Chinese Thinking on Taxation and African Infrastructure

On Friday last week while I was in Nairobi at a World Bank event on China and fragile states, The Star (Nairobi) published an insightful article by Chinese engineers Su Wu and Kou Yang. I've noted in The Dragon's Gift how China's policy banks have followed the "request-based" financing model made famous by Japan. This article shows how Chinese companies are trying to educate Africans about ways in which they can afford to have [more Chinese companies] build their infrastructure. I especially like this because it combines my two interests: China/Africa, and Taxation and State-Building.  A hat tip to Paul S. Rogers.

"Kenya: Here Is How to Build Costly Infrastructure," The Star (Nairobi) By Su Wu and Kou Yang*, 25 May, 2012.

Most of African countries are under developed and unable to afford the construction of infrastructures. Therefore, the establishment of a proper taxation system that will enable the collection of adequate capital for infrastructure is naturally a subject quite valuable for studying.
The importance of a good infrastructure in development cannot be over-emphasized. However developing such an infrastructure requires huge sums of money. Building for instance the 1412km road from Lamu Port of Kenya to South Sudan, requires about $ 2.118 billion.

Setting aside such a huge amount of money from the national budget will surely result in a big deficit and unfavourable effect on the economy. So it is wise to apply [for a] loan for the construction with expected profits of the road as mortgage.

China Africa Development Fund Not Attractive Enough in China

China Africa Development Fund, the equity investment arm established by China Development Bank and launched at the 2006 Beijing Summit of the Forum on China Africa Cooperation, has failed in its effort to raise $2 billion on the capital markets. Instead, says a story published by China's vigorous economics newspaper Caixin, the state will arrange a second injection of foreign exchange:   "The fund’s parent, China Development Bank (CDB), arranged the US$ 2 billion worth of eight- to 10-year loans at bargain interest rates after CADF’s cash injection plan, some two years in the making, won State Council approval in March."

Chinese private funds and investors were not tempted by the potentially high returns on offer in Africa. And they were put off by the CADF's mission of holding shares for at least five years and potentially longer, to give projects a chance to mature. Caixin's analysis reinforces some of my points about China following the Japan path. Here's Caixin again:

"Nevertheless, economists say CADF’s initiative underscores China’s shift from exporting products to exporting capital – a path Japan followed in the 1980s after coordinating government and commercial agencies to promote overseas development."

One mistake in the article. An anecdote said to be about Libya is actually about Liberia (below). This interesting story illustrates the independence of state-owned companies. They couldn't be compelled to take over a politically important project. But it also shows something unfortunate about CADF: apparently, it could be compelled.

"A private company from China had signed a US$ 2.6 billion contract with the government of Libya [Liberia] for a mining project. But the Chinese side couldn’t fulfill its obligations, so it put the project up for sale. At the time, state-owned steel companies were unwilling to get involved partly due to perceived risks of doing business in Africa. CADF assumed 85 percent of the project and negotiated a settlement with the Libyan [Liberian] government, making the project more appealing to potential Chinese buyers. Later, Wuhan Iron and Steel Group bought a 60 percent stake."

See the original story on China-Wire.org, a great website that aggregates stories on China themes. 

University of Nairobi Public Lecture

I will be speaking at the University of Nairobi Thursday afternoon May 24, 2012, on "China and Africa in the 21st Century," from 3:30 to 5:00 pm. The lecture will be co-hosted by the Institute of Diplomacy and International Relations, the Africa Research and Resources Forum, and the World Bank's Global Center on Conflict, Security, and Development. The lecture will be followed by a debate on China's role in Africa.

Location: University of Nairobi, Education Building, ED 213, 2nd Floor.

Update, Thursday, May 24: great turnout at the lecture, but not enough time for all those waving hands to be called on by the moderator, Professor Michael Chege. Let's see how many students find this blog and ask their questions here, as I invited them to do!

Podcast of Interview at AmCham Beijing

I spoke at the American Chamber of Commerce during my quick trip to Beijing recently. Great fun to see old friends like Dwight Nordstrom, with whom I started Chinese classes in 1979 in the Yale in China program then at Hong Kong's Chinese University. He's now an active industrialist with factories in Beijing and elsewhere. Here's a link to the podcast of an interview that AmCham did with me after the talk.

"Zombie" Chinese Land Grabs in Africa Rise Again in New Database!

Sigh.

How durable is a bad news report? How many lives does a zombie have?

How often are we going to find hugely expensive efforts to collect and "verify" land grab "data" that include verification methodologies where one NGO collection of news media stories serves to validate the cases collected by another NGO?

