Why Is Africa Important To China Economics Essay

Beginning in 1980 the Chinese government initiated a dramatic shift in its economic strategy: Over the next three decades, it opened the country to large-scale foreign investment; it privatized thousands of industries and it set in motion a process of income concentration based on a deliberate strategy of re-creating a dominant economic class of billionaires linked to overseas capitalists.

African economies exhibit impressive GDP growth rates – entire regions have doubled or even tripled the size of their economies during the past decade

Global economic power is measured by the Gross Domestic Product (GDP) in purchasing power parity(PPP) terms or by means of GDP at market exchange rates(MER’s).

The global financial crisis of 2008 has accelerated the shift in the global economic power to the emerging economies (PwC 2011).Investment of China in Africa to date equals 166billion dollars.

“in many of these countries where China has sunken large sums of investments, it is quickly learning that a policy of pure self-interest is ill-fated and has begun to change its foreign policy behavior. Put simply, Beijing appears to be more attuned to the sensitivities and complexities of regional conflicts in Africa.” (Huang’s, 2010)

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“Many of its people are not happy about it, but business is booming in Africa thanks mostly to the Chinese. Trade between the two surpassed $120 billion in 2010, and in the past two years China has given more loans to poor, mainly African countries than the World Bank. The Heritage Foundation, an American think-tank, estimates that between 2005 and 2010 about 14% of China’s investment abroad found its way to sub-Saharan Africa. This has brought increased employment and prosperity to the region, but also allegations of damage to local businesses, corruption and the hoarding of natural resources.” (CNN, 2011)

“China has had a long involvement with Africa, going back to the early days of independence movements in the 1960s and before.  But the current level and intent of China’s involvement is different. What has changed in recent years, however, is China’s emergence as a significant world player on the economic scene and its own need for oil and other natural resources.  China returns to Africa in the 21st century with not only a need for economic resources but with the cash to play the game dramatically and competitively.” (Lyman, 2005)

China asserts that its relationship with Africa has a different dynamic in that it understands more readily Africa’s developmental needs, with itself being a developing economy. The approach it has embarked upon to grow its footprint is that of multilateralism, having embarked on a trade and diplomatic offensive that challenges the once dominant role America and also Europe has played in essing the resources of Africa.

WHY IS AFRICA IMPORTANT TO CHINA

Supply of oil and minerals

Due to China’s rapid economic growth it imports oil and minerals from Africa totalling…… The most important trading partners for China in Africa are exporters of oil andminerals, with the five largest exporters to China being Angola, the DemocraticRepublic of Congo, Equatorial Guinea, South Africa and Sudan. Even South Africa’sexports to China are now overwhelmingly mineral-based (Tull 2006, p. 472).

Africa’s export of oil is still predominately to the European Union (33 percent) followed by the US (32 percent) while China is currently at 9 percent.

Africa provides a small but important outlet for Chinese business. We can

hypothesise that whereas Chinese exports to the United States are overwhelmingly

channelled through transnational companies (Asian as well as European and North

American) that have assembly operations in China, exports to Africa provide outlets

to Chinese-owned companies.

While China’s GDP expanded at an annual rate of 10% over 2000-2008, its annual demand for industrial raw materials has witnessed its own impressive boom. During this period, China accounted for two-thirds of the world’s entire growth in demand for steel and aluminium, and virtually all growth for copper and nickel. This rapid growth in China’s natural resource use not only contributed to a surge in commodity prices but also a windfall in trade between China and Africa, a major supplier of raw materials. As one of a handful of global frontiers that remain significantly unexplored as a capital investment destination, Africa has also offered high returns across several sectors. According to a report from the McKinsey Global Institute (MGI), natural resources accounted for only one-third of Africa’s GDP growth from 2000 through 2008, while the remaining two-thirds came from other sectors such as transportation, telecommunications, and manufacturing. Some of the key reasons behind this growth surge include improved and more stable macroeconomic conditions and the passage of reforms aimed at creating a more favourable business climate.

Food Security

China will be facing serious supply and demand constraints on their food sources due to rapid urbanization and industrialization. Therefore China would have to secure external supply of food sources.

However, Africa has to ensure that they place domestic food security first. (afrciagoodnews.com)Land demographics of China vs Africa in terms of available /useful land for agricultural purposes.

Foreign Policy Agenda

Africa has always been viewed as China’s strongest ally.

China says its decisions on foreign policy questions derive from the Five Principles of Peaceful Coexistence: mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. The Chinese leadership originally enumerated these principles in 1954 when China, with a communist government, was trying to reach out to the non-communist countries of Asia. China stresses that China-Africa relations are win-win and promotes this message bilaterally and within African regional organizations; China supposedly does not interfere in African domestic politics.

Global Image

Improving the diplomatic view held by forging strategic partnerships with Africa.

Economic Power

It is predicted that China will replace the United States(US) as the world’s largest economy (measured by GDP at PPPs) before 2020.( PwC, 2011). This, despite of the fact that the population growth will slow down due to the one child policy.

