China’s Libya play

Anxious to resume its operations in Libya whatever the outcome of the conflict there, China has stepped up its contacts with both sides of the confrontation between Muammar Gaddafi and his opponents. In doing so, it has deviated from its official policy of non-interference in the affairs of other countries but it sees an opportunity to use its leverage to ensure that it gets back into the North African country at the earliest possible opportunity and resumes oil supplies.

Before the fighting broke out, the PRC had 35,000 workers in Libya engaged on a string of projects in oil, telecommunications and railways, run by 13 state companies. They were swiftly evacuated. The Communist Party newspaper, Global Times, has reported that only 5.68 per cent of losses suffered by PRC firms in Libya were covered by insurance. It put total losses at US$20 billion.

China Railway Construction (1186 HK) suspended operations on its three Libyan projects in March. They were worth a combined total of US$4.24 billion, with work amounting to US$3.65 billion still to be done. China State Construction Engineering (3311 HK) had a US$1.16 billion contract to build 20,000 homes – only half the work has been done. China National Petroleum Corporation has oil and gas assets and is building a pipeline in Libya; it said some of its facilities had come under attack early in the fighting.

Politically, China’s decision not to wield its United Nations veto to prevent military action against Gaddafi has become a matter of debate in Beijing as the NATO action has failed to lead to a quick outcome. Hu Jintao criticized the action in a conversation with President Sarkozy of France and some PLA generals are reported to have denounced the decision not to use the UN veto.

Now, in an unusual round of activity with both sides of the conflict, China has opened a channel to the rebels while maintaining its contact with the Gaddafi regime through the Libyan embassy in Beijing. Mahmud Jibril, the most senior foreign affairs official in the opposition's National Transitional Council (NTC), arrived in China on Tuesday to meet Foreign Minister Yang Jiechi.

This followed meetings between Chinese diplomats and Mustapha Abdul-Jalil, head of the NTC, in Doha and the rebel centre of Benghazi. A Foreign Ministry spokesman said the PRC’s immediate aim was “to promote peace and encourage talks" since the situation “should not be left as it is any more". Jibril is expected to ask China for cash – France, Italy, Kuwait and Qatar have already answered the call for financial support from the rebels; if China did so, it would be a major step.