24 SCN 38-600

SCN 38-600

Suggested by Clive Tasker

GLOBAL: CHINA AND AFRICA - PRAGMATIC PARTNERS MATURING by Jeremy Stevens

From: “Economics”, Standard Bank, April 28, 2009. http://ws9.standardbank.co.za/sbrp Reproduced by The European House-Ambrosetti for the Forum “Developing the Regions of Africa and Europe”, Taormina, October 6 and 7, 2011.

Economics 28 April 2009

Global: China and Africa – Pragmatic partners maturing

Introduction

Jeremy Stevens

In contrast to the tidy social value perspective, China is frequently portrayed as an exploitive force that will inevitably further exacerbate

For some time, the default position of China’ s foreign policy towards

Africa’ s contemporary socio-economic challenges. Herein lies the

Africa has essentially constituted unconditional economic, social and

ritualistic over-simplified finger-pointing that hides behind some crude

political support. China’ s foreign policy has concomitantly evolved in

appeal to realism. Through this lens, China is a neo-mercantilist

tandem with the considerable domestic changes that have unfolded

exploitive force. Therefore, quite removed from the positive benefits

over the past half century. Favourable for the perpetuation of Sino-

accruing to Africa, China’ s increasing engagement is interpreted as

African relations, dynamic political and economics forces have wedded

part of a long-serving strategy aimed at displacing western powers by

China and Africa to one another. To be sure, this has manifested

forging partnerships with African elites under the facade of South-

beneficially for Africa’ s economic growth prognosis. Simultaneously,

South cooperation (Ampiah et al, 2008). All of which is driven by

engagements have secured alternative sources of supply for Chinese

China’ s insatiable appetitive for commodities and second tier markets.

commodity requirements and markets for Chinese production. Each of these positive forces has unfolded under the great canopy of mutual political solidarity. The singular most important point is that the seemingly easy courtesy of Sino-African relations reflect bonds that are special to both parties.

These contrasting conventions of China’ s motives attempt to neatly frame a far more nuanced policy towards Africa. China is a development partner to Africa. China is also a pragmatic nation with its own national interests. Explicitly China has cross purposes. And in certain instances these interests dovetail. Without making excessively

The logical question concerns why Africa and China experience these

acute platitudes, like all near misses, the mistake of both forms of

deep-seated, long-standing and friendly relations? In other words,

reasoning is the presentation of China’ s policy oscillations in static form

which propagating features gently, but consistently, maintain this status

and neat boxes. Casting aside the subtleties, merely a partial

quo despite the narrative of change unfolding in the increasing

understanding shall be incubated. For this reason, the dynamism of the

complex globalised modern world? When examining Sino-African

global economy and its associated nuances are lost in analysis. Yes,

relations one is immediately struck by the many different, and

China and Africa seemed welded to one another. However, one cannot

sometimes equally plausible, perspectives which are presented in the

draw tidy lines around internal and external forces, or past and present

dense volume of literature.

decisions, in a way that isolates one from the other.

Taking broad strokes, the main arteries of discussion centre on the

Worryingly, ignoring the intricacies of the matter leads to somewhat

conceivable motivations for China’ s engagement with Africa – is China

contrasting conclusions, not only about the vital essence of Sino-

propelled by its own pragmatic national interests or some more

African relations, but simultaneously the potential future trajectory of

sympathetic benign humanitarian development-focused quest for

Sino-African relations. To impregnate conversation, the paper attempts

partnership. Overwhelmingly, irrespective of the motivation, the flow of

to thread together the weave of different strands of understanding and

Chinese development assistance, investment, trade and people is

interpretation of the relevance of Africa to China. The paper takes a

considered a positive development for Africa. The flows constructively

critical approach in its quest to link China’ s actions to different notions

erode some of the continents unbridled and habitual marginalised

about its motivations. The intention is to introduce, examine and

legacy. From this over-simplified perspective, China is perceived as a

explain some of the reasons why Africa and China seem to have

benign economic and development partner to Africa.

complimentary paths and intertwined futures.