Last week, the new Land Matrix "land grab" database was released at a big World Bank conference on land. The Land Matrix project is "an international partnership involving five major European research centres and 40 civil society and research groups from around the world." On paper, they have a strong methodology and very strict criteria about projects that are to be included. But in practice, they seem to violate their own rules routinely, at least when it comes to Chinese "projects" in Africa.

A colleague who attended the launch told me that "China" was named as the biggest "land grabber" worldwide. He knows my work on this, so he raised an eyebrow, and so did I when he told me. (Were any other eyebrows raised? I don't know.)

I understand there is a lot of Chinese land investment in Asia, especially in Cambodia and Laos. I don't know the Asia cases, but when the database was made public, I checked the China-Africa cases in the online database, which supposedly only lists the cases that have passed their "robust" fact-checking process (which apparently involves checking to see if another NGO has published a link to a media report on an alleged case).  I was interested to see which "Zombie Chinese projects" (i.e. dead projects, or projects that in fact never had any life to them at all!) are in their database as confirmed. Here is a sample:

(1) ZTE oil palm project 2.8 million hectares in DRC The project was discussed but never finalized, land was never allocated, the project -- which was almost certainly never this large -- has been dead in the water for years.

(2) ABSA Biofuels 30,200 ha in Ethiopia. Huh? This proposed joint venture is not "Chinese" but South African-Chinese-Ethiopian, and was listed in an Ethiopian database in 2008 as in the "pre-implementation" phase. It has never been implemented.

(3) Malibya 100,000 irrigated rice project in Mali. This is identified as Chinese/Libyan investors. In fact, it is only Libyan. They hired a Chinese contractor to develop the irrigation. It is not a Chinese investment.

(4) Uganda 40,500 ha Hubei multipurpose project. A big talking entrepreneur and one media story. This never went anywhere. Zombie ... zombie ...

(5) Zimbabawe 101,170 ha irrigated maize project. I've written about this countless times. It was a construction contract given to a Chinese company by the Zimbabwe government, not a Chinese investment. They were not paid. They went home. The land never ended up being developed. This all happened almost ten years ago, in 2003 for Pete's sake!

So, another pretty awful collection of so-called "data", with strong media attention that will give yet another round of life to these Zombie Stories. For more from me on this topic, search this blog under "Land Grab".

A hat tip to Poul Wisborg (and to Duncan Green at Oxfam for circulating the link).

Are the Chinese the Worst? A Comparative ILO Study in Zambia

In all the heat over the Human Rights Watch study of a Chinese mining company in Zambia, I may have missed discussions of a 2010 study by the ILO (authored by Chrispin Radoka Matenga) that actually compared companies in Zambia's copper belt: "The Impact of the Global Financial and Economic Crisis on Job Losses and Conditions of Work in the Mining Sector in Zambia." 

This paper has data on employment, accidents, and so on across the mines. According to the study: "Comparing these [accident] figures with the total number of employees for each mine in Table 3 and 4 above, NFCA [the Chinese copper company] has the highest accident rate for all the mines in the country" (p. 12).

A Zambian official said: “Safety records for most companies have drastically gone down, with most companies recording slightly higher levels of accidents. For example, the Chinese have the worst safety record. In some of these mines, you find the boss himself is going underground with flipflops”.

Conditions of work are bad in a number of non-Chinese mines, especially for contract workers:

"For example, Bresmar Investment Limited, a contractor company with Kansanshi Mine in Solwezi, has reduced wages for its workers from K3,600 per hour to K2,900.40 per hour. These workers toil for 12 hours a day for seven (7) continuous days and rest for four (4) days."

I found out about this study via an April 8, 2012 posting by Research for Development at the Rural Modernity blog.

China's Health Aid in Africa: Same Old Problems

When I wrote my first book on Chinese aid to Africa in 1998, I documented how problems with language and local capacity led to difficulties in technology transfer with material goods -- although skill transfers ("learning by doing") were more successful.

Today Chinese journalist Beibei Yin sent me his newly published article in the Financial Times -- "Chinese donations: Tale of frustration that lies behind health aid to Africa."

Yin shows how little has changed. Chinese medical teams appear to be popular, but Chinese equipment and medicine donations are still coming with instructions only in Chinese. Training is inadequate (five days!), and, consequently, donated goods and machinery sit gathering dust until they expire -- a huge waste for China and for the recipient. This probably doesn't happen at the few places where Chinese doctors practice in revolving medical teams -- but the malaria centers built by the Chinese in an number of African countries do not have any Chinese staff or assistants.

Changing this would require a number of things to change:

• Chinese exports -- even if donations -- need to come with instruction manuals in English, French, Swalihi and other languages used by educated people in recipient countries. The Ministry of Commerce has been pushing Chinese companies to do this for years, why can't they get the aid donations to follow suit?

