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Business in Africa Magazine, December 2006
Co-operating to compete

Widely described as a “grand” and “pragmatic” gathering, the message was resoundingly clear. “Both China and Africa have a strong desire to deepen a mutually beneficial pragmatic co-operation and enhance the solidarity of developing countries, the south-south cooperation,” reads the Beijing declaration.

On the occasion of the 50th anniversary of establishment of diplomatic ties between China and African countries, there was a charm offensive in the theme, “friendship, peace, cooperation and development”, of the third ministerial Forum on China-Africa Co-operation (FOCAC) held in Beijing last month.

Yet the Beijing theme might have had a curious ring of reassurance in the discussions on establishing and developing new China-Africa strategic partnerships.

In the background: a smouldering WTO multilateral trade process after successive trade rounds to achieve a multilateral trade pact failed to reach agreement a few months ago on the reduction of tariffs and subsidies by industrialised countries.

Looking east therefore seemed a natural reflex by African countries. Bolstered by China's new Africa policy, the visit by Chinese President Hu Jintao to Africa in April this year and the coming visit by Chinese Premier Wen Jiabao to Africa, FOCAC has certainly brought a dynamism to relations.

Yet fermenting too was a pervasive climate of general distrust in the African continent towards China at a time when Beijing is repeatedly criticised for being a new imperial power in the continent as it seeks to secure resources for its rapidly growing economy and an outlet for its industry.

For the Chinese, there was nothing sinister about the summit. “China has always regarded African countries as equal partners and is committed to consolidating and expanding its co-operation with Africa,” editorialised a Chinese daily newspaper ahead of the summit.

It was, in other words, a sign of African support not just for China's emergence as a power on the continent, but new hope as a major investor, trading partner, provider of aid, and, significantly, a counterbalance to the West and Africa's vision of building a multipolar world.

While it is true that friendship comes from true equality, can FOCAC be a genuine vehicle for equal co-operation? Is such a thing conceivable in a free market?

Advocates of FOCAC in China and Africa point to a long-term strategy based on a unique culture of trade relations between the two giants, similar historical views and experiences and long-standing mutual sympathy and support in the struggle for national liberation.

Addressing the African Business Leaders Forum in Johannesburg last month, China's ambassador to South Africa, Liu Guijin, said China's priority in FOCAC “is to help African countries improve their own development ability”.

“China is a friendly nation,” he said. “It could have been a colonialist hundreds of years ago, if it had ever wanted to be one. But the Chinese way of treating others is to be equal friends, sincere brothers and co-operative partners.”

To accuse China of “neo-colonialism” was therefore “Western noise”, according to Guijin.

The historical record certainly attests to this assertion. As Guijin was at pains to explain, some 600 years ago Zheng He, the famous navigator of China's Ming Dynasty, led the then largest fleet in the world — 28 ships and 27 800 people — and made seven voyages to the 'Western Seas', reaching more than three countries and regions in Asia and Africa. His voyages were 87 years earlier than Columbus, 92 years earlier than Vasco da Gama and 114 years earlier than Magellan. But what Zheng He took to the places he visited were tea, chinaware, silk and technology.

“He did not occupy an inch of any newly discovered land or set up any military fortress,” said Guijing.

And, as if to round off the point, “China never put a finger on the slave trade.” Indeed, the only major known event of this era is the gift of a giraffe to the Chinese emperor by a nation who probably lived around the area of present-day Mombasa.

True, for most of the previous century China's imprint in the African continent was marginal. It would take 500 years and the establishment of the Non-Aligned Movement at the April 1955 Bandung Conference in Indonesia, to see official relations resume again.

Having gained some momentum in 1978 when Mao Zedong's successor, Deng Xiaopeng, adopted the Open-Door Policy, the drivers of the relationship officially shifted from “Western defiance” to “economic upliftment”.

Trade figures saw modest growth in the 1980s but, ultimately, the relationship remained stunted by the collapse of African economies and China's focus on more lucrative partners.

By the mid-1990s a change in attitude was on the cards when China's economic growth started catching up with its own limited resources.

The contemporary relationship is the result of events half a world away, where a fifth of the globe's population has, over the last quarter century, been allowed to become productive, giving rise to an unprecedented hunger for raw materials — the so-called commodity crunch.

According to Kobus van der Wath, founder and managing director of the Beijing Axis, Sino-African trade increased to $10bn at the turn of the century and an astounding $40bn in 2005 — a figure ten times that of a decade before and 30 times that of 20 years before.

The increase in 2005 alone, he says, was more than the increase in the 20 years from 1980 to 2000, “with an average week seeing the same trade value as the whole of 1979”.

