Introduction - China, Africa and the World

China has been modernising its economy away from an inefficient socialist mode of production to a dynamic and vibrant free market system since 1978. China continues  to deliver a more structured  and gradual free-market reforms. The Japanese economist, Akihiko Tanaka points out that postmodern China has “re-emerged as a world centre of production” posing a challenge to global value chains and established patterns of trade and employment.

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

October 3rd, 2012

China has been modernising its economy away from an inefficient socialist mode of production to a dynamic and vibrant free market system since 1978. China continues  to deliver a more structured  and gradual free-market reforms. The Japanese economist, Akihiko Tanaka points out that postmodern China has “re-emerged as a world centre of production” posing a challenge to global value chains and established patterns of trade and employment. China’s successful economic transformation (still in progress), along with the country’s obvious market potential, has acted as a magnet for international investors. Moreover, China’s impressive economic growth has had a dramatic impact on both exports and imports, making China a key element in the global production chain for many labour-intensive products. China now poses a challenge to all developing countries through its intensive trade growth, market size, raw material consumption and development strategy, which does not conform to the neo-liberal prescriptions of the Washington Consensus.

China’s economic rise as an industrial and export power is now one of the most important factors shaping the international economic system. Ted Fishman (“China Inc. - How the Rise of the Next Super Power Challenges America and the World”) and Oded Shenkar (“The Chinese Century - The Rise of the Chinese Economy and its Impact on the Global Economy”) map the rapid rise of China’s economy over the last two decades, and project the future impact of this event on both developed and developing countries. The long-term consequences of China’s economic rise will be decisive in shaping the global international economic system and the effect on developing countries will be far-reaching. The annual increase of approximately 25 million people in China’s manufacturing sector is equivalent to adding another middle-sized industrial country to the world every year. Moreover, China’s growing importance as the manufacturing centre of the world, a major destination for foreign investment, and a veracious consumer of oil and raw materials is an ongoing and expanding process which continues to impact on and reshape global markets. If current trends continue, within the next two decades China will dominate the world market for almost every manufactured product. 

China’s economic challenge to the developing world is either competitive (a threat), or complementary (an opportunity). In this context, China’s manufacturing capacity (particularly in clothing, furniture and footwear) poses a threat to developing economies, while exporters of primary products (especially minerals, oil and gas) are offered new opportunities. Over the last ten years, local manufacturing has been systematically undermined by a flood of low-cost products from China, but this process has at the same time benefited consumers. Some resource-rich economies have witnessed significant growth as a consequence of increased exports to China. Continued economic growth in China has significantly increased the demand for oil, gas and raw materials. However, research gaps in the precise nature and extent of China’s economic challenge have prevented the development of appropriate policy responses. China’s continued and rapid economic rise constitutes a significant disruptive factor in the global economy. Economies which fail to adjust quickly and appropriately to disruptive factors face problems, while those that respond accordingly have opportunities for higher and sustained growth over the longer term.       

Raphael Kaplinsky’s analysis (“Asian Drivers and Sub Saharan Africa - the Challenge to Development Strategy,” Rockefeller Foundation, July 2007) outlines the “disruptive challenge” to Africa and other developing countries posed by China’s economic rise. China’s economic rise is a disruptive force in the global economy for five main reasons. Firstly, in terms of size, China accounts for over 20 percent of the world’s population. Japan’s rapid growth since World War II proceeded with minimal disruption to the global economy, given that Japan’s population constituted less than two percent of the world’s total. China’s size and high trade intensity produces an effect throughout the global economy. China’s exports have increased dramatically since the 1980s, making China the third-largest trading nation in the world.

A second disruptive factor is China’s huge foreign exchange reserves, which now total over US$2.4 trillion. Use of these funds for foreign aid, FDI, bond market purchases or equity investments in developing countries could have far-reaching consequences.

Thirdly, Chinese companies reflect a high level of state ownership, along with easy access to capital and low-cost (subsidised) labour. Foreign investment decisions are often part of a broad government-driven strategic vision based on a long-term approach, and are less risk-averse than western competitors. Moreover, pressures for corporate good governance, social responsibility, and environmental protection are not priorities.

Fourthly, China’s combination of abundant cheap labour and a rapid movement up the value chain poses a major challenge to both low-tech and high-tech manufacturers worldwide. China is now the world’s second largest investor in research and development (after the US).

