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Implications of Chinese Economic Expansion in Africa

Claudia E. Anyaso, Director, Office of Public Diplomacy and Public Affairs
15th Annual PanAfrica International Business and Healthcare Conference
Nashville, Tennessee
October 31, 2008

Organizers of the 2008 15th Annual PanAfrica International Business and Healthcare Conference, fellow participants, thank you for graciously inviting me to speak before you today. I am proud to be representing the Department of State and the Bureau of African Affairs at this special conference.  

I am also pleased to be here in Nashville, known as the Athens of the South, not only for the full-size replica of the Parthenon, but also for the consortium  of colleges and universities that have done so much to make this region a cultural hub and an economic dynamo.

I have come here today to address the “Implications of Chinese Economic Expansion in Africa.” I speak as an Africanist, one who has devoted a career to US-African relations, not as an expert on China. As a matter of fact, last year I traveled for the first time ever to China, joining a senior American diplomat and veteran ambassador. We went to participate in a conference on Africa at a major university in Shanghai. I cannot overstate the degree of interest about Africa that I witnessed. It was humbling and energizing, a powerful lesson that China’s engagement with Africa is social and cultural as much as economic and strategic.

Everywhere you go in Africa today, you come across the Chinese. They are building stadia. They are building roads and dams. Many people are alarmed at this tsunami of activities. Other people are jubilant. To those who are alarmed, “I say, don’t be.” To those who are jubilant, “I would admonish caution.” In the next few minutes I will outline briefly the context in which the State Department views China. And, secondly, I will describe what we are doing with respect to Chinese activities in Africa. 

CHINA IS ONE AMONG MANY

Clearly China’s growing presence in Africa has generated significant discussion during the last several years.  This attention reflects the reality that China has important and growing interests in Africa, including access to resources and markets, development of diplomatic ties, and Chinese claims of leadership in developing world.

A. Former Colonial Powers

But it’s crucial that we view the growing interest in Africa not just as a Chinese phenomenon, but a global one. The former colonial powers still maintain serious and broad interests in Africa. In fact, it wasn’t so long ago that there were conferences to discuss France in Africa. Britain’s ties of trade, investment and culture especially in Southern Africa remain deep. Portugal’s colonial presence in Africa started before Columbus reached America, and the Portuguese today are extremely active in the Lusophone, or Portuguese-speaking countries.

B. “BRIC” Countries

Financiers are now using the term “BRIC” nations to characterize rapidly industrializing Brazil, Russia, India, and China, large countries now flush with foreign exchange, part of which is going for investment in Africa. Each of these countries is thus a major actor in Africa. Brazil’s links to Africa go back five centuries, and as the country develops, it is looking more and more to Africa for trade. Russia earns enormous amounts of petrodollars, though the current fall in oil prices reminds of how precarious such an economy is. India has been engaged with eastern Africa for a millennia; ethnic Indians form much of the trading class there, and provide a natural connection. Indian high tech, telecommunications, and consumer products have found welcome customers throughout the continent. Thus, while China is the biggest, it is still only one among several expanding economies that have fixed their commercial eyes upon Africa. 

For those of you who want to dig more deeply into the economics of this phenomenon, I would highly recommend an excellent book by Harry Broadman, senior African economist at the World Bank, titled “Africa’s Silk Road.” Broadman examines China and India’s  trade and investment flows with various African countries.

DETAILS OF CHINESE ENGAGEMENT

A. Not a Recent Arrival

We see three major objectives in China’s policy towards Africa: first, to secure supplies of natural resources and markets for Chinese exports in Africa; second, to increase China’s power and prestige on the world stage as a leader of the developing world; and, third, to compete with Taiwan for recognition by African states – diplomatic recognition by African states.

China’s engagement with Africa is not new.  Chinese bilateral assistance to Africa dates back to 1956 and, by its own account, has funded over 800 projects between 1957 and this year.  It has encompassed almost everything, but most spectacularly showpiece projects ranging from a national sports stadium to a gleaming new ministry headquarters. Estimates of Chinese development assistance to Africa in this decade vary, but tend to fall around $1-$2 billion per year. This amount is still relatively modest in comparison to the annual contributions of $18 billion (including debt relief) provided by the European Union (EU) and member countries, $9 billion from multilateral institutions, and about $5 billion from the United States Government.

B. Rapid Expansion

Nevertheless, the nature of China’s involvement in Africa has changed greatly over the past decade. Whereas in the 1950s and 60s the foundation for Communist China’s early interaction with Africa was the promotion of a shared Marxist, anti-colonial ideology, the common ground now is mostly a convergence of economic interests in a global trading system.