• The Chinese government could finance a Chinese expert (or a small team) who speaks the local language and could operate the machinery together with local technicians, for a year or so. This would allow learning by doing, while working out the kinks while a machine was still under some kind of warrantee.

Yin was not able to study a number of the malaria centers, but this is also an area ripe for student (and other) research. I saw how Ethiopia appears to have good plans for its agro-technical demonstration center, while Tanzania was not at all clear how they would use their "Chinese gift." How have the malaria centers fared across the various countries that have received them? What explains the outcomes.

Africa's Free Press Problem: Is China Causing It?

Source: Henry Hall's China Africa News

On April 15, 2012, the New York Times published an op-ed by Mohamed Keita on Africa's free press problem, arguing that press freedom was getting worse in Africa -- because of China.

Keita's piece makes a lot of good points. Investigative reporters have a very tough road in many parts of Africa and there are many examples of courage under impossibly tough conditions.

However, his opinion oversteps his evidence in linking increased Chinese economic activity in Africa with increased repression of the media.

Asking "Why this disturbing trend? (of media repression)" Keita points to (inter alia) "the influence of China, which surpassed the West as Africa’s largest trading partner in 2009."

As an example of this causal linkage, Keita wrote: "The volume of trade between Rwanda and China increased fivefold between 2005 and 2009. During the same period, the government has eviscerated virtually all critical press and opposition and has begun filtering Rwandan dissident news Web sites based abroad."

I had to bite my fingers to stop them from typing something snarky after this statistical analysis.
 
Keita actually does make a good point in his observation that with growing trade, "China has been deepening technical and media ties with African governments to counter the kind of critical press coverage that both parties demonize as neocolonialist."

Rather than training African reporters to be like Xinhua reporters, the Chinese goal in stepping up training and PR activities is to present a different picture of Chinese activities in Africa to counter the negative reporting eminating from "the West". Here's where Keita gets it right:  

"More than 200 African government press officers received Chinese training between 2004 and 2011 in order to produce what the Communist Party propaganda chief, Li Changchun, called “truthful” coverage of development fueled by China’s activities." (emphasis added).

It is easy to understand why both the Chinese and African governments might want a more balanced picture of their activities. Cambridge (UK) academic Emma Mawdsley has written the classic piece on negative media coverage of China in Africa, juxtaposed with positive reporting on the west's engagement: "Fu Manchu Versus Dr. Livingston on the Dark Continent? Representing China, Africa, and the West in British Broadsheet newspapers" Political Geography 27 (2008).

And the fun continues. See the new report on "China's Global Media Image," launched by Renmin University and Sweden's 21st Century Frontiers (and spearheaded by Dennis Pamlin) which analyzed 100 major media magazine covers featuring China -- more than 60 percent clearly pictured China as a threat, and not open to dialogue.

While Keita rightly emphasizes many African governments' reluctance to hear criticism, it is also clear that Africa has long been presented to outside audiences as the dark continent of chaos, child soldiers, famine, etc.

It's not just 54 African governments that are tired of outsiders determining their global image. France is also tired of Anglo domination of the TV media, hence they've launched their own English media service: France 24. A perception of Western bias in coverage of the Middle East, Islam, etc., in part underpinned the launch of Al-Jazeera.

As a Chinese reporter put it, "Although they are geographically far apart, China and Africa have long learned about each other through Western media." Farooq Sulehria, a Pakistani writer added, "We largely view the world through the media. It is our window on the world. If we see the world through the eyes of the West, we will be siding with Tarzan instead of blacks without asking: what is Tarzan, a white man, doing in African jungles?"

IMO, this"media balancing" is far more important for the Chinese than any effort to get African reporters to modify or soften their reporting on African governments, as impled by Keita. In fact, with their reluctance to intervene in internal affairs of other countries, I would be surprised if the Chinese do training focused on anything to do with African journalists vis a vis their coverage of African governments). But who knows? He wasn't reporting. He was giving an opinion.

Instead of these general op-eds that are only, after all, opinions, wouldn't it be better to have some actual investigative reporting on this issue? What about doing an indepth study of the Chinese media training programs, or interviewing a random sample of the press officers and African journalists that have attended them?

For those who are interested, I have written about this topic earlier, in a piece "Comments on Winds from the East," a National Endowment for Democracy study. My comments were published at Pambazuka in January 2011.

The lonely world of Chinese Traders in Africa

Researcher (me) interviewing Chinese trader

The Brenthurst Foundation in South Africa has just published a sensitive, detailed and eye-opening study by Terence McNamee (with others) of more than 200 Chinese traders in several South African countries: "Africa in Their Words: A Study of Chinese Traders in South Africa, Lesotho, Botswana, Zambia and Angola." It's also beautifully written!

