST ASIA

The United States views Southwest Asia mostly as a security threat. China sees it as an opportunity. Decades of military cooperation with Pakistan, which shares India as a rival, have flowered into an economic alliance.AChinese-built deepwater port in Gwadar, Pakistan, on the Gulf of Oman, is expected eventually to carry Middle Eastern oil and natural gas over the western Himalayas into China.

Afghanistan, which borders both Iran and Pakistan, drew scant attention from China until the middle of this decade.

Aynak’s riches had been known since Alexander the Great’s armies forged copper there 2,300 years ago. When the Soviet Union invaded Afghanistan in 1979, its geologists took core samples and mapped the Aynak deposit, but they were never able to begin mining.

The Soviets were succeeded by Osama bin Laden, who used Aynak as a training campwhile planning the Sept. 11 attacks. After the American-led invasion of Afghanistan, Afghan geologists rescued the Soviet surveys ofAynak and hid them until exploration could resume.

That exploration — a detailed overflight of much of the country by American surveyors in middecade — showed Afghanistan to be far richer in oil, natural gas, iron, copper and coal than anyone had imagined. Aynak, in particular, was judged a world-class copper deposit, not just huge but of unusually rich quality, and the government chose it as the first major mineral concession to be auctioned to developers.

To minimize corruption, the Afghan government decided, on the advice of American advisers, to ask the World Bank and a Colorado geological consulting firm to help oversee the bidding. A report last month in The Washington Post quoted an American official as charging that the Chinese had swayed the bid with $20 million or more in bribes to the mining minister, Muhammad Ibrahim Adel, who was recently dismissed from the Afghan government, in part because of the allegations.

Mr. Adel has denied the charge.

Foreign experts say that the possibility of bribery in Afghanistan, one of the world’s most corrupt nations, can hardly be ruled out. But they also say that the Chinese bid was so clearly superior to others that any bribe money might have been incidental to the outcome.

"This was not a backroom deal. This was not Adel, sitting in Beijing, cooking this up," said one of several international experts interviewed for this article.

"This was thoroughly vetted by the governments of the day." A. Rahman Ashraf is a veteran geologist and senior adviser on mining to Afghanistan’s president, Hamid Karzai.

Mr. Ashraf intervened in 2002 to stop Aynak’s mining rights from being sold under the table to a Korean bidder.

"Our wish was that this process must be very transparent," he said of Aynak, "because this is the first time. If it is not transparent, then nobody comes to the others." China won the bid, he said, for good reason: It offered a package deal, including power plants, railroads, smelters and coal mines, that no other bidder could match. And it promised to staff the entire venture with Afghan laborers and managers — many of whom must be trained from scratch in a country with little mining expertise.

"After five years, it’s only Afghan engineers," he said. "Only in administration do the Chinese stay." With government money and backing behind them, China’s state-run giants take risks in places that even the largest private behemoths will not tolerate, and they can add sweeteners — from railroads to mosques — that ordinary mining firms are ill equipped to provide.

Thewild card, of course, is that no outsiders can know how much of China’s Aynak venture is in fact brilliant strategy and howmuch is merely a potentially ruinous business deal by an overzealous corporation. Beijing’s corporate strategy is as opaque as it is overwhelming.

China Metallurgical, a Fortune Global 500 company that has so many subsidiaries that they are mostly identified by numbers, is a signal example. The corporation reports to the top level of the Chinese government. Big foreign investments like the one at Aynak require blessing at an equally high level.

Yet not all of those ventures are successes.

An M.C.C. copper mine in Pakistan is widely said to have serious environmental problems. A Pakistan lead mine has been dogged by conflict, including a suicide bombing that killed 29; residents accuse the company’s Chinese work force of stealing local jobs. In Papua New Guinea, 14 Chinese workers at an M.C.C. nickel mine were wounded in May in a pitched battle with local people who rioted over what they called intolerable working conditions.

That bid in 2006 for the iron mine in Gabon? Four years after C.M.E.C.

struck its deal, the bargain appears to be unwinding over hints of corruption and global objections to a dam that would destroy Kongou Falls, one of central Africa’s most treasured waterfalls.

WAS TOO MUCH PROMISED?

Not surprisingly, that record leads skeptics to suggest that in Afghanistan, M.C.C. may have overpromised and, later, will underdeliver. In interviews in Kabul, some experts said that M.C.C.’s Aynak bid had been so munificent that the company might be forced to renegotiate lavish payments of copper royalties to the Afghan government. Others predicted that the companywould be forced to shift parts of the project, like the yet-tobe- built railroad, to international donors.

China Metallurgical is not talking. Its officials not only refused to be interviewed for this article, they also sought to prohibit a journalist from photographing the mine site from afar.

But thecompany clearly is undeterred.

The Afghan government is seeking bids for its second great mineral project, a behemoth called Hajigak that is said to contain 60 billion tons of iron ore. There are seven finalists—all companies from India and China. M.C.C. is one of them.