“China needs natural resources and Angola needs development.” (1) The words of President dos Santos, Angola’s dictator, perfectly describe the Sino-Angolan economic relationship. China’s economic involvement in Angola is multifaceted. Loans, trade agreements, and investment ventures are all being used in an effort to secure more oil concessions, and the vehicle of choice has been her numerous state-owned companies.

Oil Loans

In 2004, the Chinese Eximbank, China’s leading bank that was created to implement state policies and globally promote Chinese products and services, agreed to provide a low interest $2 billion development loan to the Angolan government.

Unlike the IMF, Eximbank didn’t make any requests for structural adjustment policies from Angola. But the funds had to be specifically used for infrastructural projects such as housing and transportation, and, here comes the good stuff, the Angolan government would have to reward 70% of the projects to Chinese firms and 50% of the procured materials would have to come from China (2).

With a five-year grace period, the loan was to be gradually repaid in barrels of oil over twelve-years. This is a familiar Chinese strategy that ensures a steady flow of oil regardless of any turbulent market behavior.

(In 2009, China reached a similar agreement with two Russian oil companies. The Chinese government provided a $25 billion loan and will receive in return 2.2 billion barrels of oil over the next 20 years at around $20 per barrel.)

So, when China agreed to the $2 billion loan, Angola was in return obliged to hire Chinese companies, which would use Chinese materials. China, therefore, would get her promised oil barrels as a repayment for the loan plus the loan funds, while Angola would gain the promised infrastructural upgrade.

The arrangement might seem beneficial for Angola, for it ensured that the money would actually be spent on roads, houses, railroads and not stolen by corrupt Angolan bureaucrats, but, actually, it was detrimental for the local economy: Chinese companies notoriously employ their own workers in foreign projects, thus hurting both the local industry and labor force.