Wall St. & Business Wednesday: China And Sudan Reap Benefits From Marriage Of Convenience

Most of the workers on the bridge building site are Sudanese, but amid the dust a few Chinese men in hard hats can be found supervising operations.

Behind the construction site are the Chinese living quarters, oriental lanterns hanging around the gate - and more Chinese flags.

Inside, Miao Qang and Liang Bin play computer games, joke about the heat and smoke "Stone Forest" Chinese cigarettes, two members of a growing Chinese population in Sudan, estimated to be about 5,000.

Since the mid-1990s, China has become a key trading partner for Sudan, investing about $4bn (£2bn) in the impoverished nation, from bridge building projects to power plant construction and, most significantly, oil production.

Crucially for Khartoum, the investment came when western nations would not touch conflict-ridden Sudan with a "barge-pole", according to one diplomat.

For most of the 16 years since President Omar Hassan al-Bashir seized power, his government has been treated as a pariah, a stigma that hampered the Islamic regime's dream of tapping into its oil resources.

Khartoum initially looked to western companies - the reserves were first explored by Chevron in the 1970s. But the government's reputation for sponsoring terrorism and human rights abuses put off most companies.

Their reticence was amplified by the fact that many oilfields are in southern Sudan, a region devastated by a 21-year civil war that ended only in January. US trade sanctions ensured no American companies invested in Sudan.

It was only when the government looked east, particularly to China, that the response was positive. "This was very important because it saved us in some strategic matters and it brought more income to the country," says Gutbi al-Mahdi, a presidential adviser. "For us it is very important to get oil, because an embargo on oil imports would put the country on the verge of collapse."

China has not just helped out economically in the eyes of the Sudanese. For the last nine months, as a crisis in Darfur region was thrust into the spotlight amid accusations of genocide and ethnic cleansing, the threat of sanctions has hung over Khartoum.

With the United Nations Security Council divided on what action to take, China has been key among those opposing harsher action against Sudan. "If it were not for China's involvement with us, all these punishments proposed by the American delegation would be passed," Mr Mahdi says. But diplomats in Khartoum question how far China would stick its neck out for Sudan, arguing that its role in Africa's largest nation is driven more by economics than politics.

"It can put a brake on the Security Council, but China also has a special interest with the US and if the US were to put Sudan on the China/US agenda, things could change," one diplomat says.

The impact of Chinese investment has been dramatic for Sudan. Campaigners such as Human Rights Watch, have called on Chinese oil companies to suspend their operations until human rights improve.

Sudan first began pumping oil in 1999, joining the ranks of oil exporters, and currently produces about 310,000 barrels a day, a figure it hopes to rise to 500,000 this year. The development occurred despite accusations that Khartoum was conducting a scorched-earth policy to clear oilfields and that oil revenue was enabling the government to buy arms to prosecute the southern war.

Rebels attacked a 1,506-km pipeline to Port Sudan built by China National Petroleum Corporation (CNPC) four times during construction. But the work went on.

"It was an opportunity for them [China]. They were not facing the usual competition and the Chinese government doesn't have NGOs, human rights groups lobbying them," a western diplomat says. "It's a marriage of convenience."

CNPC has stakes in six oil blocks, including the two currently producing. China imports about 6m metric tonnes of Sudanese crude oil, which is less than 10 per cent of total of the country's needs, according to the Chinese embassy.

But following the peace deal that ended the southern war and expectations of increased exploration, China hopes the figure will rise, the embassy says.

Estimates suggest Sudan has oil reserves of up to 3bn barrels, with proven reserves of about 631m barrels, and it is now China's third or fourth largest trading partner in Africa, behind South Africa and Egypt.

This article appears in The Financial Times.

Andrew England

Wednesday, March 23, 2005