The study's main points match my own research and experience, particularly the bitter belief by nearly all small traders and "China shop" owners that the Chinese government does nothing for them. As a trader in the Kariakoo market in Dar Es Salaam told me: "The Chinese government helps the Tanzanians. It doesn't help me." Highly recommended.

I'm sorry the researchers apparently never saw the very good paper by my former student Rachel Laribee, who did similar research in South Africa with Chinese shop keepers, "The China Shop Phenomenon: Trade Supply within the Chinese Diaspora in South Africa." Rachel pointed out how competitive the different China shops were with each other, not just with African shops. There was no "China, Inc." in her study, either.

Another hat tip to Yoon Park.

Whatever Happened to the Chinese special economic zone in Algeria?

Jiangling Motors SUV ... but probably not in Algeria

En route home from speaking in Chapel Hill, I learned a bit more about one of the failed Chinese efforts to establish an overseas economic zone (in Algeria) in a new paper written by Chris Alden and Faten Aggad-Clerx for the African Development Bank.

(p. 10) "... in 2008 China and Algeria entered into an agreement to establish a second Chinese Special Economic Zone in North Africa, the Jiangling Economic and Trade Cooperation Zone, which was to be hosted in Mostaganem (western Algeria) with the focus on assembling cars. The agreement involved the Chinese Jiangling Motors Cooperation and Jiangxi Coal Corporation Group and their Algerian partner, Groupe Mazouz. The activities of the Jiangling Zone were expected to assemble 50000 units in the five years that would follow. The deal was welcomed as Algeria seeks to revive its automobile sector, which collapsed in the 1990s."

Tang Xiaoyang and I found that the Algerian zone was cancelled after Algeria changed its laws on foreign investment to require Algerian ownership of at least 51% of a project. But this paper adds some new details and theories:

(p. 10) "Others have argued that the decision was influenced by ongoing negotiations between the Algerian government and the French car manufacturer, Renault, for the establishment of the Renault car-assembling factory in Algeria. Renault was said to be concerned that it would face  stiff competition from Chinese car manufacturers if they were to also produce in Algeria. (Renault eventually withdrew its offer and opened a factory in neighbouring Morocco). Subsequent interviews with Groupe Mazouz also indicated a concern over the quality of Chinese products given the high demands of the Algerian consumer and their attraction to anything produced by the West. Furthermore, as noted above, the Chinese companies and their Algerian partners have been involved in fraud cases further damaging the reputation of Chinese companies."

Another case perhaps of reputational risks sliding across sectors and companies.

It's good to see Chris Alden return to the China-Africa research field. A hat tip to Hayley Hermann via Yoon Park.

Chinese in the South Pacific: Echos of Africa

PNG dormitory under construction (G. Smith photo credit)

Today a former student sent me links to two interesting papers by an Australian Ph.D. student with Chinese language who is doing research on Chinese engagement in the South Pacific. Graeme Smith's take on the Chinese runs up against hardline Australian opinion, media coverage, and the conventional wisdom that seems to be -- if it can be possible -- even more negative than coverage in Europe and the U.S. regarding Africa. (For an example, see a series of articles by China correspondent Rowan Callick, including "China’s neo-colonial slavery in PNG", The Australian, 12 February 2007, and so on.)

In a short piece called "Are Chinese loans always a bad thing?" (the very title shows what a balanced analyst is up against in Australia!) Smith gives the inside story of a concessional loan arranged via a Chinese construction company to build a dormitory at a South Pacific university, and how university students protected the Chinese workers during the riots, because it was their dormitory being built. Smith's paper also notes the "request-based" aid system for concessional loans that I discuss in The Dragon's Gift, showing in detail how it worked in this case:

Whether it is a grant or a loan affects local control and ownership. With a grant, local partners have little leverage. As a University administrator explained, '(t)he difference is that this is a loan. Even if it is a soft loan, we're still going to pay them back. So it's really the government of PNG paying for it. We're in total control of it.'

My thesis that Chinese infrastructure companies in the Pacific, not aid agencies in Beijing, are driving aid requires more substantiation. Yet for those with even a passing familiarity with China's polity, it is a no-brainer. The Chinese central government lacks full agency and control within its own borders; why would it enjoy it outside of them?

This lack of control can lead to better outcomes for Pacific nations. In the case of the dormitory project, the tail wagged the dog. GDFC [a Chinese construction firm] successfully lobbied Exim Bank in Shanghai. The contractor, rather than the lending agency, penned the initial loan agreement. Remarkably, the university and the lead architect in PNG were able to push back, persuading Exim Bank to accept their terms for the design and supervision of the project, because they were competitive on price, and arrived at the negotiating table with plans and standards to hand.