Already, Africa has advanced the “one-China”policy as an increasing

Africa and China: complimentary agendas

number of states undertake official ties with China. Over the past three Underscored by landmark forays and symbolic gestures of friendship

decades, the Central African Republic (1998), Chad (2006), Guinea-

and mutual respect, China has managed to gracefully carve out a

Bissau (1998), Lesotho (1994), Liberia (2003), Malawi (2008), Niger

powerfully compelling relationship with the continent. In the process,

(1996), Nigeria (1971), Senegal (2005) and South Africa (1998) have

China has managed to make significant gains in and fortify its position

converted from official recognition of Taiwan to China. In fact, Alden

with Africa. There is no doubt that modern Sino-African relations have

(2007:21) states: the Forum on China-Africa Co-operation (FOCAC)

been motivated by China’ s economic and political interests, which have

was “seen to be a fitting culmination of its forty-year policy of isolating

meandered

over time1. Simultaneously,

a promising economic

Tapei on the continent.”Today, only four African countries have official

prognosis and improving political stability have better-positioned Africa

relations with Taiwan. Recall, China’s succession to the United Nations

as a more attractive partner in the highly competitive global quest for

in 1971, when it actually replaced Taiwan, was supported by 26 African

yield.

states (Gu & Humphrey, 2008).

Sino-African relations have blossomed particularly in the last decade

Quite rightly from China’ s vantage point what Africa may lack in wealth

as the forums and institutions of agreement have found clearer form.

and global influence, it makes up for in terms of absolute numbers

During the time period, the mechanisms of Chinese foreign policy have

(Alden, 2007; Lui, 2001). The large number of African countries offers

also matured and against the background of

swiftly shifting

China important diplomatic support for its own passive ascent and

globalisation.

have

become

pursuit of related interests. On numerous occasions, China has

increasingly shaped by economic motives, potential complementary

mobilised African political support (Van der Wath et al, 2006). Africa is

positions and the role of other key mature and emergent economies.

the largest grouping of states and has a tendency for bloc-voting

The benefits have undeniably accrued to both China and Africa.

(Alden, 2007). Take for instance, the immediate post-Tiananmen

In broad terms, from the continents perspective, China’ s engagement

period: China was isolated from and embargoed by the West owing to

presents an important market for its natural resources, a partner for

criticism around the manner in which the Chinese Communist Party

development

policies

dealt with the internal unrest. As a consequence, China turned towards

(Kurlantzick, 2006a). From China’ s perspective, various broad factors

South-South cooperation and, in particular, to Africa where the political

are most commonly cited for Africa’ s increasing strategic political and

space had become relatively vacant in the post Soviet Union era

economic importance. Africa has a central role in China’ s economic

(Lammers, 2007).

trajectory. In fact, today, many hold the notion that China needs Africa

Even today, Sino-African relations have an important political-strategic

as much as Africa needs China (Gill et al, 2007; Kornegay, 2008).

importance as China aims to consolidate global allegiances. Africa’ s

Briefly put, this is because Africa’ s abundant natural endowments,

approval was an important aspect of China’ s victory to host the

somewhat underdeveloped less-competitive markets and general

Olympic Games. It is plausible, that Beijing aims to continue to

political support fit hand-in-glove with China’ s interests. The aim of this

increase its global influence by gathering support from Africa (Lui,

paper is certainly not to dispute these galvanising forces. Rather, it

2001). Note how China and Africa have leveraged off one another in

reminds one that each of these hypotheses, while also excessively

contesting the Kyoto Protocol and attempting to advance the Doha

simplistic, talks to a mechanism in which each force feeds into a

Round of negotiations within the World Trade Organisation (WTO).

system that ultimately reinforces them. In short, each factor deepens

Similarly, African nations have, albeit less vociferously, extended

relations.

support over China’ s stance on Tibet. Hence, on numerous occasions,

Geo-political support and solidarity

Africa has lent a relatively sympathetic ear to China’ s political

As

and,

such,

in

Sino-African

some

cases,

relations

favourable

trade

aspirations. All the while, China offers Africa a platform and partnership The unifying fortifying undercurrent of the significant majority of China’ s

for furthering its own geo-political objectives.

