China's distinctive links with Africa

Table of Content

TABLE OF FIGURES

1. INTRODUCTION

2. CHINA’S ECONOMIC INTERESTS IN AFRICA
2.1 SINO-AFRICAN TRADE
2.2 CHINA’S QUEST FOR OIL AND OTHER NATURAL RESOURCES
2.3 NEW MARKETS
2.4 NEW INVESTMENT OPPORTUNITIES
2.5 DEVELOPMENT AID

3. CHINA’S STRATEGIC AND POLITICAL INTERESTS IN AFRICA
3.2 THE “FIVE PRINCIPLES OF PEACEFUL CO-EXISTENCE”
3.2 ONE-CHINA-POLICY
3.3 AFRICAN STATES AS IMPORTANT ALLIES TO ACHIEVE CHINESE GLOBAL INTERESTS
3.5 CHINA’S STRATEGY TO ESTABLISH LONG-TERM RELATIONSHIPS WITH AFRICAN COUNTRIES

4. IMPACTS OF CHINA’S ENGAGEMENT IN AFRICA
4.1 POSITIVE IMPACTS
4.2 NEGATIVE IMPACTS

5. BEIJING CONSENSUS VS. WASHINGTON CONSENSUS
5.1 CHARACTERISTICS OF THE WASHINGTON CONSENSUS
5.2 CHARACTERISTICS OF THE BEIJING CONSENSUS
5.3 AID, GROWTH AND DEVELOPMENT

6. CONCLUSION

REFERENCES

Table of figures

FIGURE 1. CHARACTERISTICS OF SINO-AFRICAN TRADE

FIGURE 2. AFRICAN EXTERNAL TRADE 2000-2006

TABLE 1. MAJOR TYPES OF AID PROJECTS BY CHINA IN AFRICA

FIGURE 3. FOREIGN AID AND GROWTH, 1994-2003

1. Introduction

“ China has become the most confident and assertive commercial player in Africa. It appears that China will over time displace Western commercial interests and political influence on the continent. But China is not the new coloniser. It is an expanding global power toward which Africa must pragmatically align itself. ” (Dr. Martyn J. Davies, Director, Centre for Chinese Studies).

Sino-African trade sextupled from 1998 to 2005 to $¹ 36 bn (Schüller and Asche, 2007: 4) and on a conference in Beijing in 2006 China’s Premier announced the aim to increase the trade volume to $ 100 bn in 2010 (Hui, 2006). These figures represent China’s growing engagement in Africa. But it is not quite clear if China’s impact on Africa is positive or not. One point of view, of which the quote presented above is a part, is that China’s engagement has the potential to increase Africa’s importance in the global economy and to significantly reduce poverty on the continent. Whereas others heavily criticize Beijing’s approach towards the Af- rican countries and claim that China is nothing but a new coloniser.

The purpose of this study is to conduct a descriptive analysis of China’s impact on Africa. We therefore first describe China’s economic and strategic interests in Af- rica. After this, we are going to present negative and positive effects of China’s engagement in Africa and try to reveal a general tendency in the nature of China’s impact on Africa. Before giving some concluding remarks, we will compare China’s approach towards development aid, the so-called Beijing Consensus, with the Washington Consensus, which can be characterized as the approach of the western world, because this is an increasing ideological conflict with important consequences for Africa (Sautman, 2007: 21).

As this is a descriptive analysis rather than an empirical study, we are not going to present any hypothesis.

2. China’s economic interests in Africa

In the following we are going to describe why China is economically interested in establishing relationships with African countries. First, we are going to shed light on the characteristics of Sino-African trade. Then, we are going to focus on China’s demand for oil as a major source of Chinese interest in Africa. (Taylor, 2006: 938). Finally, we are going to elaborate Africa’s role as a new market and investment opportunity for Chinese firms (Alden; 2005: 148).

2.1 Sino-African trade

In only 10 years, from 1993 to 2004, China has successfully surpassed Japan, India, Italy, the United Kingdom and Germany as trading partner of the African continent (Perret et al., 2006). Today, China is the third biggest trading partner of Africa after the USA and France and it is expected that it will be number one in 2010 (Fues, Grimm and Laufer, 2006: 1). In contrast to that, trade with Africa only accounts for about 2 % of Chinese foreign trade (Tull, 2005; 12).

