Report

China's African Adventure

The disintegration of South Sudan, the world's newest country, is driving a foreign-policy shift in one of the world's oldest.

The maelstrom of violence in South Sudan shows no signs of abating, with rebel forces reportedly advancing on a pair of key oil-producing regions and massacred civilians piling up by the hundreds. The horrors have prompted outrage from senior officials at the United Nations and the United States -- but the biggest potential impact from the unrest could occur thousands of miles away, in Beijing.

The disintegration of the world's newest country is driving a profound shift in one of the world's oldest. China, which for decades has sought to pair globe-trotting economic ambitions with an inviolable "non-interference" approach to other countries' affairs, is departing from tradition to take an increasingly active role in the Sudan crisis.

China's African envoy, Zhong Jianhua, has blitzed the region in recent months trying to help craft a solution for South Sudan's internal strife, a stark contrast to the much-criticized, stand-off position China held just a few years ago when Khartoum ran roughshod over civilians but kept sending plenty of oil to Beijing. In February, Zhong told Reuters that China's hands-on approach to South Sudan represents a "new chapter" in Beijing's millennial foreign policy. Earlier this year, Zhong offered to facilitate mediations between the country's warring factions designed to wind down the fighting.

"China is taking a more active interest. They are trying to figure out just what it means to be a responsible, rising power," said Deborah Brautigam, an expert on Africa at Johns Hopkins School of Advanced International Studies. "Right now, Sudan is kind of the test case for how do you do shuttle diplomacy, how do you do negotiations, how do you try to be a peacekeeper, how do you take on a greater global role."

Beijing has already sharply ramped up its participation in U.N. peacekeeping activities and other international endeavors that it once denounced as interference in the sovereign affairs of other states. China is the biggest single contributor of U.N. peacekeepers, but they have almost always played support roles far from the front lines. Last year, however, China dispatched combat troops to Mali to help reduce tensions in the country's restive north, a first for Beijing.

To be sure, Beijing's willingness to inject itself into the South Sudanese crisis is driven by the simple fact that China buys almost 80 percent of South Sudanese oil exports and has watched with alarm as the current fighting has crippled the country's ability to produce and export oil to customers in Asia. Oil production in both Sudans has dropped from a peak of about 480,000 barrels a day in 2010 to about 160,000 barrels today, and even that last bit is under pressure from rebels in South Sudan, who have ordered international oil companies to pack up and leave as part of a strategy to cut off the main economic lifeline of the South Sudanese government.

China may also not have much of a choice. The cease-fire in South Sudan brokered in early 2014 imploded in the last week, with rebels advancing on key cities in oil-producing regions and slaughtering civilians as they went. The political nature of the fighting -- which pits Salva Kiir's South Sudanese government forces against rebels led by Riek Machar -- has by some accounts descended into an ethnic bloodletting. China has been caught in the middle; a pair of its oil workers were abducted by Machar's forces last week and Chinese oil firms have been told to leave the country.

The U.N. and the South Sudanese government blamed Machar's rebel forces for the purported slaughter of hundreds of civilians in the atrocities in the oil capital of Bentiu; Machar denied his troops were responsible. Samantha Power, the U.S. ambassador to the U.N., decried the violence on Thursday, calling it "outrageous" and saying that "the world's newest state is clearly on a precipice."

China's traditional interests in both Sudan and South Sudan, and its newfound interest as a mediator, were on full display in the wake of the attacks. China's foreign ministry on Wednesday "strongly condemned" the killings in Bentiu and called on "relevant parties in South Sudan to resolve their issues by pushing forward political dialogue and achieve reconciliation." But the ministry also called on South Sudan's government to better protect Chinese oil firms and workers there after the two workers were abducted last week.

Oil markets are not panicking about the interruptions to South Sudanese production the way they did late last year when rebels first threatened the country's oil fields. That is partly because escalating tensions in Ukraine weigh more heavily on energy markets, but also because South Sudan's oil sector has essentially gone walkabout since the country achieved independence from the north in 2011.

