Guinea Coup Strains China’s Supply Chains, Tests Non-interference Policy

When Lieutenant-Colonel Mamady Doumbouya staged a military coup and detained Guinean President Alpha Condé on September 5, officials in Beijing were not pleased. The small West African country plays a crucial role in China’s mineral supply chains and broader Belt and Road expansion across Africa. The forced change in leadership, unanticipated by Beijing, now jeopardizes its economic projects and challenges China’s professed commitment to non-interference.

Supply chains are Beijing’s biggest worry regarding the coup. Guinea is the world’s largest exporter of bauxite, the primary ore from which aluminium is extracted, and it provides a substantial 55 percent of China’s bauxite imports. China in turn is the world’s biggest producer of aluminium, with its exports of the metal in 2020 amounting to $24 billion. A supply chain disruption could therefore have far-reaching consequences in the Chinese and global economies. Will Horner at the Wall Street Journal described the market shock after the coup:

Aluminum prices rose to their highest level in 10 years Monday after a military coup in mineral-rich Guinea threatened to snarl the lightweight metal’s supply chain.

As of noon ET, three-month aluminum forward contracts on the London Metal Exchange rose 1.3% to $2,768 a metric ton, their highest level since early 2011.

Shares of mining companies and aluminum producers also jumped. Hong Kong-listed shares of Russia’s United Co. Rusal PLC rose over 14% by the close of trading Monday, while Aluminum Corporation of China Ltd. rose over 5%. Australian bauxite miner South32 Ltd. rose 2.1% in Sydney.

[…] The army reopened the country’s land and air borders on Monday after closing them in the immediate aftermath of the coup. Any closure of the border would threaten to snarl the global bauxite supply chain, said John Meyer, a mining analyst at SP Angel. [Source]

In addition to bauxite, Guinea hosts a significant amount of iron ore, a primary ingredient for steel production. Luo Guoping and Han Wei from Caixin explained Guinea’s importance to Chinese steel companies:

Simandou, a 110-kilometer range of hills deep in the hinterland of Guinea in Western Africa, boasts the world’s largest untapped iron ore reserves. They could reshape the global supply chain of the critical ingredient of steel, the world’s second-most traded commodity behind crude oil.

[…] It is considered the world’s largest, highest-quality iron ore deposit. Some industry experts project it could produce as much as 150 million tons of iron ore a year, equivalent to 7% of global production in 2019. Developing the deposits could save China, the world’s largest steelmaking country, billions of dollars a year.

[…] Chinese investors are among the main forces pushing the project forward as a new source of iron ore that could bring down prices for China’s steel mills. In 2019, China imported more than 1 billion tons of iron ore, 70% of the global supply and 80% of the country’s total demand. About 80% of China’s iron ore imports come from the four largest mining companies — Brazil’s Vale S.A. and Australia-based Rio Tinto, BHP Group Ltd. and Fortescue Metals Group.

[…] Heavy reliance on foreign supply makes Chinese steel-makers especially vulnerable to iron ore prices. Every $10 increase of the price of a ton of iron ore will lead to an extra $10 billion of spending by China every year, analysts estimate. [Source]

Reporters at Global Times also described other scenarios, beyond supply chains, that would put Chinese economic interests at risk:

The new government may seek to review the signed contracts and propose altering existing terms, including diluting the shares held by Chinese investors, the embassy official said. “Or there could be higher taxes and local involvement in mining projects.”

As the military government has been criticized by international organizations and major countries, possible international sanctions on Guinea will also have collateral damage on Chinese enterprises’ projects, said the official, who also listed other potential impacts such as the solvency issue of the potential new government, rising security hazards and a general economic slowdown. [Source]

China does not have many good alternatives in the event of a prolonged supply chain disruption in Guinea. After Guinea’s 55 percent, China’s next biggest bauxite supplier is Australia, which provides another 31 percent of Chinese bauxite imports. China also relies on Australia for 60 percent of its iron ore imports. As a result of the coup, China may become more dependent on Australian bauxite and iron ore at a time of persistently strained bilateral relations. Following Canberra’s call in 2020 for an independent investigation into the COVID-19 pandemic’s origins, Beijing restricted imports on a wide range of Australian products, kicking off a trade war. Diplomatic relations between the two countries have spiraled, with the arrest of Australian journalist Cheng Lei and the forced flight of several Australian journalists from Beijing in 2020.

