Studie Chinas Engagement in Afrika

8/10/2019 Studie Chinas Engagement in Afrika

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Chinas Engagement in Africa Opportunities and Risks for Development

Africa Department, Economic Affairs


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About the authors:

Dr. Helmut Asche is Professor of African Politics, Economics and Society at the Institute for African Studies of the

University of Leipzig

Dr. Margot Schller works at the GIGA Institute of Asian Studies, Hamburg

Preface

Te authors would like to thank BMZ Division 320, Divisions 202, 301, 305, 315 and 322 and numerous colleagues

at GZ and KfW for their constructive criticism and information. Te strong backing for the study provided by

GZ organisational unit 1002 (Gerald Schmitt, Georg Schfer) was key to the breadth and depth of treatment of

the topic.

Bernt Berger, Claudia Mller and Stefanie Rudolf (GIGA Institute of Asian Studies, Hamburg) and Henriette

Dose, Susanne Schmutzer, Katrin Schulze (Institute for African Studies, Leipzig) and Anett Shabani (GZ) were

all involved in preparatory work and research.

Value judgements and conclusions are the sole responsibility of the authors. Tey do not necessarily reflect the

position of GZ.

A long version(in German) supplemented by further topics is available online at:

www.gtz.de/de/dokumente/gtz2008-de-china-afrika-lang.pdf

www.uni-leipzig/afrikanistik

www.giga-hamburg.de


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CHINAS ENGAGEMENT IN AFRICA: OPPORTUNITIES AND RISKS FOR DEVELOPMENT

China's rapidly expanding engagement in Africa in the fields of development cooperation, trade, investment and

migration has attracted great attention and given rise to mixed reactions at international level. As there are still

hardly any reliable data and only few empirical investigations on hand, one of the central questions is whether Chi-

na is effectively contributing to sustainable development in Africa; or, rather, is China's primary concern to gain

access to Africas raw materials and to open up new markets?

Tis study, conducted by GZ on behalf of the German Ministry for Economic Cooperation and Development

(BMZ), investigates this question and uses the latest data and information as the basis for ana lysing the economic,

social and environmental impacts resulting from current Chinese engagement in Africa. Surprisingly for many,

the authors conclude that Chinese interventions as a whole are having a positive effect on Africas development

prospects. Tey say that China is making important contributions to the expansion of infrastructure, to tapping

hitherto unexploited resources and to integrating African economies more effectively into global value chains. Te

most critical issue, however, concerns compliance with international environmental and social standards by Chine-

se companies operating in Africa. Tere is ev idence to suggest that Chinese firms are involved in the illegal export

of tropical timber from Africa and are thus playing a part in the disappearance of this resource. Similar criticism

applies to compliance with labour and social standards in Chinese production facilities in Africa, as illustrated by

the examples of Chinese copper mines in Zambia and Chinese textile factories in Mauritius. Tey go on to point

out, however, that since China wants to be an internationally recognised global player, there is scope for influence

and change based on empirically well-founded criticism. Te authors therefore recommend constant monitoring

and analysis of Chinese companies business practices in Africa.

Te Chinese government holds that its partnership with Africa is a partnership of equals with benefits for both

sides. China does not intervene in the internal affairs of its partners and does not apply conditionalities. Chinese

development cooperation in Africa mostly receives high praise from the African side for its effectiveness and speed

of implementation; from a Western perspective it is often reminiscent of approaches and concepts from the 1970s.

oday, China is expressing interest in the strategic and technical know-how of Western donors and implementing

agencies. Tis might serve as the basis for joint learning on how to provide more effective and better coordinated

support for sustainable development in Africa.

o date, African states, whether collectively or individually, have not developed strategies of their own that under-

pin their cooperation with China and other emerging-country donors. Chinas interest in Africa, however, offers

a variety of opportunities that could be better utilised by the African side. German and European development

cooperation can play a part in making the most of this potential. For certain thematic areas, and under well defined

conditions, this can a lso include tripartite cooperation with China in Africa.

I hope you find this study both interesting and rewarding.

Andreas ProkschDirector General, Africa Department, Deutsche Gesellschaft fr echnische Zusammenarbeit (GZ) GmbH

FOREWORD


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CONTENTS

0 Executive summary and recommendations for action 10

0.1 Description of the situation 10

0.2 Recommendations for action 13

1 Introduction: Chinas objectives, motives and strategic interests in Africa 14

2 Analysis of Sino-African cooperation 16

2.1 Political relations 16

2.2 Economic cooperation 18

2.2.1 Chinas foreign trade policy 18

2.2.2 Economic significance of Sino-African trade 18

2.2.3 Te structure of merchandise trade 21

2.2.4 Chinas oil imports and oil diplomacy 22

2.2.5 Development of Chinas exports to Afr ica 25

2.2.6 Chinese investment in Africa 26

2.2.7 Chinese immigration in Africa 30

2.3 Chinas development cooperation with Africa 32

2.3.1 Organisation of Chinese development cooperation 32

2.3.2 Instruments and procedures of Chinese development cooperation 35

2.3.2.1 Te Angola Mode: a new, old form of cooperation 36

2.3.3 Scope and relative importance of Chinese development cooperation in Africa 37

2.3.4 Priority areas of Chinese development cooperation in Africa 43

2.4 Other areas of cooperation 44

2.5 Summary 45

3 Opportunities and risks for Africa 46

3.1 Economic development and poverty reduction 46

3.1.1 Causes and effects 46

3.1.2 erms of rade 48

3.1.3 Influence on individual sectors 49

3.1.4 Te texti le and clothing sector 50

3.1.5 Import growth the other side of the coin 53

3.1.6 Te impact of Chinese direct investment on competition 54

3.1.7 Impact on poverty has China generated pro-poor growth in Afr ica? 55

3.1.8 Creation of sustainable agricultural and industrial structures 56

3.1.9 A mixed economy en route to Afr ica 58

3.2 Corporate governance and national governance 59

3.2.1 Labour standards and social standards 60

3.2.2 Environmental standards the Chinese timber industry in Africa 60

3.2.3 ransparency in extractive industries (oil & gas, mining) 65

3.2.4 Dutch Disease and macroeconomic management 67

3.3 Regional governance processes 68

3.3.1 NEPAD 68


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3.3.2 Examples of critical cases and their effect on the wider region 68

3.3.3 Africas second liberation? 71

4 Options for global structura l and development policy 74

4.1 Principles 74

4.2 Human rights and non-interference 75

4.3 Consequences for development cooperation 75

4.4 Economic policy options the Chinese magnifying glass 78

4.5 Recommendations for the multilatera l level (G8/EU) 81

4.6 Recommendations for the bilateral level (Germany) 82

4.7 Concluding remarks 84

5 Bibliography 86


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LIST OF ABBREVIATIONS

ADB Asian Development Bank

AECF Africa Enterprise Challenge Fund

Af DB African Development Bank

AGOA African Growth and Oppor tun ity Act

AFLEG Africa Forest Law Enforcement and Governance

ANC African National Congress

APF African Partnership Forum

APRM African Peer Review Mechanism

AU African Union

AVE Auenhandelsverband des deutschen Einzelhandels

BBC British Broadcast ing Corporation

BIEC Bureau for International Economic Cooperation (China)

BLNS countries Botswana, Lesotho, Namibia, Swaziland

BMZ Federal Ministr y for Economic Cooperation and Development

BRIC countries Brazil, Russia, India, China

CADF China-Africa Development Fund

CBFP Congo Basin Forest Partnersh ip

CCECC China Civil Engineering Construction Corporation

CCPI China Council for the Promotion of International rade

CCS Centre for Chinese Studies

CDB China Development Bank

CEMAC Communaut Economique et Montaire dAfrique Centrale

CMIA Cotton Made in Africa

CNOOC China National Offshore Oil Corporation

CNPC China National Petroleum Corporat ion

COMIFAC Commission des Forts d'Afrique Centrale

CPC Communist Party of China

CPECC China Petroleum Engineering and Construction Corporation

CPIA Country Policy and Institutional Assessment

CSR Corporate Social Responsibility

DAC Development Assistance Committee (OECD)

DAFC Department for Aid to Foreign Countries (China)

DC Development Cooperation

DEG Deutsche Investitions- und Entwicklungsgesellschaft

DFEC Department for Foreign Economic Cooperation (China)

DfID Department for International Development (UK)

