China And Africa

Charles-Edouard Renier MBA # 09908061

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The China’s impact on Africa

Charles

Table of Contents Introduction................................................................................................................................................... 3 Recent History ............................................................................................................................................... 4 Why is China interested by Africa ............................................................................................................. 5 China’s successful political and diplomatic approach to Africa ................................................................ 6 China engagement in Africa is driven by securing raw resources................................................................. 7


Need for oil ........................................................................................................................................ 7




Other mineral resources ................................................................................................................... 7




Logging .............................................................................................................................................. 8

China Construction Sector in Africa .............................................................................................................. 9 Success Factors........................................................................................................................................10 China’s telecommunication foray in Africa .................................................................................................11 The Chinese equipment manufacturers:.................................................................................................11 African mobile growth.............................................................................................................................11 Chinese companies encouraged by the government..............................................................................12 China competitive advantage..................................................................................................................12 The growing importance of Chinese Financial Institution in Africa ............................................................13 China ExIm in Africa.................................................................................................................................13 Debt sustainability...................................................................................................................................14 Transparency and governance. ...............................................................................................................15 In short ....................................................................................................................................................15 China environmental footprint in Africa .....................................................................................................15 China- Africa is everything perfect? ............................................................................................................17


Impact of the growth.......................................................................................................................17




China investments concentrating into few countries .....................................................................17




China Support of doubtful regime...................................................................................................17

CONCLUSION ...............................................................................................................................................18

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The China’s impact on Africa

China’s impact on Africa Six Centuries ago… Six centuries ago from 1405 to 1433, a mighty armada of Chinese ships crossed the China Sea, then successfully ventured west to Ceylon, Arabia, and finally reached the horn of Africa: Somalia1. The fleet commanded by the eunuch admiral Zheng He, consisted of giant nine-masted junks, escorted by dozens of supply ships, water tankers, transports for cavalry horses, and patrol boats. The armada's crew totaled more than 27,000 sailors and soldiers. The largest of the junks were said to be over 400 feet long and 150 feet wide. Had the Chinese emperors continued their huge investments in the treasure fleets, there is little reason why they, rather than the French, British, and other European countries, should not have colonized Africa. Yet less than a century later, all overseas trade was banned, and it became a capital offense to set sail from China in a multi-masted ship.

Introduction Yet 600 hundred years later some in the west are considering that the renewed interest by China towards Africa and the very large influence and links it commands with the continent pave the way for a new form of colonization of Africa. Some2 even go as far as remembering the utterly offensive comments, by today’s standards, written by Sir Francis Galton, distinguished explorer and cousin of Charles Darwin, on June 5 1873 “My proposal is to make the encouragement of Chinese settlements of Africa a part of our national policy… I should expect that the African seaboard … might in a few years be tenanted by industrious, order-loving Chinese, living either as a semidetached dependency of China, or else in perfect freedom under their own law”. Numerous publication point out to the 750,000 Chinese living and working in Africa, in countries including South Africa, Nigeria, Zambia, Sudan, Algeria, Congo, Zimbabwe, Mozambique, Angola, Gabon, Guinea, Ethiopia, Cameroon, Egypt and Chad3. Now as a French born which grandparents were working the land of North Africa during the French colonization era, I am very sensitive to the world “colonization” and I am also acutely aware that the colonizer rarely actually believe they are the colonizer on the contrary (just like my grandparents and even parents had trouble to admit it), usually the colonizer like France or my grandparents always believe they are actually helping the colonized to develop and are merely enlightening the colonized for his own good. So I will, in this report analyze the ways in which the interest of China towards Africa are materializing thru a multiple prong approach: extraction, construction, telecommunications and 1

When China Ruled the Seas. By Louise Levathes. New York: Oxford University Press, 1994 Daily Mail How China's taking over Africa, and why the West should be VERY worried 3 “China Safari: On the Trail of Beijing’s Expansion in Africa” , Serge Michel and Michel Beuret 2

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The China’s impact on Africa

financial assistance. I will also evaluate the environment risk of China’s involvement in Africa. And at last evaluate how accurate are the claims from western countries whether political, trade and investment deals are mutually beneficial cial or are they merely a new form of neo neo-colonialism or Surgical Colonialism4. I would like to point out one more thing before beginning though, that many reports have been written on the sole raw material procurement of Africa for China and while this iiss undoubtedly the main reason, I will not detail as much this aspect in the analysis as it has been done many times already.