China/Sub-Saharan Africa bilateral trade rose from $10 billion in 2000 to $70 billion in 2007, and China is now Africa’s second largest trading partner after the United States. Africa ran an overall trade surplus with China between 2004 and 2006, as it did with the United States, and it is clear that China, like the United States, has become an important source of both export revenue and investment for the continent. China’s direct investment in Africa increased from $491 million in 2003 to over $2.5 billion three years later and continues to grow. China’s total investment stock in Africa to date is about 1 percent of total investment – several times less than U.S. stock. Taking an example from the energy sector, China’s overall production is about 1/3 of the total production of one U.S. firm, Exxon Mobile, we need to keep this perspective in mind, even as we appreciate the fast growth rates of China’s activities. 

Africa is also becoming an important export market for Chinese consumer goods.  I remember traveling from Abuja to Lagos several years ago, and I happened to look to my right just outside of Lagos city, and there was a huge Chinese mall where consumers could purchase thousands of Chinese goods. Small, private Chinese investors have invested millions of dollars into opening enterprises in Africa that operate in textiles, light manufacturing, construction and agriculture. Recent media attention has focused on high-profile Chinese investments in Africa, such as the Industrial and Commercial Bank of China’s October 2007 purchase of a twenty-percent stake in South Africa’s Standard Bank, or a $9 billion loan and investment package for Congo that will be repaid in cobalt and copper from Congolese mines.

As I have said, China’s economic and commercial engagement in Africa should be understood in a broad context. Its activity has increased dramatically in recent years, but started from a relatively low base. As of 2006, the value of China’s trade with Africa was lower than with the Middle East or Latin America and was a minute percentage of its trade with the rest of Asia. On the investment side, China’s investment flow into Africa constituted only 2.9 percent of its global outward direct investment. As I mentioned, China’s total direct investment stock in Africa accounted for only 1 percent of global foreign direct investment in Africa. Ten African countries receive the bulk of this investment: Sudan, Nigeria, South Africa, Guinea, Benin, Madagascar, Congo Republic, Ivory Coast, Sierra Leone and Gabon. There is a wonderful booklet put out by the Corporate Council on Africa that explains this more, “China and Africa – Understanding the Growing Trade and Investment Relationship".

C. China’s Appeal to Africans

By the same token, it is important to recognize that China has an inherent appeal to Africa. China offers a market for African goods, albeit mostly from extractive industries. Overall, Asia accounts for 27 percent of Africa's exports.

Chinese foreign assistance programs are attractive to Africans in some ways. China offers aid to African Governments with no strings attached. China funds visible and much-needed infrastructure projects – railroads, bridges, dams – at a time when Western governments have largely shifted away from this form of development assistance.

Under the rubric of no interference in domestic issues, China shows little compunction to work with African governments that have poor records on governance, transparency, and respect for human rights -- notably in the cases of Sudan and Zimbabwe. This is a key distinction when compared to U.S. and Western criteria for development assistance.  Viewing China as a rising power and a developing country at the same time, some Africans believe the Chinese better understand their development challenges than the West.

Finally, China is also active in security assistance programs. This includes not only military sales and transfers, but also Chinese support for UN peacekeeping operations. The Chinese have contributed 1300 peacekeepers to peacekeeping operations across Africa.

IMPLICATIONS FOR THE U.S.

The four goals of U.S. foreign policy are democratic institution building, economic growth and development, fighting infectious diseases such as HIV/AIDs and malaria, and conflict resolution. It is against this policy template that we view China’s activities in Africa. 

A. Positive

What are the implications of all this new economic and commercial activity in Africa? In many ways, China’s successful embrace of market-based economics and openness to globalization can be a positive example for African nations. There also have been important increases in two-way tourism, academic and non-governmental exchanges, and diplomatic initiatives.

China has even modeled many of its engagement programs after very successful U.S. exchanges on the continent. For example, historically, the United States has identified young emerging political and economic African leaders for exchange programs in the United States under something known as the International Visitors Program. China is now doing the same thing -- identifying members of parliament, local entrepreneurs, and well-placed government officials in such key ministries as Foreign Affairs, Internal Affairs, and Trade and Commerce for training and exchange programs in Beijing. China also funds trips by local traders and businesspeople to Africa to source Chinese consumer products. It funds sports teams and provides equipment for aspiring African Olympians.