DIE Deutsches Institut fr Entwicklungspolitik

DPL Development Policy Loan

DSF Debt Sustainability Framework

DWAA Department of West Asian and African Affairs


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EAC East African Community

EBA Everything But Arms

ECDPM European Centre for Development Policy Management

EIA Environmental Investigation Agency

EIB European Investment Bank

EII Extractive Industries ransparency Initiative

EPA Economic Partnersh ip Agreement

EXIM Export-Import Bank of China

FC Financia l Cooperation

FCFA Franc de la Communaut Franai se-Africaine

FDI Foreign Direct Investment

FES Friedrich Ebert Stiftung (a German political foundation)

FLEG Forest Law Enforcement Governance and rade

FOCAC Forum on China-Africa Cooperation

FSC Forest Stewardship Council

GBS General Budget Support

GDP Gross Domestic Product

GIGA German Institute of Global and Area Studies

GSP General System of Preferences

HIPC Heavily Indebted Poor Countries

IDS Institute for Development Studies (UK)

IEA International Energy Agency

IFC International Finance Corporat ion (World Bank)

IFI International Financial Institutions

IME International Military Education and raining (USA)

IMF International Monetary Fund

IOC Indian Ocean Commission

IPRCC International Poverty Reduction Center in China

Kf W Kreditanstalt fr Wiederaufbau

LDC Least Developed Countries

MDC Movement for Democratic Change (Zimbabwe)

MDG Millennium Development Goals

MDRI Multilateral Debt Relief Initiative

MFA Multi-Fibre Arrangement

MFN Most Favoured Nation

MOF Ministry of Finance (China)

MOFA Ministry of Foreign Affa irs (China)

MOFCOM Minist ry of Commerce (China)

NDRC National Development and Reform Commission (China)

NEII Nigerian Extractive Industries ransparency Initiative


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LIST OF ABBREVIATIONS

NEPAD New Partnersh ip for Afr ica's Development

NGO Non-Governmental Organisation

NB Non-ariff Barrier

ODA Offi cial Development Assistance

OECD Organisation for Economic Cooperation and Development

PJF Programme-Oriented Joint Financing (DC)

PPP Public Private Partnership

PRC Peoples Republic of China

PRS(P) Poverty Reduction Strategy (Papers)

PSD Private Sector Development

PWY P Publish What You Pay

REC Regional Economic Communities

RoO Rules of Origin

SADC Southern African Development Community

SIC Standard International rade Classification

SMP Staff Monitored Programme (IMF)

SPA Strategic Partnership with Afr ica

SSA Sub-Saharan Africa

SAP Short-erm Action Plans (NEPAD)

SWP Stiftung Wissenschaft und Politik (Germany)

C echnica l Cooperation

UN COMRADE United Nations Commodity rade Statistics Database

UNCAD United Nations Conference on rade and Development

UNDP United Nations Development Programme

UNECA United Nations Economic Commission for Africa

UNMIS United Nations Mission in the Sudan

USIC US International rade Commission

VC Value Chain

VPA Voluntary Partnership Agreements

WB World Bank

WBA AI World Bank Africa Asia rade Information

WEO World Economic Outlook

WO World rade Organization

WW F World Wide Fund for Nature

XNA Xinhua News Agency

Amounts quoted in $ in the text are always US dol lars.


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0.1. DESCRIPTION OF THE SITUATION

Te Peoples Republic of Chinas (PRC) interest in obtaining supplies of energy and raw materialsis the driving

force behind Chinas rapid economic expansion on the African continent which is accompanied by a wholes series

of political initiatives. Te exponential growth in foreign trade, direct investment and development cooperation

(DC) between China and Africa since the end of the 1990s has shocked the Western public.

Although the block of Western industrial ised countries as a whole wil l remain Africas most important trading

partnersin the medium term and will retain a key position as foreign investors, China is gaining ground quickly

and is thus increasing the intensity of global competition, including in Africa. Since 1998 foreign trade between theAfrican countries and China has grown tenfold, reaching an all-time high of $55 bill ion in 2006. Reali stic forecasts

assume that foreign trade will continue to grow, to about $100 billion by 2010.

Almost three-quar ters of al l of Chinas imports from the region are accounted for by crude oil. In mid-2006,

China obtained one third of its oil imports from Africa. China has built very close economic ties with vir tually al l

significant oil-producing countries in Africa. A number of them still have large untapped reserves, even though

Chinese companies are rarely granted access to the best oil fields. Chinas oil diplomacyhas been highly successful

in terms of diversifying its supplier countries, but its tolerance of human rights violations and poor governance in

these countries has increasingly attracted criticism from Western industrialised countries.

Direct investmentby Chinese state-owned energy and commodity corporations as well as private enterprises in

the manufacturing industry, the construction sector and the services sector has risen rapidly over recent years.

Government support programmes with low-cost loans reduce market development costs for Chinese companies,

thus distorting the market. State banks, currently the Export-Import Bank of China (EXIM) but in future also

the China Development Bank (CDB), play a key role in the expansion of enterprises and financing development

cooperation. Tere are fears that project financing by Western development banks and private commercial banks

could be crowded out.

Chinese development cooperation has increased markedly in terms of both volume and the number of countries

supported since the iananmen incident. Te Chinese state-owned EXIM Bank in particular offers interesting al-ternatives to International Financial Institutions (IFI) and bilateral Western loans. Because of limited transparency,

however, the quantity and quality of cooperat ion cannot be compared on an internat ional basis and are diffi cult to

determine conclusively. In 2006, the Chinese government announced ambitious targets for expanding DC with a

doubling of financial inputs and an increase in low-interest loans through the banks. Te priority areas for DC are

infrastructure, health care, agriculture and the education sector.

0 EXECUTIVE SUMMARY AND RECOMMENDATIONS FOR ACTION


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Chinas advance in Africa follows a characteristic basic pattern (see box).

Four pillars four characteristics

The four pillars on which the upsurge in Chinese-African relations rests are the intensification of

a) trade, b) investment, c) development cooperation, and d) immigration. In combination, these

exhibit the following four characteristics:

1. A distinct underlying sectoral pattern with (a) the focus on securing resources (oil, mining,

timber, agricultural commodities) plus (b) a large variety of economic interests in almost all

African industries and countries.

2. Seamless complementarit y of trade, direct investment , DC tied to supplies from China, and

immigration or the deployment of migrant workers.

3. Coordinated effor t by Chinese state-owned corporations as trailblazers for private enterprises.

4. Huge deployment of state financial promotion inst ruments with fluid boundaries between

preferential and commercial loans.

It is this broad sectoral approach and the systematic economic linkages that give the Chinese economic offensive its

strength. Te impact on growth and povertyof the various factors of the China boom is ambiguous and diffi cult

to analyse; on the whole it is presumably positive for Africa, but there are major regional and sectoral differences.

Chinese engagement in Africas textile and clothing sectorhas a double-edged effect. Whereas Chinese exports

to African countries have greatly increased, despite the dismantling of trade barriers these countries have not been

able to consolidate their position in global value creation in this sector on a sustainable footing. Te textile sector,

leather goods and footwear manufacture and other consumer goods industries in Africa are acutely threatened by

both preference erosion in the EU/USA and Chinese imports to Africa. Even Chinese companies in Africa are suf-

fering economically. Tis presents challenges for the trade and structural policies of African governments and

their partners in industrialised countries.

Negative impacts of the Chinese presence are also discernible in the construction sector. Admittedly, Chinese

enterprises have contributed to swift improvements in infrastructure and hence to economic growth in Africa,

generally acting in the context of projects negotiated at an intergovernmental level. Tere is a risk, however, of

domestic construction companies being crowded out, and there are sizable shortfalls in the transfer of know-how

and employment of local workers.

China is criticised internationally for wide-ranging violations of anti-corruption, environmental, labour and so-

cial standardsin Africa. In particular well-documented illegal logging by Chinese companies in various coun-

tries has predictably critical implications for tropical forests in Africa and hence also for global climate change.

Tis overexploitation of African forests is probably by far the most serious harmful effect on the environment aris-


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0 EXECUTIVE SUMMARY AND RECOMMENDATIONS FOR ACTION

ing from the involvement of Chinese companies in Africa. In general, however, Chinese violations of Corporate

Social Responsibility (CSR) standards are not comprehensively documented. Tis makes the promotion of trans-

parency in oil and mining revenues, particularly in the context of the Extract ive Industries ransparency Initia-

tive(EII), all the more significant; Chinas limited willingness to enter into cooperation within the framework of

the EII must be utilised. Supporting Af rican governments in their management of the effects of Dutch Disease

is equally important.