Recent History In 1976, under Mao Zedong, China completed the Tan Tan-Zam Zam railway, linking Zambia to the port of Dar es Salaam in Tanzania. But China's contemporary policy towards Africa is rooted in the crisis in China's international relations after Tiananmen Square in June 1989. Prior to this, Africa's importance in Beijing's foreign policy had declined during the 1980s as China's 'soc 'socialist modernization' modernization project called for massive foreign investment and technology deemed unavailable from Africa. In addition, Chinese tensions with both Washington and Moscow lessened throughout the decade, further marginalizing Africa's importance in China's ina's view. In its conduct of foreign affairs, this translated to China promoting international stability and commerce. However, after 4 June 1989, China re re-evaluated evaluated its foreign policy in light of Western reaction to Tiananmen Square. In contrast, whilst Tiananmen Square ended China's honeymoon relationship with the West, Africa's reaction was far more muted, if not supportive. As a result, the China's attitude towards Africa turned from one of benign neglect to one of renewed emphasis. This renewal has carried on into the contemporary period whereby China remains active in Africa, promoting trade linkages and the political support constituency that Beijing feels Africa provides China in the international arena. Chinese inroads into Africa got a new kick-start kick in 1995, when President Jiang Zemin made a speech urging Chinese business leaders to “Go “ abroad! Become world players!” players 5 As a result bilateral trade between the regions quintupled, to $55 billion, from 2000 to 2006, and that the figure is expected to reach $100 billion by 2010. Chinese business interests in Africa range from oil, lumber, refining, agriculture, mining, textiles and banking to the construction of dams, railroads, highways, bridges, airports and housing. Some contend that China’s

4

Surgical colonialism refers to resource extraction by a foreign power tha thatt involves a minimum of local disruption, making the extraction almost surgical in nature. Bergesen, Albert. "The New Surgical Colonialism: China, Africa, and Oil" 5 ‘China Safari: On the Trail of Beijing’s Expansion in Africa” , Serge Michel and Michel Be Beuret

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The China’s impact on Africa

ns in Africa are grandly geopolitical as well as economic. As Jacob Wood, a Shanghai Shanghai-born ambitions housing developer based in Africa for more than 30 years, tells them: “I’m going to be honest with you, China is using Africa to get where the United States is now, aand surpass it.” And is there anything wrong with that? After that has pretty much the modus operandi of all power in the past, why should China be different?

Why is China interested by Africa China’s engagement with Africa today is less motivated by ideological considerations but based on a commercial agenda that aims to sustain rapid industrialization and economic growth rates. China’s “socialist market economy” is driven by market oriented State-Owned Owned Enterprises and its interests in Africa are geared towards energy resources and minerals to feed its industrialization program. Let’s make no mistake about it and actually why should there be anything wrong with it? China as we have seen earlier is playing catch-up with the USA and in order to do so it requires and will continue to require a vast pool of natural resources. Middle east being largely under control by the United State it makes sense to look for alternative thru South America (Venezuela, even though it could be a problem to step into the backyard kyard of the USA)and of course Africa. Why is China changin changingg its Foreign Policy Direction? I will use the Professor D. Zweig analogy: Q.Why .Why did Willie Sutton rob banks? A. Because that is where the money is! Q.Why Why has China put relations with African coun countries near top of its agenda? A. Because that is where the oil is! Africa currently supply 29% of its oil import and it grew by 50% between 2003-20046.

China‘ s Breakdown of Import from Africa Fuel

Crude material (excl Fuel)

Manufacturing

Increase in Export from 1996 to 2006

Other

13% 8% 17%

6

62%

Chen Wenxian and Mo Lin, “CNPC’s 2004: a fruitful year”

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The China’s impact on Africa

China’s successful political and diplomatic approach to Africa In 1982 these Five Principles were written into the Constitution of the People's Republic of China. They are now a fundamental principle for China in fostering and developing friendly relations with all the countries in the world China’s Five Principles of Peaceful Coexistence7: 1. Mutual respect for each other's territorial integrity and sovereignty 2. Mutual non-aggression 3. Mutual non-interference in each other's internal affairs 4. Equality and mutual benefit 5. Peaceful co-existence

“…the Chinese do not peg their economic activity or aid to political conditions… You never hear the Chinese saying that they will not finish a project because the government has not done enough to tackle corruption. If they are going to build a road, then it will be built.” (A Kenyan Government Spokesperson, quoted in Obiorah, 2007).

