Chinese Engagement in Sub-Saharan Africa – Dissertation 16000 words

INTRODUCTION

China’s growing relation with Africa over the last decade is a subject of debate around the world.  China has identified Sub-Sahara Africa as an area of significant Economic and Strategic interest.[1] Considering that the effect of China’s influence in this region could significantly differ from on country to another, certain countries would be high lighted to illustrate my view. However to acquire a more systematic approach to evaluate china’s impact, I would present my arguments in three headings: Trade Patterns, Direct Foreign Investment and Aid.[2] This is because china’s affect is multidimensional and non marginal, and may be reinforcing or off setting.

However, the bilateral relationship between China and SSA would be measured in terms of its advantages and disadvantages. My research aims at looking at the positive aspects of china’s engagement and how this relationship can strengthen SSA. However it aims at projecting certain areas of gross inequality in the relationship.

Thus my topic suggests that China’s proclamation of the of the Sino-African relationship as being a ‘win-win exchange’ and ‘mutual benefit’ (CMI Reports, pg55) is short of being a reality. Thus, a preliminary assertion of my thesis will be that, China’s engagement in SSA has to be redefined if both parties wish to acquire mutual benefits.

My interest in the above topic stems from the following reasons: That China serve as an economic role model for SSA; as china is an example of how a region can rise from poverty within a generation and become a dominant player on the global scene. However it would be naive to assume that all SSA needs is to copy from China’s specific polices to achieve success. For the period since 1980 has seen a sequence of (often radical) economic reforms in China, which moved the economy from being highly controlled to market-oriented. Those reforms naturally reflected (relatively unusual) circumstances in China, and may make little or no sense as a blueprint for policy making anywhere else.[3]

A closer scrutiny of Chinese activities and rhetoric in Africa, it seems that China’s Africa policy is in a process of gradual elaboration, and in this evolutionary stage, some contradictions arise. On one hand, Beijing stresses China’s noninterventionist policy and anti-colonial affinities with the continent as a basis for “working towards the establishment of e new international political and economic order in the 21^st century”[4]. But on the other hand China stresses ideological neutrality and diplomacy that specifically serves china’s economic needs. Michal Meidan (2006) argues that these inconsistencies manifest the transitional state of China’s foreign policy and strategic thinking: While decision makers appreciate the need for a more value based strategy, and would arguably like to quip the country with one, the current level of china’s development calls for a more pragmatic, even opportunistic policy. Can there be reconciled? SSA might prove to be real test case for China.

The question that we will therefore address is china’s interest in and goals for its ties with Africa. Is china trying to consolidate a new world order, based on different moral values that conflict with current world order, or is china still a pragmatic actor, exploiting SSA resources in order to satisfy its growing demand for raw materials?

China’s growing presence in SSA produces the following challenges:

• China’s presence poses a threat to the manufacturing sector. Even though the outlook is not entirely bleak, SSA countries should take explicit steps to counteract the dangers post to exiting and future capabilities in industry.
• Another problematic effect of Chinese interest in SSA is that China is legitimizing and encouraging Africa’s most repressive regimes, there by increasing the likelihood of weak and failed states. China has forged closer links with fragile states and controversial regimes and this has under mined attempts by the international community to enhance transparency and Good Governance.
• Despite the recent resurgence of growth in SSA region after the recent Sino-Africa partnership, the overall picture on both poverty-reduction and growth remains bleak.

The above present a challenge to Government, Industry and civil society in SSA.

CHAPTER 1

BACKGROUND OF KNOWLEDGE OF CHINA’S ENGAGEMENT IN SUB-SAHARAN AFRICA

1.1 Historical Foundation.

China’s Africa policy kicked off slowly in the 1960s after the Bandung Conference (1955) and attempts by Beijing to assert its leadership over the Third World and the nonaligned movement. Diplomatic relations started with Kenya in 1963.Ties with the African continent was based on rhetorical encouragement to resistance movements of and development aid, materializing also in the form of arms transfer, and were shaped by the wider context of China’s foreign policy and ties with the American and Soviet superpowers.” China’s Africa policy was marked by anti-colonialism, anti-imperialism and anti-revisionism”, but on the other hand, this seems to contemporary Chinese analysts as an unfavourable stance made necessary by the dictates of the international situation. Pursuing an ideology based policy only hindered China’s ties with the African continent.[5]Sino-China’s African exchanges reached, at their height in 1977, a mere $817 million[6].

As mentioned above China’s assistance to Africa was directed to ‘freedom fighter’

and revolutionary groups in these countries. In Zimbabwe in the 1970s, for example, in the most obvious instance of this rivalry, China backed ZANU, the liberation movement of Robert Mugabe, while the Soviet Union backed Joshua Nkomo’s movement, ZAPU. Mugabe’s ultimate election victory laid the foundation for the close relationship that exists between China and Zimbabwe today. It is estimated that between 1955 and 1977, China sold $142 million worth of military equipment to Africa, which accounted for 75 percent of all military air from outside the African continent.

From the 1990s China’s real policy to Africa experienced a shift. Sino-African trade grew by 700 percent during the 1990s, and the 2000 China-Africa Forum in Beijing set off a new era of trade cooperation and investment hat is producing notable results. From 2002 to 2003, trade between China and SSA doubled to 18.5 billion, and then nearly doubled again in the first ten months of 2005, jumping 39 percent to $32.17 billion. Most of the growth was due to increased Chinese imports of oil from Sudan and other African nations/ China’s foreign direct investment in SSA represented $900 million of the continent’s $15 billion total in 2004.China is now the continent’s third most important trading partner, behind the United States, France and ahead of Britain.[7]

1.2 China’s Recent Policy Approach to SSA.

Though China’s foreign policy has essentially been pragmatic and passive, trade between china and SSA may still be modest, but has grown significantly. China’s aspiration in the area of development cooperation are laid down in the Programme for China-Africa Cooperation in Economic and Social Development, a subsidiary of the Forum on China-Africa Cooperation (FOCAC) set up in 2000[8].Over the last decade China and the continent of Africa have gradually been building diplomatic and economic ties in the hopes of further advancing globalization and enjoying mutually beneficial cooperation. The approach professed by China today is a continuation under new circumstances of the Five Principles of Peaceful Coexistence adopted at the Bandung Conference in 1955. It is a policy based on non-interference, respect for sovereignty, equality and mutual benefit. The landmark in modern China’s relations with SSA was the Forum on China-Africa Cooperation (FOCOC) in Beijing 4-5 November 2006, the biggest diplomatic gathering hosted by China .Among the 1700 delegates were the leaders of 48 of the 53 African countries.

Currently China is one of the major trading partners with many African countries (Gabon’s second largest client after the United States, second largest supplier of goods to Benin, fifth largest to South Africa, sixth largest to Algeria, etc.) Chinese companies in the field of Building and Public Works (BPW) have become competitors with French conglomerates like Dumez and Bouygues. In recent years China has vastly increased its infrastructure building projects, this being a sector in which it has undeniable expertise and competitive ability.

China’s arrival in Africa provides SSA countries with a new horizon. Unlike France and the United States, China makes no specific political demands, allows SSA to retain completely sovereign. China allows African countries to vote as they please at the United Nations, does not propose to deploy troops on their territory, and above all refrains from lecturing African governments on democracy.

China has agreed to take more active part in peace-keeping operations in Africa. In January 2005, 598 Chinese soldiers served with UN blue berets in Liberia. China also sent forces, though less numerous, to the Western Sahara as part of UN operations there, and to Sierra Leone.[9]

1.3       Reasons for China’s Renewed Partnership with Sub-Saharan Africa   .

1) Chinese Perspective:

China’s renewed interest in Africa has undoubtedly been motivated in the last few years by several issues. It is a version of interests, mainly commercial but political, facilitated by relatively flexible rhetorical basis and no historical grievances. Raw materials will continue to be an important part of the China’s Africa policy and will lead increasing numbers of Chinese actors to the continent in search of projects and investment (Michal Meiden 2006).

            – The Quest for Natural Resources: China’s renewed engagement in SSA has generally been explained by the counties quest for Natural resources. To feed its booming economy, China needs resources-minerals, timber, foodstuffs and above all, oil. China with its 2006 GDP growth hitting 107 percent, china is bent on getting the resources needed to sustain its soaring economy, and is taking its quest to lock down sources of oil and other necessary raw material across the African continent. Given the long-term instability in the Middle East, China has turned towards other major oil field is SSA.

China’s gross demand for energy to feed its booming economy has led it to seek oil supplies from SSA countries like Sudan, Chad, Nigeria, Angola, Algeria, Gabon, Equatorial Guinea, and the Republic of Congo. Sudan, the continent’s third largest producer, exports 60% of its oil to China, Fulfilling 5% of China’s needs. Angola has overtaken Saudi Arabia as the country’s largest oil supplier.  It is no surprise, therefore, that most Chinese foreign direct investment (FDI) in Africa is resource oriented.[10]China’s vision of its energy security can be characterised as a strategic one, often said also to be neomercantile. What this means in practice is strong state control over national oil resources and a preference for consolidating long-term political ties with oil producers instead of relying solely on the markets.

-Another significant Chinese objective in Africa is to isolate Taiwan Diplomatically in an effort to pressure Taipei toward unification, Seven SSA countries- Burkina Faso, Chad, Gambia, Malawi, Sao Tome and Principe, Senegal, and Switzerland-currently maintain official diplomatic relations with Taiwan. Taiwan’s diplomatic influence was not a high priority on China’s Africa policy agenda until the 1990s, when the competition between China and Taiwan to win diplomatic recognition from individual African countries escalated drastically. Now, through offers of massive economic assistance, Beijing has secured recognition from six additional African countries at Taiwan’s expense.