B. Negative

Some Africans worry that the influx of low-cost goods from China undercuts local industry. There are concerns that Chinese infrastructure projects underutilize indigenous labor, finance, and resources. Chinese projects often employ imported Chinese workers and utilize imported raw materials.  There are other concerns that China’s assistance efforts in Africa, which emphasize ‘no strings’ will hamper progress in good governance and market reform.

By its reluctance to coordinate with groups like the IMF and World Bank, we believe China misses an opportunity to make the most of its aid, loans, and investment in Africa. On occasion, it appears that China’s policies serve to undercut the efforts of others to use investment and development assistance to produce improved governance, which almost all credible research about development point to as essential to long-term, stable economic growth.

C. International Concerns

The international community has expressed similar concerns about the Chinese use of foreign assistance as a trade tool, as when African Governments grant favorable treatment to Chinese project bids because such bids are tied directly to Chinese Government development assistance packages. It is in China’s interest to demonstrate to the international community that its policies in Africa are not driven solely by the desire to secure natural resources and access to markets and access to major infrastructure projects, and that the Chinese Government is committed to improving the long-term welfare of people across the continent.

D. Multiple and Uncoordinated Chinese Actors

When discussing China’s presence in Africa, it is important to highlight that China’s economy has become increasingly diversified and has numerous public and private economic actors that influence the African market. Chinese companies are active in financial markets, telecommunications, manufacturing, textiles, agro-business, and a variety of extractive industries. For example, we must distinguish between Chinese energy companies’ pursuit of exploration agreements and the Chinese Government’s Africa policy. Certainly the Chinese Ministries of Commerce and Foreign Affairs promote access to natural resources and export markets for Chinese firms as part of their policies. But observers sometimes ascribe too much coordination and grand strategizing to the Chinese leadership’s policies toward the developing world. In reality, Chinese firms compete for profitable projects not only with more technologically and politically savvy international firms, but also with each other.

D. African Critiques

Africans themselves will, of course, largely shape the terms of their relations with China. While welcoming increased Chinese engagement, Africans have also signaled the importance of business practices that reinforce African Union and New Partnership for African Development principles on good governance. Chinese labor, environmental and quality-control standards have drawn extra scrutiny from many Africans. In Zambia, for example, anti-Chinese sentiment became an important election issue in 2005 when the opposition mobilized voters from the country’s copper belt following a deadly explosion at a Chinese-owned copper mine.

THE U.S. APPROACH

A. Cooperation, not Competition

Let me say that there is not necessarily any kind of friction between U.S. and Chinese economic investment in the continent.  Our investments and interests are actually complementary, and the relationship thus lends itself to cooperation in many countries rather than competition. 

B. Engagement

The U.S. approach to China in Africa and elsewhere is to engage China in dialogue at a variety of levels as part of a long term effort to influence Chinese behavior to conform to that of a responsible stakeholder.

(1) Official Discussions
First, through the State Department in Washington and our embassies, we meet regularly with Chinese diplomats, compare notes on developments in the host country, and share analysis. We actively look for areas of program cooperation, including health and agriculture projects. I think our relationship with Chinese diplomats is steadily expanding. My own, admittedly anecdotal experience, is that the Chinese are sending a new generation of increasingly high-quality diplomatic personnel to Africa. They have regional expertise, excellent language skills, and a much greater openness to contact and exchange with other missions than I saw even ten years ago.

(2) In-Depth Policy Sessions
Second, on specific, high-profile issues, we of course engage in in-depth policy discussion with the Chinese through our capitals, through the UN Security Council, and through many other contacts.

(3) Strategic Discussions
Finally, at the strategic level, we step back periodically to meet with the Chinese to identify areas of shared interest and coordinate our efforts. We do this in a framework of regular dialogues, the most important of which are the State Department “Senior Dialogue led by Deputy Secretary of State John Negroponte,” which focuses on political and security issues, and the U.S. Treasury “Strategic Economic Dialogue” led by Secretary of Treasury Paulson which deals with bilateral and global economic issues. A few weeks ago Assistant Secretary of State Jendayi Frazer returned from a visit to Beijing to meet with her counterparts in what has become a regular annual meeting between American and Chinese officials focused on Africa since 2005. This third series of discussions was highly successful. China has agreed to additional UN peacekeeping support and will cooperate with the U.S. in several additional African countries on agriculture, and health.

