Rising China and Africa's development: oil
Rising China and Africa's development: oil

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Rising China and Africa's development: oil

2 How the Chinese deal with risk

How the Chinese government and oil companies perceive and deal with risk is one way in which their investment approach is seen to differ from that of the more traditional – Western – oil companies. The common assessment put forward is that the Chinese approach is much less risk averse, which can have negative implications for African economies in a number of ways. They are seen by some to be more prepared to negotiate with unscrupulous political elites and authoritarian regimes, colluding in corruption and bribery to secure more favourable terms, and employ operational practices that place little importance on environmental protection, resulting in degradation. Can it be as simple as saying that the Chinese are willing to take more risks, and, if so, what is their underlying rationale?

Activity 1 Learning from failure: China’s overseas oil investments

The following excerpts are taken from a paper by Susana Moreira (2013) examining the evolution of CNOC risk strategy in three key phases since ‘going out’ in 1993: Learning from failure: China’s overseas oil investments [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .

As you read about the oil companies’ approach to risk into foreign oil markets, complete the activity in the following way:

  • Write down the ways in which Moreira’s analysis of China’s risk strategy might challenge the common assumptions made about the way it invests in oil in Africa.


What can be taken from Moreira’s evaluation is that Chinese oil companies view of and approach to risk is more than just saying that the Chinese do things differently. The early investment strategy is the product of a nuanced blend of contending conditions. There was the imperative to secure new markets because of the dwindling reserves at home that could have forced risker decisions, but there were more subtle influences at play, such as a business culture based on cultivating strong personal relationships, which suggests a more nuanced reading of relations with African elites than just that they are willing to engage in corruption and bribery.

One of the most poignant features of Moreira’s account points to the inexperience of the CNOCs in those early years, and she goes on to say that there are ‘several instances in which the interests of Chinese NOCs have been undermined due to poor management of political risk’ (p.131). Part of the problem can be attributed to a lack of understanding of the local context that comes from a ‘one-size-fits-all’ policy. What is important to understand is that China’s approach to investment has not remained static since this time but has been evolving and adapting as they have expanded into new countries and learnt from greater exposure to international markets, entering into more Joint Ventures and Production Sharing Agreements (PSAs) with other oil companies. (Production Sharing Agreements are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extracted from the country each will receive.)


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