Lesotho and Niger switched their diplomatic recognition to the PRC in 1994 and 1996, respectively. The Central African Republic, Guinea-Bissau, and South Africa switched their recognition to Beijing in 2003 shortly before China dispatched PLA troops to assist with Liberian water-supply projects. In addition to ongoing efforts to sever Taiwan’s few remaining connections in Africa, China has also sought repeatedly to maintain the support of its African partners for its “one China” policy via diplomatic attention, economic investment, and other assistance.[11]

1.4       Reasons for African Engagement with China.

1.4.1) African Perspective:

What is absolutely clear today, four decades later, is how China’s discourse about common economic benefit, common political exchange, and common cultural cooperation appears to have been fully accepted by its African partners, as can be seen in any number of the comments from African leaders either in preparation for their meeting in Beijing or on arrival or discussions in the capital (Kenneth King 2006). However, the following points stand out:

1. i) China as role model:

To Africans, China is a startling example of how a region can rise from poverty within a generation and become a dominant player on the global scene. The west on the other hand, continues to lecture Africa on economic growth but much of it not backed by contemporary examples. China’s rapid economic growth gives African countries the hope that they too can grow rapidly (Caliestous Juma 2007).

• ii) Escape from Colonial tights:

The growing links with China reflects a combination of narrowly defined economic interest and more broadly-defined political factors, including the quest by some fragile states to escape from pressures exerted by Western governments and NGOs to promote more transparent and better governance (Ralpeal Kaplinsky et al 2006). Many SSA leaders view the emerging South-South relations as an historical opportunity to escape their neo-colonial ties to the West. China’s example -400million people were lifted out of poverty in two decades, without externally enforced structural adjustment programmes- has bolstered African countries optimism that they too can device their own development path, and that the Western Model is not Holy (Ellen Lammers 2007).

• iii) Market for Raw Material:

China’s growing demand for commodity import has led to the commodity exports from some SSA economies. As such China serves as market for raw materials for SSA-a new export outlet. In between 1995 and 2005 exports to China in oil, iron ore, cotton, diamonds and logs grew from less than 50 percent to more than 80percent.

• Leaders of oppressive regimes sort for Aid/support:

Some SSA leaders especially those with controversial or sensitive relations with international community seek China, not only to counter pressure as in Gabon, Congo-Brazzaville and Zimbabwe, but also to end their international isolation, even to supply arms. For instance the autocratic government of Robert Mugabe ordered twelve FC-1 fighter jets and 100 military vehicles from China in late 2004 in a deal worth $200 million, experts say. In May 2000, china reportedly swapped a shipment of small arms for eight tons of Zimbabwean elephant ivory, Taylor writes in his report. (Esther Pan 2007).

CHAPTER 2:

CHANNELS FOR ASSESSING IMPACT OF THE PARTNERSHIP

2.1 TRADE PATTERNS BETWEEN CHINA AND SSA:

The broad ways in which China will affect other countries are easy to spot. Countries producing goods highly demanded by China (e.g. some minerals) may see export growth; those exporting products in competition with its output (such as clothing), will see exports fall, while countries importing those goods will gain from lower prices. If the importers also have domestic industries that are in competition in the local market with Chinese export, there will be distributional effects (between producers and consumers) and possible knock-on-effect on the feasibility of the country’s industrial policy. (Christopher et al 2006).Hence, the impact of the direct bilateral lateral relations with China and SSA may either be complementary or Competitive.

The basis for China’s rising trade links with SSA has been its extraordinarily rapid growth of more nine percent p.a since 1979. One of the main features of this growth has been its deepening trade orientation, with the trade-GDP ratio in excess of 70 percent, well above the “norm” for large countries. Within this, China has become a major exporter of manufactures and a significant importer of commodities. Thus China’s growing demand for commodity has led to an expansion of commodity exports from some SSA economies. Figure 1 shows, the share in total SSA exports to China of five main commodities (oil, iron ore, cotton, diamonds and logs) grew from less than 50% to more than 80% between 1995 and 2005.

               Table 1: Share of particular commodities in export to China

Source: Chen et al. 2005

For some SSA economies, the importance of China as a direct destination of Export grew particularly rapidly. In the case of oil, for example, China’s share of exports was overwhelmingly, particularly for fragile states such as Angola, Sudan and the Congo and DRC in the case of Basic metals export.

On the side of imports, only Seven SSA countries have a significant share of their imports from China. Sudan, which has growing and policy-related energy links with China, stands out with 14.2% of its imports coming from China, followed by Ghana and Tanzania (9.1 percent), Nigeria (7.1 percent), Ethiopia and Kenya (6.4 percent) and Uganda (5.1 percent) (Jenkins and Edwards, 2005). Almost all of these imports were manufactured products.

In summary, Kaplinsky and Morris (2006) assert that, looking at this evidence on the direct trade links between China and SSA, on the export side SSA gains from China’s demand for commodities, and on the import side, it gains cheap and appropriate consumer and capital goods. Outside of clothing and textiles (see below), there appears to be little trade between China and SSA in intermediate goods and little incorporation of China and SSA in coordinated global value chains. Jenkins and Edwards argue that most of these imports into SSA have substituted for imports from outside of SSA, with the possible exception of Ethiopia and Nigeria, suggesting little displacement of domestic production and few negative impacts on employment and local production. These conclusions suggest a synergistic link between SSA and China and help to explain the high sense of optimism which prevails in SSA on the potential opportunities opened for SSA by China’s rapid trade expansion.

Kaplinsky and Morris(2006)  also identify indirect trade links between China and SSA countries. Both China and SSA trade in global markets. But China’s trade footprint is so large that it is in itself altering global prices, and this has significant impacts on SSA. The problem is that these indirect trade impacts are much more difficult to analyse than the direct impact, which is why almost all of the analysis so far has been on the growth and impact of direct trade links.

However, this optimistic picture of opportunities opened-up by growing bilateral trade links between SSA and China may reflect a misplaced sense of optimism. There are three major reasons for suggesting a more cautious set of conclusions. First, the analyses of Jenkins and Edwards and the World Bank are conducted on 3-digit SITC trade data. Whilst this shows important aggregate trends, it hides some important specific impacts which only show-up with different, firm-level methodologies. In a study conducted for DFID, Kaplinsky and Morris report that domestically produced clothing and furniture manufactures in both Ghana and South Africa are being displaced by imports from China (Kaplinsky and Morris, 2006a). Similar anecdotal evidence can be found with regard to clothing and footwear manufacture in many SSA economies. For example, in Zambia the trades unions assert that imports of Chinese clothes have undermined the clothing and electrical sector, and in Nigeria trades unions blame Chinese imports for the loss of 350,000 jobs (http://www.nzherald.co.nz/). In Ethiopia, although competition from Chinese shoe imports has led to an upgrading of processes and design by many domestic firms, it has simultaneously had a negative impact on employment and domestic output. A study of 96 micro-, small and medium domestic producers reported that as a consequence of Chinese competition, 28 percent were forced into bankruptcy, and 32 percent downsized activity. The average size of microenterprises fell from 7 to 4.8 employees, and of SMEs, from 41 to 17 (Egziabher, 2006),

However, damaging though these impacts might be, it is not so much the displacement of existing producers which is an outcome of China’s growing exports to SSA, but in relation to future production. Here, particularly in the case of light consumer goods, there are important and adverse long-term implications for SSA industrialisation (Kaplinsky and Morris 2006b). What “spaces” will they be able to move into as their economies grow and they seek to diversify?

The impact of this competition from China in third-country markets on poverty and livelihoods is very substantial. Some of this is positive, insofar as reduced prices of clothing imports enhances the consumption power of consumers. But the negative impacts are very large, and focused, and hence command attention, because there are so few backward linkages into textiles, the major conduit for income-dispersal in the clothing industry has been through direct employment. The scale of job-losses arising from the end of MFA quotas is alarming (Table 2). It is not just the degree of job loss (particularly in Lesotho and Swaziland) which is of concern, but the nature of the jobs which have gone. It mostly involves women, and the impact on their families is severe. (In South Africa, for example, it is estimated that approximately four people are supported for every job in the formal sector). For countries without alternative sources of employment, this employment-decline has major poverty implications. We also know from global experience that rapid economic growth can be a significant factor in reducing poverty levels, and the loss to both GDP and exports arising from a sharp contraction of the clothing sector will have a further negative impact on poverty levels.

Table 2. Employment decline in clothing sector, 2004-2005.

Source: Kaplinsky and Morris, 2006a

2.2. Foreign Direct Investment.

Much of Chinese FDI in SSA comes from firms which are either wholly- or partially state-owned. They have access to very low-cost capital, and hence operate with much longer time-horizons. Moreover, many of these investments are either explicitly or implicitly linked to achieving strategic objectives, often those which are focused on long-term access to raw materials, and are closely bundled with Chinese aid.

Unlike the trade channel where there is extensive data (particularly in relation to aggregate flows, and flows over time), data on FDI flows is limited. In part this is because FDI is inherently difficult to measure. It is also not clear how much of Chinese economic activity in SSA comprises FDI, how much is a result of winning commercial tenders, how much is linked to Chinese aid and how much is part of integrated production networks between Chinese and SSA firms. The anecdotal evidence emerging from SSA is that in many countries, there is a rapidly growth evidence of Chinese entrepreneurship, sometimes through large firms (such as in infrastructure projects), and in other cases through smaller scale initiatives (such as in Sierra Leone and Namibia).

Raphael Kaplinsky et al analysis the trends of Chinese FDI under the following perspectives:

• Increasing investments in the energy and resource sectors
• Participation in infrastructural projects
• Participation in global production networks
• Small scale entrepreneurial investments

Table 3. Top 20 SSA countries receiving Chinese FDI (1979-2001) and sectoral concentration

Source: World Bank, (2004a), Patterns of Africa-Asia Trade and Investment, Potential for Ownership and Partnership, Africa Region Private Sector Group, Washington: World Bank. Vol. 2.