Oil production has fallen by half, even in relatively peaceful times, and oil exports have fallen even further due to disputes between Juba and Khartoum over how to share the proceeds of oil exports; the only pipeline to the sea goes north through Sudan. That is bad news for South Sudan, which the World Bank describes as "the most oil dependent country in the world," with oil accounting for about 97 percent of government revenues.

Despite the relatively paltry quantities, South Sudan's oil is still important to China, the world's biggest oil importer. In 2011, China bought about 80 percent of South Sudan's exports, or roughly 260,000 barrels a day; that provided 5 percent of China's crude oil imports. In 2012, the latest year for which full data is available, South Sudan exported about 50,000 barrels a day to China, or 1 percent of that country's imports. In percentage terms, South Sudan -- when its export capacity is at full blast -- provides a greater share of Chinese oil imports than Kuwait or Iraq do for the United States, underscoring its importance as a long-term source of supply for Beijing.

In the past, that kind of economic interest shaped China's view of Sudan as well as most other countries in which it did business. For years, China invested in, and bought oil, from the outcast regime of Sudanese president Omar al-Bashir; China also had friendly relations with a host of other rogue nations, from Libya to North Korea and Myanmar, that faced a battery of sanctions and other restrictions imposed by the West.

Much of that began to change in 2011. The civil uprising in Libya forced China to rethink its support for Muammar al-Qaddafi, and in fact China supported modest United Nations sanctions on leading Libyan officials. The hurried evacuation of Chinese civilians from Libya that year also brought home to Beijing the need to match security capabilities with its investment reach, lessons which are being applied in the rest of Africa today.

Likewise, the creation of South Sudan as an independent state in 2011 forced Beijing to recalibrate its relations with Khartoum and Juba, since most of the oil fields are in the newly independent south.

To be sure, oil still looms large in China's view of what's at stake in the Sudan crisis; last year, Princeton Lyman, the former U.S. envoy to South Sudan, criticized China for worrying more about the secure supply of crude than finding a solution to South Sudan's political problems. But in general, U.S. diplomats working in South Sudan have praised China's newfound political engagement.

So far, China's active diplomacy to find a solution for South Sudan's domestic woes has not been repeated in other countries. Beijing has maintained a relatively hands-off role regarding the crises in Syria and Ukraine, and China's forays into Middle East diplomacy have been limited to ensuring the free flow of energy resources, rather than dabbling in internal politics.

Still, the Sudan experiment could well serve as a template for China's future foreign policy, as the country learns how to leverage its influence rather than just its economic heft, Brautigam said.

"They'll do it in one place, and experiment, and learn from that, and I think that's what they're doing in Sudan," she said.

Kazuhiro Ibuki - AFP - Getty

Report

Terror Money Crackdown Also Complicates Life for Ordinary Somali-Americans

Rules designed to thwart criminals also disrupt immigrants sending money home.

Aden Hassan is getting used to rejection. He's been driving all over North Dakota and Minnesota over the past couple months looking for a bank that will do business with his company, Kaah Express, which helps Somali immigrants living in the United States wire money back home. Most of the banks won't even look at his application. If he can't find a partner, he may have to shut down some of his company's branches in far-flung places like Fargo, N.D.

"All the banks and credit unions seem to be reading from the same script," Hassan said from Minneapolis, where Kaah is based. Kaah is a privately-held money services company that operates in 13 U.S. states and transfers about $70 million a year to Africa and other parts of the U.S. Hassan is its compliance manager, so he's the one that banks want to talk to when they're considering whether or not to do business with the company. Kaah's branches use accounts at commercial banks to send money to the company's headquarters in Minneapolis, which then sends the funds to Somalia. Without those accounts, Kaah staffers across the country would have to drive the money to Minnesota themselves.