foreign policy decisions and engagements hinges and reflects the nation’ s ambition to realise and then lead a harmonious global world

Evidence suggests that history is littered with occasions when China

order. In this envisioned global structure, which is proving attainable as

and its African partners have sung from the same hymn sheet. A

indicated by the leading role of China and other key emerging markets

central

at the recent G20 Summit in March 2009, China anticipates and

collaborative union between China and Africa in international affairs.

desires an important leadership role. Africa’ s political support and the

Sure, the shape and vehicle of solidarity has ebbed and flowed as the

accumulative credibility affect that Chinese activity fosters magnifies

rhythm of inquiry has naturally evolved. Nevertheless, the central

China’ s negotiating power in international affairs.

theme has been one of togetherness, which has crystallised over the

longstanding

habit

of

acting

together

underscores

a

last few years as both parties have attempted to implement practical programmes for mutual gain. Given this political partnership, it is no surprise that economic and social ties have flourished between Africa

1

At this juncture it is absolutely critical that one recognises that each African country has its own unique relationship with Africa. However, for the papers purpose, an understanding of the holistic trend and ideology is of interest.

and China.

2

regions for relatively rapid wealth gains. Recall, China has an

Africa offers new ground for opportunistic feet

enormous population, rapid urbanisation and distorted living standards.

Economic growth is critical for China’ s social stability. Fresh evidence

Under this circumstance, the risk-reward ratio for relocation is now

from statements by leading Chinese policymakers in the current global

more favourable than ever before.

economic slowdown supports that the Chinese power-brokers identify

Figure 1: Estimated Chinese migrants in Africa

a gross domestic product (GDP) growth rate of around 8% each year as essential to social harmony and political stability. Conversely, low

People in thousands

economic growth resulting in mass unemployment, deteriorating living standards and China’ s shrinking international relevance is likely to release social tensions. Explicitly, sustained elevated economic growth and sensitivity for employment reinforces the Communist Party’ s legitimacy and enhances its apparent agility. Job opportunities to individuals in swiftly crowding cities are particularity important to

Liberia Cote d'Ivore Mozambiq…

Ethiopia Cameroon Lesotho Ghana Algeria Zimbabwe Sudan Mauritius Nigeria South Africa Angola

ensuring domestic accord (Zweig et al, 2005).

320 280 240 200 160 120 80 40 0

Fastened to global trends, a clear shock to confidence has seeped into the rhythm of China’ s economy. Come 2009, China is expected to slow from an average real GDP growth rate of 10% per annum since 1990 to around 7% in 2009. Most telling will be the full extent of the

Source: Mohan and Kale, 2007

synchronised global economic recession that has stripped China’ s allimportant external demand where a large proportion of employment

The majority of Chinese migrants in Africa are working on mining,

pressures have been ameliorated. Since the 1980s, policies supporting

construction and infrastructure projects (Kurlantzick, 2006). However,

export-orientated coastal production have been highly successful.

large numbers of private Chinese wholesalers and retailers have

However, the fall in exports means that the same coastal provinces are

followed due to the elevated levels of Chinese activity and a promising

now under real pressure. Already, nearly 20% of China’ s 130 million

domestic market. Already, anecdotal evidence supports the view that

migrant workers have lost their jobs owing to the global slowdown –

informal Chinese retail stores are growing exponentially as more and

primarily from coastal manufacturing sectors.

more Chinese migrate – either temporarily or permanently. Many of the small-scale retailers operate in close proximity to the oil sector and, in

Evidently this is a demanding task irrespective of the global economic

the process; they have brought goods closer to the population (Alden,

environment. The challenge compounded by the fact that China has

2007).

gradually softened the strict rules regarding population mobility. As a consequence, more and more Chinese are migrating from rural to

The weighting of domestic forces, such as, the need to alleviate social

urban areas. For instance, there are over 100 million (mn) migrant

tensions through providing employment opportunities to the migrant

workers in China, mostly from the rural areas, that generally move from

rural labour force, is likely to be higher in the current environment. It is

project to project.