2.2.1 Investments in the Energy and Resource Sectors.

As Raphael Kaplinsky et al. points out, in the recent years, Chinese energy companies have become increasingly prominent as investors in Africa. The Chinese National Petroleum Corporation (CNPC) is heavily involved in Sudan where it is engaged in a joint venture with the Sudan Government, Petronas (Malaysia) and the Talisman Energy (Canada). It has a 40 percent share in the $1.7bn Greater Nile Petroleum Operating Company, an equivalent share in a new project in Dafur and in the Melut Basin. It is a big investor in Nigeria where it received access to exploration sites as part of a package which included the construction of a 1,000 megawatt hydroelectric plant in Mambila. In also has a controlling share of a refinery in Kaduna. A second Chinese energy company, Sinopec, is an investor in the Sudan, Gabon and Angola.

Chinese investments in the mining sector, primarily in copper in Zambia, have exceeded $160m and Chinese firms are beginning to invest also in cobalt and copper mines in the DRC.

2.2.2 Investment in Infrastructural Projects.

Chinese firms have become an increasingly important participant in the construction sector. Many of these firms are state-owned, as in the case of the China Road and Bridge Corporation which was involved in 500 construction projects by 2004 Participation in infrastructure and construction projects range from stadiums in West Africa, to Presidential Palaces (in Kinshasa), dams (a $650m tender for Nile River Merowe Dam project), roads, railways and government buildings (Raphael Kaplinsky et al).

Chinese involvement in Mozambique is indicative both of the growing scale of these activities, and the competitiveness of Chinese firms. ( Bosten, 2006). Remarkably, it also occurs in an economy where currently China appears to see no specific strategic interest in resources to feed the growing appetite of its manufacturing sector. It has singularly failed to invest in any of the recent investments in the Mozal Aluminium Smelter, Sasol Natural Gas, Kenmare Mineral Sands, Moatize Coal Mines and the Corridor Sands Titanium Project. Chinese firms have also not tendered for some large infrastructure projects such as the Maputo Port Development Project, the Limpopo railway line, the Zambezi Bridge construction (2006-2009), and the rehabilitation of the Sena railway line.

Instead, Chinese firms began by engaging in prominent Chinese aid-related projects such as the Mozambique Parliament buildings (1999), the building for the Ministry of Foreign Affairs (2004), the Chissano Conference Centre (2003) and the new military quarter. Each of these projects either involves gift-aid or loans on concessional terms, ranging from £5m for the Conference Centre to $12m for the Ministry of Foreign Affairs building. In Namibia, Chinese firms have built aid-related showpieces such as the Supreme Court and the Police and Prison Training  College in Windhoek, a luxury hotel in Walvis bay and a housing estate in Katimo Mulilo (Dobler, 2006).

Recently, Chinese firms have started engaging in soya processing plant ($10m), the production of prawns ($12m), a large shopping centre and industrial warehousing in Maputo. Perhaps more significantly, Chinese firms have begun to compete effectively in the rehabilitation of infrastructure, particularly roads, where Chinese firms are involved in the repair of more than 600kms of Mozambique’s roads (two-thirds of the total being rehabilitated), and the rehabilitation of a large bridge between Mozambique and Tanzania. Chinese firms have also recently won tenders to repair water systems in Maputo ($30m) and Beira and Quelimane ($15m).

Raphael Kaplinsky et al assert that the growing participation in construction and infrastructure reflects the competitiveness of Chinese firms, which are reported to provide good quality projects at a price discount of 25 to 50 percent compared to other foreign investors. They also claim that preliminary enquiry suggests this cost-advantage is derived from a combination of the following factors:

• Lower margins
• Chinese firms have access to much cheaper capital than local investors[12]
• The almost exclusive employment of low-paid Chinese staff, often apparently living at even lower standards than the Mozambique population, and living in seclude barracks
• The use of Chinese materials, with very little local sourcing
• The use of standard designs
• Less attention to environmental impacts
• Access to a hard currency premium paid by the Chinese government
• The Chinese Government provides subsidies to Chinese companies when they establish themselves overseas

2.2.3 Incorporation in global production systems

Chinese manufactured exports are more effectively described as “East Asian products”, incorporating inputs from surrounding countries (Humphrey and Schmitz, 2006). In fact China is in trade-deficit in its region. This reflects a process of the growing interconnection of production in regional, coordinated value chains, and trade in increasingly finely-differentiated intermediate products.

With one exception, there is little evidence that Chinese and SSA firms are interconnected in these global value chains. The exception is the case of textiles and garments. Exports of clothing to the US have become very significant for six SSA economies, including for four least developed economies – Lesotho, Madagascar, Kenya and Swaziland. The basis for their export success under the AGOA programme is the specific derogation which gives them the opportunity to incorporate fabric and other inputs sourced from outside the AGOA region or the USA. This is a temporary derogation which has been extended once (from September 2005 to 2007), and which is currently the subject of intense lobbying.

What this phenomenon displays is the very industry-specific integration of production in global value chains. But it is fragile, and most foreign investors (almost exclusively Asian-owned), as well as domestically-owned firms, clothing firms report that if the derogation is not renewed after September 2007, they will close their SSA plants (Kaplinsky and Morris, 2006a).

2.2.4 Small Scale Entrepreneurial Investments

Chinese FDI has become very prominent, particularly in a context where more traditional European and US investors have been wary of political risks and are subject to pressures to support good governance.

In some SSA economies, there appears to be the growth of small-scale entrepreneurial investment from China, often presaged by the construction of specialised shopping malls retailing Chinese goods. One country for which there is fragmentary evidence is Sierra Leone. Here, Chinese investors appear to be less concerned with these risks and very flexible and rapid in their responses. The Sierra Leone ambassador to Beijing observed that,

‘The Chinese are doing more than the G8 to make poverty history…If a G8 country had wanted to rebuild the stadium, we’d still be holding meetings! The Chinese just come and do it. They don’t hold meetings about environmental impact assessment, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks.’ (Hilsum, 2005).

Investments in Sierra Leone include a joint venture with the government in an industrial estate making mattresses, tiles, hair lotions and other light industrial products. Unlike other Chinese FDI in SSA’s resource and energy sectors, most of these investments in Sierra Leone are undertaken by small-scale private investors, in this case mostly from Hunan Province (Financial Times,  16^th March 2005).

An important, and almost certainly significant (albeit poorly evidenced) channel of Chinese presence in SSA is the growing number of Chinese traders to be found in many SSA economies. A good example of this is the expanding community of wholesalers in Oshikango, Namibia, a small trading town on the broader with Southern Angola (Dobler, 2006). By 2005 there were between 70 and 120 Chinese working in 22 shops in this trading complex. They originate from all over China, and have little in common, even speaking different Chinese dialects. The pioneer in this region came to Namibia in 1993, and moved to Oshikango in 1999. Perhaps because of his relative longevity, he is the only trader who has diversified into other regions in Namibia, Oshikango’s Chinese traders mostly import and then re-export basic consumer goods such as clothing, textiles, footwear, simple electronic consumer goods and mattresses. These are sold at a very cheap price – a carton of 300 shoes, for example, for $100.[13] This phenomenon of small-scale trading is not limited to Namibia, and similar rapidly-growing trade-linked communities are found all over SSA. The number of Chinese living in Lusaka is estimated to have increased from 3,000 to 30,000 over the past decade; with an estimated 160,000 Chinese living in South Africa, many of whom are clustered in a suburb of Johannesburg.

2.3. The Aid Channel

Until the mid-1990s, much of this aid was directed to Liberation Movements and to further the desire to politically isolate Taiwan. But since the mid 1990s, aid appears to be increasingly directed towards broader strategic objectives, and in particular to the development of links with resource-rich SSA economies.

Chinese aid to SSA, appears to be very closely linked to strategic and political objectives, perhaps even more so than the aid offered by some European countries and the US. The formal links between China and SSA go back to the Bandung Conference in 1955. (Raphael Kaplinsky et al)

Insiya Salam (2008) writes that, a majority of Chinese aid to SSA is in the form of project assistance and export credits, and there is an emphasis on various projects for the promotion of trade and investments. Chinese aid in the form of technical assistance and technology transfer may foster growth, not by accumulating greater resources, but by making existing resources more efficient and effective. China’s bilateral aid is also channeled via a strong focus not only on the ‘provision of physical infrastructure, but also on agriculture.’ (CMI Reports, pgvii) Indeed, throughout Sub-Saharan Africa, Chinese companies are building vital infrastructure, including dams, ports, and roads. A second significant area of Chinese aid is on capacity building and the social sector, especially as related to science, health and education.           In addition to the long term development assistance aimed at poverty reduction mentioned above, the Forum on China-Africa Cooperation’s website states that the Chinese government has delivered short term humanitarian aid to the Darfur region of Sudan, ‘including electric generators, pumps and medical instruments’ (www.fmprc.gov.cn) to help with the development of the war-torn region. China has also pledged to donate $600,000 to the African Union to assist them in their peacekeeping efforts and it is further up scaling its ‘humanitarian and health assistance by sending medical workers and agricultural experts to a range of post-conflict countries, from Rwanda to Sierra Leone, and has pledged to increase aid to Africa for HIV/AIDS and malaria prevention and treatment.

In an initiative announced at the second ministerial meeting of the Sino-African Co-operation Forum held at the end of 2003 China has instituted a programme of tariff exemption for 25 SSA economies, covering 190 products, including food, textiles, minerals and machinery. The policy took effect at the beginning of 2005 (People’s Daily, 20/10/05, www.chinadaily.com.cn/ accessed 3^rd March 2006). These trade references are called for since, Chinese tariffs on imports from SSA, although generally lower than Indian tariffs, were significantly higher than those in other Asian economies. Little data is known on the differential tariffs levied by China on imports from SSA compared to tariffs levied by individual SSA countries on imports from China. Finally, China has in very recent years begun to provide peace-keeping forces to SSA, with 1,500 troops currently being deployed.

Summary of the Channels

In conformity with assessing the overall impact of these links between China and SSA, We began by observing that China’s impact on SSA can be perceived in relation to three primary channels – trade, production and FDI, and aid. China’s trade impact (direct and indirect) in clothing and textiles, for example, is closely linked to the integration of SSA and Chinese firms in coordinated global value chains, and China’s growing aid programme appears to be closely related to its need for traded commodities. We stated that these links may be both complementary and competitive, and direct and indirect.

