China's intervention in Africa and Latin America

In the past years much has been written about the fact that China is increasingly active in Africa and Latin America. Amazement and worries abound in these writings. This is partly understandable as China’s increased activity on both these continents seems relatively new. However, if we accept that all people are equal – which is the position Western countries defend when they support human rights – then it is evident that China, the world’s most populated, and increasingly wealthy nation is represented in all corners of the world. Equality would imply that China should even be more present than the EU and the US together, as they ‘only’ represent 800 million inhabitants as opposed to the 1,3 billion Chinese.

1. How new are the contacts between Africa and Latin America?

The People’s Republic of China has been active on both continents for some time. There certainly is continuity in China’s foreign policy. Already in 1954 Prime Minister Zhou Enlai prioritized a focus on defending mutual benefits, as well as equality, sovereignty and no interference in domestic affairs. As they all have experienced the oppression of either Europeans or Americans, Africa, China and Latin America share a preference for this approach.

Nevertheless, China’s foreign policy has also been marked by change. For instance, the meaning of ‘mutual benefit’ has evolved. In 2010 defending ‘mutual benefit’ has taken on the meaning of defending mutual economic interests. By contrast, in the Maoist period China was driven much more by ideology. For instance, China helped with large infrastructure works in exchange for political support, such as freezing diplomatic relations with Taiwan and the Soviet Union. This ideological drive helps to explain why China in the period between 1967 and 1973 — when it was a very poor country itself — allocated 5% of its budget on development aid. A historical record, certainly for a developing country.

2. Does China export its own development model to Africa and Latin America?

China realized that competition and free market mechanisms can — under certain circumstances — be beneficial and yield better results than central planning. This realization also had an impact on Beijing’s foreign policy. Whereas during the Maoist period China was investing almost exclusively in government initiatives, now there is much more diversity. China is trying to revive its less successful state-funded projects by granting them more autonomy and by making them more attuned to market mechanisms. Most often China does so by setting up joint ventures with Chinese companies.

In its international development policy China is – on a very large scale – applying the instruments that contributed to its own growth. For instance, in the 70s China struck deals with Japan regarding commodities. These entailed that China would deliver oil and coal in exchange for infrastructures and technology. Nowadays, China is setting up similar exchanges with African countries. This time it is China that is taking care of infrastructure, factories and technology, whereas the African countries are delivering commodities. In addition, China established numerous joint ventures with Western companies, which would be allowed access to the Chinese market, in exchange for technology, modern management and increased productivity. At the moment, China is setting up its own joint ventures with African partners.

In almost all East-Asian countries the government’s grip on the financial world through state banks and monetary policy was a crucial development instrument. “National champions” were selected among companies and through cheap credits they were offered all possible opportunities to develop in sectors chosen by the government. China did and does the same but the government’s power over monetary policy is now also playing a role in international cooperation policy.

National banks such as the Chinese development bank or the Eximbank do not have as their goal short term profit maximization, they serve to support strategic objectives of Chinese politics and economy. The banks offer loans at different interest rates, depending on the political choices behind the loans. This is how China can start projects where European companies would struggle: European countries barely have state-owned banks left. As an intergovernmental institution the World Bank could function in a similar way as Chinese banks, with the difference that Chinese banks can operate much quicker.

Moreover, the World Bank imposes far more conditions for investment, such as social and ecological standards, which means it misses out on some projects. China’s position in international cooperation and in many other areas of policy, is that of a pragmatist that is eager to learn. China “is crossing the river while touching the stones” (mozhe shitou guo he). New approaches are tested on a small scale. If they turn out to be successful, these approaches are applied on a larger scale.

3. Will the new cooperation between Africa, Latin America and China be beneficial for all 3 parties involved?

There certainly is this potential as Africa and Latin America and China seem complementary in many ways. Africa and Latin America are continents rich in commodities. China needs a vast amount of commodities if it wants to keep on growing itself and if it wants to remain the world’s production centre. This hunger for commodities is driving up the prices of commodities, which contributes to the national revenue of many countries in Africa and Latin America. With the gains from commodities these countries can build the roads, power plants, schools and hospitals they need.

Few companies can build this infrastructure cheaper than Chinese companies, who also produce cheap clothes, shoes, TVs, mobile phones, PCs and agricultural technology. This is why Africans and Latin Americans are able to buy more with their money. The downside of all this is that the Chinese imports are outperforming African and Latin American companies. For instance, in the textiles industry many jobs have been lost already. Latin America with its vast arable land surface and relatively low population density has a key role to play in world food production. China, on the other hand, lacks land for cattle to graze on. This is why China is renting land in Africa.. These projects risk to be at the expense of local food supply.

It is possible that another complementary relation would help to overcome these problems. The Chinese government want Chinese enterprises to ‘go abroad’ (zou chuqu) and to start regional hubs in other continents: this would enable China to explore new markets and to use local resources. It is in particular the delocalization of labour intensive and polluting industries that is stimulated. This can indeed help to create jobs in Africa and Latin America. However, it remains to be seen how these plans will develop, as also in China, many people are dreaming of a job outside the agricultural sector.

Therefore, it is politically sensitive if Chinese companies would create jobs elsewhere. In any case, in Nigeria and Ethiopia there are already examples of industrial joint ventures between African and Chinese companies that can compete with the Chinese imports. The complementarity between Europe and Africa and Latin America is less evident.

