China in Africa: Beware the dragon bearing gifts

While China is investing billions in Africa, it is also busily extracting its precious natural resources. Many are now questioning if the east's involvement in Africa will be any more beneficial than the west's has been.

by William Mitting
Last Updated: 09 Oct 2013

It'is a sweltering October afternoon 20 kilometres to the west of the booming mining town of Karonga in northern Malawi. The sun is beating down on vast swathes of dusty, arid land, parched by months without rain. Teams of Chinese labourers from the China Road and Bridge Corporation are working on a large construction project to build a road from Karonga to the remote town of Chitipa. The long-awaited project is being hailed by the government and people alike as a great step forward in the development of one of the poorest countries in the world.

About 1,500 kilometres away, in a mine in the Sinazongwe region of neighbouring Zambia, workers are protesting against their Chinese bosses. They have not been paid for the month and there is continued unease about health and safety in a region that five years before suffered Zambia's worst ever mining disaster, blamed on the Chinese company running the mine. Two Chinese managers of the Sinazongwe mine shoot into the crowd, severely injuring 11 of the protestors. The news fuels the widespread anger in Zambia at the presence of the Chinese in the country and forces a defiant defence of Chinese involvement from the government.

These are the two extremes of the many faces of Chinese involvement in Africa, which is the stuff of great debate. Does China's policy of non-interference show respect for the sovereignty of nation states, or is it propping up corrupt dictatorships? Are Chinese loans to African governments enabling them to build invaluable infrastructure projects, or saddling the countries with debt once more? Is China's mining of natural resources realising the potential wealth of Africa, or a predatory and exploitative raid on its lifeblood? The debate is well rehearsed, but to understand Chinese intervention in Africa one should not ask why, but examine instead what it is doing and how.

On 4 November 2006, representatives from 48 of the 53 African nations attended the Forum on China-Africa Co-operation (FOCAC) in Beijing. China heralded 2006 as the Year of Africa, and its leaders received red carpet treatment and high-level delegations that they could expect from no other country outside their home continent. It was a watershed moment in the development of relations between China and Africa.

Opening the 2006 event, President Hu Jintao gave an impassioned speech in which he hailed the 'common pursuit of friendship, peace, co-operation and development' between China and Africa. Outlining the 'win-win' concept of mutual benefit that underpinned China's policy, Hu announced plans to provide Africa with $3bn of preferential loans and $2bn of preferential buyers credits. He also set up a $5bn fund to 'encourage' Chinese companies to invest in Africa, cancel billions of dollars of debt, increase the number of duty-free African export items to 440 from 190, and train 15,000 African professionals.

This year, bilateral trade between Africa and China is set to top $100bn. In the first six months of 2010, year-on-year trade jumped by 67%. Across Africa, tens of thousands of Chinese traders are setting up shop importing cheap goods from China, and hundreds of thousands of Chinese workers are working for Chinese companies on infrastructure projects. Chinese companies are active in almost every sector in almost every African country, from oil refining in Angola to copper mining in Zambia and from cotton production in Mali to diamonds in South Africa. And there's an increasing focus on agricultural produce, such as timber in the Democratic Republic of the Congo and sesame seeds in Senegal.

In the city of Mzuzu in northern Malawi, where I live, Chinese doctors sit idle in the Central Hospital. They are part of the Chinese promise of aid in the form of expertise but, unable to speak English or the local language, chiTumbuka, most serve little purpose aside from skewing the figures on the number of doctors on hand at the hospital. Of the 10 shops that have opened up on the two main streets in Mzuzu this year, all of them are run by Chinese traders. There is little transparency in international relations, but there is a rumour that 20,000 Chinese families have been granted free permanent residential permits as part of the exchange for infrastructure projects being built across Malawi. Many of them set up shop selling cheap goods of such unimaginably poor quality that they are a universal joke. Local traders are up in arms.