China is willing to become more closely integrated into the NEPAD process. If this is successful, however, it is

hardly likely to occur without a shif t of emphasis in the NEPAD agenda upgrading infrastructure problems and

downgrading governance issues. China is criticised for undermining improvements of governance through its in-

volvement inAngola, Sudan and Zimbabwe . Te criticism is basically justified, but it must not be used to conceal

crucial weaknesses in Western policy vis--vis Angola, Zimbabwe and other African countries.

Chinas unconditional loans and development assist ance are mostly welcomed in Africa as they are often regarded as a

second liberation from Western dictates. Te Organisation for Economic Cooperation and Development

(OECD) member countries are thus faced with the challenge of both improving the presentation of their Africa

policy and further enhancing its content and forms. Growing contradictions in the public perception of China in

Africa offer an opportunity for rational, unprejudiced dialogue.

Faced with the choice between a confrontational strategy and a more dialogue-oriented approach, the study argues

clearly in favour of a critical, yet constructive integrationof China into various processes and structures of a com-

mon Africa policy. Among the potential platformsfor constructive exchange, possible forums within the trilateral

EU-China-Africa dialogue are ranked particularly high. Te Federal Republic of Germany can be assigned the role

of intermediary in key areas on account of its relative lack of political and economic self-interest in Africa.


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0.2. RECOMMENDATIONS FOR ACTION

In bilateral and multilateral cooperation with China, interfaces emerge in relation to Chinas Africa policy, for

which a series of recommendations for action are presented at general, multilateral and bilateral levels (see

Section 4). Te main areas of focus are directed at the fields of trade policy, industrial policy and development

cooperation. Teir common denominator is:

1. Greater efforts to build the capacities of Afr ican partners to master the Chinese challenge.

2. Patient endeavours to integrate the Chinese partners into joint coordinat ion and consultation processes.

3. Systematic elimination of political shortcomings that place the West in a diffi cult position in the trilateral

debate with China and Africa, above al l in the field of trade and agricultural policy and in dealing with regimes in

Africa suffering from poor governance.

4. Improvement of basic information sources.


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Te Peoples Republic of Chinas political and economic engagement in Africa has a long tradition, and is closely

associated with the political self-image and international claim to leadership of the Communist Party of China

(CPC). As long ago as 1955, at the Asian-African Conference in Bandung, China presented its Five Principles of

Mutual Coexistence that became the foundation of its foreign policy vis--vis non-communist developing coun-

tries. Tese principles are 1.) respect for territorial integrity; 2.) rejection of aggression; 3.) non-interference in the

internal affairs of other countries; 4.) equality and mutual benefit; and 5.) peaceful coexistence. Te same principles

remain valid for China fifty years on.

Trough political and economic cooperation with Africa, the Chinese government secures support for its own

political objectives in an international context. African countries exert a significant influence on voting in multilat-

eral organisations such as the United Nations (UN), as the continent constitutes one of the most important voting

blocks with its 53 states. Te Peoples Republic considers this group of countries to be natural allies, for instance, in

the matter of reforming the UN system. Te fact that a central component of this reform, the revision of the mem-

bership of the Security Council, failed ultimately because of the African voting block underlines this importance.

Al liances with African countries were also important for implement ing the One-China policy directed against

political recognition of aiwan. Only four African countries now recognise aiwan, after China succeeded in split-

ting Chad away from this block a diplomatic masterstroke in view of Chinas close relations with Sudan, with

which Chad is effectively at war.1Similarly, Malawi followed the example of Chad on 27.12.2007. In practice, the

possibility that African countries could rebel and recognise aiwan limits the political freedom of action of the

PRC at least with respect to those countries that are not particularly dependent on China.

Chinas attempts to recruit South-South partners in Africa for a community of interests in global issues such as the

UN reform, World rade Organization (WO) negotiations and reform, global governance processes, etc. have

intensified in recent years. In the context of multilateral organisations, the Chinese government strives to assume

a leading role as the biggest developing country, but in the representation of its foreign policy it emphasises its

equal ranking with African developing countries. Tis is why the Chinese government has always responded touch-

ily to accusations of neo-colonial behaviour in Africa.

It was only in the late 1990s that a decisive change to Chinas traditional agenda in Africa began to take effect:

economic interests in Africa were largely afforded a status equal to that of Chinas political motives. It is the

economic offensive that draws much international attention to the China-Africa question today partly because

this in turn has repercussions for the geopolitical factors. China's growing demand for raw materials and energy

is leading to Africa now being comprehensively drawn into global strategies to secure resources by Chinese state-

owned enterprises (Friedberg 2006: 22) that are barely able to gain a foothold in the Middle East, except in Iran

(Davies, M. 2007).

1For a critical review of the aiwan policy see: Eisenman/Kurlantzick 2006.

1 INTRODUCTION:CHINAS OBJECTIVES, MOTIVES AND STRATEGIC INTERESTS IN AFRICA


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In their focus on access to raw materials, Chinese economic interests are comparable to those of Western industr-

ialised countries. However, state-owned corporations receive direct subsidies or low-cost loans for their long-term

involvement in the commodity and energy sector in African countries. In 2005, imports of crude oil from Africa

accounted for 25% (mid-2006: 32%) of all Chinese crude oil imports. A further economic motive is to secure agri-

cultural commodities such as cotton, timber, tobacco etc. for the Chinese market.

As Chinese foreign trade has undergone l ibera lisation and diversification in recent years, hundreds of private Chi-

nese companies have also become active in Africa. Tey use these countries to both sell and produce. Although the

private companies operate at their own risk, their activities, too, receive state support through special facilities in

capital transactions and the provision of information about local markets. Te close dovetailing of the worlds of

politics and business in China allows targeted accords to be arranged between the bureaucracy and companies and

a joint approach in foreign markets. Te impression of an overall strategy for economic development of Africa is

reinforced by the fact that the Chinese government formulates clear industrial-policy objectives and employs a mix

of market-economy and interventionist instruments in order to achieve them (Schller/urner 2005, 2006).


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2.1 POLITICAL RELATIONS

When Chinese economic reform began in 1978, the political leadership initially concentrated on a swift economic

catching-up process, and attached only relatively little importance to Africa in comparison with Western industrial-

ised countries and Japan. Tis comparatively low status was reflected in the rather sporadic visits by high-ranking

politicians to Africa, a stagnating volume of trade, and stagnating or even declining development assistance inputs.

Te iananmen incident led to a crisis in foreign relations with the West, which fundamental ly criticised Chinas un-

derstanding of human rights and democracy. In the subsequent reappraisal of foreign relations, developing countries,

and in particular those in Africa, were accorded a high status. Tese countries had largely sympathised with the ap-

proach adopted by the Chinese political leadership towards its own population and expressed solidarity with China

against its political isolation. In the subsequent years, the Chinese government rewarded those African countries that

supported China with attractive development projects, and granted Africa a central position in the programme of

diplomatic visits by high-ranking Chinese politicians (aylor 1998: 444-452). It is apparent that Beijing continues

to attach a significant foreign policy role to the African continent. Tis observat ion is based on the fact that Africa is

only the second region after the EU to which China has ever dedicated a separate strategy paper (MOFA 2006).

In terms of content, Chinese foreign policy unites a multiplicity of interests in the field of trade and development pol-

icy and interlinks var ious tactical and strategic considerations. Chinas foreign-policy concept of the path of peace-

ful development emphasises the need for mutual advantage in South-South relations, which led to a specific form of

diplomacy. Chinas foreign policy towards African countries appears to be based on three central objectives:

1. Promotion of its own development and hence of its internal stability.

2. Improvement of access to the international stage and to international markets through a complex diplomatic

strategy; in this context, the intention is to allay the fears associated with the rise of China felt by both estab-

lished and weak actors.

3. In order to achieve the above two objectives, Chinas foreign policy aligns both, foreign-policy and develop-

ment-policy strategies.

In any analysis , this close intertwining often makes it diffi cult to draw a clear distinct ion between foreign and devel-

opment policy objectives as well as foreign-trade objectives. In respect of Africa, the Chinese approach comprises:

1. Public diplomacy initiatives such as the construction of public facilities (hospitals or sports stadiums) and

support in the fight against communicable diseases such as malaria and HIV; these initiatives have an impor-

tant influence on the public perception of China in Africa.

2. Creation of economic incentives in the form of low or completely dismantled trade barriers, in order to offer

Africa export opportunitie s beyond the tradit ional trade in commoditie s.

3. Establishment of a transport infrastructure in order to facilitate access to raw materials and, at the same time,

promote the local economy.