well-recognised that the current global downturn presents a grave challenge to the Chinese government’ s ambitions to consolidate recent

The rapidly growing Chinese economy has propelled many into its

socio-economic successes.

swelling middle class. This has elevated expectations and created a

Domestic growth is linked to resource demand

Chinese dream. Encouraged by Deng Xiaoping’ s statement that “to get rich is glorious”, many rural Chinese have searched for their piece of

It is no surprise that in the face of a global slowdown, the Chinese

the new economy. However, the number of individuals in search for a

government has leaned in with a weighty USD586 bn stimulus package

better future is staggering. The conditions are tough with crowds

for large-scale infrastructure projects (Wen, 2009). These projects

competing for a finite set of low-wage jobs. Therefore, many shifted

target employment for the all-important rural, factory and migrant

their attentions to emigration in search of opportunity.

workers. However, this is not a novel realisation. For instance, in 2005,

Sino-African exchanges and associated investments have planted the

the government announced the planned paving of an additional 85 000

seeds for larger-scale migration. Already, a groundswell of Chinese

kilometers of roads within 30 years (making China’ s road network the

migrants to Africa has occurred (see Figure 1). Importantly, Africa

largest in the world) (Khan, 2005). Similarly, China is expected to build

offers Chinese migrants a conducive environment in which to flourish.

around 40 000 to 50 000 skyscrapers by 2025 just to meet the needs

Given the crowding and pressure exerted on the domestic economy,

of the country's urbanisation influx. Some economists suggest that

China is facing its own domestic challenge to increase employment;

investment in such projects represented a staggering 4.9 percentage

the out sourcing and off shoring of employment creation may be a

points of China’ s 11.9% growth in 2007, compared to 4.3 percentage

critical ingredient informing Chinese financial support. According to Liu

points for consumption and 2.7 percentage points for net exports

(2009), there is a renewed urgency for Chinese private entrepreneurs

(Wehrfritz, 2008).

to relocate to Africa as it appears to be one of the few untapped 3

The goal of this genre of spending is to create employment

China is indeed attempting to diversify its sources of energy. And,

possibilities. Fortunately, abundant Chinese savings has enabled it to

when possible, gain equity stakes in resource-extractive companies.

accumulate capital. Similarly, as economic growth accelerated, the

To compensate, policy attention has focused on establishing long-term

resource pool has swelled, providing more resources for redeployment.

supply contracts with resource-rich countries. Beijing is encouraging

Evidently, China is in the process of a significant structural shift,

state-owned enterprises (SOE) to secure exploration and supply

reflecting the urbanisation and industrialisation of hundreds of millions

agreements with states that produce oil, gas and other resources

of people across every province in the country (Hill, 2008). China’ s

(Zweig et al, 2005). The aim is to purchase commodities at their source

urban population is likely to grow from 600 mn today to more than one

(Gu & Humphrey, 2008). Unsurprisingly, energy resources are indeed

billion (bn) by 2030 (Devan et al, 2008). Meanwhile, millions of Chinese

the most prominent feature of Sino-African relations. Beijing’ s well-

are entering the middle class.

versed strategy is to increase domestic production and boost reserves;

Naturally, the effort to propel 1.3 bn people through an industrial

move away from trading the spot oil price by gaining supply contracts;

revolution largely absent of indigenous resources (besides coal) is a

going global; and reducing its resource reliance on the Middle East

taxing procedure. The growth endeavour continues to place profound

(Moreira, 2009).

pressure on Chinese policymakers. Simply put, China has 20% of the

China has considerable interests around the world. However, as a late

world’ s population, but only 7% of its arable land, 3% of its forests and

entrant into the global energy market, Africa offers Chinese enterprise

2% of its oil (Le Pere, 2008a and New African, 2008). Given that China

an opportunity to lock-down newly-developing oil reserves, which are

aims to grow its USD1.4 tr economy by around 8% - 10% over the next

not yet managed or owned by corporates from mature economies

few years, natural resources are (and will continue to be) a critical

(Alden, 2007; Besada et al, 2008). African governments typically

ingredient to the growth calculus – especially due to its capital

present firms with favourable contractual terms. Most agreements take

intensive growth strategy.