A fifth important factor is China’s growing demand for hydrocarbons, a broad range of raw materials, and rare metals. China has become a key investor in selected countries on the African continent in order to guarantee access to supplies. Examples include Angola (oil), Sudan (oil), Zambia (copper), and Cameroon, Gabon, Liberia, Equatorial Guinea (timber). Accelerated globalisation facilitates and assists China’s trade and resource investment strategy.    

China has entered Africa as a resource-seeking state in competition with western nations which have long advocated privatisation, liberalisation, deregulation, and austerity policies within the Washington Consensus (WC) political-economic framework. China advocates a non-interventionist ideology, the so-called Beijing Consensus (BC), which lies within the parameters of the neo-liberal framework, but offers African elites an escape from WC conditionalities.

In the context of China’s growing African engagement, China’s pragmatic approach provides a wide range of commercial opportunity on the African continent. However, China’s African agenda is increasingly criticised as running counter to western-centric globalisation and efforts to democratise the continent. The range of criticisms directed at Beijing’s African programme include minimal local job creation; limited skills enhancement or knowledge transfer; questionable labour practices; limited technology transfer; minimal development of local economies; social divisions caused by language barriers and cultural differences; low investment in manufacturing; high focus on the extraction industries and one-way investment flows (with the exception of South Africa).

The central challenge for African governments is to ensure that interaction with China is both politically and economically mutually beneficial.The suggestion that the Sino-African relationship is a “win-win” formula regrettably often translates into a win for China and a win for African leaderships, but not necessarily for the African people. Rather, the ideal interaction formula should be a “win-win-win” (triple-win) approach, through which China benefits, African elites benefit, and ordinary African citizens also share in the fruits of Sino-African relations. Developing the triple-win formula demands that Africa maximise rewards from any relationship with China, ensuring a constructive and rewarding long-term partnership.       

An assessment of China’s engagement in Africa suggests a significant range of benefits and potential benefits. Increased African raw material exports to China clearly benefit national economies. The International Monetary Fund (IMF) has reported that Africa’s increasing growth rate is partly due to increased commodity demand from China.African analysts suggest that “the impact of trade and bilateral relations between China and Africa have been immensely beneficial.” Raphael Kaplinsky’s research on China-Africa trade suggests that China is driving up the demand for oil, gas and other primary products, which has “positive direct and indirect benefits on resource-exporting African economies.”  As the Chinese economy grows and the Chinese middle class expands, the range of export opportunities to China will become enormous. In effect, China’s economic growth offers new opportunities to the whole world. Success in this context will be driven by the ingenuity and resourcefulness of African exporters. The World Bank has confirmed that China’s growing trade with Africa has given the continent a “major boost.” The process of increased trade holds significant benefits for both sides over the longer term.

Chinese investments in Africa clearly benefit local economies and create new commercial opportunities in local markets, while regulation of investments for maximum benefit is the responsibility of national governments. Specifically, China’s investments in hydrocarbons, mining, infrastructure and telecommunications are immensely beneficial for Africa’s development. Chinese investments will, over time, promote the establishment of small enterprises in Africa and concomitant employment opportunities. The IMF estimates that Africa’s growth overall is close to 6 percent, the highest in 30 years, due in large part to China’s growing investment. Moreover, China’s investment drive is encouraging the development of local economies.

Chinese exports to Africa benefit consumers who cannot afford higher-cost imports from other parts of the world. Suggestions that Chinese imports undermine local manufacturing are exaggerated, as in most cases there is little evidence of competitive manufacturing capacity. Moreover, the central challenge to Africa’s diminutive industrial capacity is from globalisation in general, rather than specifically from China. This conclusion is largely supported by research on the global textile markets and the impact on African producers.

Chinese construction companies are active across the continent, filling the gap left by the IMF and the World Bank who gave up financing infrastructure years ago (although they are now returning in response to China.) Obviously, this is a major benefit for African countries which require infrastructure for sustainable development. China’s willingness and ability to build roads and railway lines in Africa provides a solid foundation for future development, and benefits the population as a whole. The same is true for China’s involvement in developing Africa’s communications networks. Chinese agricultural and technical assistance is limited, but makes a very positive contribution in many African countries. China’s own experience in transforming agriculture and increasing production is a model for Africa.