In a March 2012 article in the Journal of Pacific History (available free for two weeks only) mainly on Chinese reactions to the anti-Asian riots in the South Pacific, Smith argues:

When China does appear in the literature, analysis is rarely nuanced or informed by original sources. This is evidenced by the titles of many articles, where China appears as an anthropomorphised ‘clumsy panda’ or as the ‘dragon in the Pacific’, lurking in the background, secretively disbursing aid, corrupting weak and passive Pacific governments, and engaging in an endless cloak-and-dagger game for diplomatic recognition with its arch nemesis, Taiwan.

One by one, Smith punctures a host of myths and fictions that dominate some of the coverage of Chinese activities in the region. He then analyzes Chinese reactions (via interviews and the blogosphere) to the Port Moresby riots. It's useful and interesting, and China-Africa watchers will benefit from the comparative perspective.

A hat tip to Ekawati Liu.

Links I Liked: Land Grabs, Etc.

(1) A "Land Grabs in Africa" Study that Doesn't Target China.  Opening a recent paper on land grabs published by Earth Security, I expected to find the usual sentences about "China" leading the land grab in Africa. I was pleasantly surprised to find nothing of the sort. Instead, a balanced assessment of the risks and of the sources of risk:

"Key investors are private firms and governments from Europe, Africa, the Gulf States, and South and East Asia, and a growing base of institutional investors, sovereign wealth funds, and private wealth owners, generally in deals made with host governments."

One area missing: as the "database" on over 400 "land grabs" (or media stories) published by the NGO GRAIN on February 23, 2012, pointed out, a large number of American investors are also part of the picture.

China, the US, and Export Credits

I've just learned of a little-remarked result of Xi Jiping's February 2012 meeting with President Obama in Washington DC. As reported by Reuters, the US and China have agreed to open talks on setting rules and guidelines for officially supported export credits.

This small announcement is big news for China-Africa watchers. Right now, these rules and guidelines are mainly set by the OECD's working group on officially supported export credits ("aid for trade"). China, of course, is not a member, and thus is not bound by the OECD norms and rules. Any acceptable conclusion on these guidelines will have to involve more transparency by the Chinese. Transparent reporting is the heart of the Arrangement, the "gentlemen's agreement" that regulates export credit practices among OECD members. Of course the OECD does not require members to publish their individual export credit agreements to the world, just share them confidentially with the working group. But even getting annual figures broken down across regions or countries, would be a huge advance.

A hat tip to Richard Carey.

Inside Trade adds a bit more to this:

The agreement announced last week by the United States and China to pursue a common set of international guidelines on official export financing by 2014 is aimed at creating a new framework that would ultimately replace the export credit arrangement that currently exists between members of the Organization for Economic Cooperation and Development (OECD), according to a Treasury Department official.

A hat tip to Michal Makocki.

Related to the export credit talks is the release a few weeks ago of a General Accounting Office (GAO) comparative study of export financing practices, mainly focused on the G-7 (remember them?): "U.S Export Bank: Actions Needed to Promote Competitiveness and International Cooperation."

As part of this, the GAO revealed that the US Eximbank (Ex-Im):

• "financed 132 transactions totaling $812 million in 20 sub-Saharan African countries. Ex-Im dedicates two full-time employees to promoting exports to sub-Saharan Africa; others work part-time on the issue" (p. 21). 
• Between 2000 and 2010, China Eximbank's total export credit support grew from $4 billion to over $36 billion, while US Ex-Im's "financing increased from about $13 billion to $24.5 billion (p. 39)."  

We can assume that China Eximbank has more than two full time people working on boosting business in Africa!

"China Refused to Fund Agricultural Project in Sudan for Lack of Oil Collateral"

S

Sudanese farmers (c) Shelter for Life International

I've been writing academic papers about Chinese engagement (or lack thereof) in agriculture in Africa recently. Today I opened a link to a Sudan Tribune article with the (misleading) headline: "China Refused to Fund Agricultural Project in Sudan for Lack of Oil Collateral." The article is actually about a Qatar agricultural project -- on 250,000 acres -- that depends on a separate Chinese project to extend Sudan's electrical grid.

As the Sudanese leader -- who is avoiding arrest by the International Criminal Court in the Hague -- said, the Qatari agricultural project

...stalled due to China not following through on its funding for the project of extending the electric grid because the Chinese loan was in return for oil shipments which stopped after the secession of the South” the Sudanese leader said. “And so China stopped the financing [the project]” he added.

This is interesting because it is another example of how China Eximbank (almost certainly the lender) works in risky countries with poor or nonexistent credit ratings. The loan for the electricity project was secured with oil exports. When oil exports stopped, the loan disbursement stopped.

