China-Libya ties still vital

The deaths of Muammar Gadhafi and his son Mutassim signify the complete fall of Gadhafi's regime, which ruled Libya for 42 years. They signify the end of the Libyan civil war, too.

Now, the Libyan people and other countries, including China, are rightfully focusing on the country's reconstruction.

China has always wanted Libya and its people to prosper. Before the civil war China had 50 contracted projects in Libya worth $18.8 billion. The trade volume between China and Libya last year reached $6.58 billion, while the amount of newly signed projects in 2009 totaled $5.84 billion. And by the end of 2009, China had a direct investment of $42.69 million in Libya.

The Libyan market may not account for a big share of China's exports and project contracts, but it is still important. But how and when China should return to this market largely depends on the restoration of social order in the country.

Among the three-pronged trade and economic relations with Libya, the social and political turmoil affected the exports of goods the least. Direct investment faces the highest risk because it could be easily affected by the chaos, and project contracts lie in between the two.

If Libya gets a stable and authoritative government, complete with a fast-stabilizing society as well as open foreign and economic policies quickly, Chinese enterprises could adopt a strategy to boost their goods' trade and project contracts, and even strive to win new project contracts or launch direct investment to gain oil and gas exploitation projects. If not, they should concentrate on developing goods' trade contracts to avoid making futile efforts.

But the chance of a new Libyan government bringing stability soon is remote.

The armed forces of Libya's National Transitional Council (NTC) do not appear capable of meeting the challenge of restoring the social order. This came to light when the NTC's weak fighting capacity was revealed - there were more than enough indications that Gadhafi could have quelled the opposition if NATO had not intervened.

Also, NTC's extremely undisciplined military may become a source of turmoil rather than a tool to maintain social order.

It seems that national unity cannot be realized in Libya any time soon. Instead, the civil war-generated hostile relations will persist for a long time because remnants of pro-Gadhafi groups could start a long-term guerrilla campaign.

Because of fierce rivalries among NTC's factions, it would take a long time for the political situation to calm down. Before that, it would be unlikely for an unstable government to launch large-scale construction projects or directly invest to develop projects. And even if bids are received, the results could be overturned because of the change in the political situation.

Besides, even if an authoritative leadership is established and manages to achieve social stability after NTC's rival factions end their squabbles, the new government may not necessarily pursue open foreign and economic policies, or even maintain a secular system.

In fact, at the liberation ceremony of Libya on Oct 23, Mustafa Abdel Jalil, chairman of NTC, declared that the country would restore the Shariah (Islamic law) and abolish all the laws and regulations that secular Gadhafi had implemented which didn't accord with it, such as polygamy. This demonstrates the danger the country faces in retrogressing from a society guided by secularism to a society run by fanatics or fanatic laws. Under such circumstances, it is very likely that political turmoil in Libya will continue, making it impossible to frame and implement large-scale building projects and gain oil and gas exploration and exploitation projects.

Therefore, China should not make excessive efforts to compete in these two fields. Rather it should urge Libya to pay its dues for the projects, finish the uncompleted projects, maintain the completed ones and take forward its economic restructuring.

The shaky foundation of Libya's domestic manufacturing industry, which has been further damaged by the civil war, has increased its demand for imported goods, which is a good opportunity for China. Crude oil import from Libya account for 2 to 3 percent of China's total oil product imports and by no means affect China's oil supply no matter how changeable the Libyan political situation is. Moreover, since the bullish market of primary products has ended, no petroleum exporting country will ignore China, the world's second largest oil consumer growing at a fast speed.

In fact, Libya's first ship of crude oil was sold to China after the end of the civil war. During the first eight months of this year, trade in goods between China and Libya reached $2.16 billion, down 51.4 percent year-on-year, among which China's export to Libya was $479 million, down 67.2 percent, while China's import from Libya was $1.68 billion, down 43.6 percent.

This augurs well for bilateral trade.

The author is a researcher with the Chinese Academy of International Trade and Economic Cooperation, affiliated to the Ministry of Commerce.

(China Daily 11/02/2011 page9)