'My rent has more than doubled in a year,' said Blessings Munthali, who runs a hardware shop. He is not alone in his condemnation. 'These Chinese come here with thousands of dollars in cash and just say to the landlord: "I want that shop." The landlord then increases our rent. I have had friends who have been told to pack up and leave. We cannot compete with them. I don't know where they are getting the money from - maybe their government is giving it to them.'

This may well be the case. Grants to the Chinese who choose to resettle are reported to be part of President Hu's 'encouragement' to Chinese businesses to invest in Africa. While there is little clarity on the micro-operations of the China-Africa partnership, Chinese interventions in the continent can broadly be categorised into six distinct strategies: natural resource extraction by Chinese companies; the offshoring of polluting manufacturing processes; creating a market for Chinese goods through tariff-free imports to Africa and the creation of Special Economic Zones; the provision of aid in the form of expertise; diplomatic relations, in part to de-recognise Taiwan (in Africa, only Burkina Faso, Swaziland, the Gambia and Sao Tome recognise Taiwan); and the construction of infrastructure projects.

It is this hybrid of trade and aid that defines the concept of 'mutual benefit'. According to the International Energy Agency, in 20 years' time China will be consuming 16 million barrels of oil per day, shy of the 20.7 million consumed by the US but still over double its 2007 consumption rate. If it is to continue such rapid growth, it must source its resources from overseas and Africa is perfect for this. Currently, Africa supplies about 30% of China's total oil imports, with Angola and Sudan the main sources. Angola supplies China with more oil than Saudi Arabia.

China secures oil and other natural resources through a mixture of loans (backed by the natural resource in question) and direct investment by Chinese companies. In Sudan, where Chinese investment has enabled the highly controversial dictator Omar al-Bashir to become a net exporter of oil, the China National Petroleum Corporation invested $4bn for 40% ownership of the Greater Nile Petroleum company. China has also provided Angola with billions of dollars of resource-backed loans since the end of its civil war in 2002. Other resources are secured through similar agreements such as the Bui Dam project in Ghana, backed by cocoa exports, and infrastructure development in the DRC, backed by cobalt and copper.

Such resource-backed loans are enabling Chinese companies to gain dominant positions in the extraction of natural resources. However, China also provides standard loans for other infrastructure projects. In her book, The Dragon's Gift: The real story of China in Africa (OUP), Deborah Brautigam sets out the complex model many Chinese companies use to win infrastructure development contracts in Africa.

Under the model, the Chinese company will find the opportunity and suggest the project to the African government, which will then apply to the Chinese state-owned import and export bank Eximbank for a loan. Eximbank does an appraisal and gives the go-ahead. As the bank is effectively dealing with a government and financing 'foreign aid', it can grant a concessional loan to support the Chinese company's bid. The Chinese company then imports the raw materials from China, and usually the labour force, does the work and receives payment directly from Eximbank.

The infrastructure projects vary from building a mobile phone network to prestige projects such as the construction of a presidential palace or stadium. Such initiatives are hugely popular with African leaders, enabling them to cite the benevolent nature of their trading partner in response to any criticism about the practices of Chinese companies.

Advocates of Chinese policy in Africa hail the success story of Mauritius. Since the mid-1980s, China has invested billions of dollars in the island, transforming this small republic in the Indian Ocean into a 'cyber island'. It is the African headquarters of the Chinese mobile phone company Huawei and is a key investment zone for the burgeoning business process outsourcing market.

However, there is a darker side to Chinese intervention in Africa. Pay for workers is notoriously low, while health and safety in Chinese operations is often non-existent. In addition, Chinese support for, and arms sales to, countries such as Zimbabwe and Sudan have led to allegations that it en-ables dictators to continue to repress their people (think Mugabe and Darfur).