We also noted at the outset that there is a great danger of focusing on the present, the known and the measurable impacts. There is also a danger of focusing unduly on the positive opportunities and neglecting the potentially negative disruptive impacts of China’s growing impact on SSA.

2.4 Conclusions Drawn From the Above Analysis.

The above framework used by Kaplinsky and Morris to assess China’s influence on SSA, exposes the following challenges to key stakeholders, within SSA and China, and with other bi- and multi-lateral agencies as well as researchers. The key issues are:

1. The challenges posed to industrial policy and sectoral choice.
2. The problems posed for commodity producers.
3. Reacting to changing patterns of poverty and income distribution.
4. The implications for the promotion of good governance, particularly in regard to fragile states.
5. Global and regional links.
6. Thinking about the future.
7. Filling the knowledge gaps.

1. The challenges posed to industrial policy and sectoral choice

It is in the industrial sector that SSA is most clearly challenged by the growth of the Chinese economy. Ghanaian furniture and clothing exporters find it increasingly difficult to compete with Chinese imports, as do South African manufacturers (Kaplinsky and Morris, 2006b). A similar pattern can be found in the Ethiopian footwear sector (Egziabher, 2006). Although data is scarce, discussions with manufacturers and retailers in a number of SSA economies with domestic manufacturing sectors suggest that Import penetration is increasing in all markets, and in most of the traded-goods manufactured sectors.

However, the challenge to SSA industry is much more substantial than these current impacts might suggest. This is because for much of SSA, industry is currently poorly developed, and is often largely confined to the food-processing industry (where products degrade over time and have a high transport-to-value ratio), building materials (a high transport-to-value ratio and producing customised products) and the informal manufacturing sector (producing to low levels of quality and largely using waste materials. The real policy challenge is not to existing industry, but to potential industry. That is, what space is there for SSA manufacturing to expand in the future? And, what implications does this have for the growth of dynamic capabilities, learning externalities and structural transformation?

What can be done about this bleak picture? First, there is scope for improving the productivity of existing industries, often by working with value chains (for example, forestry, timber and furniture) rather than individual firms or subsectors. Detailed firm-level analysis of productivity in the clothing sector in South Africa (Barnes, Morris and Gastrow, 2006) and in COMESA (Manchester Trade Team, 2005) detail the nature of these productivity gaps. Kaplinsky and Morris (2006a) also report evidence of significant productivity improvements following the introduction of training schemes in Lesotho. Competitiveness in all sectors is a moving target, and for various reasons, few SSA industries have hitherto been able to address this challenge of building dynamic capabilities. There is, however, no intrinsic reason why this should be the case, and there is thus considerable scope for effective industrial policies.

A further important lesson which emerges from China’s growing trade presence is for SSA producers to be less concerned about the sector of production (for example, manufacturing versus services versus agriculture) and more focused on identifying niches where they can build barriers to entry to Chinese producers through the development of innovative capabilities. In manufacturing this may be increasingly difficult as Chinese competences grow, whereas in horticulture and services, including knowledge-intensive services, relative capabilities may be high, as in the case of Kenya’s horticulture sector, South Africa’s medical sector, and East Africa’s wildlife tourist sector.

• The problems posed for commodity producers

Probably the most significant opportunity opened-up to SSA by China’s rapid growth is the enhanced incentives which rising demand and prices provide to commodity producing countries. Many SSA economies have rich primary product resources, including some of the poorest economies such as Nigeria, the DRC and Angola, many of whom are characterised by fragile states. Rapid growth in South Africa (and in other middle-income commodity exporters in Latin America) is an indication of the benefits which this might provide.

Yet, one of the sharpest lessons we can draw from comparative international experience is that there is no clear correlation between development and commodity resources. Some commodity producers have fared well – Australia and Canada are cases in point. By contrast other commodity producers have fared badly, reflecting what some have termed the “resource curse”. In yet other cases such as Korea and Japan, rapid economic growth has occurred without significant resources – indeed, it is often argued that that they grew because of the absence of resources.

Nevertheless, China’s growing demand for resources does offer significant opportunities to many SSA economies. But the lesson which can be drawn from international experience is that the benefits of this resource boom will not follow automatically – they need effective management. In addition to the link between patterns of governance and resource-exploitation this poses four major challenges to economic and social policy.

First and foremost, those economies with suitable natural resources, need to develop the supply elasticities required to take advantage of raised global demand and prices. This may require a combination of inputs, including enhanced infrastructure, targeted wooing of selected global resource-producing firms and the development of training and research and technology organisations (RTOs) in the respective National Systems of Innovation.

Second, resources are often finite (at least in high-grade deposits) and prices are often cyclical. There is thus a clear need to husband resource to ensure that the fruits can be drawn down over time, rather than at a single point in time. This poses important challenges for the economic management of resource rents (as Gottschalk and Prates, 2005 stress in their analysis of China’s growing trade with Latin America). Clearly SSA policy-makers can gain from comparative experience in this regard. Third, and related, one of the major problems posed by a growth in commodity prices is the impact on exchange rates –  the “Dutch Disease”. Higher exports and raised prices often lead to currency appreciation. This creates problems for other exporting sectors, and promotes forms of structural change which lead to a reallocation of resources from the traded- to the non-traded goods sectors. Many non-commodity exporters in SSA are beginning to suffer from these Dutch Disease effects, particularly those linked to the appreciating Rand. Here there are perverse and adverse impacts on Lesotho and Swaziland – they face the downside of a currency appreciating due to commodity exports, without benefiting on the upside from raised commodity revenues. Again, SSA governments can learn from international experience in this regard, including from relatively successful SSA economies such as Botswana.

A fourth policy challenge arises in regard to the management of the environmental consequences of resource exploitation. This is most topical in relation to the depletion of forests (www.globaltimber.org.uk), which affects not only large global issues such as climate change, but also the location-specific degradation of specific environments (such as the recent mudslide in the Philippines which destroyed a whole town and arose as a consequence of illegal timber logging). These environmental spillovers are often substantial, and are not confined to the logging sector. The negative externalities may also be widespread, arising in part also as a consequence of transporting commodities to the coast.

• Reacting to changing patterns of poverty and income distribution

One of the major implications of growing imports of manufactures from China are the benefits which these provides to consumers, particularly to low-income consumers. As stated before, many SSA manufacturers complain that Chinese products are displacing locally-produced commodities, but as Jenkins and Edwards point out, the primary displacement effect is on imports of manufactures from other, non-SSA economies.[14] Wholesalers and retailers are switching their sourcing to cheap Chinese suppliers, and this almost certainly have major positive impacts on consumer welfare. However, this is an unmeasured impact, presenting little knowledge on the overall significance in consumer welfare, nor in which sectors the primary benefits are being felt. This is because most household consumption studies do not collect data at a sufficiently disaggregated basis; failing even to distinguish between food- and non-food purchases, let alone different types or sources of manufactures (Kaplinsky and Morris 2006).

There are also rapidly-emerging negative consequences of Chinese trade on income distribution. On the one hand, employment in many labour-intensive manufacturing sectors is being lost, most visibly in export-oriented clothing enterprises . On the other hand, the rise in commodity production is associated both with capital-intensive technologies and because of the large-scale of commodity production, to highly-concentrated forms of ownership. This is not an intrinsic problem of all primary production, since many soft-commodities such as tea, coffee, cotton and horticulture are labour-intensive and locally-owned, But, hitherto, most commodity exports to China have been oil and hard commodities, particularly basic metals.

4.4. The implications for the promotion of good governance, particularly in regard to fragile states

Recent years have seen concerted and multifaceted attempts by Western aid donors, consumers and NGOs to promote various initiatives aimed at promoting good governance in SSA. Some of these address the issue of transparency, some are targeted at preventing abuses of human rights and some are aimed at the corporate sector with respect to labour rights and environmental impacts.

Much of Chinese FDI and investment in SSA has run against attempts by the global aid-community to promote better governance in SSA. For example, in the Sudan, the major Canadian investor withdrew because of concerns about Darfur and Sudan’s poor record on human rights. It’s 40 percent shareholding was replaced by CNPC, a China-state-owned oil company. This has led to Sudan’ emergence as a net oil-exporter. It has also led to China becoming a major exporter of manufactures to Sudan. China supplies weaponry to Sudan and has helped construct plants in Sudan to manufacture small arms and ammunition. More visibly,  China has vetoed attempts in the Security Council to actively censure Sudan for the civil war in Darfur.

In Angola, after Western donors postponed a donors-conference meeting due to concerns with non-transparency in mid-2005, China offered Angola a soft-loan of $2bn. This soft loan, for 17 years at 1.5 percent p.a with a five year grace period (but tied to China-sourced inputs) also enabled Chinese firms to win-out over Indian competitors in accessing Angolan oil reserves. In Zimbabwe, although offering much less involvement and aid than Mugabe requested, Chinese firms have invested in the minerals and farming sectors, and have helped rehabilitate roads. Whilst Western countries have embargoed arms-sales to Zimbabwe, China has continued supplying military equipment, including K8 fighter planes.

In the private sector, whilst Western firms have demanded fair labour practices in production in products sourced directly from SSA countries, some of the production routed through Chinese firms has not complied with labour standards in the same way (Kaplinsky and Morris, 2006a). There are also accusations that Chinese firms have imported illegally-logged timber from SSA (www.globaltimber.org.uk), and as we saw earlier, the Sierra Leone ambassador to Beijing remarked that the Chinese “don’t hold meetings about environmental impact assessment, human rights, bad governance and good governance. I’m not saying it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks” (Hilsum, 2005),

The ability of Chinese firms to invest in fragile states – such as Angola, the DRC, Sudan and Sierra Leone – is almost certainly linked to the political economy of the Chinese corporate sector. Many Chinese firms investing on SSA are partly or wholly state-owned, and reflect the desire of the Chinese government to build a long-term presence in a resource-rich continent. But, perhaps even more so than in the case of other forms of Chinese participation in SSA, this is an area of great sensitivity which is characterised by assertion and rumour as much as by detailed evidence.