the form of production sharing agreements, which mean that if

The overhang of Chinese demand for oil, iron-ore, copper, wood and a

exploration is successful, the firms share the revenues and production

host of other minerals are somewhat staggering. Granted, China’ s

with the government in question (Ghazvinian, 2008).

demand for resources has attracted significant attention. That said,

African oil is generally considered high-quality (light and sweet). Africa

consider that robust economic growth has turned China from East

has an estimated 11% of current world oil production and 8% of proven

Asia’ s largest oil exporter in 1993 to the second largest oil importer in

oil reserves (approximately 120 bn barrels) (see Figure 2) (Van der

the world – behind the US (Hansen, 2008). The growth in China’ s oil

Plooy, 2006; British Petroleum, 2008). Libya and Nigeria alone have

demand alone accounts for around one third of the global growth in oil

collectively 80 bn barrels of oil in reserves, which is twice the size of

demand. Today, China needs an estimated 8 mn barrels of oil per day.

China’ s estimated oil reserves. Moreover, Africa’ s reserves have grown

More concerning, oil demand is expected to increase by 10% p.a.

from 6.9% of the world’ s proven reserves in 1987 to almost 9% in

through to 2020, to 13.1 mn barrels per day. Currently China imports

2007. In 1987 Africa had an estimated 280 oil wells, in 2008 the

approximately one third of its total oil consumption, but estimates

number had climbed to almost 500 (Clarke, 2008). The ideal

suggest that by 2020, oil imports will account for over 60% of total

geographical location of the continent oil and the large African

demand. Thus, China’ s elevated energy demand is not a transient

coastline is attractive. As a result, more and more blocs are opening up

feature of modern China, but a mainstay.

as exploration shifts offshore, deeper and inland on the back of

What is certain is that for good reason energy security is a central

technological innovation.

motive for China’ s foreign policy (Besada et al, 2008). Predictably,

Figure 2: Africa’s proven oil reserves are relatively large (bn

China feels vulnerable with regards to its import dependency on energy

barrels)

(and other resources). The staggering proportions present a torturous task to policymakers. Already, it has proved to be a problematic endeavour. For instance, despite being the world’ s largest iron ore consumer, during the price negations for iron-ore in 2006, China was noticeably absent from the price negotiations. Therefore, the concluded 71% price increase for iron-ore was decided without China (Van der Wath et al, 2006). Subsequently, China has manoeuvred itself to be party to these negotiations. Nonetheless, China is disadvantaged by its huge demand for raw materials. Therefore, the 95.6% price increase negotiated by the Chinese Baosteel Group2 and Rio Tinto Group in 2008 still disproportionately affects China (Wan & Yu, 2008). Hence,

Source: British Petroleum, 2008 Spending by China’ s state-owned enterprises (SOEs) has accelerated 2

over the past decade. The most significant proportion of China’ s

Baosteel Group represented Chinese steel and iron companies.

4

activity in Africa is through these SOEs directed by the credit line into

accompany China’ s activity in Africa’ s resources, which warrants some

resources and infrastructure. China’ s three largest oil companies,

balanced perspective.

China National Petroleum Corporation (CNPC), China Petrochemical

The aforementioned increased attention in African oil has borne fruit for

Corporation (Sinopec) and China National Offshore Oil Corporation

oil production in Africa. Total oil production in Africa has increased from

(CNOOC) have boosted their spending considerably on the continent

370.3 mn barrels in 1997 to 488.5 mn barrels in 2007. The primary

over the past decade. In the last five years, while conservative

beneficiaries, where growth has been robust, have been in Angola,

estimates range between USD10 bn and USD15 bn, Chinese oil firms

Equatorial Guinea and the Sudan who have grown their production

have purchased oil fields and local companies in Africa (Kurlantzick,

volumes by a compound annual rate of 7%, 17% and 44%,

2006a). However, China’ s oil investments in Africa are dwarfed by

respectively, over the period (see Figure 4). Each has received

other players in the game (see Figure 3). At this point, China produces

significant interest from China.

