English | 中文版 |  Русский

Breaking News:

Source: www.asiaecon.org |

CHINA'S NEW APPROACH TO SINO-AFRICAN ECONOMIC RELATIONS


China's new approach to economic relations is having a profound impact on the economies of many African nations.


 

With very complementary economies, China and Africa have experienced rapid growth in economic cooperation. Fueled by currently expanding demands for energy and natural resources, China’s investment in resource abundant countries has grown exponentially. In recent years, Sino-African trade has reached a total of $55 billion, a figure that is predicted to double by 2020.  With $1.5 trillion in foreign reserves, China’s role in Africa has become increasingly important and controversial. China has been previously blamed for using soft loans, destabilizing local economies, overlooking human rights abuses and encouraging corruption in the African continent. However, the conclusion of the Sino-Congolese mining deal earlier this year, suggests a move towards a more sensible Chinese approach to economic relations in the region, offering potential means for African countries to kick start their economies and increase global integration.

The Democratic Republic of Congo (DRC) has welcomed Chinese investments as it sees immense potential for Congo’s national economic development. The DRC is the world’s largest producer of cobalt, and a major producer of copper and diamonds.  Although the country is endowed with resources of vast potential wealth, the DRC is currently recognized as one of the poorest nations in the world. The country has suffered from forty years of civil wars and is now plagued by famine, disease and violent conflicts. Foreign businesses have refrained from operations in the region due to widespread corruption, soaring inflation and chronic instability. Its current infrastructure has suffered decades of neglect and mismanagement, contributing to its deteriorating economic conditions.

 

With obvious mutual needs, China and the DRC secured a mining agreement earlier this year,  providing China with access to DRC’s vast mineral resources in exchange for the development of local infrastructure. The terms of the agreement, discussed in 2007,  have been largely influenced by China’s new “corporate social responsibility” approach, aimed at establishing responsible policies when securing economic deals in the African continent. In an effort to improve its much criticized international image and credibility, China has placed significant importance in development assistance and foreign aid. China hopes to provide both sides of the agreement with a “win-win” situation, thus rejecting any previous notions of Neocolonialism.

Under this approach, the Sino-Congolese mining deal will allocate $9 million worth of investment loans to fund the construction of about 2,400 miles of road, 2,000 miles of railway, 36 hospitals, 145 health centers and 2 universities, in an expected time span of 36 months. Investments will also go towards technology exchange and environmental protection. Under the “corporate responsibility” strategy,  mining companies will also be required to restrict Chinese hiring to one in five, as well as provide extensive training to Congolese employees.  Corruption and excessive bureaucracy are expected to be avoided by allowing investment funds to go straight from China’s Export and Import Bank to Chinese state-owned companies in charge of the infrastructural constructions in the DRC.

In turn, China hopes to extract over 10 million tons of copper and 400,000 tons of cobalt over a period of 15 years.  The copper will eventually pay for the investments in the DRC’s mining sector and infrastructure development.

Even though the DRC will profit from the deal, China is seen as greatly benefiting from the arrangement. At the current global prices for cobalt and copper, officials expect the Chinese side to make an overall profit of $42 billion after all the investments have been paid off. The deal might also result in Congo’s disqualification for debt relief under the Highly Indebted Poor Country requirements, limiting its chances to receive aid from the IMF and World Bank, pushing the country further into debt. The unbalanced nature of the deal has caused local distrust, risking the acceptance of Chinese presence in the country. Congolese rebel armies, reliant on illegal mineral trade to fund arms supplies, have fiercely rejected the deal, generating a risk of further violent conflict and instability in the country.

Nevertheless,  the deal presents crucial opportunities for the DRC, as China’s immense investments on infrastructure will be essential for local economic reconstruction and growth. In fact, the DRC’s economy has already exceed projected growth in 2008 from 8.5% to an expected 10%, due to stronger performance in construction, services and mining sectors. Moreover,  bilateral business ventures, such as the newly created Socomin, could open up the Congolese market and increase its global competitiveness.

Undoubtedly, China’s new strategic approach to the Sino-Congolese mining agreement, suggests a new trend of responsible agreements in Sino-African relations, potentially providing the continent with the means to offset economic growth and global market integration.

 

In fact, following the DRC mining deal, China has shown to place more efforts in infrastructure funding, trade, technology transfer and development in Africa. Chinese development loans have surpassed those of the West as well as of international agencies such as the World Bank and the IMF. Under this new approach, China has funded a stadium in Zambia and a hydroelectric dam in Ghana. China has also helped Nigeria launch its satellite into outer space and has created a cell phone network in Ethiopia.

Since 2007, China has dramatically increased foreign development assistance, with the World Bank predicting a total of $10 billion spent on African investments last year alone.  Additionally, China’s Export and Import Bank is currently funding an average of 260 development projects across 36 African countries.  China expects to double its assistance to Africa by 2009, while also planning the creation of a $ 5 billion Africa-China development plan. Investments will be aimed at building schools, hospitals, providing skills training for local African employees and funding anti-malaria efforts.

Business investments range from state-owned corporations, to small businesses and include numerous countries in Africa. There are currently between 800 and 900 Chinese enterprises engaged in business in the African continent.  Numerous mutual benefits have encouraged both sides to expand economic collaboration, with bilateral trade reaching a total of $73 billion in 2007 and an expected $100 billion in 2010.

China’ s increasing levels of investments in African infrastructure and its growing participation in the continents business arena,  will undeniably boost local African economies. In 2007, Africa registered an economic growth of 5.8%, its highest level ever,  a result in large part from increased Chinese investments.

China aims to establish even greater numbers of trade and economic cooperation zones throughout the continent. Chinese markets are expected to open up by eliminating tariffs on over 440 exempted commodities from least developed countries, compared to 190 zero tariffed products accepted in 2006.

China’s growing business engagements in Africa can create an opportunity for local companies to move towards the production of labor-intensive manufactures goods and services and away from the disproportional reliance on its few raw commodities. Moreover, these engagements might lead to technology exchanges, gained labor skills and increased competition, all of which would ultimately make companies more efficient.  World Bank economist Harry G. Broadman writes that Chinese firms can give African countries a “chance to increase the volume, diversity, and worth of their exports”,  which would result in an increase of trade, both regionally and globally. Moreover,  joint ventures between Chinese and African companies, will make it easier to expand global integration in a corporate structures.

As China modifies its approach to economic cooperation in Africa by offering immense opportunities for countries to kick start their economies, African countries still present several obstacles to global integration which could potentially hinder their development.  Lack of education and labor skills along with low levels of technology and weak infrastructure, have resulted in the current inefficient business atmosphere and the continent’s overall inability to experience substantial economic growth. Moreover, overwhelmingly widespread corruption and excessive bureaucracy, tend to prevent businesses to engage in sustainable and profitable global transactions.

 

Therefore,  in order to maximize China’s involvement in Africa, it is necessary to promote transparency, and ensure strong governance without compromising China’s international reputation. Moreover, a reduction in tariffs related to African goods should be made in order to allow for their market entry at competitive prices. Fair competition will also prove to be essential to Sino-African relations.  Environmental protection will be a critical factor. Africa has long complained about the growing impacts of climate change in its economy, as African countries produce the lowest level of carbon emissions amounting to only 3.8% of the world’s total. Additionally, African countries should impose limits on Chinese involvement, such as higher tariffs and regulations to avoid lopsided agreements resulting in unequal relationship and public resentment.

 

Source: www.AsiaEcon.org

Please send comments and constructive suggestions to feedback@AsiaEcon.org

 

Source: www.asiaecon.org |


More Special Articles - Asia Business & Economy Articles