Via NY Times, by Farah Halime
CAIRO — As other investors flee Egypt because of worries about the country’s rocky transition to democracy, Chinese companies are pouring money into Egyptian projects in the hopes of accessing a huge domestic market and acquiring a base for exports to the Middle East.
China’s interest in Egypt is driven by a desire to gain a strong foothold in a key African market positioned at the juncture of three continents. Egypt also has a large labor force that Chinese companies could put to work.
China has invested in other countries in Africa like Angola, Libya and Sudan, where China’s need for oil and other natural resources to fuel its growing economy outweighs the political risks of investing in those markets.
Egypt was China’s third-largest export market in Africa last year, after South Africa and Nigeria, according to United Nations trade data.
For Egypt, China’s investment drive offers an opportunity to solicit bids on construction projects at low prices. Nabil Abdel Hamid Hassan, the head of the Asia unit at the Ministry of International Cooperation in Egypt, said some projects would receive financing known as concessional loans from Chinese companies, funding with advantageous conditions that few other countries are willing to provide at this time.
“We are now planning to draw up a strategy with China,” he said, “and instead of offering some kind of grant, to agree together about a three-to-four-year strategy to specify megaprojects financed and implemented by the Chinese.”
On Mr. Morsi’s visit, China agreed to loan Egypt $200 million, and deals were signed in agriculture and telecommunications.
Egypt has had a choppy relationship with China. Much of Egyptian industry has come under pressure from cheaper Chinese exports.
Regardless, the Chinese government has not hesitated to court the country, with some of its largest companies wading in. Shanghai Construction, for example, is completing a five-star hotel at a Cairo exhibition center following a Chinese government directive.
The Chinese are attracted to Egypt’s massive market for cheap consumer goods and an expansive and relatively cheap labor force. Egypt’s large number of preferential trade agreements with Europe, Africa and the Middle East, along with the Suez Canal, one of the world’s most important waterways, also make it a prime location, said Chen Lin, the commercial counselor at the Chinese Embassy in Egypt.
“A lot of Chinese manufacturers are under pressure to lower costs,” Mr. Lin said, “and Egypt specifically has a very rich human resources to meet that demand.”
Trade between the two countries was $8.8 billion last year, up 40 percent from 2008, according to the Egyptian Ministry of Commerce. China’s exports to Egypt came to $5.4 billion last year, making it the second-largest supplier to the country after the United States, which exported $6.3 billion, according to U.N. data.
Though China’s exports significantly outweigh its foreign direct investment into Egypt, which stood at $47.8 million last year, Mr Lin said the growth rate of such investment was rising faster than exports.
One area that appeals to the Chinese is automobile assembly. Ghabbour Auto, the Egyptian auto assembler that controls a third of the country’s passenger car market, said this year that it would begin putting together and distributing cars across North Africa from China’s Geely, the carmaker that bought Volvo in 2010.
Ghabbour already imports and distributes Hyundai vehicles in Iraq as part of a $80 million joint venture. The company plans to work with at least three or four other Chinese companies this year, said Menatella Sadek, director of corporate finance and investments at Ghabbour.
Other Chinese carmakers, including Brilliance Auto and Great Wall Motors, say they see Egypt as a hub from which they can sell into the North African and European markets.
In a sign of the two countries’ ever closer ties, an economic zone run by the Chinese on the outskirts of Cairo, in the governorate of Suez, is already looking to expand.
Egypt-TEDA Investment, a joint venture with the Egyptian government, runs the zone, where Chinese and Egyptian firms can set up manufacturing and trading operations with the help of certain government concessions. TEDA, or the Tianjin Economic and Technological Development Area, already runs an economic zone in northern China and has established five other such zones in Africa.
The Chinese want to invest over $200 million in the zone, which is popular because of its proximity to the Suez Canal and the trade agreements under the Suez Economic and Trade Cooperation zone. With about 30 textile, petroleum and automobile companies up and running, TEDA executives say they need more space: up to four times as much.
“After the revolution, some of the partners to Egypt were a little hesitant to continue cooperation,” Mr. Hassan of the Ministry of International Cooperation said. “But an exception of that is China.”