4. Granting of loans, often interest-free, and other development assistance inputs to African governments without

political conditions.

5. Use of multilateral forums in order to achieve Chinese objectives.

2 ANALYSIS OF SINO-AFRICAN COOPERATION


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One particularly important instrument in this regard is the Forum on China-Africa Cooperation(FOCAC), an

institutional framework or joint platform for relations with African countries. In the course of the three FOCAC

meetings since 2000, China succeeded in bringing all African states around one table except for Burkina Faso,

Swaziland, Malawi, Te Gambia and Sao om & Principe, which, at the time, recognised aiwan but were invited

as observers. At the second FOCAC summit, a plan of action was agreed, aimed at strengthening regional com-

munities such as the African Union and NEPAD (New Partnership for Africas Development).

Chinas policy of non-interference in other countries internal affairs is much criticised by Western states. It is

argued that China cooperates with countries that no longer receive assistance from the traditional donor countries

but which instead are subject to political pressure to reform. It is said that this support for countries with poor gov-

ernance leads to the weakening of civil societies and the subversion of the development-policy concept of national

ownership. Indeed, with the exception of growing pressure on the Sudanese government with regard to the Darfur

question, to date China has exerted no direct influence on anti-reform governments to resolve conflicts or open

their political system.

However, neither has China attempted to create a direct sphere of influence or satellite states on the African conti-

nent, as is, for example, the case in Myanmar. Contrary to the sweeping claim that China pursues neo-colonialism

in Africa, no governments apart perhaps from Zimbabwe are in a position of such direct dependence on Beijing.

It is also important to distinguish between Chinas direct state involvement and the rapidly growing presence of

private and parastatal companies that operate on a profit-oriented basis without development-policy concerns, and

which are plainly no longer fully controlled by the Chinese central government.


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2.2 ECONOMIC COOPERATION

For Chinese business, trading with Africa or investing to produce there are not seen as mutually exclusive alterna-

tives. Interaction between trade and investment is not equally pronounced in all sectors, but basically, all available

analyses agree that the upsurge in bilateral economic relations can only be explained by diverse complementarity of

trade, direct investment and development assistance on the Chinese side. Tis study attempts to bring together all

these key complementarities.

2.2.1 CHINAS FOREIGN TRADE POLICY

In addition to securing supplies of energy and raw materials, Chinese foreign trade policy is geared towards opening

new markets for Chinese export goods. Diversifying foreign trade flows has been one of the declared aims of Chinese

foreign trade policy since Chinas accession to the WO at the end of 2001, and also includes expanding bilateral

foreign trade with Africa. China has agreed most-favoured-nation (MFN) clauses in foreign trade with 41 African

countries. alks on a free-trade agreement are currently being held with South Africa, which accounts for about a

quarter of Chinas trade with Africa. Te Peoples Republic of China, like the EU or the USA, has its own preference

system for African partner countries. For example, 28 African Least Developed Countries (LDCs) were granted

exemption from customs duties for 190 products (Broadman 2006: 170; Vice Minister Wei Jianguo, 13.11.2006). By

the end of 2007, the number of duty-free product lines had already grown to 454 (China Daily, 14.11.2007). In 2005,

the volume of products imported from Africa under the preference system tota lled $380 million, a rise of 88% over

2004. In the first half of 2006, imports within the framework of the preference system rose by 57% compared with

the equivalent period in the previous year, reaching a level of $250 million (Vice Minister, ibid.).

2.2.2 ECONOMIC SIGNIFICANCE OF SINO-AFRICAN TRADE

Despite high growth rates in Chinese trade with Africa, the region is still insignificant for China relative to its total

volume of trade: in 2005, the proportion of foreign trade accounted for by Africa was only 2.8% (China Statistical

Yearbook2006: 740). For the African countries themselves, by comparison, foreign trade with China now plays a key

role: In terms of total exports and imports, China has become one of Africas most important trading partners after

the USA since the middle of the decade, and in 2007 is likely to have overtaken all the former European colonial

powers. Already by 2006, China had become the largest exporter to Africa (see Figure 1). Te aggressive course of

negotiations adopted by the EU for new free trade agreements (EPA) with Africa can also be read against this back-

ground.

If the EU is counted as a whole, however, it still lies well ahead at the top of the table, and the Western industria lised

countries taken together are by far the most important trading partners. Of the total volume of foreign trade by

African countries in 1999, the industriali sed countries accounted for a share of 66.3%, and China just 4.8% (IMF

2006a: 14-15). By 2006, Chinas share had stil l only risen to 8.7%, while that of the Western industrialised countries

had declined to 60.5% (IMF 2007).2 Within Asia , China continued to be the most important trading partner for

Africa in 2006 and 2007.

2Figures for 1999 and 2006 in this ca se according to original IMF data for Af rica, not including Egypt and Libya.



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35000

30000

25000

20000

15000

10000

5000

0

-50001998 2000

Export Import Balance

2001 2002 2003 2004 2005 2006

Figure 1: Africas most important trading par tners in 2006

Figure 2: PR Chinas foreign trade with Africa, 1998-2006 (million US$)

Source: Own ca lculations, compiled on the basis of International Monetary Fund (2007), including Egypt and Libya.

Source: Compiled on the basis of IMF (2007), including Egypt and Libya.

Even if the level is stil l low compared with the Western industrialised countries, foreign trade between China and Af-

rica has been developing at headlong speed since the end of the 1990s. Te rates of growth are unprecedented. Starting

from a relatively low volume of $5.5 billion in 1998, the value of foreign trade had grown tenfold by 2006, to $55.3

billion (IMF 2007; China Commerce Yearbook 2007: 88: $55.464 billion). Over the past three years, China also re-

gistered a deficit in trade with Africa, which rose from $1.9 billion in 2004 to $2.2 billion in 2006 (see Figure 2).


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Tis exponential development is likely to have continued in 2007. Te target figure of $100 billion for Sino-African

trade in 2010 appears to be realistic. In most years, Chinas exports to Africa have grown fa ster than exports to the

Western industrial ised countrie s. Over the past three years thi s applies likewise to Chinas imports from African

countries. Te rates of growth of imports from Africa during these years were considerably higher than those from

Western industrial ised countrie s as a whole and also from Europe in particular (IMF 2006a: 136).

Te regional structure of foreign trade between China and African developing countries reveils a focus on a small

number of countries (see Figure 3). Tese include Angola, Congo-Brazzaville, Sudan and Equatorial Guinea, along-

side countries with a relatively high level of economic development such as South Africa, Egypt, Algeria and

Morocco. Among the oil-exporting countries, Angola moved yet further ahead of the rest: Its share in Chinas

total volume of imports from Africa reached 38% in 2006 (previous year: 32.9%), while the share that Sudan had

attained in 2005 (13.1%) was almost halved. Tis shift is not likely to have been permanent, however.

Te focus on just a few oil-producing countries can, though, create a misleading impression. It hides Chinas eco-

nomic omnipresencein Africa, and thus Chinas considerable importance for smaller African countries, whose

own volume of trade is low by international standards. It also masks Chinas relative dependence on the supply of

particular strategic raw materials from countries that do not appear in the char ts reproduced above.


Figure 3: Chinas most important trading partners in Africa in 2006 (million US$)

Note: Te chart relates to Chinas imports from Africa and Chinas exports to Africa; only countries with which the volume of trade exceeds a total valueof $1 billion are included. Source: IMF (2007).


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Figure 4: Structure of supplies from Africa to China in 2006

Source: China Commerce Yearbook 2007: 615.

2.2.3 THE STRUCTURE OF MERCHANDISE TRADE

An ana lysis of the structure of foreign trade between China and the countries of Africa does not reveal a picture

of South-South cooperation but rather the typical characteristics of trade between industrialised and developing

countries. Almost without exception, China exports industrial goods to Africa, while supplies from Af rica consist

to a la rge extent of mineral commodities and agricultural products. Te most important export product for Afri-

can countries trading with China is crude oil, which accounted for an average of 62.2% of Chinas total imports

from these countries during the period 2002-2004 (Broadman 2006: 80-81; 122). Statistics issued by China on

the structure of supplies from Africa in 2006 indicate the proportion taken by crude oil to be as high as 74%.

Agricultural commoditie s such as cotton and t imber accounted for 3% and 2% respectively, iron ore for 3%, and

magnesium and copper ore for 1% each (see Figure 4). A strategic raw material such as cobalt, however, appears to

be insignificant in statistics such as these. Te bulk of these commodities originate from a small number of coun-

tries. Alongside the oil-exporting countries, South Africa is the most important supplier of iron ores and diamonds,

Zimbabwe the biggest supplier of tobacco, and Cameroon the main supplier of timber (Broadman 2006: 80-81;

122), although other sources put this as being Gabon.