China’s willingness to provide aid, where feasible, is welcomed throughout Africa (almost 50 percent of China’s total overseas development assistance goes to Africa). China’s aid packages are relatively easy to negotiate and offer African states many new opportunities for rewarding project development. China’s involvement in Africa is a welcome filler for the gaps left by unfulfilled promises from the west. African leaders have embraced China’s enthusiastic approach and ability to get the job done.The west’s many years of “aid, advice and admonishments” have had only limited impact on Africa’s economic development, but China’s active engagement offers new opportunities for developing resources and economic progress. Chinese and African leaders agree that “neo-colonialism” refers to economic restrictions and arrangements imposed by the former colonial powers on Africa. In contrast, China respects the views and policies of African leaders, which is widely welcomed on the continent. China does not impose unrealistic conditionalities on its African engagement, so there is no political risk for African governments to engage Beijing.

China’s pragmatism is seen as a welcome alternative to the west’s restrictive and patronising approach. There are no specific political strings attached to China’s friendship with African countries, with the exception that they must not accord diplomatic recognition to Taiwan. China’s engagement in Africa also differs from the US and western approach of insisting on African conformity with narrow externally defined objectives (such as the global war on terrorism). Moreover, western “hegemonic” conceptions of human rights are not imposed by China on African governments. China and Africa largely agree that human rights issues are not above sovereignty, so interference in each other’s internal affairs is not countenanced. China’s functional engagement with Africa is welcomed as a “breath of fresh air,” offering African countries new opportunities for commercial engagement. China’s entry into the African market offers Africa an alternative to the already established external players. A wider option list allows Africa the opportunity to “pick and choose” – an obvious advantage in maximising options. African governments are interested in developing relations with a country that has “never oppressed them, never stolen their people, or their resources” and is willing to engage on the basis of equality and mutual respect.

Critics predict growing competition in Africa between a so-called Beijing Consensus (China’s economic and political model) and the Washington Consensus (economic conditionalities imposed by the World Bank and the IMF, along with demands for transparency, good governance and democratisation.) However, given China’s firm commitment to non-interference in domestic affairs, this accusation is overstated. China imposes no political or economic model on Africa, nor does it actively oppose democratisation. While China does interact with non-democratic African governments (as do many western countries), Beijing cannot carry the blame for poor governance on the African continent. China’s common history as a former colony of European powers allows for the sympathy of a shared colonial past, and underpins Beijing’s sensitivity to the dignity of African countries. Moreover, the stricter definitions of the Washington Consensus (see table 2 below) emphasise economic and not political conditionalities. Given that China, like the west, is an external investor, its interests in the long-term economic success (hence greater capital formation and profits) of the host country must surely be identical.     

Table 2: The Washington Consensus and the Augmented Washington Consensus

Washington Consensus

(Williamson 1989)

Augmented Washington Consensus

(additions to the original 10-point list)

(Rodrik 2003)

1. Reduction of budget deficit to a non-inflationary level

2. Redirection of public expenditure to areas such as education, infrastructure, etc.

3. Tax reforms to lower marginal rates, broadening the tax base

4. Transitions to market-determined interest rates (financial liberalisation)

5. Sufficiently competitive exchange rates which induce a rapid growth in non-traditional exports

6. External trade: removal of quantitative trade restrictions; tariff reductions

7. Abolition of barriers to foreign direct investment

8. Privatisation of state-owned enterprises

9. Deregulation for ‘start-ups’, general abolition of restraints on competition

10. Better protection of property rights, particularly in the informal sector

1. Corporate governance

2. Anti-corruption

3. Flexible labour markets

4. Adherence to WTO discipline

5. Adherence to international financial codes and standards

6. ‘Prudent’ capital account opening

7. Non-intermediate exchange rate regimes (completely fixed or completely flexible exchange rates, corner solutions)

8. Independent central bank/inflation targeting

9. Social safety nets

10. Targeting poverty reduction (for example the Heavily Indebted Poor Countries Initiative)

 

Source: H Herr and J Priewe. : “Beyond the Washington Consensus: Macroeconomic Policies for Development” International Politics and Society, No. 2, 2005, p. 84.