There is a further indirect impact of China’s demand for commodities on the nature of governance in SSA. In the 1960s in particular, the very large surpluses that some African economies could earn from exporting agricultural commodities stimulated kleptocratic governance and undermined the legitimacy of newly-independent regimes. Since the 1970s, world market prices for most agricultural exports have declined substantially, and this form of kleptocracy has declined considerably. However, recent research shows that rents derived from the extraction of ‘point resources’ (oil, gas, diamonds and minerals) have, since the 1970s, clearly encouraged authoritarian rule, high military expenditure, corruption and violence (Rosser, 2006). There are wide variations within Africa. Whilst Botswana is often cited as the exception to the general pattern, in other African countries, the discovery of large mineral resources has led to the deterioration in the standard of living of most people.  This is the recent experience of the African country where Chinese companies are most deeply involved in resource extraction – the Sudan.  Thus, to the extent that there is a generic trend towards commodity production and mineral rents as a consequence of China’s growing need for material inputs, it is likely that this will exacerbate some forms of poor governance in SSA.

4.5. Global and regional integration

Historically, most of SSA’s trade links have been with the former metropolitan powers, either directly with the UK (in the case of Anglophone countries) and France (for Francophone countries), or more generally with Europe and North America. These links have been strengthened through the development of various forms of preferential trade arrangements (Lome-Cotonou, AGOA, EPAs and FTAs). It is not surprising therefore, that currently most of SSA’s trade is with the historically industrialised countries.

But, the rapid growth in trade between SSA and China suggests a growing “magnetic pull” from the East. This poses a major policy challenge to individual and groups of SSA economies, particularly relevant in the context of stretched policy and administrative systems – given the growing importance of regional ties in the global economy, who should they link with, and what forms of linkage might this involve? Should they aim to go North, go East or stay local?

Increasingly, SSA economies are going to need to develop explicit policies in these areas. It will necessarily involve a “joined-up” mix of economic and political initiatives. As SSA loosens its links with Europe and North America, it will also be necessary for countries, particularly those in southern Africa, to determine how much weight they wish to place on intra-continental regional links, and how much on forging new regional links with China and other Asian Driver economies.

4.6. Thinking about the future – the development of “dynamic capabilities”

From the perspective of SSA economies, therefore, it is the capacity to change, to grasp opportunities and to minimise threats that is key; referred to as the development of “dynamic capabilities” in business literature. It involves the ability of SSA producers to anticipate future opportunities and threats opened-up by sustained Chinese expansion. For example, one emerging opportunity is the promotion of Chinese tourism. China has recently “certified” seven SSA countries as tourist destinations, with more than 70,000 tourists visiting Africa in the twenty months to end-2005.  With the growth in Chinese per capita incomes, there is likely to be a considerable growth in tourism in the future.

Another possibility is in regard to China’s food needs. At 3,040, China’s per capita calorie consumption is on average 90 percent of that in the high income economies (Chen et. al., 2006), so future import needs are likely to reflect a change in the composition of food consumption rather than a significant increase in its volume (FAO 2002). So far, China has sourced very little food from SSA or elsewhere, partly because it has imported intermediates such as animal feed to support its own meat-producing sector. Most of the feed imported so far has been soya, and the primary origin of these imports has been from Latin America (Jenkins, Dussel Peters and Moreira, 2006). This raises a series of strategic issues for SSA food producers, which require careful consideration, informed by data rather than wild speculation. Will China continue to produce its own meat? Will its growing per capita income lead it to import horticultural products, fish and chicken? If they do, will these imports come directly from eastern and southern African economies which have a demonstrated comparative advantage in some of these sectors, or will SSA gain indirectly from Chinas growing imports from a supply-constrained global economy? Chinese investors are already beginning to pioneer soya production in Mozambique and this may be a sign of future prospects.

These examples of tourism and soya are just that – examples. They represent future possibilities. At the same time, it is also necessary to anticipate future threats. A major potential problem for many SSA economies is the possibility that energy prices will rise significantly as a consequence of constrained global supplies and rapidly growing demand from China and India. So, too, might the price for other SSA imports, including food. What pressures will a rapidly diversifying Chinese economy place on economies such as South Africa who have become successful exporters of automobiles and auto components?

4.7. Filling the knowledge gaps

It is abundantly clear from the discussion above that we know more about the questions which have to be addressed on China’s impact on SA than on the nature of these impacts. There are significant knowledge-gaps, and unless these are filled, policy- and capability-development will be undermined and may be misdirected.

We can conclude with some confidence that the three primary channels of transmission are indeed trade, FDI/production and aid, and that we know more about the direct impacts than the indirect impacts. We can also conclude that in order to understand China’s growing involvement in SSA, it is as important to focus on the geostrategic and political imperatives, as on the narrow pursuit of financial gain. But, other than this, we cannot at present draw any conclusions with confidence. We cannot assess whether on balance China’s impact is likely to be positive or negative, and for which countries and regions, and for which particular stakeholders in particular countries and regions.

In order to have a profound policy perspectives addressing this Sino-African relation, key knowledge gaps need to be field, amongst which the following are most important:

• There is the need for base-line studies to assess the changing future impact of China on SSA.

• There is also the need for a more thorough assessment of indirect impacts of China’s trade on SSA, facilitating the development of appropriate policies for providing special and differential treatment to low income SSA economies in global markets.

• Determining the impact of China on consumer welfare, income distribution and absolute poverty levels in SSA, through an analysis of the consumer benefits derived from cheaper imports and the distributional implications of a switch in specialisation away from labour-intensive manufactures to capital intensive commodities.

• Identifying likely future areas of threat and opportunity

• Determining the drivers of China’s strategic engagement with SSA and their impact on transparent and better governance on the continent.

• Diffusing lessons from the successful experience in coping with the challenges posed by China, drawn both from within SSA and from other regions.

Chapter 3:

CHINA’S BILATERAL AID TO SSA, A DEBATE ON ITS ADVANTAGES AND DISADVANTAGES.

This chapter will look at the positive aspects of China’s assistance, and how the assistance is strengthening SSA own assets. On the hand it will look at the disadvantages of bilateral and tied aid, and by looking at China’s political and economical motivations for increasing its influence in the region of SSA, we can see that China may be more inclined on fulfilling its own personal agenda rather than helping to reduce poverty (Insiya Salam 2008).

It seems entirely possible that while it may seem appropriate for Westerners to pick out the education and health sectors as obvious categories to be treated as aid, China’s own preference has been to think of its relations with individual countries in a much more holistic way (King, K. 2006a.)

Rostow’s idea that foreign aid can help increase national savings and investment, the two-gap theory could be a working basis to propagate foreign aid. This theory states that a country needs not only adequate savings for investment, but also sufficient foreign exchange to buy goods necessary for growth from the international market. Therefore, based on these theories which highlight the advantages of foreign aid, the pledge at the China-Africa Forum in 2006 by the Chinese President Hu Jintao ‘to double China’s assistance to Africa during the next three years and to increase China’s involvement in direct development aid’ is a positive move for SSA (Insiya Salam 2008).

In the light of the above, Insiya Salam(2008) points out that a lot of the bilateral aid from China is in no-interest form, and evidence suggests that much of China’s aid is in grant form. The majority of Chinese aid to SSA is in the form of project assistance and export credits, and there is an emphasis on various projects for the promotion of trade and investments. Chinese aid in the form of technical assistance and technology transfer may foster growth, not by accumulating greater resources, but by making existing resources more efficient and effective. China’s bilateral aid is also channeled via a strong focus not only on the ‘provision of physical infrastructure, but also on agriculture.’ (CMI Reports, pgvii) Indeed, throughout Sub-Saharan Africa, Chinese companies are building vital infrastructure, including dams, ports, and roads.

A second significant area of Chinese aid is on capacity building and the social sector, especially as related to science, health and education. Zafar (2007) emphasizes the point on capacity building, and according to his research, ‘more than 10,000 African students will visit China in 2006 and 2007 for professional training’ (pg125). This can help SSA by not only developing its human capital by targeting funds for enhancing human capital and thereby raising the economy’s stock of skills and, perhaps, stimulate economic growth, but also by strengthening management and institutional capacities.

Looking specifically at China’s medical support to Africa, the Chinese Ministry of Health provided figures which, like much else in China’s statistics of development assistance, cover more than 40 years of cooperation. From the first medical team in Algeria in 1963 until the end of 2005, there have been some 15,000 people sent to Africa in medical teams; they have worked in 47 countries, and have carried out no less than 170 million treatments (Zhang, 2006). What is intriguing is the fact that there are claimed to be almost 1000 doctors and nurses from China present in 2006 in no less than 36 African countries; of these nearly 100 doctors specialise in traditional medicine. The range of treatments includes training in traditional Chinese medicine, clinical medicine, disease prevention and management of rural medical services. But it is clear that not all medical interventions are delivered via the Ministry of Health or the provinces; the China National Overseas Engineering Corporation (COVEC) has built two pharmaceutical factories in Africa for the treatment of malaria. While the way these projects as financed is not discussed, the General Manager of COVEC’s description of them doesn’t make them sound like aid (Kenneth King 2006).

According to the UNDP policy notes on the Highly Indebted Poor Countries Initiative, thirty four of the forty two HIPC countries are in Sub Saharan Africa. Jeffery Sachs (2005) writes that for Kenya, donor support is ‘around $100 million, or a mere one fifteenth of what is needed’ for poverty reduction, and this financing gap can be filled by the international donor community (pg236).  Kenya is not eligible for debt relief under the international debt relief process as its debt is considered to be sustainable, even though it has an external debt of $6.8 billion and pays $364 million each year to rich countries in debt payments (Jubilee Debt Campaign UK). Kenya is just one example, and there are many countries in Sub Saharan Africa facing a similar fate and it is clear that SSA needs aid aimed at alleviating poverty in the long term. There is clear evidence that loans provided by the international financial institutions based on the conditions that those countries adopt SAP’s caused the ‘steady worsening of poverty and human development indicators across Africa…’ (UNCTAD 2006, pg1). Therefore it appears that these unconditional loans from china is advantageous and is just what SSA needs as it has been suggested that no conditionality on the aid improves its effectiveness.