Figure 1. Characteristics of Sino-African trade.

Abbildung in dieser Leseprobe nicht enthalten

Shares of Chinese exports to and imports from Africa (in %). Source: WTO International trade statistics, 2006: 11, “ China ’ s merchandise trade with Africa, 2000-05 ” .

The figure shows that Sino-African trade is complementary as about 86% of Chinese imports from Africa are fuels, other mining products and agricultural raw materials (primary products). In return, 90% percent of China’s exports are machinery and equipment, textiles and clothing (manufactured products) (WTO International trade statistics, 2006: 10).

Between 2001 and 2006 export from African countries to China has grown at an average rate of 40% per year from $ 4.8 bn to $ 28.8 bn. The imports in 2006 were twice as high as in 2001 up to $ 26.7 b. In contrast, trade between Africa and the US and Europe has grown slowly growing or even decreased as shown in the figure below (Wang, 2007: 5-6).

Figure 2. African external trade 2000-2006.

Abbildung in dieser Leseprobe nicht enthalten

Source: Wang, 2007: 6.

In the following analysis of China’s economic interests in Africa, we are first going to focus on Chinese imports to and then on Chinese exports from Africa.

2.2 China ’ s quest for oil and other natural resources

With an average economic growth rate of 9.9 % over the last 20 years, China is one of the fastest growing economies of the world (WTO International trade sta- tistics, 2006: 1). As a consequence, China’s energy consumption and its need for strategic minerals increased dramatically (Alden, 2005: 148). This is not only a direct result of the expanding economy but also of the increasing demand of a generally wealthier society for consumer goods like cars and fridges (van de Looy, 2006: 14). China has only limited natural resources and in 1993 China ex- perienced a turning point for energy, because it changed from a net exporter to net importer of petroleum (Alden, 2005: 148). Today, China is the world’s second largest oil importer after the US (van de Looy, 2006: 14). China’s oil consump- tion, with 6 m barrels/day, is twice as high as the own extraction and experts fore- cast that Chinese demand could exceed 13 m barrels/day, of which 80% will have to be imported. Thus, if China wants to keep its economic growth constant, it will need secure and diverse energy resources from foreign countries (Perret et al., 2006). Apart from trying to feed the growing demand of oil in the short term, China has the long-term goal to be in charge of oil resources, which will give Bei- jing the power to manipulate future world market prices (Taylor, 2006: 943).

The role of Africa as supplier of natural resources

Africa plays an increasingly important role in satisfying China’s need for natural resources. Africa is the second largest continent in the world consisting of 53 in- dividual countries (Encyclopædia Britannica). The continent is very rich in natural resources. It has 10% of the world’s proved oil reserves, of which 2/3 belong to Libya, Nigeria and Algeria, and 8% of the world proved gas reserves, of which 80% belong to Nigeria, Algeria and Egypt (BP, 2007: 6 and 22). In addition to that, Africa has 60% of the world's diamonds, 40% of the world's phosphate and 30% of the world’s cobalt resources as well as many other mineral resources (Muehlberger, 2007: 3). In 2005, about 30% of Chinese oil-imports were from Africa and 9 of China’s 10 most important African trade partners (according to imports) were rich in resources and/or oil-producing countries, e.g. Angola or Ni- geria (Tull, 2005: 10-11). This together with the fact that 86% of Chinese imports from Africa are primary products (see Figure 1) underlines Africa’s importance as a supplier of China’s demand in natural resources.