I'll also make a bet: somewhere, a journalist is going to read this as "China's" 250,000 acre agricultural project, not Qatar's!

h/t to the Centre for Chinese Studies, Stellenbosch

China-Africa Talk at Columbia University Thursday March 8

Thursday, March 8, 2012, 6:00 PM to 7:30 PM

Asia Pacific Affairs Council, Weatherhead East Asian Institute, and Institute of African Studies present:  "China and Africa: Think Again"

A talk by Deborah Bräutigam, Professor of International Development, School of International Service, American University and Senior Research Fellow, International Food Policy Research Institute (IFPRI).

International Affairs Building, Room 918, Columbia University, New York
No registration required.

China and Resource-Based Development in Africa

Photo credit:  Duncan Green @ Oxfamblogs.org

Resource exports are widely expected to be a curse rather than a boon for African countries. Is this always the case? How and when do government interventions make a difference? What do we really know about the impact Asian countries (China and India) have had on the commodity value chains and industrial potential of African raw materials?

PRISM -- Policy Research in International Services and Manufacturing (PRISM) is "a research and policy ‘unit' located in the University of Cape Town's School of Economics and is affiliated to the Centre for Social Science Research (CSSR). PRISM provides a lens to focus research and policy work on issues of globalization and industrialization in Sub Saharan Africa." They are looking precisely at the questions outlined above.

“One Thing Leads to Another” – Commodities, Linkages and Industrial Development," by Mike Morris, Raphael Kaplinsky, and David Kaplan sets out the potential and problems for commodity-based industrialization strategies in Africa.

Their team is doing very interesting fieldwork across Africa, including the oil and gas industry in Angola, gold in Tanzania, timber in Gabon. In an email last November, Mike Morris mentioned to me an AERC study on Sudan "which showed that the 13 Chinese oil producers had dragged 97 supplier firms (services and manufacturing) employing around 4500 people, into Sudan." [Source: Suliman, K. M. and A. A. A. Badawi (2010). An Assessment of The Impact of China's Investments in Sudan. CCS Paper No. 13 Nairobi, African Economic Research Consortium.]

 To read more and see a list of the PRISM Discussion Papers:

China International Fund and Tanzania's Airport

Beibei Yin reports in The Guardian March 2, 2012, about further complications from the failed Dar es Salaam Terminal 3 airport project won by China International Fund (CIF) in Tanzania: Chinese Investment in Tanzania Bears Bitter Fruit. Yin's report digs more deeply into the story, and reveals the problems left behind when the Tanzanian government evacuated all the people living in the spot now vacant and fenced. As noted on this blog, I was there in September 2011, and used the vacant lot as the lead for a story about CIF. Yin reports that the CIF logo has now been painted over...

When China Met Africa

Some time ago I had the pleasure of previewing a stunningly good film: When China Met Africa, directed by Nick Francis and Mark Francis (assisted by China-Africa expert and Paris-based Ph.D. student Solange Chatelard). The filmmakers are now organizing a US tour (to learn more, click here). View the trailer here.

The distributor, Bullfrog Films, describes the movie:

"A historic gathering of over 50 African heads of state in Beijing reverberates in Zambia where the lives of three characters unfold. Mr. Liu is one of thousands of Chinese entrepreneurs who have settled across the continent in search of new opportunities. He has just bought his fourth farm and business is booming.

 In northern Zambia, Mr. Li, a project manager for a multinational Chinese company, is upgrading Zambia's longest road. Pressure to complete the road on time intensifies when funds from the Zambian government start running out.

Meanwhile Zambia's Trade Minister is en route to China to secure millions of dollars of investment.

 Through the intimate portrayal of these characters, the expanding footprint of a rising global power is laid bare - pointing to a radically different future, not just for Africa, but also for the world." 

I endorsed the film for Bullfrog Films:

Remarkable. A compelling, unsentimental and very honest portrait of an encounter between two continents pulled together by profits and politics. The filmmakers had extraordinary access to their three central characters, and the trust they obviously built is never betrayed...Viewers will have no difficulty following these multi-layered dramas--at once ordinary and powerful...The format lends itself exceptionally well to discussions: viewers will find they each saw something different. Intimate, moving and very real.

My former colleague Andy Nathan also endorsed the film: 

"A gritty, vivid picture of the new Chinese presence in Africa, from the pompous officials negotiating deals, to the dedicated engineers trying to build roads, to the hardscrabble immigrant Chinese farmer struggling to tame the land and motivate and pay his local workers. It is a new relationship, full of both hope and suspicion, common interest and cultural friction. Driven by economic need, the two sides struggle to bridge the huge gaps between them."

