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China’s Unique Cash Pool for Building Africa|
2007-07-26 Caijing Magazine
Combining market principles with a desire to promote progress in Africa, the Beijing government’s China Development Bank has patterned its huge China-Africa Development Fund after private equity funds.
By staff reporter Zhang Yuzhe
China’s recent US＄ 3 billion injection into the U.S. private equity firm Blackstone Group may have attracted more media attention, but the Beijing government also turned heads by creating a huge, PE hybrid designed to accelerate development in Africa.
The China-Africa Development Fund was launched in June with an initial US＄ 1 billion and a goal of expanding the pool to US＄ 5 billion. Sponsored by the state but targeting private enterprise, the fund was formed with a unique structure that blends the practices of global PE firms and China’s industrial development funds.
At the helm is Beijing’s policymaking China Development Bank (CDB), which forecasts a 50-year lifespan for what’s being called the world’s largest, single fund aimed at African development.
But fund managers are not seeking purely capital returns. Building on CDB’s previous experience with six industrial funds, the China-Africa fund will continue the bank’s development model by combining commercial interests with political and economic needs.
Gao Jian, chairman of the new China-Africa Development Fund Co. and vice president of CDB, told Caijing that “profits are not the fund's first priority. The China-Africa Fund first seeks to advance economic, political, and societal development.
“At the same time, this is an independently managed fund operating on market principles and incurring a certain degree of risk,” Gao said. “If managed appropriately, the fund could realize significant gains.”
Gao's confidence is backed by CDB's previous investments. In recent years, the CDB has created a development lending model which, in terms of loans for basic construction, has exceeded those of commercial banks. Although CDB’s industrial fund has had extensive policy implications, it has provided valuable opportunities to accumulate experience and resources.
And support for the fund comes from the very top. The proposal was first advanced by President Hu Jintao 2006 at the China-Africa Summit Forum as one of his “Eight Actions for Africa.” Even though the China-Africa Fund operates according to market principles, it is different from purely private funds.
Gao drew a distinction between the fund and international assistance, saying aid programs usually only invest in a few projects and shoulder no risks. The new fund would neither focus on resources in Africa nor increase those nations' debts.
'Profiting from investments is not the fund's main aim,” Gao said. “The goal is integrating the Chinese and African economies in a way that is mutually beneficial to both countries.
'For instance, in recent years, Chinese companies had excess production capacity and started to climb the value chain, whereas African companies in the development stage had a hard time producing enough consumer goods.”
The fund's main purpose will be assisting in the recovery and development of African economies. One goal is to invest in projects to improve people’s lives, another is to invest in basic infrastructure -- housing, city infrastructure, water conservation, irrigation projects, and industrial zones.
“We will synthesize the relationship between risk and reward, improve companies' administrative structures, and gradually improve the level and efficiency of operations,” said Gao. The CDB also plans to appoint professional teams to handle management operations and risk control.
Gao told Caijing that, in the past two years, the CDB has provided traditional loans as part of China's outreach program to encourage Chinese companies to invest overseas. While these loans were small, totaling less than US＄ 1 billion, they gave the bank invaluable experience.
Reportedly, CDB is currently tracking 50 projects in Africa involving more than US ＄2 billion. Gao emphasized that CDB's outreach work could be beneficial to the China-Africa Fund as well. For example, some projects previously handled by traditional loans from the CDB might need additional equity funding that could be provided by the fund. Conversely, some projects could also benefit from CDB's loans.
“Adhering to national policy and economic goals is of greater importance than commercial benefit,” Gao said. “We have to be aware of international norms while satisfying domestic interests. We have to be aware of political and economic requirements, but also the requirements CDB places on us as a commercial organization.'
http://www.caijing.com.cn/newcn/ ... 7-07-26/25483.shtml