Introduction - China and Africa

By Claude Kabemba | October 03rd, 2012
Win win partnership? China, Southern Africa and Extractive Industries

While China continues to provide aid to selected African countries, Beijing has shifted its Cold War emphasis to provide official loans with government-subsidised interest rates, and to develop co-partnership or joint ventures between companies from Africa and China. Maoist revolutionary ideology has been abandoned in favour of a more pragmatic economic engagement. Through this process, Beijing, hopes to stimulate African economies and thereby increase the demand for Chinese products. At the same time, it creates an opportunity for Chinese enterprises to establish a viable base in Africa. China is increasingly determined to encourage companies from both China and Africa to co-operate with each other directly through joint ventures and other arrangements. The long-term goal for Sino-African co-operation has been outlined by Beijing as commercial interaction, with private enterprises from both sides becoming the main actors in economic co-operation, opening a new  avenue for South-South interaction.

China encourages increased imports from Africa, especially from poor countries which have been granted tariff-free access on a range of products to the Chinese market. China also participates in the economic development of African countries through contracting projects, technology transfers, and management co-operation. Beijing’s broad approach towards Africa has been to jointly explore new ways to interact in an effort to expand economic and trade co-operation. Moreover, Chinese authorities are advocating increased trade, along with agreements on the encouragement and protection of investment and the avoidance of dual taxation.

The effect of China’s African engagement has at times been criticised as being in opposition to the western-centric globalisation process, but is not necessarily in opposition to Africa’s long-term interests.China’s ability to compete effectively with other extra-regional actors provides new opportunities and options for African governments. China’s engagement in the Sudan, Angola and Zimbabwe have raised questions, as China has provided financial and political support without questioning good governance or human rights.The China critics contend that China’s engagement with Africa should be guided by western values and should conform to established patterns of western involvement on the continent. Moreover, China is expected to place restrictions on itself in terms of economic competition and political engagement. However, China’s African activities are best understood in the context of China’s own political and economic development process, its foreign policy which emphasises non-interference in the domestic affairs of other states, and China’s role within the framework of South-South relations. Given China’s limited resources and international influence, its ability to transform African governance must be questioned. Given China’s own urgent developmental needs, Beijing’s necessarily pragmatic approach to Africa requires a direct and focused engagement with clear commercial advantages. The need for economic success at home does not give Beijing’s policy-makers the luxury of conditional involvement on the African continent.

As the Chinese economy grows, increased commercial engagement with Africa will offer the continent new prospects for trade and investment. The challenge is for Africa to grasp the opportunities offered by China, and take full advantage of investment and assistance programmes. China’s growing commercial interaction with Africa clearly offers many new challenges and opportunities.However, the key to success for Africa in this context depends on Africa’s appropriate response in addressing its own impediments to growth, such as low levels of productivity, high transaction costs, poor market access and an unfavourable investment climate. Indeed, the central challenge for Africa is to be more like China in terms of economic reform, and especially in creating favourable conditions for inward FDI flows.The framework for Africa’s successful development agenda would include pro-growth policies, democratisation and inclusive systems of government, improved political and corporate governance, conflict resolution, and more competitive labour practices.Africa’s dynamic relationship with China offers many new possibilities, but the “shape of things to come lies overwhelmingly in Africa’s own hands.” 

In recent years, many African countries have begun to restructure their economies, while China has also initiated a period of economic reform and restructuring. In order to support economic development in China, Beijing is currently developing new forms of assistance that will include reducing aid to African countries. Through its new approach of providing official loans with government-subsidised interest rates Beijing hopes to stimulate African economies and thereby increase the demand for Chinese products. At the same time, it creates an opportunity for Chinese enterprises to establish a viable base in Africa through partnerships with African companies.

The central challenge for African governments is to ensure that interaction with China is mutually beneficial, both politically and economically. While China bases its policy on friendship and historical solidarity and seeks a “win-win” relationship with Africa, the management of relationships to achieve this is not undemanding. The key to advancing a China-Africa “win-win” relationship is to ensure both international and national co-operation for mutual benefit. At the global level, a joint effort to reshape globalisation and international economic institutions can advance the interests of both Africa and China. However, the reform of multilateral institutions cannot be achieved overnight, and developing countries must in the meantime take responsibility for their own well-being.

Developing a win-win relationship demands that Africa maximise rewards from any external relationship with China (or with any external actor). Ensuring a constructive and rewarding partnership with China suggests that relations should be advanced on both the continental or regional level, and the national level. At the continental or regional level, the focus of Sino-African engagement should be:

·                     increased symmetry between the Forum on China Africa Co-operation (FOCAC) and the New Partnership on Africa’s Development (NEPAD);

·                     African Union (AU) prioritisation of areas where China’s assistance is most needed;

·                     closer Sino-African collaboration on Africa’s development agenda;

·                     Southern African Development Community (SADC) prioritisation of needs;

·                     closer policy synchronisation on the global economic reform agenda;

·                     increased co-operation on UN reform.