- Andrew J. Nathan, Professor of Political Science, Columbia University, Author, The Great Wall and the Empty Fortress

For another story about this film by someone who was also blown away by it, see the article by Damien Ma in The Atlantic 

China, CNPC, and Chad: social and environmental responsibility

Chad Pipeline (credit Al-Jazeera)

A new China-Africa book from the French Agency for International Development (AFD). In French, (an English version is foreseen soon) this book provides a summary of research done in Chad and China (2010-2011) as a trilateral partnership: with UIBE (China), GRAMP-TC (Chad) and CIRAD, with financing from the French Agency for Development (AFD).  I haven't read it yet, but it looks fascinating. Fieldwork on concrete China-Africa case studies, done by researchers with the appropriate linguistic skills, background, and contacts, is sorely needed and most welcome.
 
Book Summary (courtesy of Romain Dittgen)

This book analyses the factors that influence environmental management in the CNPC when operating outside of China, in the outer margins of the world oil system, specifically in Chad, a Least Developed Country. Within a sector marked by the regulations inherited from the Exxon project in Doba (implemented since 2000 with initial World Bank support), the 2007 CNPC Rônier project aims at refining part of the extracted oil and exporting the remainder, most probably through the pipeline built under the Exxon Doba project. The question of the compatibility between the systems of reference and practices in both firms thus arises.Through the prism of social and environmental responsibility, this text analyses the challenges in the interaction between Chinese oil firms, host countries and OECD-based firms.
 
Click here to download (pdf version)

Four-Way Cooperation: China, France, Uganda, UK

One of the questions I get asked most often by US government officials is:  How can we (the US) do something cooperatively with China in Africa? The idea in Washington is that a successful cooperative development activity will help to build trust, something sorely lacking these days. My response has always been that whatever you do, it needs to be focused on mutual benefit. The oil industry is an obvious place where vast scope exists for some kind of cooperation based on benefits to all three parties (social, environmental, developmental -- moving up the value chain). So far, it doesn't seem to have happened.

That's why Uganda is interesting. It's not the US, but rather China-Uganda-UK-France. China Daily reported February 21, 2012, that CNOOC (a Chinese oil company), France's Total SA, the UK company Tullow Oil, and Uganda are discussing a joint investment in a refinery to process Uganda's newly discovered oil (the country currently imports all of its petroleum products. No doubt if the project goes forward, a Chinese company will build the refinery. It's developmental, cooperative, "win-win." Can't the US foster something similar, somewhere?

H/T to Chinascope

Links I Liked: Chinese Loans in Latin America

I've been participating in a group on China-Latin American organized by the Latin America Dialogue here in Washington, DC. A new report, "The New Banks in Town: Chinese Finance in Latin America," presented to our group by Kevin Gallagher and colleagues on Thursday last week shows us how much higher Chinese financial commitments are in Latin America than they appear to be in Africa: "upwards of some $75 billion" since 2005.

Links I Liked: Brazil & Zimbabwe

Are the other emerging powers following the Chinese embrace of Africa? The Zimbabwe Herald (which is seen in Zim as the govt's mouthpiece) reported in late October, 2011, that Brazil had provided a $300 million loan to Zimbabwe for agricultural support.

If true, it shows how great emerging powers think alike. In March 2011, China Development Bank extended a $342 million loan to Zimbabwe to finance agricultural machinery imports (from China). Interesting that Brazil, a robust democracy, seems to be following Chinese footsteps in doing state-directed business with a government still seen in the US and Europe as one of Africa's foremost pariahs.

A h/t to Peking University's Center for African Studies.

Links I Liked: China's Training Programs

A dry list to some, a treasure trove of information on one aspect of the notoriously "untransparent" Chinese aid program to others.

Here is a link to a list of 129 training programs for officials and nominees from Asian countries, sponsored by China's foreign aid program, and held in China, in 2011. (This particular list was circulated in Pakistan.) Most seminars are about a month. The list has the implementing organization and the seminar topics include, inter alia:

• Economic management
• Learning "commercial" Chinese (this one is three months) 
• Management of community-based Red Cross and Red Crescent projects
• Female capacity building
• Coastal region economic development
• Eco-agriculture
• Railway construction, planning, and engineering
• Pediatric critical care
• Financial openness and financial risk control
• Grain storage technology

and so on ...