The latecomer syndrome

One important challenge for Chinese oil diplomacy is the so-called “latecomer syndrome”. This means that China entered the international oil market relatively late. Many of the resources have already been allocated between other countries, mainly from the western world. As a consequence, China has to focus on re- sources that are shunned from Western firms (Jakobsen, 2007: 15). This helps to explain why China is investing in countries such as Sudan and Angola. These two countries “stand out as examples where Beijing has intimate dealings, but where standards of good governance (by any criterion) are woefully inadequate” (Taylor, 2006: 946). As a result of human rights violations and the civil war in Sudan, western oil companies had to leave the country during the late 1980s and early 1990s. China used the opportunity and filled the gap that western firms had left. With the result that, in 2004, China accounted for 64% of Sudan’s total oil exports and that China is the main stakeholder in the oil business in Sudan today. Apart from engaging in countries, which western firms have shunned because of politi- cal reasons, China also engages in projects, which western firms have avoided as a result of economic reasons. As China’s state-owned oil companies are highly sub- sidized by the government in Beijing, they have competitive advantages over pri- vate western companies. Therefore, they are able to invest in projects, which offer high risk and low profits (Jakobsen, 2007: 15). Moreover, not having to realize short-term profits and not having to consider the needs of shareholders, Chinese companies are able to focus on China’s long-term goal of energy security (Taylor, 2006: 942).

China ’ s way of doing oil business

As described above, China tries to gain long-term control over the foreign natural resources. Therefore, Chinese companies purchase equity shares in established oil fields rather than buying rights for future exploration and development. This ap- proach can be called vertical integration meaning that a country tries to own pro- duction facilities through to transport tankers (Alden, 2005: 149). In order to cre- ate a network of reliable allies and suppliers, China follows an “aid for oil strat- egy” meaning that it combines financial assistance and funding of construction projects in exchange for oil. China’s Exim Bank, one of the world’s largest export credit agencies, for example gave Angola a $ 2 bn credit (1.5 interest over 17 years) in return for concessions and oil contracts. An additional $ 2 bn was granted in 2006 (Zafar, 2007: 120). The loans were used to rebuild Angolan infra- structure, such as railways, roads, schools and hospitals, which were damaged during the civil war (Zafar, 2007: 119-120). 70% of the construction projects had to be assigned to Chinese and only 30% to local companies. Assigning foreign projects to Chinese companies and the reliance on migrant Chinese workers is a common characteristic of China’s business strategy in Africa (van de Looy, 2006: 19; Zafar, 2007: 124-125).

2.3 New markets

The African market for consumer goods is relatively small, because the buying power of the African population is low. But Chinese products are well suited to the African market. China’s cheap, low-quality consumer goods, such as house- hold utensils, mechanical and electric products, textiles and clothes, are very at- tractive to African consumers (van de Looy, 2006: 21-22). The products are of low price, because many of them are produced at low labour costs by loss-making state-owned companies in China (Alden, 2005: 150). Apart from that, the prod- ucts are cheaply imported and then sold by a growing informal network of Chi- nese traders (van de Looy, 2006: 21-22).

China has even further increased its textile and clothing exports since its accession to the World Trade Organization (WTO) in 2001 (van de Looy, 2006: 23; Alden, 2005: 153).

2.4 New investment opportunities

Not only the trade volume but also Chinese investment in Africa increased dra- matically over the last years. From the early 1990s to 2006, Chinese foreign direct investment (FDI) in Africa rose from $ 20 m a year to more than $ 1 bn a year and now account for 6% of total investments in Africa (Zafar, 2007: 123; van de Looy, 2006: 26). This is a growth rate higher than Chinese FDI to any other part of the world. Today, more than 700 Chinese companies are operating in 50 Afri- can countries (Zafar, 2007: 123). Investment is mainly made in oil, mines, fishing, woods, metals and infrastructure.

Investment in resource extraction is a consequence of China’s increasing demand of natural resources with the result that 54% of total Chinese investment was directed towards oil-exporting countries (van de Looy, 2006: 26). As already described above, China is applying the strategy of vertical integration in order to influence prices in the long run.

Investment in the construction and infrastructure sector are another important and growing field of Chinese FDI (Zafar, 2007: 123). Competitive advantages of China’s state-owned companies are again of importance in this field. First and in contrast to western firms, Chinese companies consider difficult basic conditions in many African states (political instability, corruption, a lack of legal security and criminality) as an economic opportunity. As they are able and willing to take

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¹ As long as not stated differently, $ refers to US $. Page 1