Another result of the coup is a renewed spotlight on China’s proclaimed principle of non-interference in international relations. Contrary to its commitment, China displayed an uncharacteristically critical tone when commenting on the internal change in power. Chinese Foreign Ministry spokesman Wang Wenbin stated, “China opposes coup attempts to seize power and calls for the immediate release of President Condé.” Normally, when it comes to coups, China does not interfere in internal developments of other countries in order to respect “the will of the people.” At Foreign Policy, Charles Dunst described China’s selective use of non-interference and realist response to the Guinean coup:

In recent years, China engaged Myanmar’s military (and the ethnic insurgent groups that fought against it and controlled pockets of the country), even as it deepened ties with the quasi-democratic civilian government, putting Beijing in a decent position when the military took power in a February coup. In Afghanistan, China engaged the Taliban as the Ghani government collapsed. In Sudan (and what would become South Sudan), China supported secessionist insurgents after first backing the government they were fighting against, securing major oil investments in both countries.

[…] China is evidently willing to back anyone who supports Chinese interests and will not hesitate to discard any ousted leader, even the most pro-China ones. But because the Guinea coup came far out of left field, China was unprepared. Beijing had not cultivated relationships with any of Condé’s opponents, so Chinese leaders had no cards to play. They had no plan B in Guinea.

And because Doumbouya justified the coup on the populist grounds of beating back government “mismanagement” and returning power and money to the people—which perhaps explains why crowds in Conakry are celebrating the takeover—China was left with little options but to back their leader.

[…] China’s anti-coup stance in Guinea is not evidence of some newfound concern for democracy. Instead, it’s evidence that the coup caught China off guard. And with a potentially less China-friendly regime coming into power, Chinese leaders found themselves with no choice but to stick by Condé in hopes that he is eventually reinstalled. [Source]

The coup in Guinea also exposes risks to China’s Belt and Road expansion across Africa. Amid such political turmoil, wrote Jevans Nyabiage in the South China Morning Post, China may shrink its investments in the Sahel:

There is a growing uneasiness in the larger Sahel that recent coups could lead to more political instability in a region where China has been looking to extend its multibillion-dollar trade and investment scheme, the Belt and Road Initiative.

[…] Ramani said the spate of coups in Mali, Chad and Guinea certainly reduced the Sahel’s appeal as a frontier of expansion for the belt and road plan. He added that China was likely to maintain its peacekeeping presence in Mali, but might be deterred from making major new investments.

[…] The Sahel region, which extending from the Atlantic coast of Senegal to Eritrea on the Red Sea coast, is a strategic point for China’s trade ambitions in Africa. Its investments in the region are vast – in Senegal, Niger, Chad, Nigeria, Sudan, and Burkina Faso.

[…] Mohammed Soliman, a scholar at the Middle East Institute in Washington, said the Sahel region is central to Beijing’s Africa strategy and the Belt and Road Initiative’s broader objectives.

“Indeed, the emerging trend of military coups d’etat threatens the security and stability of the broader region in a way that would jeopardise Beijing’s objectives and existing investment in infrastructure projects across the region,” he said. [Source]

Issues in other African countries have further complicated China’s supply chains in the continent. In the Democratic Republic of Congo (DRC), President Tshisekedi called for a review of Chinese mining contracts. The DRC, one of China’s latest BRI partner countries and among China’s top trade and investment destinations in Africa, is a major source of China’s cobalt and coltan, crucial ingredients in batteries for electric cars, computers, and smartphones. Aaron Ross and Karin Strohecker from Reuters reported on the DRC’s new scrutiny of Chinese investment:

President Felix Tshisekedi said in May that some mining contracts could be reviewed because of concerns they are not sufficiently benefiting Congo, which is the world’s largest producer of cobalt and Africa’s leading miner of copper.

His government announced this month it had formed a commission to reassess the reserves and resources at China Molybdenum’s massive Tenke Fungurume copper and cobalt mine in order to “fairly lay claim to (its) rights”.

Kazadi said in an interview that the 2007 deal agreed with Chinese state-owned firms Sinohydro Corp and China Railway Group Limited was also being reviewed to ensure it is “fair” and “effective”.

[…] Chinese investors control about 70% of Congo’s mining sector, according to Congo’s chamber of mines, after snapping up lucrative projects from Western companies in recent years. [Source]

Worried about losing access to Congolese resources, Chinese officials have tried to highlight the positive effects of their engagement in the DRC and their compliance with local laws:

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