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Year Country Activity Volume

2002 Alger ia Sinopec concludes agreement on development of Zarzaitine oil field $525

million

2003 Algeria CNPC purchases several oil refineries; agreement on development

of two fields

$350

million.

2003 Alger ia PetroChina concludes agreement on joint development of oil resour-

ces and building of refineries

n.s.

2004 Gabon Sinopec concludes contract for supply of crude oil to China n.s.

2005 Angola Sinopec takes over oil field from Shell; enters into joint venture with

Sonangol (75% share)

n.s.

2005 Angola Loan to Angola for supplies of oil $2 billion

2006 Angola Loan from 2005 is increased >$1 billion

2006 Niger ia PetroChina concludes agreement for the supply of 30,000 barrels of

crude oil per day

n.s.

2006 Niger ia CNOOC wishes to acquire shares in Niger ian oil and natural gas

business

$2.3 billion

2006 Kenya CNOOC concludes agreement on exploration of of fshore oil n. s.

2006 Niger ia Acquisition of l icences for oil ex traction $4 bill ion

2006 Angola Sinopec acquires 40% share in oil block $1.1 billion

2006 DR Congo Agreement on development of oil resources n .s .

2006 Namibia Start of oil extraction in northern Namibia; construct ion of an oil

refinery

n.s.

2006 Ethiopia Zhongyuan Petroleum Company begins oil extraction in western

Ethiopia

n.s.

2006 Equatorial

Guinea

CNOOC concludes agreement on joint oil extraction (5-year term) n.s.

able 1: Recent activities by Chinese oil companies in Africa

Sources: Compiled on the basis of data from aylor 2006b: 944-945; BBC, 19.2.2006; jnneland et al. 2006: 35.

In this way China has been able to reduce its heavy dependence on supplies from Indonesia, Yemen and Oman

since the early 1990s, and diversify its oil imports. Af rican countries are attractive to Chinese oil companies for

a variety of reasons. Angola, Algeria, Libya, Nigeria and Sudan, for example, five of the six main producers of

natural gas and crude oil in Africa, all have large reserves that have not yet been fully developed. Tey constitute

an alternative to the Gulf states as traditional oil producers because, in contrast with the latter, they are still

interested in Chinese technical and financial cooperation for exploration and extraction. If Western companies

pull out of any of these countries on account of the political situation, Chinese companies consequently face

less competition. Tis is plainly a major reason for Sudan being integrated into Chinas global resource strategy.

Chinese oil corporations grant such countries low-interest loans to develop oil fields, often tied to deliveries of

Chinese goods and services. Tey thus offer an alternative outlet to countries which have diffi culties accessing the

international financial market. In addition, state-owned oil corporations pursue alliances with local companies.


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Te rapid expansion of Chinese companies in Africas oil sector is accompanied by Western scepticism, or indeed

open criticism. It is argued that Chinas behaviour contradicts principles that have been internationally pursued for

a number of years, particularly by the EII. Tis initiative promotes increased transparency and rationality in con-

tract drafting and revenue administration in the oil sector. Angola is considered a prime example of where patron-

age and corruption have resulted in the loss of some $4 billion of oil revenues, or 10% of GDP (aylor 2006b: 946).

Such issues are not addressed by the Chinese government as it operates according to the foreign-policy principle

of non-intervention in internal affairs. In order to consolidate its position in Angola, the Chinese government was

willing to grant credits amounting to several billions for reconstruction of the country, almost without conditions.

As the International Monetary Fund (IMF) had tied its credits, among other things, to stringent conditions con-

cerning the transparency of oil revenues, the government of Angola decided in favour of the Chinese offer.

Chinas oil policy in Africa is also criticised for the pricing and risk management of state-owned oil corporations,

which potentially play a part in crowding out Western companies. Chinese state-owned enterprises in the com-

modities and energy sector, not hampered by short-term profit expectations, can take greater risks than others and

live with a distorted cost structure because of the subsidies they receive. Looking at the global ownership structure

of oil and gas reserves, however, the criticism is admissible to only a limited extent. 80-85% of global oil reserves

and 60% of the worlds reserves of natural gas are in the possession of state-owned or parastatal enterprises, whose

policies are likewise determined not solely by economic factors but also by political considerations and influence

from national political bodies (Umbach 2007: 41).

An often-cited example of the undermining of universa l policy principles such as the observance of human rights,

democracy, transparency and good governance (Umbach 2007: 51) is Sudan, where the battle for control of oil

resources was a key factor in the long-running civil war in the South that cost the lives of hundreds of thousands

of people. Chinese state-owned corporations were able to acquire holdings in the Sudanese energy sector after the

USA had broken off economic relations with Sudan in 1997, and both European and Canadian companies sold off

their shares under pressure from human rights groups in 2003. Te example of Sudan shows that Chinese state-

owned corporations, being late starters, inevitably behave in an opportunistic manner in the global race for energy

resources; because of their rather weak market position, they also invest in risky and marginal resources. o do

this, they use preferential loans without policy conditions, while at the same time they try to avoid international

confrontation (in this case the UN Resolutions relating to Sudan) (Steinhilber 2006: 85-86). Te Wests current

room for manoeuvre and consequences for development policy are examined in more detail in Section 3.2.3.



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Algeria7%

Benin5%

Morocco6%

Nigeria11%

South Africa22%Egypt

11%

Sudan5%

Rest33%

2.2.5 DEVELOPMENT OF CHINAS EXPORTS TO AFRICA

Te most important market for China in 2006 was South Africa, which received almost one quarter of Chinese de-

liveries to Africa. Egypt and Nigeria come second in the league table of Chinese exports to Africa (see Figure 5). In

general, South Africa, North Africa and the biggest oil-producing countries dominate the list of Chinas customers.

Te final destination of the persistently high volume of exports to the small country of Benin, with its long border

to Nigeria, is a matter of speculation.

Figure 5: Most important African markets for Chinese exports (2006)

Source: Own calculations based on IM F (2007).

Te commodity structure of Chinas exports to African countries is fairly differentiated in comparison to the ex-

ports from these countries including South Africa to China, which are slanted very heavily in favour of raw

materials and energy products. According to Chinese statistics, the la rgest proportion of exports in 2006 was made

up of mechanical and electronic products, with second place being occupied by textiles, followed by high-tech

products and clothing (see Figure 6).


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Figure 6: Imports to Africa from China in 2006 (selection of the ten main product groups)

Source: China Commerce Yearbook 2007: 615.

2.2.6 CHINESE INVESTMENT IN AFRICA

Africa is just as marginalised in the worldwide distribution of foreign direct investment (FDI) at about 2.2%,

which is less than half the share it reached in the 1970s (4.6%) as it is in global trade. In absolute terms, the situ-

ation changed significantly in 2005, however. Te UNCAD World Investment Report states that the volume of

all foreign direct investment flowing to Africa was $31 billion, a dramatic rise compared to $18 billion in 2004. In

the years prior to that, FDI was often in single figures. Te bulk of the investment was concentrated on extracting

raw materials, in particular on oil and gas projects. Te share attributed to mergers and acquisitions was $10.5 bil-

lion, although in this case, too, it can be a ssumed that a large proportion was earmarked for the extractive industry

(UNCAD 2006: 40-41).

Still, the majority of foreign investors in Africa come from Europe, primarily the United Kingdom (cumulative

value by the end of 2003 approximately $30 billion), Germany ($5.5 billion) and France ($4.4 billion), along with

the USA ($19 billion). Te biggest Asian investor countries, India and Malaysia, are well behind, at $1.968 billion

and $1.880 billion respectively (both 2004). 3UNCAD puts the stock of Chinese FDI at only $1.595 billion at

the end of 2005 (UN 2007: 19). Te figures given by the Chinese government are far higher: it puts the amount of

investment in Africa by the end of 2005 at $6.27 billion (Vice Minister Wei Jianguo, 13.11.2006), and by the end

of 2006 at as much as $11.7 billion (Xinhua 25.4.2007, as quoted in Mayer 2007: 21). According to these figures,

China would already be the third-largest investor in Africa. Other estimates quoted in the press are actually several

times higher still, reaching as much as $30 billion. According to Chinese statistics, up to the end of 2003 most

Chinese direct investment flowed to Zambia (cumulative value: $134 million), South Africa ($127 million), Egypt

($56.3 million) and Nigeria ($56.2 million) (China Commerce Yearbook 2004). In this case, too, the individual

figures from UNCAD differ, even if there is no discernible pattern; UNCAD lists Sudan as being the frontrun-

ner in Chinese investment at the end of 2005, with a total of $351.5 million.

