By James Crickton*

Since 2011, the China National Petroleum   Corporation has been eyeing South Sudan’s   oil reserves with 3.5 billion barrels  a day. Unfortunately, however, the country lacked a proper structure that could help enhance its economic portfolio.

Sudan’s untapped oil reserves were not a new find for China; it had already entered the Sudanese oil industry way back in 1996. Even though the US imposed heavy sanctions on Sudan back then, the Chinese continued to relentlessly pursue their interests in the war-torn nation.

For China, Africa is crucial in terms of successful encroachment of trade routes to expand its ambitious Belt and Road Initiative. When South Sudan was marred by civil war, China stationed more than 1000 troops in the country. This was their first-ever deployment under the UN Peacekeeping Mission in South Sudan, evidently to safeguard its overseas investments and business links.

For China, Africa is crucial in terms of successful encroachment of trade routes to expand its ambitious Belt and Road Initiative. When South Sudan was marred by civil war, China stationed more than 1000 troops in the country. This was their first-ever deployment under the UN Peacekeeping Mission in South Sudan, evidently to safeguard its overseas investments and business links.

China National Petroleum Corporation (CNPC) and Greater Pioneer Operating Company (GPOC) were the main entities whose interests had to be protected. Considering that China claims to be non-interventionist in other’s internal affairs, South Sudan was projected as an aberration to that principle. China views this country as a great opportunity for securing oil income, fulfilling infrastructure needs, accessing cheap labor and above all no competition from Japan and the US.

South Sudan accounts for only 2% of China’s oil needs. Since the profit margins are as high as 50%, access to this vital resource suits the risk appetite of the Chinese ventures. In recent times, South Sudan’s oil fields are reaching maturity and nearing depletion despite the country trying to mitigate the declining output by using enhanced oil recovery techniques.

With the absence of production of natural gas both Sudan and South Sudan are left with zero alternative resources.

On the other hand, China reportedly exports 80- 95 percent of the oil being generated in this country leaving South Sudan completely helpless and vulnerable to Chinese exploitation. Beijing’s new tactic involves bartering oil for developing infrastructure in the region. South Sudan tripled the amount of oil it is providing to the Export-Import Bank of China to fund one of biggest infrastructure[1]development project in the country. It is supplying 30,000 bpd (barrels per day) of oil compared to 10,000 bdp in the past to China Eximbank. The bank has financed a hefty loan to build a 392-kilometer (244-mile) road from the capital city of Juba to Rumbek in the central region.

With this significant financial deal, China will be able to increase its crude reserves by deliberately stretching the duration to complete the infrastructure project. Exploiting gold reserves:

Following the separation of South Sudan from Sudan in 2011, the entire region needed to increase its mineral production, precisely gold, to compensate the loss of around 75 percent of its oil revenues.

China made significant headway offering lucrative investments promising enhanced technical support to extract precious minerals. China came to Sudan in 1970 to trace Chromite deposits and in the process conducted various geological surveys and found abundance of minerals including gold deposits. In 2010, China again sent several groups of geologists to conduct geochemical surveys of five blocks in Kassala and Red Sea states in collaboration with Sudanese mining experts to trace gold and other natural resources in the region.

After the survey, China sensed a huge opportunity for its enterprises and dispatched around 23 Chinese entities (mainly small-scale enterprises) to extract gold, chromite, black sand and marble across 30 mining fields. These companies invested hundreds of millions of US dollars to expand their business in the region but soon encountered hurdles.

Miners who operated within the legal framework established by the central and local governments were facing restrictions and potential losses. On the other hand, Chinese traders, who were allowed to exploit only some restricted mines were staring at these firms experiencing problems and decided to capitalize on them. In order to minimize losses, the Chinese traders adopted alternate ways to invest in South Sudan’s gold market in Kapoeta, where much of the illegal mining was taking place.

China reportedly made investments as shareholders in the mining companies controlled by the President’s family or the royal families of Sudan and tapped into these restricted mines with absolute ease.

In return, the Chinese companies provided huge investments and supplied advanced gold treatment machinery for extraction. This eventually allowed Chinese investors to grab lands and obtain mining licenses of untapped reserves without any hurdles or local hindrances.

Threat from Chinese private securities agencies: Both Sudan and South Sudan don’t have clear laws or regulations restricting operations of foreign private security companies (PSC). In fact, the arms control legislation in the region does not mention PSCs. There are no provisions that openly allow private security contractors to carry and use firearms even if they have a license.

By 2013, more than 100 Chinese-funded enterprises were registered in South Sudan, covering energy, engineering, construction, telecommunications, medical services, hotels, restaurants, and retail.

Before 2020 ended, China had invested heavily in several hydropower projects, considering it to be the most emerging sector and a stimulus to its development.

Apart from hydro power, China has also been eyeing the South Sudanese power distribution and transmission network for which hectic negotiation are underway to obtain deals. These increased business activities allowed Chinese enterprises to promote their PSCs to oversee their ventures and staff. In July 2016, despite not being formally recognized, a Chinese PSC made headlines after getting involved in a skirmish in the South Sudanese capital of Juba.

More details were publicly revealed in this case, showing that although Chinese PSCs in the region still tend to focus on security consulting, they are sometimes be dragged into combat scenarios for which they are largely unprepared.

In this particular case, the PSC Beijing DeWe Security Services (DeWe) was called into protect the employees of CNPC (its main client in the country) and to help evacuate 330 civilians to Nairobi, Kenya, after a shooting started between warring local factions in South Sudan. Embroiled in a debt rigmarole: In 2020 Sudan was unable to get concessional loans from the World Bank due to its protracted non-accrual status.

In the absence of sustained foreign engagement, South Sudan has been enslaved by Chinese influence leading to its economic depreciation at a time when it should have been reaping the benefits of a hard fought independence.

Moreover, Sudan is restricted as per the IMF and World Bank classification to participate in G20’s Debt Suspension Initiative (DSSI), leaving it hankering in Chinese debt which represents a substantial share of Sudan’s external debt stocks that has increased from US$ 174 million in 2002 to US$ 4.4 billion in 2017. Today it accounts for 20% of Sudan’s total external debt stocks nearing $7 billion.

By the end of 2020, Sudan owed $2.5 billion to China National Petroleum Corporation alone. In the last decade, the civil war in Sudan has allowed the Chinese to unleash its economic and military power in the region.

Like Sudan and South Sudan, many African nations played into the Chinese debt trap strategy, eventually losing their prime assets and vital natural resources.

It is unfortunate that in the absence of sustained foreign engagement, South Sudan has been enslaved by Chinese influence leading to its economic depreciation at a time when it should have been reaping the benefits of a hard fought independence,’

*About the author: The writer is a London based business analyst with ficus on China and Africa