Most of China’s GDP is as a result of exports. America has imposed duties on the Chinese imports because they believed that the Chinese was manipulating their currency. This bill was passed which enabled the Americans to compete for sales with the Chinese imports. (Hill,)

China’s political and economic approaches in Africa have been under serious scrutiny. Its influence on the global and political stage is stronger than ever. Today, China is Africa’s largest trade partner. Several studies have revealed prosperous Chinese investment in Africa, unprecedented benevolence, and a niche market for investment and trade. Absent from the literature, however, are lessons learned on Chinese culture, history, and its approach to doing business in Africa. This study fills this void by not only examining previous engagements and the cultural components, but also factors that influenced the Chinese Model of Development in Africa from 1993 to 2010, a time of heavy Chinese investment in Africa. This study also explores (1) Chinese policies in relation to the natural resources in Africa, (2) Chinese organizational partnerships with African businesses, and (3) the effects of the Forum on China Africa Corporation policies in Africa. This research used Nigeria as a case study with a special emphasis on the GDP growth before and after the Forum on China-Africa Corporation engagement in Africa. This study found that the Chinese Model of Development in Africa has shown constant growth despite increasing debates about its imperial and monopolistic dealings in Africa. The Model of Development has proven to be highly productive and beneficial to both regions.

THE STRATEGIC APPROACH OF CHINA IN DOING BUSINESS WITH AFRICA

The strategy that China used in business relations with Africa was based on The China Model. For many, the China- Africa relationship is a test for how China will develop as an International. Africa is a good place for China to expand its sources because it is rich in natural gas and oil, and Chinese companies are sometimes better equipped to deal with the political risks that exist in some African countries than Western multinationals.

China uses various tools to implement its Africa strategy, such as:

Foreign aid

Investments

Trade.

China also cultivates African nations that do not have significant pre-existing international relationships or that are currently isolated from the world, such as Sudan and Zimbabwe and Liberia.

. Over the past few years, China’s foreign aid process has become more and more formalized as it takes on larger Chinese aid disbursements. China prefers to make foreign aid decisions on its own instead of involving itself in regional or global aid organizations.

China is also increasing awareness of its country in Africa by promoting Chinese language and cultural studies on the continent and providing scholarship for good students to go to university on the mainland. China is paying special attention to cultivating the hearts and minds of African political elites. Furthermore, China is Africa’s third largest trading partner and invests significant amounts in African industries- this expanding trade relationship is also a tool that China uses to strengthen its Africa ties.

China’s Africa strategy has experienced both successes and failures:

Various methods was used to implement these strategies, namely;

Formation of China – Africa Business Council ( CABC) in 2005

Over the recent years China has shown interest in Africa and in 2005 the China-Africa Business Council (CABC) was established. The main aim of the council was to strengthen business ties between China and Africa.

main advantage for China is the availability of our natural resources which is a limiting factor for them..

Formation of the Forum on China and Africa Co-operation Declaration (FOCAC) in 2006

The 2009 Forum on China and Africa Cooperation (FOCAC) Declaration

plan identified ways in which Beijing would provide assistance and enhance cooperation with multilateral partners in the prevention, management and resolution of regional conflicts in Africa.” (Huang’s, 2010)

UN Security Council

Among the permanent members of the UN Security Council, China is the largest troop contributing country to UN peace operations, and more than three-fourths of its peacekeeping contingents are currently deployed in Africa, providing critical support in the areas of peace enforcement and post-conflict reconstruction in such countries as Liberia, the Democratic Republic of the Congo, Sudan, and Cote d’Ivoire.” (Huang’s, 2010)

THE IMPACT OF CHINA’S INVOLVEMENT WITH AFRICA

Africa’s rise up the political and economic agendas of the Chinese government results from three main considerations: political-strategic considerations; national interests (particularly economic); and the politics of the triangular relations between China, Africa and the West.

Africa’s large numbers of countries provide support for China’s broad diplomatic interests, most notably the One China policy. China’s imports from Africa are overwhelmingly resource-based.

Also, China is providing commercial loans to African Nations that have just received debt relief, sometimes forcing them back into a cycle of debt.

“China’s willingness to support the continent’s authoritarian regimes with a ―no-strings attachedâ€- attitude seriously undermines peace and stability in Africa.” (Huang’s, 2010)

“Chinese goods are flooding African markets, and – not so different from the United States – there has been growing concern in Africa about the effect on local industry.  The primary focus is on textiles where the growth of Chinese exports constitutes a double whammy for Africa.  Exports of Chinese textiles to Africa are undermining local African industry while the growth of Chinese exports to the United States is shutting down the promising growth of African exports in this field.” (Lyman, 2005)

Looking into what those new foreign investors are doing, it seems that Africa’s growth story is not only sustainable but also spread across countries and sectors. Telecommunications, infrastructure, banking and finance, agribusiness and real estate, against the backdrop of the continent’s booming natural resources sector, are expected to remain central to an increasing number of companies’ international strategies.