Hassan's struggles are an all too familiar problem for many Somalis. Growing numbers of banks are refusing to do business with Somali money transmitters like Hassan because they worry the Treasury Department will hold them responsible if any of the funds wind up in the hands of terrorists or criminals. In a stark illustration of the law of unintended consequences, the banks' eagerness to comply with U.S. rules designed to thwart the financing of terrorist groups are also making it harder for law-abiding immigrants to support their families in war-torn Somalia.

"It's making it more expensive, more difficult, and the level of anxiety is skyrocketing," said Rep. Keith Ellison (D-Minn.). He said the pool of banks willing to do business with the money transmitters in his district, which is home to more than a third of the total Somali-American population in the country, is rapidly shrinking. Ellison has drafted legislation designed to address the issue by streamlining regulations, but it hasn't gone anywhere.

"Treasury's job is to stop any terrorist financing and they've been successful at that," he said. "The problem is that they've stopped a whole lot of legitimate transfers, too."

In an email, a Treasury spokesperson said that the department remained engaged with the Somali-American community and that channels to transmit funds back to Somalia remain open. The spokesperson declined to offer any further details.

Many of the Somalis living in the United States would disagree. They complain that the Treasury crackdown could threaten the livelihood of friends and relatives back home, who are heavily dependent on remittances from abroad. Somalis abroad send home about $1.3 billion a year, which includes about $215 million from the United States, according to Oxfam. It's hard to get more precise figures because Somalia doesn't have a functioning central bank that keeps track of such things. The money is a vital source of income for people in Somalia, as the country has been gripped with violence and instability first from civil war and now from an insurgency led by Islamist militants belonging to a group called al-Shabaab. Though the instability makes the remittances all that more important, it also makes banks wary of doing business there for fear of accidentally handling a transfer for a terrorist, criminal, or someone else on a U.S. blacklist.

It's not an abstract concern for the banks. In 2012, HSBC paid $1.9 billion to settle charges that the bank's lack of rigorous oversight led it to do business with Mexican drug cartels and people in sanctioned countries like Iran and Libya. Last month, when Bell State Bank closed accounts that belonged to Kaah Express and other money transmitters in Fargo, the bank's security officer told the Associated Press that it made the move because of the risk of massive fines. The bank did not respond to requests for comment.

In a report earlier this month, the World Bank called the closing of accounts used to transmit money to Somalia and other fragile countries from the U.S. and Britain "worrying." "More needs to be done to ensure that anti-money laundering and combating the financing of terrorism (AML/CFT) regulations do not unduly undermine development objectives and harm the poor," the World Bank said in its biannual report on remittances.

In the years since the September 11, 2001 terrorist attacks, the Treasury Department has worked to make it harder for terror groups to raise needed funds. The huge fines imposed against banks like HSBC that are found to have transferred money to terrorists or criminals have grabbed the attention of other financial institutions and made them leery of sending money to countries where the local banking system is not up to U.S standards. Somalia is perceived as one of the riskiest countries to do business and many of the country's connections to the international financial system have fallen victim to the country's ongoing instability. When Barclays announced last summer that it was cutting ties with Somali money transmitters, a British court stalled the move because it was the only bank in the U.K. still working with Somalia.

In the United States, the issue came to a head at the end of 2011, when Somalia was suffering from famine and the main bank serving the Somali community in Minnesota, Sunrise Community Bank, decided to close the accounts that connected the Somalis to their home country. Companies that send money to Somalia, like Kaah, found new banks to work with at the time, but they still live with the constant threat that they'll be dropped. The latest issue with local accounts being closed only stokes the fear that eventually there may be no bank left willing to work with them.

Kaah Express has already had three accounts closed this year in Minnesota, North Dakota and Nebraska. That's why Hassan is scrambling to find a new bank. The accounts weren't the ones used to wire money to Somalia, but they were smaller accounts used by Kaah's branch offices to store customers' money. Now, Hassan says, agents from locations like Fargo have to drive the money to Minneapolis.

"We're trying very hard to avoid having to close our offices in the affected areas," Hassan said. But, Hassan added, he's not very optimistic that the situation will change.

Simon Maina/AFP/Getty