China’s Aspirations to Expand Beyond Its Boundaries

China’s Aspirations to Expand Beyond Its Boundaries

photo: SarahTz

It does take a real entrepreneurial spirit and some imagination, to vision that China’s influence and access could now stretch to the Indian Ocean, but it is what will happen, with the new project, announced in these days of the new China-Pakistan Economic Corridor (CPEC) which will run from Gwadar in Pakistan to China’s western Xinjiang region, supported by an historical agreement of over $46bn.[1] The agreement with Pakistan is not coming as a standalone monumental investment. China has been nothing less than the poster child of economic growth. Even though the country is expected to achieve “only” single digit growth rate in the coming years, it remains one of the fastest growing economies in the world. China’s economic success was, in part, the result of it being the recipient of huge amount of foreign direct investment.

Less well-known however is the fact that the country is swiftly becoming one of the largest “emerging” investors, especially in Sub-Saharan Africa, with the biggest investments made in Nigeria, Sudan, South Africa and Angola (see figure 1).[2] Indeed, the amount of investments made by China abroad is estimated to be US$531 billion, with 4% of it — US$22 billion – gone to Africa.[3] A small sum at first glance, but its economic impact to the region is both huge and far-reaching. In addition to investment projects, China is quickly becoming the continent’s main trading partner, with trading volume reaching US$166 billion.[4] This is likely to continue to increase, reaching an estimated US$1.7 trillion by 2030.[5]

“How would you feel if we went and killed all your pandas?”

While more investment and trades could bring enormous economic benefits to the various countries in the region, they are often viewed with suspicion. For many, the ever increasing number of Chinese companies is destroying their local counterparts, along with the jobs that they provide. The growing Chinese presence in Africa could have cost South Africa 75,000 jobs in the period between 2000 and 2011.[6] In Nigeria, the influx of low-priced Chinese textile goods have caused 80% of Nigerian companies in this industry to close.

In these cases, it is easy to argue that African companies are merely insufficiently competitive. Yet, this could also be the result of Chinese firms bending or even breaking rules and regulations. And local sensitivities are routinely ignored. For instance, at Chinese-run mines in Zambia’s copper belt, employees must work for two years before they get safety helmets. Ventilation below ground is poor and deadly accidents occur almost on a daily basis.[7] In Ghana, Chinese firms have targeted gold mines too small to be of interest to larger companies. Moreover, they have the financial resources to bring in equipment unavailable to small-scale Ghanaian prospectors, and consequently taking away gold mining opportunities from the locals. By law, mining on small plots of 25 acres or less is restricted to Ghanaian nationals. However, many Chinese continue to explore for gold in conjunction with local landowners even though regulations have made it clear that such practice is illegal.[8] The result: many Africans see themselves to be exploited by the newcomers.

Perhaps making matter worse, the kinds of goods that the two partners trade with each other have done little to change such perception (see figure 2). Whereas China buys from Africa mainly natural resources – minerals and metals, African countries have been importing processed goods from China that range from machinery & electrical goods to transportation to plastics and rubber. Such arrangement could be benefits for both trading parties. Yet, it can easily been interpreted as China continuously exploits natural resources to feed its need for industrial output. At the same time, by exporting cheap – and often shoddy –manufactured goods to African countries, not only local companies can no longer compete effectively, but also strengthening their dependency on China in providing goods.

Recent research has also suggested that the Chinese presence has failed to bring significant skill developments, adequate technological transfer or any measurable upgrade to the productivity levels to this part of the world.[9] Small wonder that many Africans say they feel under siege.[10] The sentiments and attitudes to Chinese influence in Africa is perhaps best captured when the following question was put to a Chinese journalist by a Kenyan game warden: “How would you feel if we went and killed all your pandas?”[11]

2015: Will China alter its agenda in Africa?

As we speak, the 6th forum on China’s Africa Cooperation (FOCAC) is already being held in South Africa. This time’s forum will be the first held under President Xi’s administration which is expected to announce more outward FDI (OFDI) to the African continent. Viewing the past trends of China OFDI, (US$5 billion in 2006, US$10 billion in 2009, US$20 billion in 2012), China is most likely to announce another line of OFDI this year. Most of the investments in past have been routinely cast as detrimental to Africa’s overall competitiveness since these projects are dependent on deals made at the highest political levels, lack competitive and transparent bidding processes, besides, most of the work force employed at these ventures have been Chinese, which fail to deliver promises of job creation and unemployment.[12] Notwithstanding, Africa sits on huge reserves of cheap and reliable gas (i.e. Gabon, Angola, and Nigeria), the large influx of investments appreciates the local currency value, deeming African exports less competitive in the long run. , i.e. Dutch Disease.[13] Against the backdrop of scepticism surrounding Chinese “land grabbing” investment strategies in Africa’ as well as its exploitative investment in quarrying and mining industries, China has started to shift its focus on infrastructure projects. For instance, it began promoting a comprehensive “three network” infrastructure project comprised of; a high speed rail network, the highway network and a regional aviation network respectively.[14] While, focusing on industrial development investment ought to shift Africa from its over reliance on a Resource Based Economy to an Efficient Based economy, close observers for the concurrent forum suggest that China will unlikely change its course.

To further complicate matters, China has increased its interest in security affairs in the resource rich continent. A long advocate of “the non interference policy” in other countries affairs, China is said to send an infantry battalion (the largest combat troop contribution to the UN Peace Keeping Mission) to South Sudan scheduled to arrive at the beginning of 2015.[15] While this might be commendable for the continent, Africa needs to understand the ramifications these acts might have on the short and long term.[16]

Jobs and infrastructure, not just oil and mines

This was partially the reason as to why China has recently become more tactful with its approach to Africa. One way is to offer access to capital. China’s Export-Import Bank has extended US$62.7 billion in loans to African countries between 2001 and 2010, some US$12.5 billion more than the World Bank.[17] The Middle Kingdom has also been staying away from making announcements of major oil and mining contracts. Instead, it chooses to focus on job creation, investment in infrastructure, and technology transfer.[18] Such has become an integral part of China’s foreign policy; recently, China is investing US$3 billion in Central and Eastern Europe, on top of the US$10 billion that it already pledged in 2012.[19]

But large loan facilities and railway and infrastructure projects may not be enough to help reverse the image of the Chinese. For instance, many Africans believe that the real intention behind China’s efforts to build roads and railways in their countries is to speed up transfer of the loots.

China’s relationship with Africa dates back some half a millennium ago. When Chinese admiral Zheng He’s fleet of ships arrived at the east coast of Africa in the early 15th century, he presented gifts of gold, silver, porcelain and silk. Today, the country is offering investments and infrastructure. The challenge for China to develop the relationship further is to make sure its companies operating there to comply with local rules and regulations. It also has to change its view of the locals, so that the latter are seen as equal business partners. Only by making such fundamental shifts could China captures people’s hearts and minds and not just their mines.

References 

[1] BBC

[2] International Business Times

[3] WRI

[4] Economist

[5] Unctad 

[6] Economist

[7] Economist 

[8] Week in China

[9] Africa Research Institute

[10] Economist

[11] Week in China 

[12] Brookings 

[13] Economist

[14] Brookings 

[15] Brookings

[16] Brookings 

[17] Economist

[18] Week in China

[19] Reuters