Insiya Salam(2008) notes that, China is a strong supporter of the United Nations, and is showing its support to help SSA achieve its Millennium Development Goal targets by maintaining its support for debt cancellation in favour of African countries. Over the past few years, China has provided aid in the form of debt cancellation to 31 African countries, ‘totaling some $1.27 bn’ (Tull 2006, pg463) and more debt relief has been promised. This will undoubtedly free up much needed capital resources for SSA, and shows another positive result of aid.

IMF’s 2007 economic outlook for SSA is finally, very positive. According to the IMF (2007), ‘growth should reach 6 percent in 2007…’(pg9) which can be partly attributed to the positive external environment due to the ‘solid demand for commodities, increased capital inflows, and debt relief’ (pg9) Evidence shows that China can take part credit for the increased capital flows and debt relief. Furthermore, China can also take part credit for the solid demand of commodities. Indeed, China’s demand for minerals is driving up world prices for commodities such as copper, zinc, aluminium and nickel, reversing a long decline in prices and giving the African exporters of these materials a much-needed economic boost. (Konings (2007, pg355) China has also increased its demand for oil, and according to the IMF (2007) the economic expansion that SSA is experiencing is greatest in the oil exporting countries which should see ‘growth accelerate to 7½ percent in 2007, led by Angola and Equatorial Guinea’ (pg3) The solid demand for commodities, development assistance, and debt relief in the form of assistance is helping to improve SSA’s productivity, its international competitiveness and its balance of payments.

However, over the years, bilateral aid has received a lot of criticism mainly due to the political and economic motivations of donations and it can be argued that China is giving bilateral aid to SSA mainly for its own national gain. The political motivations for aid donation include the ability to increase donor influence on the governance of the economy of the recipient nation which would be of benefit to the donor community. They would also be able to acquire an ally which would be of importance during a time of war. All these reasons would put the donor country, ‘in a stronger position vis-à-vis their competitors’ (Cho 1995, pg83).

Although Chinese aid to SSA is unconditional it appears that China is keen to have Africa as a political ally and they do insist that recipient countries agree to the One-China principle and therefore have no diplomatic recognition of Taiwan, in a sense acquiring their own allies.

Economic benefits that donors may expect include an increase in their exports, an easy access to raw materials and the opportunity for foreign direct investment. Over the past decade the Chinese economy has been expanding at enormous rates, becoming one of the world’s largest importers of crude oil, and requiring a readily available source of raw materials. Konings (2007) believes that China’s ‘motives for establishing a strategic partnership with Africa are primarily economic: the drive for resource security. Indeed, Chinese government firms have invested billons of dollars in African countries by using their own ‘engineering and construction resources on infrastructure for developing oil, gas, mineral, and other natural resources. China has also been willing to invest in countries such as Sudan and Zimbabwe, which are shunned by the Western world for their human rights violations. ‘Sudan supplies about 7 percent of China’s total oil imports’ whereas Zimbabwe remains one of Beijing’s ‘major sources for platinum and iron ore.’ (Brookes & Hye Shin 2006, pg2). China has clearly been undermining the human rights agenda in pursuit of its own interests, and justifies it by its policy of ‘non-interference’. In terms of trade, there has been a dramatic increase in the volume of cheap Chinese imports into Africa which has affected African manufacturers and business men. Although China has been buying a huge amount of raw materials from SSA, the balance of trade currently favours China and local industries ‘especially manufacturing and textiles merchants have been hard hit’ (Konings 2007, pg341).

The amount of aid that China provides in the form of tied bilateral aid has also received a lot of criticism because it enables China to exert a great deal of control in order to ensure that much of the money comes straight back to them. One example of this is when ‘Beijing extended a $2 billion loan to Angola in exchange for a contract to supply 10,000 barrels of crude oil per day. Under the agreement, the loan will be heavily reinvested in infrastructure construction, with 70 percent of the loan funds going to Chinese companies…’ (Brookes & Hye Shin, 2006, pg3). Although SSA gets access to finance for infrastructure investment, ‘much of the credit is tied to the purchase of Chinese goods’ which makes it difficult to determine whether there is much effectiveness in the assistance and also, contracting projects to Chinese firms rather than local businesses adds little to the local economy.

The fact that China is seeking economic and political benefits from its aid donations can result in it being seen as a form of neo-colonialism. China sees Africa as a partner in the fulfilment of its strategic goals, namely resource security, new markets and investment opportunities, and the re-establishment of a political alliance. For Realists the preservation of sovereignty is of great importance and they view, ‘political and economic power as a way to secure national survival.’ (Isaak, 1991 pg21) ‘Based on their analysis of continual interstate competition, the realist comes up with a normative theory of international order and stability rooted in conceptions of hegemony and balance of power.’ (Hoogvelt 1997, pg7) Consequently, any act that nationalists undertake would be done in order to further the country’s national interest. ‘According to the realist perspective, foreign economic assistance becomes a form of political war fought by means other than force. Indeed, China is a firm believer in symbolic diplomacy and ‘the promotion of national representation abroad, plays an important part in China’s evolving relations with Africa’ (Alden 2005, pg151). They are also keen on forging an alliance to combat perceived western hegemony in the UN and other multilateral organizations and to strengthen their position in the international political arena. These ulterior motives for them are clearly taking the limelight away from the main objective of aid, i.e. poverty reduction.

There are Orthodox liberal economists who believe that foreign aid blunts initiatives, prevents markets from working effectively and lowers the international competitiveness of a country. If SSA does not have the absorptive capacity for the influx of foreign aid from China, it can lead to a decrease in aid effectiveness. Also, there is a question of aid fungibility, where aid which has been earmarked for ‘critical social and economic sectors is being used directly or indirectly to fund unproductive expenditures including those on defense’ (Devarajan & Swaroop 1998, pg3). This could be the case in some of the more corrupt countries in SSA, where the supply of unconditional Chinese loans can help relax the budgetary and financial constraint encouraging recipient country to spend it on unproductive alternatives rather than increase savings or investments. A critical view of foreign aid is given by Peter T. Bauer and Basil S. Yamey who argue that foreign aid ‘leads recipient nations to believe that they are entitled to a standard of living they have not earned’ (Isaac 1991, pg216).

It is true, that aid can lead to dependency ‘rather than conceptualizing donor power as a strong external force on the state, it would be more useful to conceive of donors as part of the state itself’ (Harrison 2001, pg671). This has been considered to be the case in Zimbabwe, where the Council on Foreign Affairs writes that ‘Zimbabwe is all but owned by China’ (www.cfr.org/publication). The syndrome of aid dependence has emerged as a development problem of its own, where countries have become heavily dependent on concessional resource transfers to support a large part of their investment and expenditure. Brautigam (2000) uses a measure of aid intensity in which a country receiving aid at levels of 10 percent of GNP or above is considered to be aid dependent. This is already the case for many countries in SSA, Uganda being an example, and the disbursements of concessional loans from China is likely to further exacerbate the problem of aid dependent countries losing the ability to think and act for themselves; and therefore being unable to establish reliable institutions and sound environments.

‘Africa is often held up as a prime example of wasted aid’ (UNCTAD 2006, pg4) and as a result of the dismal results of aid in the region sceptics are quick to point out that aid does not work. However, one the main suggested reasons for the failure of aid is the inefficiency of the aid donors themselves. As Brautigam (2000) writes, ‘donors need to cooperate in ways that ensure that aid becomes part of the solution, and not part of the problem.’ (pg5). Unfortunately, until recently there has been ‘very little co-operation between Chinese development aid and the aid programmes of other donor countries’ (CMI Reports, pg11) Increasing this co-operation would result in greater dialogue in the multilateral system and the international community could work together to ensure that aid is delivered effectively and does not undo the work of the HIPC Initiative by further increasing the debts of SSA countries, a worry echoed both by the WB and Britain’s Department for International Development. Also, currently it is difficult to make a conclusive assessment of the impact of Chinese aid on SSA development as ‘precise figures on the magnitude and terms of the Chinese loans are not easily available.’ (Zafar 2007, p125) Hence, greater dialogue would also result in improved transparency and international monitoring to ensure that Chinese aid to SSA is indeed a ‘win win’ situation.

In addition to this, as long as China continues providing unconditional assistance and keeps growth and development as one of its main objectives, and remembers that a development programme should be country owned and not imposed from above then hopefully SSA will make the best use of the development assistance in order to support their economic, social and political development.

Chapter 4

Lessons for Africa from China.

In a new policy research working paper, David Dollar states that China has been the most successful developing country in this modern era of globalization. Since initiating economic reform after 1978, its economy has expanded at a steady rate over 8 percent per capita, fuelling historically unprecedented poverty reduction (the poverty rate declined from over 60 percent to 7 percent in 2007).Other developing countries struggling to grow and reduce poverty are naturally interested in what has been the source of this impressive growth and what, if any, lessons they can take from China. David Dollar focuses on four features of modern China that have changed significantly between the pre-reform period and today. The Chinese themselves refer to their reform program Gai Ge Kai Feng, “change the system, open the door.” “Change the system” means altering incentives and ownership, that is, shifting the economy from near total state ownership to one in which private enterprise is dominant. “Open the door” means exactly what it says, liberalizing trade and direct investment. A third lesson is the development of high-quality infrastructure: China’s good roads, reliable power, world-class ports, and excellent cell phone coverage throughout the country are apparent to any visitor. What is less well known is that most of this infrastructure has been developed through a policy of “cost recovery” that prices infrastructure services at levels sufficient to finance the capital cost as well as operations and maintenance. A fourth important lesson is China’s careful attention to agriculture and rural development, complemented by rural-urban migration.