The contemporary Sino-African trade dynamic was more than just the movement of goods and services though. Data from the Centre for Chinese Studies at the University of Pretoria, contrary to conventional wisdom, suggests an altruistic slant beyond trade to China's relationship with the continent. Beijing has forgiven about $1,3bn in debt of 31 African countries and trained more than 10 000 African personnel in civilian and security sectors.

Moreover, it has granted zero tariff ratings for 190 products exported to Beijing from sub-Saharan economies and, at the end of last year, had invested a total of $1,25bn across the continent, ranging from energy and infrastructure projects to the emergence of approximately 700 Chinese-operated businesses in African economies.

Beijing has also become a partner in the United Nations peacekeeping operations on the continent, contributing several hundred peacekeepers to operations in the Democratic Republic of the Congo and Liberia.

Under the African Humanitarian Resource Development Fund, established after the first forum in 2000, the Chinese government has provided about 1200 scholarships a year for Africans to study in China, dispatched about 16 000 doctors to work in Africa's rural areas between 2000 and 2005, and deployed 700 teachers.

More recently, through a memorandum of understanding signed with the secretariat of the New Partnership for Africa's Development (Nepad), the Chinese government made a $500mn donation to the secretariat for medical purposes.

Towards the close of the previous century, there were, however, other, more serious concerns.

At a closing press conference to the Beijing summit, the Ethiopian Foreign Minister, Ato Seyoum Mesfin, summed it up when he criticised the Western media for being negative in portraying the summit as “a meeting of African despots who have found new hope and friendship to ward off western pressure and respect of human rights and good governance”.

While China has presented itself as an alternative to the prescriptive or neo-colonialist forces in the West, the flip side of this avowal is the validity it ascribes to Western criticism and the fact of inhumane labour practices by the Chinese in their dealings with the continent.

Western criticism of the FOCAC initiative, still in its formative years, is that Africa was merely courting Chinese neo-colonialism on the continent, representing an asymmetrical relationship that resembles the classic north-south model of exporting raw material while importing manufactured goods — a model that FOCAC ostensibly embeds.

At first, this may appear to be the case — certainly at the level of public perception. China has in many instances been rightly lambasted for exporting cheap manufactured goods on the back of poorly paid workers, decimating local sectors like textiles and clothing and destroying jobs in the process, and flouting UN-sanctioned trade embargoes against governments and countries in the continent deemed to be despotic.

Despite China's regular reaffirmation of its commitment to mutual respect and “non-interference in the internal affairs of other countries”, the policy has oddly been applied in the African continent on a “no strings attached” and “dollar diplomacy” business practice.

Which begs the question: Might China's peculiar brand of “pragmatic co-operation” at this year's FOCAC summit be seen as evidence of the same kind of pragmatism that has dominated the country's relationship with pariah countries like Zimbabwe and Sudan?

Van der Wath has argued that the most visible beneficiaries of non-interference have been the regimes of the Equatorial Guinea and especially, Sudan, where China extracts 5 percent of its oil needs.

This is unsurprising given China's strategic shift over the past 13 years from being a net exporter of oil to becoming the world's second largest importer, relying on foreign sources for 40 percent of its demand.

Many have been watching with disquiet as China has warmed up to pariah governments in Zimbabwe and Sudan.

This year's bid by China National Offshore Oil Corporation, a state-owned company, for a major stake in Nigeria's volatile delta region is another case in point.

But on a more profound level, how much of Western criticism levelled against China can be said to be out of fear of a new axis of trade based on south-south cooperation? China may be faulted for conveniently flogging its dollar diplomacy on African countries to its advantage, but it should be noted that the phenomenon of “pragmatic co-operation” is nothing new to Africa. As Van der Wath has argued, “The withdrawal of Western companies from Sudanese oil projects may have given the Chinese a gap, but in many other parts of the continent Western oil majors still do business with venal regimes such as that of Equatorial Guinea.”

When analysing the situation closely, it becomes clear that the Chinese certainly do not have a monopoly on doing business with countries deemed “undesirable” by Western sensibilities.

Political rhetoric aside, the deeper reality of the relationship is in the establishment of FOCAC in Beijing in 2000 when then Premier Zhu Rongji stated that economic interaction would define future relations, while political collaboration in the form of south-south co-operation would be secondary.

Significantly, though, not all parties view the rapid growth in trade volumes to be as mutually beneficial as the Chinese claim it to be. China has invested billions in African oil, mining, transportation, electricity production and transmission, telecommunications, and other infrastructure. Some 800 Chinese companies have invested in Africa in the last two decades, mostly on the back of Chinese-sponsored development projects and infrastructural support for its extractive interests. But Chinese foreign direct investment into South Africa, for instance, has been scanty — about $150mn to date. Chinese investors cite crime and red tape as the main reasons they ignore South Africa.

