Determining the costs and benefits of Africa’s alignment with China

China’s economic model challenges that of the West, manifesting in a global economic imbalance. Africa is determined to align with China in this division, and China has its ambitions for Africa too. Despite China being Africa’s most favoured nation, politically and economically, what does the continent stand to gain from this asymmetric relationship?

Napoleon once said that, “When China awakes, the world will tremble”. Being the world’s second largest economy, and one of the biggest manufacturing and trading nations and foreign investors, China has, indeed, awoken, and the world is paying attention.

Global economic imbalance

For the West, the problem is not China’s achievements but the economic model that underpins them. A former Time magazine editor, Joshua Cooper Ramo, described that model as the “Beijing Consensus”, China’s answer to the “Washington Consensus”, the liberal, free market approach, based on, among others, financial liberalisation, market-determined exchange rates, trade and investment liberalisation, and privatisation.

This is not to say that China is a closed economy. Since the demise of Chairman Mao in 1976, China has embarked on market-economy reforms, particularly prior to, and after, its accession to the World Trade Organisation (WTO) in 2001. Despite reforms, China still practises “state capitalism”, and is widely viewed as a “modern mercantilist”. This is why WTO members classified China as a non-market economy (NME) in its WTO Accession Protocol, with the effect that it was subject to more stringent rules in trade remedy cases. Although the NME provision expired in December 2016, the US and the EU have, so far, not granted China market economy status.

China’s economic model

Barriers to foreign competition

The omnipresence of the Chinese Communist Party, means that there are no market conditions in much of China’s economy. China is aggressively investing in sensitive industrial sectors in Europe, but erects barriers to the entry of foreign companies, and restricts competition. For instance, foreign internet companies, such as Facebook, Google, Twitter, Instagram and YouTube, are blocked in China. And multinational companies that operate there are not allowed to compete on equal terms with local firms.

Curbing capital outflows

China’s recent curbs on capital outflows have also raised concerns about restrictions on repatriations of earnings. On intellectual property (IP) rights, the West often accuses China of IP abuses, including forcing foreign companies to transfer technology to local companies. As noted earlier, President Trump recently launched investigations into alleged IP theft by China, threatening unilateral actions under Section 301 of the Trade Act of 1974.

Mercantilism

There is also the alleged Chinese mercantilism, which some believe contributes to global economic imbalance. Low domestic consumption in China is often attributed to its policy of holding down its currency to support exports and reduce imports. Although China is not believed to be actively manipulating its currency today as it used to do (Worstall, 2015), there are still concerns that its exchange rate is hardly flexible and market-based (Hsu, 2014).

Protectionism

Then, there is the old-fashioned protectionism, such as China’s recent banning of several dozen European cheeses on safety grounds even though similar domestic cheeses are considered safe. Add to that the widespread concern about dumped Chinese exports due to overcapacity.

China’s perspective on Africa

In her paper, titled “Africa in China’s foreign policy”, Yun Sun argues that China’s approach to Africa, underpinned by its “Going Out” strategy, has economic, political, security and ideological dimensions. On the economic front, China wants to secure Africa’s natural resources for its domestic growth, target Africa’s market for its finished products, and have a strong investment presence in the continent. Politically, China wants to lock in Africa’s support for its global positions and interests, particularly the One China policy. On security, China’s priority is to protect its investment and people in Africa. And ideologically, China wants to spread its model, the “Beijing Consensus”, across Africa.

An asymmetric relationship

China’s economic engagements with Africa are almost entirely on its terms. For instance, as Sun points out, Chinese loans are usually backed by African natural resources, and its infrastructure development aid is mostly tied to service contracts, with 70% of such contracts going to Chinese companies, and the rest open to local firms, many of which are also joint ventures with Chinese groups. Sun cites analysis showing that Africa is China’s second-largest supplier of service contracts.

Thus, China’s investments in Africa mainly create businesses for Chinese companies and jobs for Chinese people. While China imposes “technology requirements” on foreign firms operating in its country, there is no evidence that its investments in Africa involve the transfer of skills and technology. Rather, there are concerns about poor labour standards. In a paper titled “China’s model for Africa”, Sara Hsu states that African workers hired by Chinese companies are paid “extremely low wages”, “frequently suffer verbal and physical abuse from Chinese managers, and are treated as inferiors”.

This power asymmetry also manifests in the structure of China-Africa trade. More than 80% of China’s imports from Africa are commodities and raw materials, while its exports to the continent are manufactured goods. Moreover, Africa has a massive trade deficit with China, with the continent’s 54 countries recording a $34bn deficit with China in 2015, on a total trade of $172bn. With China planning to ban petrol and diesel cars and to reduce its dependence on imported foreign oil, Africa’s trade deficit with China is likely to grow unsustainably in the future.

Africa’s most favoured nation

Notwithstanding the above, views of China in Africa continue to be strongly positive. For instance, according to a recent BBC World Service poll, Nigeria is “the world’s most pro-Chinese nation, with 85% of respondents having a positive opinion of China”, while 63% of Kenyans have a positive view of the country (BBC Media Centre, 2017). Evidently, Africans welcome China’s economic activities in the continent, despite their downsides. Furthermore, Africans broadly see China as a healthy counterbalance to Western influence.

Political and ideological allies

China describes its policy on aid and investment in Africa as: “Business is business: We don’t attach political conditions”[1]. In truth, while China may not care about human rights and democracy in African countries, it expects political loyalty. For instance, South Africa, China’s largest trading partner in Africa, twice refused an entry visa to the Tibetan exiled leader, the Dalai Lama, to avoid offending China (Qobo & Dube, 2015).

In April last year, the Nigerian president, Muhammadu Buhari, took nine ministers and six state governors on a “working visit” to China, and returned with an offer of a $6billion infrastructure loan. It’s hardly surprising then, that in January this year, the Nigerian government had to demonstrate its loyalty publicly by publishing, apparently at China’s insistence, a joint statement in local newspapers, stating that “Nigeria agrees that One China policy is at the core of its strategic partnership with China”.

But Africa is not only supporting China politically, it is also embracing its economic ideas, particularly its attitudes to borrowing, debt, and protectionism. Infrastructure-and-property-fuelled growth in China is believed to have led to a $6.8 trillion debt, prompting the International Monetary Fund (IMF) to warn about China’s reluctance to rein in “dangerous” levels of debt. Similarly, African countries are borrowing heavily to fund infrastructure projects, raising concerns about debt burdens and the sustainability of the projects.

Moreover, many African countries have embraced Chinese protectionism. For instance, the Nigeria Industrial Revolution Plan, which cites China’s development model as an example to follow, is based on using state protection to create national champions, and promote import-substitution.

A worthwhile relationship?

Most African countries have rejected the reform-oriented Economic Partnership Agreements (EPAs) with the EU, on the basis that they are unbalanced and would lead to an influx of EU products in Africa. Yet, they have embraced lopsided economic relationships with China that would have the same effects, without the reforms.

Of course, Africa can’t ignore China, and, unfortunately, it is a rule-taker, lacking the West’s clout to dictate the terms of its engagement with the country. Yet it must start questioning the relationship, and take a longer-term view of its costs and benefits. The West frets about how China gains its economic power, Africa must worry about how it uses that power in the continent.

[1] A Chinese special envoy, Liu Guijin, quoted in Ferguson, N. (2011). “Civilisation”, Penguin, at p.317.