3Nominally, Singapore is positioned at the top of t he UNCAD statistics, although this is shown as a single item comprising a $3.5 billion investmentin Mauritius (2003).



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In relation to total Chinese foreign investment, Africas share is still very low. By the end of 2003 the percent-

age of FDI stocks was 2%; current investments in Africa accounted for 5% in 2003 (Broadman 2006: 97). In so

far as these figures, which reflect pure FDI, are adhered to, Africas relative importance for China is no greater

than for any other investor; indeed, according to UNCADs figures it would be low even in absolute terms. Te

discrepancy with respect to the offi cially di sseminated China euphoria in Africa and also the various numerical

discrepancies stated above can be explained by the vague demarcation lines between FDI, development coopera-

tion and Chinas investment and trade credits. Tis is where we see the limitations of attempting to view categories

such as foreign direct investment (the precise statistical definition of which has long been a matter of debate for

the IMF and UNCAD in any ca se) as entities separate from others, because the mixing of instruments is inherent

to the Chinese system: the apparent confusion is systematic.

According to the most recent, provisiona l data, the tota l inflow of foreign direct investment into Africa in 2007

remained at the record historic high of $35.6 billion (previous year: $35.5 billion; UNCAD 2008). Te main

recipient countries in 2007 were:

Egypt ($10.2 billion, previous year: $10.0 billion)

Morocco ($5.2 billion, previous year: $2.9 billion)

South Afr ica ($5.0 billion, previous year: -$0.3 billion)

Sudan ($2.2 billion, previous year: $3.5 billion)

unisia ($1.0 billion, previous year: $3.3 billion)

In 2006, Nigeria also registered major foreign investments, amounting to $5.4 billion (UNCAD 2007a). One

country still missing from this list a s a recipient of considerable direct investment is Angola. It can be assumed that

rising Chinese investment has continued to contribute to the overall FDI trend. Crucial for Chinese FDI is the fact

that it is distributed more evenly between the African countries than investment originating from elsewhere, which

is very heavily focused on North Africa, South Africa, and oil.

Tere is no established typology for the determinantsof foreign investment, despite a long debate in international

economics. In empirical research various catalogues are used, which frequently mix investors intrinsic motivations

with assessments of the economic environment. Te greatest intersection with other suggestions concerning the

fundamental motives is probably the UNCAD typology (e.g. UNCAD 2006: Chapter IV), in which a distinc-

tion is drawn between four major levels of motivation:

1. Market development (market-seeking motives), which in our view has to be further differentiated between

investment (a) solely for the support of trade and services and (b) for production in the country of invest-

ment.

2. Rais ing of effi ciency(effi ciency -seeking motives), largely for the purpose of saving costs with existing technol-

ogy, in developing countries often in order to make use of a cheaper workforce.

3. Securing supplies of energy and commodities (resource-seeking motives), mainly projects in the oil industry

and mining.

4. Securing of strategic advantages (somewhat curiously called created-asset-seeking motives by UNCAD) in


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Te sector spread, and especially the numerous involvements in light manufacturing industries in Africa, indicate

that Chinese investors assessment of what makes for promising local markets is plainly quite different from that of

Western companies . ransnational corporat ions in the West have not changed their view that Sub-Saharan Africa

remains the least interesting investment region (UNCAD 2007a), and market development has a role to play in

South Africa and Nigeria at best. In contrast, Chinese FDI is aimed at the whole width of the African market, and

furthermore it assigns a positive value not only to its current state but also its future potential, as well as extending

the concept of important resources to include Africas agricultural and fishery resources. Investment is therefore

increasingly to be found in areas such as soya processing and shrimp farming (Kaplinsky/McCormick/Morris

2006: 18-19).

Not all transitional forms can be easily slotted among the four investment motives described above; for example,

production abroad (here: in Africa) for the purpose of acceeding to major export markets can be understood both as

market seeking and a s securing a strategic commercial advantage. In fact, the integration of African locations into

Chinese companies global value chains in recent years has primarily extended to the textile and clothing industry,

in which investors from the Peoples Republic and aiwan have strategically exploited trade preferences under the

US African Growth and Opportunity Act in the whole of Southern Africa (for details see also Section 3.1.4).

An investigation into the investment behaviour of 150 Chinese companies around the world made it plain that

Africa was seen as the second most important investment dest inat ion af ter Asia. Tus 18% of the tota l of 249

investment projects by these companies applied to A frican countries. Companies in manufacturing industry ac-

counted for the largest proportion, at 45%, followed by companies in the construction and services sector (35%)

and commodity-based companies (agriculture, crude oil, natural gas and mining) (20%). Te promotion of their

investment by the Chinese government was seen as an important factor for the move to Africa, especially as the

investment environment was rated also by Chinese companies as being poorer in Africa than in other regions, with

regard to the a ssociated political risks (Broadman 2006: 99).

Similar findings were obtained by another survey of Chinese companies that was conducted by the Asia Pacific

Foundation of Canada and the China Council for the Promotion of International rade (CCPI) between May

and June 2005. Of the 296 companies, 14% had invested abroad. Te volume of their commitments amounted to

about 73% of all Chinese foreign direct investment by the end of 2004. Of the total of 78 foreign investments, 9%

were made in Africa, although of those companies that were active abroad, 17 planned to make an investment in

Africa in the fol lowing twelve months and 41 companies in the fol lowing two to five years (Asia Pacific Foundation

of Canada and CCPI 2005).

EXIM has taken on an important role with respect to foreign expansion, as it provides both export credits and

credits for investment and construction projects and international guarantees. o an increasing extent, too, credits

from the state-owned China Development Bank (CDB) are used to promote the Going Global strategy of Chinese

public enterprises; this bank, likewise, is among the politically oriented banks. Loans are to be granted, above all,

to companies operating in the field of energy and natural resources. Until now the CDB has mainly promoted do-

mestic projects in the electricity and transport sectors (Schller 2007).


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2.2.7 CHINESE IMMIGRATION IN AFRICA

Te expansion of foreign trade, investment and aid is accompanied by a rapidly growing number of Chinese people

in Africa. In particular these are Chinese workers who are deployed in infrastructure projects or are involved in fac-

tory start-ups and trade agencies in Africa. Tere have been limited waves of immigration by Chinese to Africa in

the past. At the end of the 19th century, for example, workers were recruited for the gold mines in ransvaal at the

instigation of the British (Airault 2006); there is now a large community of South-African-born Chinese (SABC).

In contrast with the situation just a decade ago, however, Chinese have now settled in virtually all countries of

Africa . Tere a re no definite figures available, only unconfirmed individual set s of data that have been compiled in

the table be low.

able 3: Chinese immigration to Africa (selected countries)

Source: Auth ors own compilation using data from media, Chinese and German embassies, GTZ information and CCS 2007.

Countries People

Algeria 20,000

Angola 20,000 40,000

Ethiopia 3,000 10,000

Gabon 1,000 3,000

Guinea 7,500

Cameroon 300,000

Madagascar 15,000

Mauritius 30,000

Namibia 8 40,000

Nigeria 100,000

Zambia

Lusaka only:

2,300 < 80,000

30,000

South Africa

low estimate:

high estimate:

100,000 160,000

> 300,000

Togo 3,000

Uganda 5,000 8,000

Zimbabwe 9,000 10,000



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2.3 CHINAS DEVELOPMENT COOPERATION WITH AFRICA

Tere is a long tradition to Chinas development cooperation with countries in Africa. Te guidelines for Chinese

development cooperation formulated in 1964 by the countrys premier at the time, Zhou Enlai, continue to apply

to this day, and are reflected in the principles of the new Africa strategy presented in 2006.