For Africa, the eurocentric criticism of China lacks moral authority, given the European history of African exploitation through slavery, colonialism and neo-liberalism. Western commentators are quick to criticise China, without objectively comparing China’s present African engagement with the legacy of Euro-American interaction. Moreover, both China and Africa reject western critiques on human rights and democracy on the grounds that they are based on “neo-imperialist arrogance.” The imposition of western world views and value systems on China and Africa (and on current Sino-African interaction) is considered unfair, inappropriate and pernicious. The hypocrisy of western governments has scaled new heights as they encourage their own multinationals to seek market share in China, but admonish African leaders to contain Chinese actions on the African continent. Moreover, the actions of Chinese multinationals are condemned, but their business models are not very different from those of the western companies which have long engaged Africa. At the same time, the Chinese government cannot be held responsible for the day-to-day actions of Chinese multinationals in Africa.                  

China’s economic rise is systematically transforming the global economy, shifting global growth and influence away from the Atlantic to the Pacific Ocean. Asia, with China as the core of economic progress, increasingly offers a counterweight to the US-Europe power centre. Growth in future trade for Africa is more likely to come from Asia, rather than US-Europe, as China (and India) continues to offer new opportunities. At the same time, China offers a non-intrusive and equal relationship, avoiding prescription, admonishments, or a patronising approach. China’s engagement agenda, including mutual co-existence, mutual respect for territorial integrity and sovereignty, mutual non-aggression, mutual non-interference in internal affairs, equality and mutual benefit and peaceful co-existence, is widely welcomed in African capitals as a fair and effective method for diplomatic and commercial interaction.

Apart from insisting that African countries do not recognise Taiwan, China imposes no complex linkages to its aid or economic interaction. Western donor countries, however, insist on a Eurocentric and an increasingly complex inventory of conditionalities, before aid is dispensed. Evidence of good governance, respect for human rights and democratisation are required to unlock western donor support. In contrast, China’s aid is instantly and unconditionally accessible. The west’s complex aid system, endless bureaucracy and poor track record in achieving positive outcomes has opened a substantial space for China’s growing intervention in Africa. The economic lacuna which China is now filling in Africa was largely created by the inefficiencies and failures of western aid policies towards Africa. Moreover, given China’s recent success in tackling poverty, western donor agencies could learn much from the Chinese experience and help to apply some of these lessons, in co-operation with China, to Africa.                     

In effect, China offers a “no-strings-attached” approach to Africa, while at the same time encouraging African countries to develop their own economy through their own choice of economic development model, without dictating the form and terms of political or economic development. China provides an alternative to the unhealthy economic dependency which has grown between Africa and its former colonial masters. The “China alternative” must be beneficial to Africa as it seeks to find new markets and development partners. To date, China’s “no questions asked, no interference” approach has proved successful in establishing an increasingly close relationship with a range of African states. China offers a very convincing engagement package to Africa, consisting of “an alternative consumer for resources, a model for successful development and trade policies that are more benign than western initiatives.”

Conclusion

China’s growing appetite for oil and raw materials has been a major boost for African producers. Higher commodity prices have directly benefited African economies and provided a foundation for further economic development. However, in terms of drafting and implementing a comprehensive and sustainable economic development programme, the onus is on African governments and not China. Breaking the so-called “products-for-resources” model is an economic challenge for Africa’s leadership, the first step of which is to provide a positive environment for foreign investment, not only in the resource sector but in other areas of the economy as well. So too is controlling the effects of “Dutch disease” (export-driven currency appreciation), which impacts negatively on the competitiveness of other sectors of the economy. China’s search for resources offers suppliers new options and new possibilities for commercial expansion to their benefit.

Given the impressive growth of the Chinese economy and the prospects for continued growth into the future, Africa’s challenge is to effectively engage China and to seek opportunities for profiting from interaction with the world’s fastest growing market. Increased trade with China, with an emphasis on African exports to China, would be the initial starting point. Most economists would agree that trade brings mutual benefits to participants, even when not completely in balance. Whatever the challenges of the China-Africa relationship, there is enormous space to produce a positive, win-win outcome. FOCAC provides the forum to negotiate a win-win formula for China-Africa relations and to build a quality long-term relationship. A comprehensive and determined response from Africa can prevent the “unequal relationship” which the former President of South Africa Thabo Mbeki has alluded to. Through FOCAC, Africa can help to shape the Sino-African agenda and build a common foundation for mutual development. As the Brenthurst Foundation has argued: “The benefits Africa generates from such investment depends on what Africans do for themselves more than what China and the US can do for them.”

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

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