Trade relations between the two countries have also been harmed by the flood of cheap Chinese clothes and textile products into the South African market.

On the African export side, one could argue that much of 2005's dramatic increase was due to rising oil and commodity prices, concluding that there was much less growth in actual trade volumes.

According to Van der Wath, deficits on the African side abound, including in South Africa, which stood ZAR9,9bn short in 2004 in a total trade figure of ZAR23,3bn. Further, not only have some cheap Chinese consumer products made good on predictions of destroying local industries but, across Africa, the supply chains of many Chinese imports are owned entirely by Chinese enterprises.

Van der Wath also highlights as negative features increased immigration on the back of growing trade. Today, Sudan houses some 24 000 Chinese nationals and South Africa is home to at least 100 000 more. Those figures represent just the tip of the iceberg when one considers a 2006 remark from an Angolan official that growing ties between his country and China may lead to the settlement of some four million Chinese in Angola over the coming decades.

For Van der Wath, the effect of this influx is already having a noticeable impact in the local African market scene where “Asian traders regularly outperform local businesses — most of which lack skills, capital and/or commercial acumen to compete”.

“All of this has led to a general animosity towards Chinese made goods, if not China itself. The potential for a new 'yellow peril' scare or general animosity should not be discounted, and should, given the cultural disparities between the two groups, be given more attention than it is presently enjoying.”

Whether the projected increase in trade volumes between China and Africa in excess of $50bn this year, a near tenfold increase since 1995, will increase or decrease Africa's trade deficit is open to question.

The opportunity for African countries to benefit from the relationship is certainly in more than 2500 deals discussed at the FOCAC summit (see sidebar). In fact, China's Africa policy paper identifies poverty reduction, infrastructure development, agriculture, human resources, skills training, disease prevention and treatment, and disaster relief, among other things, as areas of co-operation. FOCAC has also made a strong commitment to co-operation with the New Partnership for Africa's Development.

But business is business, and China's play for the continent's natural resources is on the back of a much stronger and self-confident economic power this time round.

At present, the trade dynamic is one defined by the negative short term effects of textile imports on employment.

Overlooked, however, are the potential long-term benefits for Africa's manufacturing sector. The rise in commodity prices is certainly leading to ever-larger Chinese investment in Africa, since China also suffers from a dearth of resources on a global scale. A relative newcomer in the global stakes, China's demand for resources is more likely to be blocked by developed countries in other potential sources of resource extraction in the world.

And if the Beijing declaration is anything to go by, it seems China's isn't daunted by Africa's inadequate infrastructure to the extent that developed countries are. Necessity has forced China to create the relevant infrastructure itself with the key investment areas being the oil-rich arc running from Nigeria to Angola.

All this points China in the direction of Africa, where there's abundant cheap oil and mineral reserves.

While only a narrow base of countries are benefiting from China's commodity hunger, it nevertheless poses questions as to whether these African governments are optimising the revenues to diversify their economies towards manufacturing and services in order to generate sustained growth in the medium term.

No-one can deny that China is more relevant than it has ever been to Africa's economic progress. At the same time, whereas the FOCAC declaration presents a genuine platform for pragmatic co-operation, to Africa's advantage, Africa's failure to form a unified voice could seriously hamper its ability to determine the terms and general direction of the interaction. For Africa to benefit from Chinese trade it must measure the short term pain caused by smaller markets in a continent deeply divided. More specifically, rather than work as a bloc, Africa continues to negotiate with China on a country-by-country basis.

“Thus, China has scant incentive to be involved in pan-African organisations like the New Partnership for Economic Development and the African Union (AU) whose ideological goals and lofty slants run counter to the bluntly commercial nature of China's present African policies,” says Van der Wath.

So can Africa reap the maximum benefits from China's rise? There can be no doubt that the long term gain lies in the establishment of larger regional markets in the continent — a point the Chinese government has candidly flagged as a potential barrier to Africa's advantage in the relationship.

The private sector must also work to engage China in Africa by leveraging their strengths on the continent, while identifying and avoiding competition in weaker areas. Only then will the short term pain caused by cheaper imports and trade deficits be balanced against the long term gains in commercial infrastructure and technological efficiencies from China.

The alternative, Van der Wath succinctly puts it, is an “attritional standoff between the two giants, ill at ease with each other's intentions, but unable to disentangle themselves”. -Business in Africa Magazine