2.3.1 ORGANISATION OF CHINESE DEVELOPMENT COOPERATION

Te Chinese central government, with the State Council at its head, constitutes the highest decision-making level,

which also has a key role to play in development cooperation. Te National Development and Reform Commission

(NDRC) sets guidelines for the policies of the ministries concerned, i.e. for the Ministries of Commerce, Finance

and Foreign Affairs: MOFCOM, MOF and MOFA. 6Te Commission is a macroeconomic management agency

under the State Council which formulates all policies for economic and social development. However, the true

extent of the coordination of development policy and programmes in particular has still not become fully clear to

foreign observers (Manning 2007: 2). Te process of Chinese development cooperation is highly complex in detail,

as a multiplicity of institutions are involved in decision-making and implementation. A general overview of the

relevant actors in Chinese development cooperation is presented in Figure 7.7

Te most important ministry for implementing DC is MOFCOM, which is responsible for both incoming and

outgoing development-assistance funds and for bilateral development policy. In contrast with the situation in Ger-

many, the Ministry of Commerce is therefore simultaneously also responsible for DC. Te overlap between these

functions reflects the integrated approach of Chinese DC. Within MOFCOM there are various departments with

particular development cooperation responsibilities:

Te Department for Aid to Foreign Countries (DAFC) is responsible for Chinas external assist ance. According

to information from the Ministry, it is responsible for formulating and implementing Chinas development-policy

plans, issuing grants and interest-free loans from the government, and signing contractual agreements with

foreign DC partners.

Te Bureau for International Economic Cooperation (BIEC) is situated at the same hierarchical level; it manages the

implementation of projects, for example organising training courses and the provision of materials for develop-

ment projects. Tis department is also responsible for the administration of technical cooperation (C), interest-

free loans and grants.

Te Department for Foreign Economic Cooperation (DFEC) is responsible for the Chinese companies in Afr ica

that implement the projects.

Finally there are also geographical units within MOFCOM, including the Department of West Asian and Afr i-

can Affairs (DWAA), which has an advisory role.

MOFCOM is also responsible for the granting of concessionary credits, although these are processed via EXIM.

6It is probably the case that structures of the CPC are also involved in the formulation of Chinas Africa policy in the broader sense, as outlined bySautman/Hairong, in: Wild/Mepham 2006, p. 55.

7A simil ar desc ript ion of the struct ure and problems of Chinese dev elopme nt co opera tion is g iven by Davie s, P. 20 07, par ticula rly S ect ion 5.



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Policy coordination takes place between MOFCOM and MOFA, but also with other ministries that are involved

in development cooperation.

Figure 7: Chinese Institutions for development cooperation in Africa

Source: Shabani 2008 based on Manning 2007, Davies, P. 2007, Chan 2007 and Gill/Reilley 2007

Te Ministry of Foreign Affairs, MOFA, plays a part in formulating policy; for example it drafted Chinas Africa

policy. Like MOFCOM, it has geographical units, including two Africa-specific departments (West Asia and North

Africa, Sub-Saharan Africa). MOFA is responsible for diplomatic contacts and for coord inat ing specific policies

within the framework of bilateral undertakings. In the context of DC, MOFA tends more to act as an adviser to

MOFCOM.

Agreement on the budget is reached between MOFCOM (Department for Aid to Foreign Countries) and MOF,

after the State Council has determined what proportion of the national budget is to be assigned to development

assistance. Multilateral contributions to international financial institutions likewise fall within the sphere of re-

sponsibility of MOF.

Te content of each individual country programme is agreed upon in a dialogue with the Chinese embassiesin

the respective countries (Manning 2007: 3). Te embassies and the Economic and Commercial Counsellors (ECC)

Offi ce a unit belonging to MOFCOM and administrat ively attached to the embassies monitor implementation

of the projects and report on progress to the Chinese government. For important projects a separate representation

should be in place in the country (Ai Ping 1999, in jnneland 2006: 10). In view of their current presence and

wide-ranging duties, the capacity of the embassies for comprehensive monitoring appears to be rather limited.


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In addition, other ministriesalso have a part to play, such as the Ministry of Health for medical projects or the

Ministry of Education for projects in education, and the Ministry of Agriculture for rural development. A number

of Chinese provinces and cities also have their own DC projects, although the extent of these and the areas on

which they focus are largely unknown.

China EXIM Bankis a state-owned bank under the direct control of the State Council, and to date is Chinas only

credit institution that extends concessionary loans. Te bank has its own separate department for that purpose.

EXIM also offers export credits (export buyer and export seller credits) and international guarantees to promote

Chinese investment in Africa. With assets of some $52 billion (2006), it is considered to be the worlds third-largest

export credit agency. Te bank has granted concessionary loans to over 100 countries and has a total outstand-

ing balance of receivables from Africa of $8-9 billion, although this includes concessionary loans and commercial

credits. Te central role of EXIM in Chinese DC at the level of practical implementation is also stressed in a BMZ

report on the German-Chinese consultations in April 2007. Te World Bank is already engaged in a consultation

process with EXIM on financial project management, and is planning paral lel financing projects with the bank.

EXIM, but also the China Development Bank (CDB), is able to pursue a (relatively) independent policy with re-

spect to the granting of credits from its own funds. Te expansion of foreign activities by the CDB will once again

result in a change to the competitive situation in the award of contracts for major projects. According to its bal-

ance sheet total, the CDB is the largest development bank, ahead even of the World Bank. Like EXIM, it answers

directly to the State Council not the Ministry of Finance and refinances itself through issuing loans. At the

end of March 2007 the CDB had outstanding credits in Africa valued at $1 billion, although it is not involved in

the implementation of Chinese concessionary development assistance in the narrower sense. Te bank supported

the establishment of the China-Africa Development Fund (CADF), which was announced in late 2006 and in the

meantime has been set up, with the sum of $5 billion; the CADF itsel f however is an independent commercial fund.

Tere are also reform plans in place for the CDB, according to which the state bank is to become a commercial

credit institution (Davies et al. 2008: 24).

In addition to its bilateral DC activities, China is represented in multilateral DC institutions such as the World

Bank and in the United Nations Development Programme (UNDP), as well as in regional development banks

such as the Asian Development Bank, the African Development Bank and the Inter-American Development Bank.

Te Chinese government has signed up to the Millennium Development Goals and the Paris Declaration on Aid

Effectiveness, but to date has been very reluctant when it comes to establishing transparency and coordinating its

projects with other donors (jnneland et al. 2006: 10). Te interpretation that China is likely to have signed the

Paris Declaration in its capacity as a recipient of development assistance is probably true.



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2.3.2 INSTRUMENTS AND PROCEDURES OF CHINESE DEVELOPMENT COOPERATION

Te basic forms of Chinese DCare as follows (Davies, P. 2007: 48ff.; Manning 2007:3, Annex 1:1):

1. Grant aid, in other words non-repayable aid, which in the main is made available in the form of material assets

and is provided for social projects such as hospita ls, schools and housing and for material and technical support,

education/training and humanitarian assistance.

2. Interest-free loans, made available directly by the government, evidently intended above all to finance infra struc-

ture projects.

3. Preferential credits or concessionary credits, with interest rates below the market level, granted exclusively via

EXIM. Te difference between the market rate of interest and the lending rate is paid by MOFCOM to EXIM

as a subsidy.

Forms 1 and 2 are the responsibility of a department of MOFCOM, the Executive Bureau of International Eco-

nomic Cooperation, which has only about 100 employees in China and has to call upon the resources of the

Chinese embassies for information about specific countries. Representatives of this MOFCOM department visit

the DC projects half-way through the project term and after completion. Which of the DC instruments is chosen

depends on a combination of conditions pertaining to the country and the project. In general, there is a tendency

to offer DC in the form of material assets or by means of tied aid. Chinese companies that are a ssigned in DC are

selected from a group of companies that have had to prove their eligibility. Te employment of Chinese workers in

DC projects is ostensibly made dependent on the requisite qualification, without there being an automatic prefer-

ence for Chinese workers in the projects (Manning 2007:3). Te proportion of African workers deployed appears

to be heavily dependent on the particular country; in Angola, for example, it is only 30%, while in anzania it is

over 80%.

EXIM also provides low-interest export credits for African buyers. According to calculations by the authors of

the OECD study "Prudent versus Imprudent Lending" (Reisen/Ndoye 2008), the grant element is approximately

40%. Tese credits must be taken into account in the debate on issues relating to the debt sustainability of Af rican

countries.

Chinas development cooperation is almost exclusively project-based, with the projects mostly being part of a wider-

ranging engagement comprising trade and investment. Apart from pilot projects used to test new development

ideas, China primarily implements turnkey projects, i.e. projects in which all components from the initial planning

through to completion are provided by China. Probably the best-known Chinese project in Africa to date is the

railway line between anzania and Zambia. Mega-projects such as this are the exception, however: according to

information from Brutigam (2007) the average size of Chinese projects is $3-10 million.