African leaders are especially sensitive to the 3rd principles after all quite a number of the country with which are currently dealing with China in Africa have a questionable regimes, and many of them do have to fight and negotiate with western countries or organizations. The practical approach used by Chinese delegate in respect to these principles makes a lot easier the cooperation between the parties. ,

China had become by 2006 the world’s largest holder of capital, with over $1 trillion in foreign reserve and has been trying to fuel its future growth to carve out a position in the energy and strategic minerals markets and capital starved Africa made in a perfect fit. Beyond the FDI investment what has seduced a number of African governments has been, the willingness of the Chinese government to provide a whole package of inducements alongside any leasing or supply agreements, aimed at elite-defined needs ranging from presidential palaces to large-scale infrastructure projects, has proved to be crucial to securing deals in Africa. 8

The Chinese are doing more than the G8 to make poverty history. If a G8 country had wanted to rebuild the stadium, we’d still be holding meetings! The Chinese just come and do it. They don’t hold meetings about environmental impact assessment, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set

Sahr Johnny, Sierra Leone’s ambassador to China high benchmarks.

Indeed, Beijing officially announced that they would not interfere with any interest in the domestic affairs of African governments, in direct contrast to the European Union (EU) or the United States (US), both of whom have selectively applied conditions to their development assistance programs.

7

http://www.chinese-embassy.org.uk/eng/wjzc/t27084.htm

8

China in Africa. London: Zed Books, 2007,

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The China’s impact on Africa

China engagement ngagement in Africa is driven by securing raw resources.


Need for oil

China went from the leading Asian oil exporter to the second largest world consumer in 2003 and the third largest global importer in 2004. Africa possesses the world’s third largest oil reserves, an estimated 9.5% of global known deposits in 2007, behind the he Middle East (61%) and North America (11.6%), and ahead of South and Central America (8.5%). Even though it seems little compare to middle east, but it has been largely untapped and boast the fastest growth rate in identified oil reserves, which doubled in the past two decade. In 2006 oil represented three-quarters quarters of China’s imports From the Continent: Angola (51%), Sudan (18%), Congo Congo-Brazzaville Brazzaville (13%) and Equatorial Guinea (11%).9 And as demonstrated by the chart, China current need for oil is only a fraction of what it will represent in the next 15 to 20 years.


Other mineral resources China also became externally dependent on other sectors of the extractive industry than oil whi which again fueled its growing economic interaction with the African continent in the new century. Over the last 10 years China overcame the USA as the world’s leading consumer of most base metals: aluminum, iron ore, lead and zinc, and holds significant shar shares es in all other minerals. South Africa is the leading producer of platinum (80% of total production and 90% of world reserves) and manganese (75% of world reserves), and the world’s second largest gold producer (overtaken by Australia in 2007). The DRC is the 9

http://www.voltairenet.org/IMG/pdf/China_and_Africa_s_Natural_Resources.pdf

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The China’s impact on Africa

leading cobalt producer (36%), possessing half of the world’s known reserves, and is also a significant diamond producer. The DRC, South Africa and Botswana together account for over half of global diamond-mining output and 60% of known deposits.20 Among other African countries that possess significant reserves of minerals that have recently attracted Chinese interest are Gabon (manganese), Zambia (copper and iron ore), Zimbabwe (platinum) and Angola (diamonds, copper and iron ore)10. In absolute terms, Chinese imports of non-fuel mining products from Africa increased from $286 million in 2000 to $2.6 billion in 2006. In 2006 diamonds imports occupied the largest share (27%), followed by platinum (17%), copper (15%), cobalt and manganese (11% each). Here as well, an evolving reliance is starting to show. Over 80% of China’s cobalt and 40% of manganese imports originate in Africa, with the DRC and Gabon, respectively, the main suppliers11.