4. Is the Chinese involvement in Africa a new form of colonisation?

No. The Chinese will not go and conquer countries, but if the African and Latin American governments are not careful, they might end up in a dependent position towards China. Therefore, it is crucial for them to have a vision on how to approach this new relationship towards China. In general, it can be argued that the negotiating position of African countries towards the West is strengthened by the arrival of China as an alternative partner. Yet at the same time the Chinese approach can reinforce the current situation of Africa being mainly a supplier of commodities, which would mean no difference with Africa’s situation under a European trade regime. And there are other dilemma’s: China offers access to infrastructure and technology.

However, China in itself is an industrial competitor that has cost Africa jobs already. In sum, much will depend on how African countries approach their new partner. As a donor China remain a smaller player, both on an African and a global level. The US, the EU or the World Bank are far larger donors. Nevertheless, if all forms of funding (loans, investments, public export credits) are taken into account, China has – according to researchers such as Deborah Brautigam – already become the third most important player, with only Germany(just) and the US being larger.

China’s foreign aid is far more geared at funding large infrastructure works. In this sense the Chinese approach can be complementary to the type of aid offered by the West, which is more aimed at funding social sectors. Part of Europe’s and Belgium’s irritation regarding China’s intervention in Africa can be understood from the fact that we have abandoned the approach of funding infrastructure works and the commercial pollution of development aid after many negative experiences, whereas this seems to be the approach the Chinese are pursuing: the infrastructure works financed by the Chinese are done by Chinese companies.

A large part of China’s activities in Africa cannot be seen as foreign aid:. And China does not claim it to be foreign aid: rather, it is a win-win situation, or mutual benefit. To compare the Chinese approach with the type of foreign aid offered by Western countries is a very difficult exercise, which is why drawing conclusions from such comparisons is risky.

5. Is China dethroning the US in terms of influence in Latin America?

No. The US remains a far larger investor and trade partner than China.

China’s arrival on the market has, however, decreased America’s influence. The success of the Chinese development model and the bad experiences with the neoliberal development model imposed by Washington – with as a culmination the financial crisis – enable Latin American leaders to take on a much more independent course than before. Remarkable is, however, that the military presence of the US in Latin America has increased in the past years. The question remains, then, whether there are boundaries to the emancipation of Latin America.

6. What is the main objection against China’s involvement on the 2 continents?

Chinese companies pay little attention to local labour and environmental standards. The principle of non-interference in domestic affairs also enables China to do business with countries that are notorious human rights violators and dictatorships. Chinese companies often use corruption to achieve their goals. Perhaps most Western countries score better on this front, although it is hard to say that they are without fault.

7.Can China teach the West lessons in international cooperation?

Maybe. Because the West is a larger contributor to foreign aid, and puts more emphasis on this, the contrast between Western aid and its policy in other fields, such as trade, environment and migration is very stark and is seen as a lack of coherence. For instance, if the EU’s foreign aid in reality serves to facilitate free trade agreements with African countries than the altruistic objectives of foreign aid come across as insincere. Indeed, the free trade agreements threaten to wipe out the income of African farmers and ensure that the EU gets an advantage over its new competitor, China. For China, foreign aid is clearly less important than a foreign cooperation policy that creates a win-win situation for all actors involved. Ensuring mutual benefits is the key point in China’s policy. It seems to be easier to have a coherent policy on achieving objectives of mutual benefit than to develop a coherent foreign development policy.

However, this does not necessarily mean that the Chinese approach is less beneficial for Africa and Latin America than European aid policy. Although there is no doubt that Western help – in the short term – helps far more people, and even saves people’s lives, through funding for education, healthcare, emergency help or food supplies. This is a positive realization. We believe also that Western pressure supports positive local forces such as human rights activists, trade unionists, local ngo’s or social movements.

But the question remains how sustainable Western help is. Do the aid projects remain once the Western funding has disappeared? What benefits of cooperation remain when the negative consequences of for instance our trade policy or our climate policy are included? It is clear that if you take all these into account, the picture is less clear cut. The fact that the Chinese emphasize mutual benefits can lead to them only starting investment projects that are sustainable. Can. And that their projects will have a more profound impact than we can imagine.

If the Chinese joint ventures with Nigerian companies lead to the emergence of a Nigerian bourgeoisie, in whose interest it is to drive up production and create jobs, that is positive for Nigeria. And if it is also in the interests of this bourgeoisie that the currently corrupt Nigerian state delivers on certain services, such as electricity, transport, education and the rule of law, then the dynamics emerge to work on one of Africa’s main problems: the malfunctioning of the state.

Is it merely a coincidence that Bob “Live Aid” Geldof has started an investment fund? Probably not. Investments can be a form of sustainable cooperation, but they can also boil down to exploitation. It is also very confronting to realize that even foreign aid, which we have always said and still say the West should offer the South, has downsides: aid can paralyze instead of activate and development workers usually stay so short a time in the developing country that they do not really think about sustainability and durability of their internvention.

As the subject matter is far too complex and too broad, our aim is not to cast judgment. We do not know how China’s new role on the international development scene will develop, but one thing is certain: China changes the picture.

John Vandaele and Marc Vandepitte published a paper on this subject. ‘China in Africa en Latijns-Amerika’ can be downloaded for free at www.MO.be/papers.