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2.3.2 .1 THE ANGOLA MODE: A NEW, OLD FORM OF COOPERATION8

Chinese loans, above all for the financing of infrastructure projects, are increasingly secured by natural resources;

this is referred to as reserves-backed lending. If a developing country does not have enough financial capacity or

is unable to provide the required guarantees, it can use its natural resources for this purpose instead. Put simply,

infrastructure is exchanged for natura l resources. Tis form of implementation was used on a large scale in Angola

after the civil war, which is why it is called the Angola Mode or also the Angola Model (CCS 2007: passim).

Te Angola Mode requires careful coordination between the various participants. In addition to the two govern-

ments, a Chinese company is needed for creating the infrastructure, and another one is required for extracting

the resources. Depending on the preference of the Chinese government, the companies can obtain the contracts

through a bidding process or through selection by the government. Te procedure is illustrated in Figure 8.

8Te description given in Section 2.3.2.1 follows Shabani (2008).

Figure 8: Chinas Angola Mode

Source: Shabani (2008)



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9 See also the critical a nalysis by Misser (2007).10Te description in t he following is ba sed large ly on Davies, P. (2007: 49-51) and the intervie ws with offi cial repres entative s of Chinese DC a nd

researchers conducted by this author.

Although this mode enables financial ly weak countries to invest in urgently required infrastructure, the advantages of

this alternative payment variant are as yet unclear and are substantially dependent on the mostly unknown con-

tract detail s. In the case of the $2 billion credit facilities granted to Angola in 2004, the repayments are to be made in

the form of delivery commitments amounting to 10,000 barrels of crude oil per day, sold internationally at the spot

market price. In comparison with contracts with other banks, therefore, the contract with China can certainly be

considered to be advantageous for Angola. BNP Paribas, for example, set the oil price for the repayment of a loan of

$2.2 billion at only $25 per barrel, which is less than 50 per cent of the current market price (Corkin 2007b: 6).

Te most bizarre variant of the Angola Model can be be found in DR Congo, where a consortium comprising EXIM

Bank, China Railway Engineering Corp and SINOHYDRO signed an agreement with the Congolese government

on 17.9.2007 to form a joint venture, with the capital split in a ratio of 32% to 68% between DR Congo and China.

Te agreement covers the exchange of cobalt, copper and gold mine concessions in Katanga for infrastructure projects

(rail and road links, and social facilities). According to the value of the mineral tonnages pledged in Annex I of the

Protocole daccord (as published in the Congo by Le Phare No. 3237, 28.12.2007), this would be Chinas largest

ongoing business undertaking in Africa. However, the agreement arranges that all the profits from the first phase

will be used exclusively for amortisation of the mining investment. As there is no time limit to this phase, it remains

entirely unclear when the infrastructure building will begin, especially as, at $3 billion, only just under half of the

measures will be financed through funds from the project. Here, the step-by-step arrangement built into the An-

gola Model apparently falls apart. Unless there are more precise, confidential accords in place, this agreement thus

confirms the fears that African recipient countries suffer huge disadvantages on account of unfavourable contractua l

arrangements.9

2.3.3 SCOPE AND RELATIVE IMPORTANCE OF CHINESE DEVELOPMENT COOPERATION

IN AFRICA

Data relating to the financia l scope of development cooperation is not published by the Chinese government in any

form comparable to that from Western industrialised countries. No reports are provided for the Development As-

sistance Committee (DAC) of the OECD. Tere are two possible explanations for the failure to publish meaningful

statistics: either the Chinese government is not willing to let the figures be known, or alternatively it is not in a posi-

tion to supply reliable statistics.10

Reluctance to publish can be explained by three principal arguments. Firstly, China wants all African countries to

feel they are being treated equally and not to be annoyed if other countries receive more funding than they do them-

selves. Secondly, it is a matter for each individual African country to specify the DC funds they receive from China in

their national stat istics. Te third factor, and perhaps the most plausible argument for a possible intention to hold the

figures back, is attributable to Chinas national development challenges. A lthough China has made major progress in

poverty reduction, 300 million Chinese stil l live in poverty (according to the most recently revised national product

figures); it is therefore relatively diffi cult for the government to justify why it grants la rge sums of money as develop-

ment assistance to African countries. Te high degree of tied aid in Chinese development cooperation should also be

seen in this light.


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It is also argued, however, that China is simply not capable of making such statistics available because of the

fragmented system of DC and the diffi culty of assigning a monetar y value to Chinese labour inputs and supplies

of materials and equipment. Moreover, there is still no clear definition for the dividing line between development

cooperation and commercial cooperation. According to information from MOFCOM, the figures are deliberately

not published because data acquisition is not based on international standards; figures could either be overesti-

mated or underestimated. o that extent, the problems with recording Chinese DC therefore result from both

weaknesses and strengths at the same t ime from an underdeveloped national aid system, but also from the close

dovetailing of aid with investment and trade promotion, portrayed in Section 3, which is precisely the particular

strength of Chinas Africa policy. Aga inst this background, it appears more likely that China will leave the big grey

area surrounding its development cooperation untouched for quite a while yet, and will not subject itself to the

DAC standards.

Because of the unclear records, any comparison with other countries DC can only be an approximation. Germanys

bilateral and multilateral DC inputs for Africa as a whole, for example, amounted to $1.9 billion in 2002 (the last

year for which, according to data from the World Bank, there is an offi cial Chinese figure for development assist-

ance in Africa), while bilateral ODA to Africa reached a level of approximately $1 billion. 11One estimate (Broad-

man 2006: 274) of the volume of Chinese DC for the whole of Africa assumes a figure of $1.8 billion for the same

year, whereas Qi Guoqiang estimates total Chinese DC for 2006 at $1.05 billion, which is of a comparable magni-

tude to average German bilateral DC.

Another possible way of producing evidence about the scope and structure of Chinese DC with Africa is to ana lyse

announcements f rom the offi cial news agency Xinhua, which can be supplemented by reports from the African

media. aylor (1998) had used Xinhua reports of bilaterally agreed aid inputs as the basis for his analysis of Chinese

development cooperation in Africa up to 1993. In his investigation of Chinese DC, he concluded that the reorien-

tation of Chinese foreign policy after the iananmen Incident coincided with a rise in Chinese DC with Africa.

aylor refers to data in bilateral agreements, in other words to DC commitments. Between 1980 and 1987 the

contributions pledged each year amounted to about $200-300 million, falling to a low point in 1988 of only $60.4

million and 13 recipient countries. In 1990, on the other hand, the number of countries in Africa receiving finan-

cial pledges rose to 43, and the extent of payments to $374.6 million. World-wide, China provided financial DC to

52 countries, so the regional concentration had already become apparent even at this time (aylor 1998: 450).

aylors approach is followed below, showing the contributions made within bilateral agreements between China

and African countries. Te contributions comprise credits, including interest-free credits, and non-repayable finan-

cial support (grants, donations). Te data cover the period 2000-2006, during which time the financial volume

ran to some $5.248 billion, credits for Angola amounting to $4 billion accounting for a considerable proportion of

this. Altogether, interest-free credits of about $87 million were granted. Tis accounted for 7% of total lending, not

including the large-scale credits for Angola (see Figure 9).

11Source: BMZ, Bi- und multilaterale Netto-ODA nac h Lndern 2002-2006, in: http://www.bmz.de/de/zahlen/imDetail/index.html



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Te chart makes it clear that grants were definitely a significant fac tor in some years, although credits dominated

overall. Tis finding is not consistent with conclusions presented by other authors, which name long-term, interest-

free or low-interest loans as the most important form of Chinese DC (aake 1994: 203-205; Ai Ping 1999, in jn-

neland et al. 2006: 10). Furthermore, considerable fluctuations in DC contributions can be identified, even if the

large-scale credits granted to Angola a re disregarded.

Te regional distribution of the credits in the period 2000-2006 shows that the lions share went to Angola.

Precisely how much remains unclear, even on completion of this study. In 2004, and evidently also in 2005-2006,

Angola was granted a credit l ine of $2 bill ion by EXIM for, original ly, twelve different projects (CCS 2006: 18).

In May 2007, a further $500 million was added. In addition, the Angolan government was also the recipient of

credits of the order of $2.9 to $9.8 billion from China International Fund Ltd. in Hong Kong (CCS 2007: 23-25,

39). Places two and three in the credit-allocation rankings, by considerable distance, are occupied by anzania and

Botswana. Namibia and Uganda follow in fourth place, with roughly equal amounts of credit, with Ghana and

Zimbabwe ranking fift

Documents

Studie Chinas Engagement in Afrika