Logging12

China has been the principal destination for tropical timber from Africa for six of the last seven years. China's imports account for much of the surge in the region's exports - some of which are characterized by speculative behavior - and, by implication, changes to governance in the industry. China is a leading donor to the region of political and military "aid". For a rather longer time, markets in France, Italy, Spain, and to a lesser extent Portugal have dominated the trade. This geographic concentration in the Southern EU suggests a role for the EU in regulating imports - in ways that do not dilute demands (which appear rather more widespread in Northern Europe) for improvements in both governance and socioenvironmental standards in producer countries. Of course, some of the imports by the Southern EU are subsequently exported, for example, once they have been transformed.

10

USGS (US Geological Survey), Mineral Commodity Summaries 2008. Washington, DC: US Department of the Interior, USGS, 2008. 11 Foster V et al., Building Bridges: China’s Growing Role as Infrastructure Financier for Africa. Washington, DC: World Bank, 2008 12

www.globaltimber.org.uk/africa.htm

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The China’s impact on Africa

China Construction Sector in Africa The Chinese Ministry of Commerce pointed out that there has been a 106 percent rise in the value of newly signed contracts for Chinese companies operating overseas, taking the total up to US$ 32.7 billion in 2006. Chinese turnover in overseas contracting business is expected to increase by 15 percent year-on-year year during the 11th Five Year Plan period (2006-2010)13. While the scale of Chinese Chine Official Development Assistance to Africa has also increased, Chinese firms have been able to win open tenders. When considering the Engineering News Record (2006), the top 225 international contractors in Africa are still European with the largest market mark share (49.33% in 2005), while French firms alone captured 23.96%, more than all the Chinese construction firms combined (21,36%). Amongst the major players in the construction sector are American, British, Italian, Japanese, Chinese and Korean firms. Th Thee latter two had an average growth rate that was higher than the industry average. In Sub Sub-Saharan Saharan Africa, the countries that recorded the highest number of active Chinese construction firms are Angola and Nigeria (10), Botswana (9), Congo (8), Equatorial Guinea, uinea, Ethiopia, Ghana, South Africa, and Uganda (7) while in North Africa about 13 13

Most of the references and the text from this section on construction are directly extracted from the report : Chinese Investments in Africa :Anthony Anthony Yaw Baah and Herbert Jauch

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Chinese construction firms operate in Algeria and 12 in Sudan. Again it will come to no surprise that these countries are the same where China invests heavily to gain access in the extraction sectors. Actually a lot of the package that China offers to gain extractions contract are very global contracts providing assistance in construction and infrastructure deals.

Success Factors The competitiveness of Chinese construction companies may largely be attributed to their access to cheap capital, low labor costs, hands-on management style, high degree of organization, and general aptitude for hard work. For example, local and foreign construction enterprises operate on profit margins of 15-24 percent, while Chinese companies usually operate on margins of 10 percent or less making them extremely competitive and relegating the former (local and foreign companies) to the margins14. The price difference is often significant and ranges between 25 and 50 percent. This is not only due to lower profit margins but also due to lower wages, often below the legal minimum wages. An added advantage for Chinese construction companies is the support from their government while other local and foreign companies are privately owned without financial assistance from their governments. There is a growing Chinese presence in the Mozambican construction sector and notably the recently built soya processing plant of the China Grain and Oil Group. Currently, over a third of Mozambique’s road construction program, amounting to 600 km is being carried out by Chinese companies. Most tenders are awarded to the Chinese construction companies because of their relatively low prices, it is also because of the enforcement of some provision included by the Chinese government in the loans made to African countries.

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Centre for Chinese Studies. (2006). China’s interest and activity in Africa’s Construction and Infrastructure Sectors: A research undertaking evaluating China’s involvement in Africa’s construction and infrastructure. Sector paper prepared for DFIDI China. Stellenbosch: University of Stellenbosch, South Africa.

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The China’s impact on Africa

China’s ’s telecommunication foray in Africa The Chinese equipment manufacturers: ZTE is state-owned, while Huawei and CITCC have a mix of private and public ownership. All three, however, have access to funds from China's state-owned owned banks. In some cases, according to the World Bank, these Chinese banks have directly provided the money for Chinese telecommunications tions equipment to be supplied to African governments. In other cases, Chinese telecommunications companies have been able to finance deals through their own lines of credit. ZTE has a US$500m line of credit with China's Ex-Im Im Bank, issued in 2004, while Huawei H has a US$600m credit from the same bank, issued in 2006, and a massive US$10bn credit line from the China Development Bank, issued in 2004. This money is not simply, or even primarily for Africa though, but is intended to finance these companies' glo global bal operations. operations As typing this report Huawei grabbed the No. 2 spot in the wireless telecommunication equipment market15 in the world,, passing Nokia Siemens. Of course this success is not only due to the company early forays in Africa, but it certainly hel helped it in its rise to the top.