At the national level, it is up to African governments to maximise the benefits of China’s involvement. The process of ensuring a win-win relationship with China should include the following:

·                     appropriate investment laws;

·                     effective tendering processes;

·                     joint-venture (JV) options;

·                     local procurement;

·                     support for local small and medium enterprises (SMEs);

·                     job creation opportunities;

·                     technology transfers;

·                     skills enhancement programmes;

·                     transparent commercial transactions;

·                     an investment code (such as the Sullivan code for US businesses);

·                     beneficiation processes.

A comprehensive approach to foreign investment (from China, or elsewhere) implemented by African governments would go a long way to ensuring a win-win relationship. Ineffective African governance and commercial regulation, will inevitably allow for a poor result from any foreign involvement option.

Given the pressures of globalisation, and the different stages of economic development in China and Africa, structural imbalances in Sino-African trade are inevitable. The challenge for both sides is to recognise the problem and work together in identifying appropriate solutions. At the same time, given the low overall volume of Sino-African trade (accounting for only around 3% of China’s total trade volume), there is significant potential for growth. The main Chinese exports to Africa have been machinery and electronics, textiles and apparel, hi-tech products and finished goods, while imports from Africa have concentrated on oil, iron ore, cotton, diamonds and natural resources. For African countries without resources to trade, in some cases, globalisation has resulted in a trade imbalance favouring China.

The WTO removal of quotas on textiles and clothing in 2005 resulted in a global surge in consumer demand for low-cost, reasonable quality Chinese textiles. The competition in productive output is the natural outcome of globalisation and a central feature of the international economic system. China’s highly competitive industrial system is thus the inevitable winner in a free market system. The challenge for higher-cost producers is to diversify, to move up the value chain, or to target niche markets. As China’s economy grows, an emerging middle class provides new opportunities for niche market targeting. Alternatively, African economies have to move faster to create real regional economic groupings which can compete more effectively and establish larger economies of scale.At the same time, criticism that China is flooding global markets needs to be tempered with the fact that almost 60 percent of China’s exports are produced by foreign-owned (or partly foreign-owned) corporations operating from China. This is the consequence of massive FDI transfers to China over the past 30 years.

While globalisation poses a challenge to Africa in the form of Chinese imports (and imports from other highly competitive economies), China’s relevance to Africa as an importer is increasingly important. IMF studies confirm China’s critical role in generating global economic growth through its increasing prominence as an importer of commodities, goods and services. Developing countries benefit directly from increased exports to China and are able to generate new growth as a consequence of expanding demand in China. In terms of purchasing-power-parity-based GDP, China has annually contributed approximately 25 percent of global economic growth for the last 10 years. The margins on African commodities are a direct result of increased demand in China. Higher mineral prices can, if properly managed, translate into massive benefits for African countries. Long-term growth in China will provide a solid foundation for economic development, countering commodity exporters’ terms of trade.

At their respective stages of development, the Chinese and African economies are highly complementary. Each has a clear comparative advantage which, if managed effectively, can translate into a mutually beneficial economic outcome. China’s gradual economic opening to the world has resulted in an accelerated growth in Sino-African trade.

Given Africa’s lack of industrialisation, China-Africa trade patterns are not without controversy. However, suggestions that China is overwhelming African markets appear largely exaggerated. China’s trade intervention now offers Africa an opportunity to adjust economic growth strategies for long-term benefit. The World Bank has suggested that China’s growing trade with Africa provides a foundation for the continent to become a processor of commodities and a supplier of labour-intensive goods and services. The challenge is for African countries to design and implement appropriate business models to add value to raw materials, before they are exported to China. Africa has an immense opportunity to take advantage of market demand in China and to turn this into real economic growth.

Globalisation inevitably produces trade friction and this is also evident from time to time in Sino-African trade. China’s response in this context is to solve trade disputes through “friendly consultations” and negotiated win-win solutions. For example, China agreed to limit textile exports to South Africa following a surge in sales, making a major concession, outside WTO rules in order to assist South African producers and employees. China also offered to provide skills upgrading and training to improve South Africa’s competitiveness in global textile markets. At the same time, as a member of the WTO, it is incumbent on South Africa to abide by the “rules of the game” which require structural changes and increased competitiveness to compete effectively in global markets.

China’s growth provides commercial options for Africa and an important alternative to ongoing centre-periphery, neo-colonial relationships with Europe. Less reliance on former colonial powers offers Africa new choices for advancing its own development. Former South Africa’s President Mbeki welcomed China’s growing trade with Africa, pointing out that this provided an opportunity for Africa’s long-term development. The challenge is to build “balanced” Sino-African trade over the longer term. The OECD study entitled The Rise of China and India: What’s in it for Africa? suggested that Sino-African trade threatened Africa’s modest manufacturing capacity. China’s leadership has responded to this by actively seeking to balance China-Africa trade. Allowing some products to enter China duty-free was the first step in the direction of concrete measures to alter trade patterns. Limiting textile sales to South Africa, constituted a second, but for a more sustainable balance African exporters will have to diversify and more aggressively target the Chinese market. China’s efforts to balance trade have been widely welcomed by Africa.

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