In economic terms, trade concessions by both African and Chinese governments have allowed African markets to be flooded with cheap Chinese imports. As in Mzuzu, the high streets of many African towns and cities are now filled with Chinese-owned shops. Local manufacturers of basic goods are unable to compete with these tariff-free imports, produced as they are with all the economic advantages of vast industrial economies of scale.

Or, as the US assistant secretary of state for African affairs put it, according to a leaked cable last year: 'China is a very aggressive and pernicious economic competitor with no morals. China is not in Africa for altruistic reasons.'

Social anthropologist Stephanie Rupp cites the example of the once-burgeoning South African textile industry. During the 1990s, T-shirt imports from China grew to 80% of the market. By 2002, 75,000 jobs had been lost in the South African apparel industry, 'beginning a steep and steady slide' in other African countries. The end of the Multi-Fibre Agreement in 2005, which had limited the import of Chinese textiles and apparel, accelerated this trend.

The increasing dominance of Chinese companies in Africa has led some, including the former leader of South Africa Thabo Mbeki, to level accusations of neo-colonialism against China. However, the reality is more complex. Chinese policy is more akin to the way in which former colonial powers engaged with Africa in the 50 years after independence: a period when western companies invested in the continent and government loans (supposedly) went towards infrastructure projects.

At the turn of the century, the United Nations, led by western donors, unveiled the Millennium Development Goals. The MDGs marked a major shift in western policy to the developing world, away from infrastructure development and towards social issues such as child mortality rates and disease prevention. Following on from the hugely unpopular and generally ineffective Structural Adjustment Programmes, as well as failed promises of aid, China had little difficulty gaining favour from disillusioned African governments, neatly filling the void left by the west in infrastructure development.

The west is losing influence in Africa. The consequences of this are severe, as Chinese companies move towards dominance of resources from the continent. While researching this article, I discussed this issue with Msenga Mulungu, a former teacher and cultural expert. He sighed heavily and remarked: 'It has taken us hundreds of years to shake off the west, and now all we gain is the east.'

Rather than focusing on Chinese intentions, the west must react to Chinese strategy. It is a great irony that communist China is pursuing more capitalist policies in Africa than the capitalist west. And, as African governments tire of being dictated to by the west, China provides an alternative. However, despite the infrastructure development, Chinese involvement in Africa is not popular, and protests have broken out across the continent against poor working conditions and trade disruptions. This will continue.

When complete, the Karonga to Chitipa road in northern Malawi will cut the journey between the towns to just 90 minutes, from the current three-to-four-hour slog. The road will formally connect Chitipa with the rest of Malawi for the first time, transforming the lives of tens of thousands of people. In the past six months, the government of Malawi opened its new parliament building. Early next year it will open a five star hotel. Both were also constructed by Chinese companies and financed by Chinese loans and grants. Work is soon to begin on the similarly funded Malawi University of Science and Technology.

To the casual observer, the motivation for China's interest in Malawi, a country not known for its natural resources, was unclear. However, on 15 November last year, the East China Mineral Exploration and Development Bureau signed an agreement to buy a controlling stake in the Australian mining company Globe Metals and Mining. In 2013, Globe will begin mining niobium, uranium, tantalum and zircon, as well as rare earth elements such as scandium and yttrium, in Malawi. The deal is subject to approval from the Malawian government. There's plenty of fire in the Chinese Dragon yet.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Reopening: Your duty is not to the economy, it’s to your staff

Managers are on shaky ground if they think they can decide for people what constitutes...

How COVID changes the world forever: A thought experiment

Silicon Valley ‘oracle’ Tim O’Reilly imagines how different sectors could emerge from the pandemic.

The CEO's guide to switching off

Too much hard work is counterproductive. Here four leaders share how they ease the pressure....

What Lego robots can teach us about motivating teams

People crave meaningful work, yet managers can so easily make it all seem futile.

What went wrong at Debenhams?

There are lessons in the high street store's sorry story.

How to find the right mentor or executive coach

One minute briefing: McDonald’s UK CEO Paul Pomroy.