B. Cooperation in Non-Security Areas

In non-security areas such as health, China and the U.S. are pursuing potentially complementary programs to eradicate malaria, polio, and other endemic diseases. In agriculture, the U.S. and Chinese Ambassadors in Ethiopia arranged exchanges to observe demonstration farms each country had built to increase agricultural capacity. The U.S. and Chinese Ambassadors in Angola have also agreed to identify a joint development project in the agriculture sector. In Liberia, at one of the JFK medical centers, we have Chinese and American doctors working side by side on a malaria prevention program. We have encouraged our Embassy country teams all over Africa to identify potential areas of cooperation in the multiple sectors and engage with Chinese counterparts to the benefit of African populations.

The State Department has also attempted to bring Chinese, U.S. and African civil society together by supporting conferences and symposiums. For example, the NGO Vital Voices held a Summit for African Women in Cape Town, South Africa in January 2007, in which a small contingent of Chinese women participated. A follow-up symposium for Chinese and African women entrepreneurs in Shanghai was held in September 2007 to further cooperation. Last fall, the State Department assisted the African Studies Association to bring two Chinese scholars to their annual meeting. And we have encouraged both sides to continue such exchanges.
 
CHALLENGES TO AFRICA-CHINA COLLABORATION

A. Lopsided Trade

Of course both we and many Africans share some concerns about the nature of China’s involvement. There is concern that China is dumping low-priced goods in Africa, undercutting the development of local industries and causing trade to be lopsided. This has been evident in the attitude of South African trade unions eager to protect manufacturing jobs at home. There is concern that, while China supports infrastructure projects across Africa, there is little technology transfer or local job creation. Such projects typically employ workers imported from China.

While in Shanghai with Ambassador Ruth Davis, I visited an American economist at a mining company engaged in doing business in Africa. Her research indicated that large state-owned enterprises are more successful and are perceived more favorably in Africa than small or medium enterprises. And, there is an emerging consensus that Chinese companies need to act more responsibly.

B. Indifference to Environmental and Labor Standards

Chinese projects often pay lax attention to environmental and worker rights standards. Chinese investments and labor practices became an issue in Zambia’s presidential election in fall 2006, with a prominent opposition official voicing strong criticism. Finally, there is concern that China's general unwillingness to coordinate its aid programs with other donors also reduces the overall benefits of multilateral initiatives. In Congo, announcement of a loan of $5 billion to $9 billion provoked concern not because of Chinese involvement, but because of lack of transparency regarding the terms of the loan and because no effort was made to consult with the IMF or other donors on the implications of the loan for Congo’s participation in the Highly Indebted Poor Country (HIPC) Initiative.

C. At Odds on Human Rights

The willingness of China to look the other way in dealing with non-democratic regimes with poor human rights records increasingly puts China at odds not just with Western donors but also with the African consensus that these are important matters. The African Union Charter and the New Partnership for African Development emphasize good governance; Africans consider democracy, economic transparency and respect for human rights necessary for sustainable development.

D. Long-Term Means African, Not Just Chinese, Goals

The Chinese think long-term and we should expect it to take time to build a relationship of trust with them on African issues.  Likewise, their long-term thinking slowly will come to terms with the fact that most Africans themselves see support human rights and democratic institutions as key to the continents own sustained prosperity.

E. Corporate Social Responsibility

We believe that one way to maximize our success with the Chinese is to address those issues which the Chinese themselves have recognized as necessary to reform. For example, corporate social responsibility. It addresses several issues on the ground where there have been protests in Africa concerning Chinese behavior. Though a small step, the Chinese recently took 200 companies to the Global Pact at the United Nations to talk about corporate responsibility. The UN Global Compact attempts to promote its 10 universally accepted principles concerning human rights, labor standards, environmental protection and anti-corruption practices, as well  as lending support to the realization of UN Millennium Development Goals. The goal of the US and the international community is to make China a responsible international stakeholder. The Global Compact, the Kimberley Process that deals with blood diamonds, and the Voluntary Principles on Security and Human Rights are all ethical codes that would greatly benefit Chinese companies doing business in Africa.

CONCLUSION

I would like to thank you again for inviting me to join you today. Let me repeat that China is a rising strategic power throughout the world, not just in Africa. China's outlook and interests are increasingly global – and this includes Africa.  And the Chinese – among many others – will continue to be important actors on the continent.

President Bush, among others, has commented that China's presence in Africa is not a zero-sum game for the United States.  We see numerous opportunities to cooperate with China in Africa in the areas of: agriculture, infrastructure development, healthcare, and security affairs.

In this vein, we are urging China to engage cooperatively with international donors for a rules-based approach to aid that: strengthens institutions, promotes good governance, and ensures transparency.


Released on November 5, 2008

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