3

one-tenth the oil of Sonatech , almost one-third of Exxon-Mobil and Figure 4: African oil production, 1997 - 2007

Total, and around half of Shell and Chevron (Downes, 2007).

Million tonnes of oil equivalent

Figure 3: Commercial value of oil investments in Africa by country of origin

China Other companies International Africa 0

50

100

150

200

250

600 500 400 300 200 100 0 1997 Nigeria Angola Equitorial Guinea Other

2001 Algeria Sudan Republic of Congo

300

2005 Libya Egypt Gabon

Source: British Petroleum, 2008

USD bn

China’ s rising economic engagement with Africa is tied to energy and other commodities. By design, the magnifying engagements are captured by increasing trade flows. For instance, African exports to

Source: Wood Mackenzie, 2007; Downes, 2007

China averaged around USD190 mn per month in 1999, but increased To be sure, Chinese SOE’s are becoming an increasingly relevant

to around USD5 bn per month during 2008. In fact, Sino-African trade

operator in Africa. However, the assumption that China dominates

has ballooned from USD10 bn in 2000 to USD107 bn in 2008. Today,

Africa’ s oil production is intellectually inconsistent with empirical data.

around 6% of Chinese total imports come from Africa - up from a mere

The trend has not occurred in a vacuum. Companies from around the

1.3% ten years ago (see Figure 5). However, 85% of Africa's exports to

world are entering or intensifying their engagements on the continent.

China are siphoned from five oil-exporters; namely: Angola, Equatorial

To think, since 2000, the number of both private and state-owned oil

Guinea, Nigeria, the Republic of Congo and Sudan. Already, Africa

companies from around the world operating in Africa has increased

provides one-third of China’ s total oil imports.

from 250 to over 800. Evidently, China is not the only country or Figure 5: Africa and South America are increasingly relevant to China, 1999 - 2008

government that recognises the potential importance of Africa’ s untapped supply. Therefore, a deepening, more competitive and

percentage of total imports (exc.

Asia)

growing corporate presence in Africa’ s oil sector has evolved.

China dominates only a handful of fields in Africa. These include the Heglig and Unity fields in the Sudan, the Akpo field in Nigeria and the Greater Plutonio fields in Angola. However, most assets held by China are “of a size and quality of little interest to international oil companies” (Downes, 2007:44). In fact, many of these assets were previously relinquished by the international players. This is an important point because frequently fear mongering and

apocalyptic headlines

100% 80% 60% 40% 20% 0% 1999 Africa

2002 South America

2005

2008

Europe

US

3

An Algerian government-owned company with diversified activities that cover all aspects of oil production: exploration, extraction, transport, and refining.

Source: Bloomberg, 2008 5

Oil production is clearly the primary beneficiary at this moment of

averaged a monthly growth rate of 38% y/y throughout 2008. Clearly,

African exports to China. However, it is important to recognise that

Chinese producers recognise that Africa offers Chinese-owned

Africa is far from being merely a singular oil exporter. The unbridled

production a potential market. Given the global economic slowdown,

stress of sustained and high economic growth in China relies on the

Africa offers Chinese-owned manufacturers an important market.

importation of a range of resources. For instance, since the flooding of

Figure 6: Sino-Africa trade

the Yangtze River in 1998, primarily due to excessive logging, China has an overhang of timber demand. Answering the call, Cameroon,

12

Congo, Equatorial Guinea, Gabon and Liberia each export industrial

10

woods to China. Akin to timber, despite producing vast sums of cotton, USD bn

the extent of China’ s textile production for export requires external sources. Most cotton is imported from the US, but the Burkina Faso,

8 6

Benin, Mali, Guinea, Nigeria and Togo each export cotton to China

4

(Van der Plooy, 2006). Likewise, sisal plantations in Tanzania are also

2

an useful ingredient. In addition, agricultural land is effectively being

0 1999

leased out to (in effect exported) to China. Expect the trend to continue as industrialisation and urbansiation has made agricultural land

2001

2003

Exports to Africa

relatively expensive in China, which has encouraged farmers (and

2005

2007

2009

Imports from Africa

even fisherman) to source African land (and water). For instance, Source: Bloomberg

Tanzania, Zambia and Zimbabwe each lease farm land to Chinese farmers and the coasts of Sierra Leone, Gabon and Namibia are being

The primary destination for Chinese exports to Africa are South Africa

fished by Chinese fisherman.