While there are many factors that have contributed to Africa’s growth story, the emergence of China in the world economy and its engagement with the continent has, and will continue to play, a fundamental role in Africa’s re-emergence on the world stage. China’s has exercised a two-pronged approach – trade and investment – throughout its decades-long engagement with the continent.

While external demand has been crucial in this trend, a number of internal growth engines – Africa’s ongoing urbanisation process, an expanding labour force, and the rise of the middle-class – have also been key.

CONTRAST APPROACH IN STRATEGY BETWEEN CHINA, AFRICA, USA AND EUROPE

China stresses that it is a different type of global power, a developing country that understands Africa’s development needs, and is better equipped to advocate for Africa at international trade negotiations

The Chinese are perceived to easily fit into this type of model, seeing that they have a fairly similar business culture. Their ability to manage these kinds of issues offers them huge advantages.  Africans perceive the opposite about Western companies, who are seen as niche focused and tend to separate business from social networks.

Africa is perceived as high risk, although in light of the global economic crisis the view of Africa is becoming more balanced. While there is still a lot of caution in the West, the Chinese are seen as risk takers, doing business even in countries that appear as high risk on risk indices.  The Chinese are in places like the DRC, Sudan, and Zimbabwe.

While Chinese are assertive in business, their engagement is considered humble compared to perceptions of arrogance of Western cultures.  This makes it easier for African business people to relate or feel comfortable.

At the recent Tianjin Investment showcase in Sandton, the conversation turned to perceptions of China’s approach to politics in Africa.  The perception seems to be that China simply signs deals. They do not ask questions about the political issues. Some analysts see this as being irresponsible and promoting bad governance. Others see this model as a quick way of giving economic empowerment to African people, which means better governance in the long run. The argument is that before now, African governments listened to their funder, who were primarily foreign aid agencies.  However, the influx of new funds enables locals to be empowered; this in turn makes them taxpayers, and eventually forces the government to listen to them. The Chinese model seems to lend support to this, and Africans seem to like it.

Africa presents challenges like other business environments, but it’s obvious that many, like the Chinese, have found significant success in Africa.  And it’s through their success and lessons learned, others should find paths to their own success.

There have been many examples of Chinese investment groups signing multimillion- or billion-dollar deals in weeks. For the Africans, this seems to be a huge relief from Western funding organizations, who typically take five to ten years to release project funding. The level of development needed in Africa demands swiftness that may be uncommon elsewhere.  The Chinese are also seen as being able to handle the weaknesses that come with lack of structure and other dynamics. They are able to make major decisions as they go along.

One way of thinking about this is to say that debt represents a tax on the future. And the big accumulation of debt that we’ve seen over the last 20 or 30 years in the Western world reflects a breach of contract between the current generation and the next generations. And these debts represent a big burden on the future. And that is one reason I think we’ve seen a slowdown in the Western world because these burdens of debt act as a major check on economic dynamism.

acing the US strategy, Europe is far from responding with a common voice and with a coherent strategy. The different reactions of European governments, firms, and societies have shown deep divisions both on the immediate responses and in the longer-term perspectives.

CONCLUSION

“In many ways the economic growth in Asia, and the subsequent growth in demand, is good for Africa.  Mineral prices are reaching record highs, reversing a long decline for many of Africa’s major exports over the past few decades”. (Lyman, 2005)

Lastly, Chinese diplomats and leaders frequently travel to Africa to cultivate relations, traveling more frequently than US or French diplomats.

In order for Africa as a whole to continue to prosper, it needs to improve its socio-political stability, rule of law and business environment. For the moment, Africa’s under performance in these areas are hindering further economic growth and business opportunities

The World’s Largest Economies 2012

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By The Richest on May 20, 2012

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By 2020 there will be a major shift in the global balance of economic power compared to 2010. Emerging economies will rise in importance and China will have overtaken the USA to lead the list of the world’s top ten largest economies by GDP measured in PPP terms. Consumer markets in emerging economies will present enormous opportunities but their rapid growth poses a challenge to the global environment. Early this year Japan confirmed that China’s economy surpassed its own as the world’s second largest in 2010.

In the nominal GDP method, we can see that the developed world leads the pack, but that China has already broken into this exclusive club, and is now the second largest economy in the world by both measures.

Here is the Top 10, as listed by PPP GDP:

United States

Country Rank: #1

GDP- Purchasing Power Parity: $14.66 trillion (As of 2010)

Contribution of Industrial Sector in GDP: 22.1%

Contribution of Agricultural Sector in GDP: 1.1%

Contribution of Services Sector in GDP: 76.8% (As of 2010)

Population: 312,222,000 (As of 2011)

Unemployment Rate: 9.6% (As of 2010)

China

Country Rank: #2

GDP- Purchasing Power Parity: 10.09 trillion (As of 2010)

Contribution of Industrial Sector in GDP: 46.9%

Contribution of Agricultural Sector in GDP: 10.2%

Contribution of Services Sector in GDP: 43% (As of 2010)

Population: 1,339,724,852 (As of 2010)

Unemployment Rate: 4.3% (As of 2009)