Huawei offices in Africa

African mobile growth Africa grows fast in population, ion, currently 900 million plus and it is one of the regions where telecom industry develops evelops the most rapidly, and mobile communication in Africa is progressing exceedingly fast. Mobile telephony has proven to be particularly liberating in Africa, where fixed line coverage is still weak to nonexistent. In most of the continent, mobile phones have arrived not as competitors tto fixed lines but as a long-awaited awaited solution to the frustration of communications isolation. The ITU reported that Africa had shown the strongest growth in mobile phone usage over the previous two years, with an impressive 39% annual subscription growth be between 2005-2007, 2007, with the result that 90% of all African telephone subscribers today use mobile phones rather than landlines16. Still though att present, there are approximately 390 million cell phone subscribers, but with less than 45% penetration rate it sstill has great potential for further development.

15

http://www.fiercewireless.com/story/delloro http://www.fiercewireless.com/story/delloro-huawei-grabs-no-2-spot-gear-market/2009-11-16?utm_medium=rss&utm_source=rss&cmp 16?utm_medium=rss&utm_source=rss&cmp-id=OTC-RSS-FW0 16 ‘Africa leads growth to 3.3bn cellphone users’, Agence France Press, May 27th, 2008.

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The China’s impact on Africa

Chinese companies encouraged by the government This is evident in the recent efforts of Chinese telecommunications companies to secure contracts to build infrastructure and wire Africa for the 21st century for example Ethiopian Telecommunications Corporation, says that ETC has signed a contract worth about US$2.4 billion with three Chinese companies to help upgrade and expand the African nation's telecom services17. Eight companies, including Siemens, Nokia, Alcatel and Ericsson, participated in the bidding, but ultimately three Chinese companies, ZTE, Huawei and China International Telecommunication Construction Corporation, won the deal. Also ZTE and Huawei, each won deals during the Forum on China-Africa Cooperation of 2006. Chinese investment in African telecommunications and information and communication technology (ICT) generally, is growing. The World Bank has estimated that Chinese investment in African ICT totaled around US$3bn from 2001- 07, constituting 17.4% of China's estimated African investment total.3 China's involvement in Africa's ICT sector has, according to the Bank, mainly taken the form thus far of equipment sales to national incumbents, either through commercial contracts or through intergovernmental financing arrangements which are tied to the purchase of Chinese equipment by African telecommunications. The biggest deal to date was signed in 2006, and is a four-year, US$1.5bn ICT project in Ethiopia, to be undertaken by China's ZTE, Huawei, and Chinese International Telecommunication Construction Corporation (CITCC). ZTE began construction for the project in 2007. The involvement of these companies does not limit itself to the equipment sometimes they get involved in the operation of mobile phone enterprise or joint venture in order to fulfill their promises to some governments.

China competitive advantage Asked to comment on rumors that Vodacom Congo might switch its equipment contract from Alcatel to Huawei, one Vodacom official said: “Alcatel, Huawei, whatever. All the equipment comes from China18.” Regardless of where any given telecommunications service provider comes from, the chances are that its equipment, from hand-sets to base stations, was made in whole or in part in China. The quality of this equipment is rising all the time, while what remains a constant is its phenomenal, irresistible price competitiveness. Because of this price competitiveness, this price power, it is the equipment that China manufactures which is the country's main contribution to the telecommunications sector in the DRC, and perhaps in the continent as a whole. In particular, the low price of Chinese telecommunications equipment makes hand-sets affordable to more people, and particularly the poor, and also means telephone service companies get more equipment for their money, which translates into wider coverage for all consumers. China's price power in telecommunications equipment appears as an unambiguous good for Africa as a whole, mercifully not mitigated by any adverse impact on domestic manufacturing, since Africa does not manufacture telecommunications equipment. This is in contrast to many other sectors, and particularly the textile industry, where the benefits to African consumers of cheap Chinese