In 1981, China’s poor outnumbered Africa’s by almost 4:1. Yet by 1996, SSA had overtaken China in the total count of the poor. 500 million fewer Chinese lived below $1 a day in 2004 than in 1981, but 130 million more Africans did so. (Martin Ravallion, World Bank Policy Research Working Paper 4463,Jan 2008.)               However, in the light of such divergent fortunes for their poor since the early 1980s, many people are naturally asking whether China should be Africa’s “economic role model,” as Juma (2007) suggests. Private investment and aid flows from China may well bring benefits to Africa’s poor. But are there also domestic policy lessons with potentially even larger long-term benefits?               The popular public image of strife-torn Africa contrasts so markedly with that of stable China that one might be immediately skeptical of such comparisons. In the 1960s, three-quarters of African leaders left power by violent means, and until the mid-1990s this was still true of the majority of leadership changes. Certainly China has not experienced anything comparable in the last 30 years to Africa’s internal upheavals, which have included state collapses in roughly a quarter of the countries in SSA (van de Walle, 2001). However, the more relevant comparison here is with China in the 1960s and 1970s. Then the difference is not so obvious.

While private investment and aid flows from China may benefit Africa’s poor, what might be more significant are the lessons for Africa from China’s success in fighting poverty back home.

4.1 “Open the door”:

Before 1978 China had one of the most closed economies in the world. It unilaterally liberalized trade and has become one of the most open developing countries. Concerning foreign investment, China welcomed direct investment that brought technology, management skills, and global production networks, and managed the regime for direct investment in order to get the most capacity building for Chinese workers and firms. The open door policy has led to China becoming the largest destination of direct foreign investment and to its emergence as a manufacturing and trading super power. Visitors to Chinese cities are always struck by the quality of Chinese infrastructure: good roads, reliable power, world-class ports, and excellent cell phone coverage throughout the country. What is less well known is that most of this infrastructure has been developed through a policy of “cost recovery” that prices infrastructure services at levels sufficient to finance the capital cost as well as operations and maintenance. China has been able to rapidly expand its infrastructure network by borrowing at commercial interest rates and servicing the resulting debt through appropriate prices for power, roads, rail, and telecom.

Another important lesson is the role of agricultural and rural development, complemented by rural-urban migration. China is a densely populated, resource-scarce country that started reform with 80% of its population rural. Grain output per hectare was already pretty high. So, raising incomes for the large rural population required a number of complementary measures. First, the shift to private entrepreneurship started in the agricultural sector, well before it came to cities. The “household responsibility system” was the initial step in a process of continually strengthening land tenure rights for farmers. Second, agricultural markets were liberalized, culminating in China’s commitment to a very liberal agricultural trade regime when it joined the WTO. These first two measures were complemented by strong efforts in agricultural research and extension. The result was some modest further improvement in grain productivity, plus

very dramatic increases in diversification and earnings from products such as fruit, tea, meat, and milk. These successes enabled China to take some land out of agricultural production and return it to ecological uses, helping the long-term sustainability of agriculture. China is one of the few countries that has increased its forest cover, from 12% to 18%.

Even with these advances in agriculture, however, the productivity gap between urban and rural employment has remained large. Hence, migration from low productivity rural employment to higher productivity urban employment is an important source of growth. China has a registration system that controls and to some extent limits migration. Still, the system has been flexible enough to allow more than 200 million people to relocate from rural to urban locations. This migration has involved very substantial relocation from interior loc.

4.2 “Change the system.”

Before economic reform China had a planned system based on collectivized agriculture and state ownership of the means of production. In 1978 3% of retail goods were traded at market prices, and 6% of farm commodities. State-owned enterprises accounted for 77% of industrial production, and the rest came from collectives that were basically local state enterprises actions to coastal ones. In the first decade of reform it opened up some locations to private foreign investment, allowed more scope to township and village enterprises to operate on a market basis, and introduced various reforms in state firms.

Since 1995 the private sector has expanded very rapidly and by 2003 accounted for 72% of industrial output. In this period many collectives and state firms were privatized, and entry of new private firms was encouraged. In 2005 the statistical bureau and the World Bank carried out a large survey of 12,400 manufacturing firms in 120 cities (World Bank 2006). The firms in the stratified random sample had in the aggregate more than 10 million employees, so that this is roughly a 10% sample of manufacturing. In this sample only 8% of firms are majority state-owned; 27% are foreign-invested; the large majority of firms are domestically owned private firms. The Chinese economy is now largely based on the Chinese private sector. The sample also found that the pre-tax rate of return for domestic private firms was quite high, around 20%, similar to the high rate of return in foreign-invested firms. State firms, on the other hand, had about one-third that rate of return. Employment growth for the private firms has been nearly 10% per year in recent years; employment in state firms has been contracting at 3% per year. One factor certainly is the very good investment climate that one finds in many Chinese cities, especially coastal ones. In general, the burden of bureaucracy and regulation is low compared to other developing countries, and the quality of infrastructure very good. This can be seen in some of the indicators from World Bank investment climate surveys carried out in different countries. For example, Chinese firms report that it takes an average of 7 days to get a mainline telephone connection, compared to 34 days in African countries. Chinese firms lose about 1% of output to power outages, compared to an average of 4% in African surveys, and much higher numbers in some countries (Kenya, 8%; Tanzania, Uganda, 10%). On the regulatory side, many features of doing business are relatively easy in China: for example, it takes 32 days to register a property, compared to 110 days on average in Africa. Why have Chinese cities done so well creating a good climate for private investment? Probably one reason is that a key aspect of reform has been to decentralize decision making to provinces and cities. Chinese cities have then competed actively with each other to attract first foreign investment, and more recently, domestic private investment. Among Chinese cities there are significant differences in investment climate, firm profitability, and growth rate of the private sector.

4.3 Infrastructure finance and pricing

The rapid expansion of infrastructure has been an important factor sustaining China’s growth. Between 1998 and 2006 capacity of the power sector grew at 10% per year, keeping pace with the needs of the economy. The rail network, the most extensive in the world, increased its line length by more than 10,000 km. Most rapid has been the expansion of the expressway system nationwide, which grew in length at a rate of 21% per year over the period, reaching a total of 45,339 km by the end of 2006. (David Dollar 2008).

David Dollars states that the expansions of these infrastructures were financed as follows: That in every sector, the government played an important initial role, providing some budget capital. But in recent years there is very little additional investment from the budget in these infrastructures sectors. Rather, the key to China’s success has been a policy of nearly full cost recovery. In general, infrastructure services are priced to cover the cost of the capital as well as the cost of operations and maintenance.

In the power sector, for example, China set its reform course with the 1985 State Council Decree, “Diversify the Sources of Financing for the Power Sector and Implement Debt Repayment Electricity Price for New Power Plants.” This decree put an end to the Central Government as sole source of financing for power sector investment and allowed local government as well as public and private, foreign and domestic investors to participate in power project financing. Most important, the decree allowed electricity price to be set high enough to recover equity investment, serve all the debts, and make a reasonable profit. As a result, generation capacity increased from 67 GW in 1981 to 622 GW in 2006, an average annual growth rate of 9.8%. The first BOT power plant by foreign investors, in any developing country, was completed in China in 1987. The result of this cost recovery policy is that China has relatively expensive power for industrial use, but a power network that is extensive and reliable. In 2005 the U.S. dollar price per kilowatt hour was higher in China than in the U.S., France, Brazil, or Russia. Germany and the U.K. had modestly higher prices; only Japan had a substantially higher power price than China.4 China’s experience is that industrial firms are willing to pay these prices in order to have reliable supply. The result is that power generation is a profitable line of business, one that can easily borrow to finance new capacity and service loans from revenue.

In transport, most roads are toll roads, so that China has more tolled kilometres of roads than any other country in the world. The toll per kilometre in China is comparable to toll rates in the U.S. or Italy (Figure 4). China’s rate is lower than in countries such as France or Japan, but China’s cost of constructing a kilometre of expressway is also lower because labour costs are so low while the real productivity of Chinese construction firms is high. Relative to per capita income, Chinese tolls are the highest in the world. It takes more than 2% of average per capita income to cover the tolls for a 1,200 kilometre trip. In most of the developed world it would take less than one-half a percent. Pricing policy for expressways in China is somewhat controversial since tolls are so high relative to per capita income. But the Chinese adherence to this pricing policy has resulted in the expansion of expressways on an economic basis. Most stretches of the system easily pay for themselves. There are examples where China has taken a completed toll road and sold it on the stock market so that ordinary investors can benefit from this sound investment. The result of the cost recovery policy is that it does not take ongoing large infusions from the budget to keep the infrastructure program expanding. In 2006, there was US$80 billion of new investment in the expressway sector. More than 40% was financed by tolls and fees collected on existing roads. An additional 40% was financed by loans, which will be serviced by tolls collected on the new roads. Direct foreign investment (also based on tolls) contributed an additional 10%. Finally, there were capital grants from the state budget filling the last 10% (World Bank 2007a). The impressive expansion of the railways has been similarly financed by the internal revenue of the system. Official tariff rates for cargo are relatively low, but for years now an additional surcharge has been added to finance the expansion of the system. Thus, over the period 2000 to 2006 there was US$95 billion investment in China’s railroads. Of this about 60% came from the railway’s income. Thirty percent came from loans, and ten percent from provincial governments.