(21%), Nigeria (12%), Egypt (10%), Morocco (7%), Algeria (7%), Sudan (6%), Benin (4%), Ghana (4%), Togo (3%), Kenya (3%) and

African markets for Chinese-produced goods

Tanzania (2%) (Van der Plooy, 2006). The distribution of current trade The current wave of a new dynamic globalisation has been propagated

flows is no surprise as their relatively higher GDP per capita implies

by a substantial increase in international trade and capital flows. China

that these countries have genuine purchasing power combined with the

has played a critical role in fostering this grand development. To this

demand for Chinese manufactured goods and textiles.

end, deliberate policy decisions of yesteryear have successfully Already, Africa is providing an important opportunity for Chinese-

positioned China to benefit from the commoditisation of manufacturing.

owned enterprise exports. In particular, markets for China’ s electrical Special investment zones, which included favourable tax rates for

appliances, light industry products and mechanical products are lively.

foreign firms; the development of a superior infrastructure system; and

These products face highly competitive local and advanced markets,

a relatively skilled, but low-cost, labour force, have encouraged trade.

which, for all intents and purposes, are highly saturated – partly as a

The strategic success means contemporary China is predominantly a

result of overproduction (He, 2007). However, these are precisely the

final-assembly exporter for the multinationals of the mature economies.

goods in high demand across much of Africa. An estimated 60% of

For instance, around 55% of China’ s exports fall under the yoke of

African imports from China consist primarily of textiles (16%), clothing

foreign-owned companies. At this juncture, China has a dearth of

and footwear (14%), transport vehicles (8%), electrical appliances (7%)

internationally

and industrial equipment (5%).

competitive,

research-orientated

and

innovative

companies (Chinese innovation still focusing primarily on lowering As global aggregate demand rescinds, the relative insulation of Africa’ s

costs). Therefore, despite China’ s macroeconomic success, China has

domestic demand presents China with a useful market to cushion the

not created global brands or developed intellectual property rights.

downturn for the export-orientated manufacturers. Africa has a

That said, somewhat counter-cyclically to what is being communicated

population of 850 mn, which is about 12% of the globe’ s population. On

by other brands, many cheaper Chinese brands have already grown

aggregate, Africa is the lowest consumer of most products and

their domestic market share as people shift away from more expensive

services of all developing and mature regions. In terms of purchasing

goods (Kynge, 2009).

4

power , Africa is relatively poor. However, promisingly the wealth in China is predominantly a final-assembly exporter. A disproportionately

Africa has not shrunken. African households have relatively low debt

large number of firms operating in China either foreign-owned and/or

and limited exposure to assets that have depreciated markedly in the

heavily dependent on imports (Hutton, 2008). Here is where Africa

rest of the world. Africa could offer a suitable pressure valve. This

plays a strategic role to launch aspiring Chinese multinationals.

could suit China as the ownership weighting of the production of goods

China-Africa bilateral trade has grown exponentially over the past decade. Furthermore, despite a relatively steep decline in February 4

Purchasing power takes local costs into account. Basically, it measures what can actually be purchased in a country with the money earned in that same country.

2009, China’ s exports to Africa had stood up considerably well in contrast to other regions. For instance, China’ s exports to Africa 6

Source: Moyo, 2008

typically exported to Africa are produced by Chinese-owned enterprise.

Naturally, as the GDP per capita increases and general standards of

Therefore, Africa offers Chinese-owned production an outlet.

living rise across Africa, significant purchasing power may be unlocked.