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http://www.chinatechnews.com Price Power: China’s role in the telecommunications sector of the Democratic Republic of Congo Gregory Mthembu-Salter

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The China’s impact on Africa

clothing are mitigated by the disastrous impacts on African textile manufacturing, which can have significant implications for employment levels19. For example Congo Chine Telecom’s (CCT) unique selling point is not coverage or broadband, but rather that it offers the least expensive mobile telephone service in Congo For Congolese consumers, the point is that thanks to CCT they can spend less than they would otherwise have had to communicating with each other and the world. In a poor country, reeling like everywhere else from high food and fuel prices, this is no small achievement. And this can be generalized thru the all continent. And for users of other networks, the price challenge posed by Huawei will keep Alcatel and Ericsson's prices lower then they might otherwise have been, again to the consumers' benefit. In conclusion when China's price power manifests as the enforcement of low wages and poor working conditions by its companies in Africa (in all extraction industries), it has an oppressive effect, stunting the potential of workers. Offering low prices to consumers, by contrast, is the same phenomenon at its most liberating, and a major Chinese achievement in Africa.

The growing importance of Chinese Financial Institution in Africa China ExIm Bank (China Export Import has traditionally been the leading Chinese financial institution working in Africa, focusing the bulk of its attention on providing export finance, credit lines and participation in project finance. Also China Development Bank (CDB) CBD has been also providing finance for corporations and has made overseas investments including buying a stake in Barclays and lately in Polish telecoms and has been involved in key deals in Africa.

China ExIm in Africa20 The Bank's activities are not reported regionally, but there is clear evidence of significant and expanding operations in Africa. In 2005 the Bank extended its export buyers credit market to Africa. In January 2006 the government released its official "African Policy" which specifically "encourages and supports Chinese enterprises' investment and business in Africa, and will continue to provide preferential loans and buyers credits to this end." 2 In addition, several ExIm projects have been announced in the media. Although such reports are sometimes not reliable, reported projects in the past two years alone include: • A possible $1.2 billion in new loans to Ghana, including $600 million for construction of the Bui dam; • $2.3 billion in total financing for Mozambique for the Mepanda Nkua dam and hydroelectric plant, plus another possible $300 million for the Moamba-Major dam; • A $1.6 billion loan for a Chinese oil project in Nigeria; 19

Same reference as preceding This paragraph on China is extracted from an article from EXImCenter for Global Development by Todd Moss and Sarah Rose.

20

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The China’s impact on Africa

• • •

$200 million in preferential buyers credit for Nigeria's first communications satellite; A $2 billion line of credit to Angola, with the possibility of another $9-10 billion; Reports of loans and export credits for other projects in Congo-Brazzaville, Sudan and Zimbabwe.

By comparison, US ExIm supported transactions in all of sub-Saharan Africa totaled less than $500 million in 2005. China Exim Bank pursues a ‘two-big strategy’ of focusing on big companies and big-ticket projects. The Bank extends 90% of its export credits to state-owned enterprises and to large projects (of more than RMB 100 million each)21. At the end of 2007 the outstanding loans on China Exim Bank’s balance sheet amounted to RMB 321 billion. The Bank approved RMB 263 billion and disbursed RMB 196 billion in loans in 2007.6 By this date, China Exim Bank had already outgrown the World Bank and all other export credit agencies. According to official data, China Exim Bank had approved loans for more than RMB 100 billion for Africa by June 2007, and its outstanding loans in Africa amounted to RMB 50 billion.7 In September 2006 the Bank entertained relations with 36 African countries and had 259 African projects in its portfolio. The World Bank estimates that more than 80% of these loans were concentrated on Angola, Nigeria, Mozambique, Sudan and Zimbabwe. Projects in the power sector accounted for about 40% of the commitments, followed by general or multiple-sector commitments (24%), transport (20%), telecoms (12%) and water projects (4%)22.