4.4 Rural Urban Migration

Pre-reform China had a household registration system that completely restricted people’s mobility, which has been gradually reformed over the past 25 years. Each person has a registration (hukou) in either a rural area or an urban area, and cannot change the hukou without the permission of the receiving jurisdiction. In practice cities usually give registration to skilled people who have offers of employment, but have generally been reluctant to provide permanent registration to migrants from the countryside. Migrants who work in factories or perform manual labour in construction or household work can get status as legal migrants, entitling them to some public services, but they are not entitled to the full range of social benefits available to permanent residents. This migrant population is referred to in Chinese as “floating population,” since the initial thinking was that such migrants would stay temporarily in cities and then return to the countryside. In practice, however, a growing number of migrants are permanently relocating to cities. China’s hukou system has had some effect on the pace of this migration, but has not prevented migration from occurring on a large scale. According to hukou registration, China’s rural population has continued to increase, reaching over 900 million by 2004. Data based on where people actually live and work, however, show a rural population 200 million smaller. Data on the labour force by sector show a similar trend: agriculture’s share of the labour force has declined from 80% at the beginning of reform to 60% today. Industry and services have each expanded from about 10% of the labour force to 20%. This migration has nicely complemented what China has done to develop agriculture. The reforms spurred agricultural production, while the outmigration means that the income is spread over a smaller population.

A world bank development report on agriculture and development 2008, proposes the following policy lesson for Africa:

1) Freer markets can serve the interests of poor people. When given market incentives, Chinese farmers responded dramatically. There is evidence that African farmers will react no differently and that opening up markets will reduce poverty.

2) Market-oriented reform must be complemented by strong state institutions. China’s success was founded on strong state institutions that implemented supportive policies and public investments. Africa needs to improve its capacity to implement the required policies.

3) Policies must avoid doing harm to poor people. Of course, state capacity must be used to implement good policies and drop bad ones. One way of helping poor people is to reduce the explicit and implicit taxes they often face, and to reduce biases against them in public spending policies.

4) Macroeconomic stability is crucial. China’s experience (as well as that of other developing countries) suggests that avoiding inflationary shocks is good for sustained poverty reduction.

5) Internal market integration should not be neglected. Although this is not an area in which China made rapid progress (in part due to restrictions on internal migration), internal market integration has played a role in poverty reduction. But Africa faces far greater obstacles than China did, due in part to coordination problems across country borders.

6) The agricultural sector should be given high priority. While China’s high agricultural growth in the 1980s partly reflects an unusual historical event (decollectivization), it also shows that boosting agricultural and rural development is crucial for pro-poor growth, particularly at the early stages, given that small farms can quickly absorb unskilled labour. With Africa’s levels of poverty and relatively abundant supply of land, and with today’s high food prices, an agriculture-based strategy must be at the centre of any effective route out of poverty. (World Development Report 2008: Agriculture and Development)

7) China can help Africa build up agricultural research and extension systems. Achieving agricultural growth is not simple and will require investments in agricultural R&D tailored to African (often rain-fed) conditions, and efforts to bring research results to African farmers. China can help Africa build these systems up, as well as offer a market for Africa’s agricultural exports.

8) Industrialization should not take precedence too rapidly. Impatient governments often try to “jump start” the (mostly urban) industrialization process, often by-passing the pressing needs of their rural poor. Arguably even China may have tried to industrialize too quickly. Here, there are useful lessons for Africa from Vietnam, which maintained a more enduring sectoral emphasis on agriculture and rural development than China.

9) Rising inequality is not an inevitable outcome of higher growth and less poverty. African observers of China’s success might be tempted to conclude that rising inequality is the inevitable price of lower absolute poverty. However, the outcome varies from one country to the next. China’s periods of the most rapid poverty reduction actually saw falling inequality. When growth comes from relaxing the constraints that poor people face in accessing markets, it can help counter inequality.

key messages for Africa

Africa has seen a significant political change in recent times with the rise in more democratic forms of central government. This has ushered in a period of greater stability and peace, and started to create the sorts of institutional constraints on the abuse of power by leaders that one takes for granted elsewhere. However, it is unlikely that the implied shift in the empowerment of Africa’s poor that can be achieved through such political changes will be sufficient to reach the pro-poor “high equilibrium” of the political economy without two additional ingredients: significant changes in economic policies and greater efficacy of state institutions for implementing those policies (Martin Ravallion, January 2008).                 A number of policy messages worth thinking about in an African context emerge from the literature on how China was so successful in the fight against poverty. A partial list would include widespread access to sound basic education and health care, lower dependency rates through lower fertility, greater internal market integration, and greater external openness to foreign investment and trade, consistent with a country’s comparative advantage. There are some tentative signs of progress in Africa on most of these areas, though there is still much do be done.               An important, but all too often neglected, issue concerns the sectoral priorities for development when one is starting in a situation in which the vast bulk of the poor remain in rural areas. Faced with this reality, China’s growth-promoting reforms starting in the late 1970s sensibly started in the rural economy, where the extent of poverty was as high as one would have found almost anywhere in the world at that time. The initial economic agents of change were countless smallholders increasing their output in response to newly unleashed market incentives.               In due course, the policy emphasis naturally switched to the non-farm and urban economy, and the subsequent rural labour absorption was clearly important to continuing progress against poverty. Granted, one can question whether even China got the timing of this switch in sectoral priorities right. However, the key lesson for Sub-Saharan Africa is that to replicate China’s success against poverty in the longer term a much high priority must be given to agriculture and rural development in the near term.               The problem is that many low-income, primarily rural, developing countries (including in Africa) think they can essentially ignore their agricultural sectors and leave the whole task of poverty reduction to labour absorption from non-agricultural sectors. Worse still, they sometimes try to jump-start their economies by rapidly developing a modern, relatively capital-intensive, manufacturing sector. The problems with this development path are magnified in countries with high initial inequality in human resource development, such that there are relatively few rural workers–and very few amongst the poor–who can get these jobs, or even get the relatively less skilled jobs required by a more labour-intensive manufacturing sector. This sort of approach will do little to reduce rural poverty directly and may even harm the rural poor through the financing methods (notable the heavy taxation of agriculture) and price distortions that are needed. Poor, primarily rural, economies cannot reasonably hope to by-pass the key steps in promoting agricultural and rural development that China took from the early stages of its reform process. That is an important message for much of Africa today.               Of course, Africa does not have the same failed collective-farming systems to dismantle as did China. But the generic point on sectoral priorities is still relevant. African countries will have to find their own, tailor-made, versions of the rural reforms and public investments that will be needed to raise the productivity of smallholders–to find Africa’s home-grown version of China’s rural policies early 1980s. Drawing on the literature on Africa, one can point to the importance of physical and human infrastructure development in rural areas and the pressing need for an effective support system for the rapid adoption of known and improved farming technologies; this will require a combination of research, advisory services and financial support for inputs.        While raising agricultural productivity in Africa is hardly going to be sufficient for eliminating poverty in the longer term, it is arguably the most important problem to address at the outset, and may even prove to be necessary for sustained progress in other areas of economic and social policy. Alas, the problem of low farm productivity remains. And research has been scant on the underlying (social and political, as well as economic) reasons for Africa’s (large and widening) gap in agricultural productivity relative to China and most of Asia.                 Another likely pre-condition for long-term progress in Africa is more effective state institutions. As this paper has emphasized, China’s experience points to the importance of combining pragmatic, evidence-based, policy making with capable public institutions and a strong leadership that is committed to poverty reduction. Without these conditions, and the rightpolicies, it is difficult to see how any country can make the significant changes that are needed toget out of an equilibrium in which large numbers of poor and powerless people suffer under policies that perpetuate their poverty. Relative to Africa, history and geography have made forstronger state institutions in China, and it has no doubt helped that China did not make the mistake of believing that freer markets called for weakening those institutions. Public administrative and decision-making processes were also crucial to assuring that the state was an effective tool for fighting poverty. Evidence-based policy making has played an important role since the late 1970s. China learnt much from the successes and failures of diverse local initiatives; in effect, the centre transmitted the policy lessons from one place to another, backed up by credible research on what was happening on the ground.                It is plain that the combination of sound policy making practices with strong state institutions was a key factor in China’s success against poverty. And it is also clear that the two ingredients are complements, not substitutes. Less ideology helps little if state institutions are weak. China’s lesson for Africa on the importance of “searching for truth from facts” in policy making will bear little fruit if Africa’s state institutions remain weak.        But it must not be forgotten that Africa is 48 countries not one. There is no African central government to transmit policy lessons from one place to another. Here the international community, including China, can play an important role. (http://go.worldbank.org/MKHQ0UMVA0)

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[1] Peter Brookes and Ji Hye Shin, China’s Influence in Africa: Implications for the United States, Feb. 22, 2006

[2] An approach pioneered by  Rapheal Kaplinsky,Dorothy McCormick and Mike Moris in a Paper presentation on the impact of china on sub Saharan Africa, April 2006.

[3] Martin Rvallion, Are the Lessons for Africa from China’s Success against Poverty?, Policy Research Working Paper 4463,World Bank Development Research Group,Office of the Director, January 2008

[4] Chinese Ministry of Foreign affairs website

[5] Li Anshan,” Transformation of China’s Policy.”

[6] Jean-Christophe Servant, “China’s Trade Safari in Africa,”Le Monde Diplomatique, May 2005, at mondediplo.com /2005/05/11 chinafrica.

[7] Esther Pan: China, Africa and Oil, Council on Foreign Relations. www.cfr.org/publication/9557/china_africa_and_oil.html.

[8] Programme for China-Africa Cooperation in Economic and Social Development

[9] Francois Lafargue, China’s Presence in Afirca: French centre for Research on Contemporary China CEFC, www.cef.com.hk/uk/pc/articles/art_ligne.php? num_art_ligne=6101

[10] C. Alden et al. (eds) China Returns to Africa. London

[11] Ibid

[12]            In the case of the clothing and textiles sectors, the cost of capital for Chinese investors (less than three percent) is much lower than for COMESA investors (in the region of 15 percent) (Manchester Trade Team, 2005)

[14]   Jenkins and Edwards conclude, “In the absence of data on the expenditure patterns of poor households and the extent to which they consume imported goods it is only possible to make a crude estimate of the likely impact of imports.” (Jenkins and Edwards, 2005: 29). “Only in Uganda of the eight countries, do basic consumer goods account for more than 20 per cent of total imports from China, although both Ghana and Tanzania are slightly below this level.” (ibid: 29).