Africa’s collective positive economic and political prognosis

Looking ahead, at least some Sub-Saharan African countries are likely Before being rudely interrupted by the economic tumult, Africa was in

to average annual grow rates of around 6% through 2050 (Moyo,

the process of establishing the preconditions for its own take-off

2008). Therefore, Sino-African relations are not merely a resource

(Martinussen, 2004). Democratisation is gaining traction. Institutions

demand story. China is naturally attracted to Africa as a potential

such as the judiciary, media, military and central banks are in the

export market to diversify and enlarge the market for Chinese-owned

process of reform. Governments are improving their macroeconomic

production, which will sustain its own growth momentum (Le Pere,

frameworks within which they are applied. For instance, inflation

2008a).

targeting has become commonplace and government debt levels have

Conclusion

declined in absolute and relative terms over the past decade. This commitment to macroeconomic prudence has been rewarded by

To be sure, China’ s twin priorities of territorial integrity and economic

mostly positive global sentiment, a reduction in structural vulnerabilities

growth are the overarching, not so subtle, motivation for engagements

and sound economic growth (see Figure 7). For many, proactive and

(Paulson, 2008). It is true that Sino-African relations have an important

constructive engagement may induce a first-mover advantage that will

political-strategic dimension as China aims to consolidate global

benefit Chinese enterprise should Africa experience prolonged and

allegiances. Solidarity with other developing and emerging markets is

sustained economic growth (Gill et al, 2007).

an important way of fostering a revised global economic order. As the dynamic forces of globalisation continue to take hold, China is looking

Annual percentage change

Figure 7: Real GDP growth indicates comparatively sound economic prognosis in Africa

for new means through which to harness the positive force.

12

China has made meaningful economic and political gains in Africa.

There are various underlying reasons why China has proven

8

successful in magnifying its influence in Africa. For one, China 4

promotes a win-win, mutually beneficial partnership with Africa. This contrasts

0

somewhat

with

mainstream

characterisations

of

the

traditional donor-recipient relationship with the West. The bilateral, -4

high-level, state-centric model of engagement presents a seriousness 1982

1988

1994

2000

2006

2012f

of intent by China. Yet, non-conditionality and non-interference

Advanced

sub-Saharan Africa

presents a respectful and trusting partner. In addition, people are at the

Developing Asia

Latin America

centre of China-African relations ameliorating concerns regarding the longevity of relations and easing the language, culture, religion and

Source: IMF, 2008 GDP per capita is expected to rise across the continent (see Figure 8).

racial bias (Gill et al, 2007).

Meanwhile, large-scale urbanisation is already underway. Estimates

China’ s rising economic engagement with Africa is indeed tied to

suggest that in Angola, Congo, Gabon and Nigeria, the urban share of

accessing energy and other commodities. Meanwhile, Chinese

population could reach 75% - up from 30% today (Moyo, 2008). Hence,

exporters are targeting markets that have strong economic growth

Africa could indeed be on the cusp of a step-up in domestic demand.

potential, relatively sound macroeconomic and political prognosis and

Figure 9: Projections for GDP per capita of selected African countries, 2050

sound trade relations with China. These markets offer untapped potential for consumption with significant latent potential. Hence, the

Zimbabwe

Sino-African symbiosis is a reflection of China’ s internal socio-

Zambia

economic vulnerabilities and the mutual complementary forces offered

Uganda

by intertwined trajectories (Kornegay, 2008; Le Pere, 2008a). As a

Tanzania

result, Chinese companies have become more active as both importers

Sudan

of African energy and commodities, and exporters of Chinese goods

Senegal

and services (Gill et al, 2007).

Nigeria Kenya

It is certainly worth highlighting that the drying up of global liquidity and

Ethiopia

broad-based risk aversion places China in a more powerful position

Congo

than yesteryear. The position of strength broadens the alternatives

Angola

available to Chinese funds as risk-reward alchemy is refined. What this 0

8000 2050

16000 2010

means is that African countries that benefited from the more nourishing

24000

global growth prognosis, global risk appetite and excess liquidity are no

7

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