The CDB will also continue to play an important role in concert with the China ExIm Bank through investment in the US$5bn China-Africa Development Fund. According to the draft plan, the fund will start from one billion US dollars, and then add up to three billion US dollars in the second phase, until eventually amount to five billion dollars. The fund will be used to support African countries' agriculture, manufacture, energy sector, transportation, telecommunications, urban infrastructure, resource exploration and the development of Chinese enterprises in Africa. The investment world was surprised in October 2007 when it was announced that Industrial and Commercial bank of China would take a 20% stake in South Africa’s Standard Bank for US$5.5bn. This was a significant outlay, even for ICBC, as the outlay equates to 8% of its capital. The reasoning seems sound from a strategic point of view; ostensibly Standard Bank will help ICBC serve its corporate customers in Africa and Standard Bank will gain a foothold in China

Debt sustainability. Much Chinese lending has been on the back of debt relief. Several of China ExIm's borrowers (Ghana, Mozambique, Congo-Brazzaville) have recently received major debt reductions through the heavily 21

Standard & Poor’s, Bank Credit Report, Export-Import Bank of China. New York, 10 August 2006, pp.2ff. Zhen G, ‘Infrastructure development in Africa supported by the Export-Import Bank of China’, PowerPoint presentation, 17 January 2007.

22

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The China’s impact on Africa

indebted poor countries (HIPC) initiative. New lending, which is often nonconcessional, could be an economic problem if low-income countries accumulate too much debt too quickly and find themselves back in an unsustainable situation. Politically, the costs are even higher. The recent G8 debt relief initiative granted up to 100% debt relief for HIPCs partly on the basis that these countries were too poor to bear any debt. If those same countries immediately borrow again, creditors (and legislatures and taxpayers) who are still appropriating funds to pay for debt relief may (rightly) view such efforts as indirectly subsidizing new Chinese lending

Transparency and governance. China ExIm does not report its own activities in the same way as the other similar agencies (for example, the terms of its loans in Africa are rarely made public) and the Bank does not place reporting demands on its clients. This not only undermines export credit rules aimed at keeping a level playing field, but could also hurt global efforts to reduce the secrecy around the financing and contracting of large infrastructure or oil projects, such as the Extractive Industry Transparency Initiative (EITI). Angola, for example, has able to resist IMF demands for increased budget transparency partly because China ExIm has been willing to lend

In short Chinese banks, in line with classic pattern or rationale for expansion into new markets, are following their clients into Africa using a strategy that focuses on joint ventures with local partners. This is paving the way greater Chinese involvement in commercial banking and perhaps, ultimately, retail banking. The investment of Chinese banks in local African banks and the financing provided for exports and projects and finally corporate lending may prove to be what is needed to further spur development of sustainable industry in Africa. If Chinese banks can see a strong return on banking activities, it may continue to develop the network and try the cooperation and equity participation model in other emerging markets such as Latin America. The benefit for Africa, however, would be if the banking operations spread beyond a narrow focus on Chinese funded projects and Chinese corporate to more comprehensive banking operations on the ground. The scramble for Africa may yet spill over into banking

China environmental footprint in Africa23 Concerns over China’s environmental footprint in Africa have arisen for at least five reasons: 1. China’s investments in Africa are concentrated in sectors that are environmentally sensitive (such as oil and gas exploration, mining, hydropower and timber extraction), and in 23

China’s Environmental Footprint in Africa Peter Brossard China in Africa policy Briefing

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The China’s impact on Africa

infrastructure projects that help to facilitate environmentally sensitive investments (such as roads, railway and power transmission lines). 2. While investments in the mining, oil, gas, hydropower and timber sectors generally carry high environmental risks, China’s strategy of making previously inaccessible resources accessible compounds these risks. Chinese investors are developing projects in remote, ecologically fragile regions, in areas that have so far been protected as national parks and in countries with weak Governance structures. 3. China’s domestic policies have prioritized economic growth over the protection of the environment, often with harrowing results. The Chinese government has set in place laws, regulations and institutions to protect the environment, but with limited success24.17 China risks exporting its domestic environmental track record to other parts of the world through its foreign investment strategy. Its domestic environmental policies may even encourage China’s worst polluters to relocate their production to places like Africa. 4. International financial institutions have since the 1990s adopted environmental guidelines and standards to address the environmental impacts of their projects. Major Chinese investors, financiers and equipment suppliers have so far not adopted such standards, or have developed policies that are not necessarily in line with international standards. Western financiers and companies are concerned that Chinese competitors are using lower environmental standards as a strategy to win a larger business share in the international infrastructure and extractive sectors. 5. China’s economic expansion in Africa has added to Western concerns that the country’s rapid economic growth will put a heavy strain on the world’s resources and the global environment.

24

The great leap backward?’, Foreign Affairs, September/October 2007, for a good summary of China’s environmental problems and their link to inadequate governance structures.

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The China’s impact on Africa

China- Africa is everything perfect?
Impact of the growth There is a strong correlation between the growth in Africa and China as demonstrated by the chart to the left, so much so that economist talk about China and Africa’s new coupling. Also we can see from the graph in page 5 that the trade between the 2 countries has grown exponentially in the last few years. But ut at the same time Africa’s trade deficit icit with China is growing at equally rapid rate if not higher rate. Many Africans, especially those in the textile and clothing, footwear and furniture sectors have lost their jobs because of what many African entrepreneurs see as unfair competition from cheaper Chinese goods. Nearly 70,000 jobs are estimated to have been lost in the textiles sector in South Africa due mainly to the importation of cheaper Chinese substitutes. A total of 2 000 Zambians lost their jobs when a local textiles company closed do down. wn. The situation in Ghana, Sierra Leone and other countries in the sub-Saharan Saharan African region is not different. This has serious consequences for Africa’s effort to take millions of its people out of poverty and destitution.


China investments concentrat concentrating into few countries Chinese investments in Africa tend to concentrate in the oil sector which means a few countries (mainly the oil-producing producing countries) are actually benefiting from Chinese direct investments in Africa. Chinese companies are winning manyy contracts in Africa due to the support they receive from the Chinese government. A loan from the Ex-Im Im Bank, for example, often requires the debtor to select Chinese companies which tend to source a significant proportion of their equipment, materials, ttechnology, and labour from China (Konings, 2007). This practice effectively deprives the local communities of jobs. Those who are employed by Chinese companies often have to endure harsh working conditions and very low levels of pay. As mentioned earlier iin n this section, 50 employees lost their lives in Zambia at an explosives factory run by a Chinese firm in 2005 due to poor health and safety conditions in the factory.


China Support of doubtful regime China’s support for controversial regimes like those of Sudan and Zimbabwe, and especially the supply of weapons to them is a threat to political, social and economic stability. Furthermore, China’s apparent lack of concern for human and labor rights has come ome under attack from unions and other civil society organizations.. Chinese companies have also been accused of violating environmental rights in some 17

The China’s impact on Africa

local communities in Africa. In doing so China was also able to thru political consideration further its agenda, following the one country one vote at the ONU one some decision. China has developed strong relationship with African leader so that it could count on their vote at the ONU.

CONCLUSION The rapidly growing economic ties with China have contributed to Africa’s strong economic growth in recent years. As a developing country, China can offer advice and goods that are better suited to the needs of African societies than the advice and products from industrialized countries. For example, China is a world leader in renewable energy technologies, which are essential for rural electrification in Africa. Chinese investment and consumer goods are usually more affordable than Western products. Finally, Chinese loans and aid flows allow African governments to eschew the often dogmatic economic policy conditions of international financial institutions like the World Bank and International Monetary Fund (IMF). Chinese diplomats have also publicly defended China's record on the continent, saying Beijing These ties are further revealed by the apparent “coupling” was "selfless" in its desire to provide help and of their economies we can see a parallel in GDP growth serve as a development model for poor between the two economies. countries.Chinese Premier Wen Jiabao's extensive tour of Africa. 2006

However in spite of all the good word of economic aid and of assisted development (see box on the left), China sole intent in this “partnership” is, I believe, and officials barely conceal it, it is the acquisition and the control of resources. China is in this aspect no different than any other countries, China’s supporters point out that the West hardly has a glowing record in Africa from the days of the colonial carve-up to the fall of the Berlin Wall when, for almost a century, the US, Britain and others meddled in the affairs of African states with scant regard for the desires of African people. However just as other countries have learnt in the past, plundering these countries without regards for the people (no the small elite but the vast majority of inhabitant of Africa), or the environment ultimately will backfire on China and it will also slow down the economic growth of the world which China has became so dependant to fuel its own growth thru its export machine. It is sad that China should take the path of the past and repeat the mistake that France and other countries have done in the past, especially when we know that Sub Sahara Africa has 82% of working poor.

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The China’s impact on Africa