Links I Liked: William Wallis on China, Europe, Africa

William Wallis, the Financial Time's Africa correspondent, reflects -- in "China Builds on Europe's Africa Ruins" -- on the new AU Headquarters. Wallis ponders the contrast between the Chinese approach and that of Europe, noting French president Nicholas Sarkozy's October 2007 speech in Dakar (which barely made a ripple):

“The tragedy of Africa is that the African has never really entered history,” Mr Sarkozy said to open mouths in the audience and a barrage of outrage on web sites throughout French-speaking Africa. “The African peasant only knew the eternal renewal of time marked by the endless repetition of the same gestures and the same words. In this realm of fancy there is neither room for human endeavour nor the idea of progress.”

Buried though they were in broader remarks, the French president’s comments were reminiscent of the Hegelian underpinnings of colonial thinking and the notion that African history only began when Europeans brought “progress”. It was an extreme example of the kind of outmoded thinking which still influences debate about Africa in the west.

Wallis also notes (as I pointed out in The Dragon's Gift), China has been building Ministry of Foreign Affairs buildings (and some Ministry of Defense buildings) as diplomatic gifts for African governments in many countries. My thought was that this helps boost good will and soft power in a key ministry. Wallis wondered "has Beijing hardwired African diplomacy to its own advantage?" An interesting question. Perhaps these ministry buildings would benefit from a thorough "bug cleaning"?

A hat tip to Henry Hall at China Africa News.

Guest Post: Human Rights Watch Responds to Critique of China in Zambia Study

Zambian miners

Below is Human Rights Watch's response to Sautman and Yan's critique, summarized yesterday in China Africa: The Real Story.

My blog post and comments on the debate continue below the Scribd text. (If you can't read the insert, please let me know! This is a novel technology for me, as the coding in these guest posts for some reason made them impossible to simply insert.)


Human Rights Watch Responds

From my point of view, an anonymous comment on my original blog post sums up some of the valid criticism: "This report is a case of truth in facts, not truth in reporting..."

I agree that the report provides pretty convincing evidence of human rights problems, and some improvements, in one Chinese company in Zambia -- unlike Sautman and Yan, I don't have the knowledge or the stamina to examine all of the details of the research. And it's likely that other Chinese companies share some of these problems across Africa. But I am bothered that the draft of the study that I reviewed did not contain a comment that later jumped out at me when I read the published summary. Here it is, in bold:

Over the past decade, China has rapidly increased its investment throughout Africa. But while many commentaries have examined the ambivalent relationship between China and Africa, few have systematically examined what Chinese investment means in human rights terms, particularly for Africans employed by China’s state-owned companies. By investigating the specific practices of particular Chinese employers, the conditions of a given set of workers, and the enforcement of labor laws by a particular African government, it is possible to begin to paint a picture of China’s broader role in Africa (emphasis added).

Why does this bother me? Two reasons:

First, the particular Chinese company in Zambia chosen for the study has had a history of very highly publicized labor conflicts, and one terrible disaster where over 50 Zambians died in an explosion. Imagine if the Nature Conservancy had written: "by investigating British Petroleum (BP)'s Deepwater project in the Gulf of Mexico [remember? the big spill?], it is possible to begin to paint a picture of Britain's broader role in North America." I think most people would say: huh?

Second, I was also surprised by the choice of words, that HRW felt that their study was "the beginning" of painting a picture of China's broader role in Africa. Many serious reseachers have already done detailed studies of a number of aspects of China's role in Africa. These studies are, together, aggregating up into a more detailed picture. The HRW study surely fits into this picture, but it is not the start. And the picture of China in Africa is far more complicated than labor relations in one -- or even all -- Chinese-owned mines.

Guest Post "One Barking Dog Sets the Whole Street a-Barking"

Miner in Zambia             photo credit: Reuters

In early November 2011, a brief spate of headlines followed the publication of Human Rights Watch's report on labor practices in a major Chinese company in Zambia: "You'll Be Fired If You Refuse: Labor Abuses in Zambia's Chinese State-owned Copper Mines." HRW thanks me for reading and commenting on a pre-publication draft of the report. I also met with HRW's main researcher Matt Wells, a young lawyer, and several others at HRW as the idea for a report coalesced into actual research.

It was clear to me that Matt Wells was trying to do a careful, balanced report, that Chinese labor practices in African mines are roundly felt to be in need of improvement. While I offered some suggestions for improvements, overall I thought the research was sound, and that Matt and HRW had done due diligence in his reporting on the realities of working for one Chinese mining company.

For most people who heard about it, the HRW report was a headline, and little more. But for a small group of people who follow China-Africa relations very closely, the debate over the report has continued, amongst ourselves, and in the pages of the South African magazine Pambazuka. [click here for the lengthy Pambazuka critique of the HRW report by two Hong Kong academics, Barry Sautman and Yan Hairong, and here for HRW's response, and here for Sautman and Yan's rejoinder.]

I invited HRW and Sautman/Yan to do shorter guest posts here at China Africa: the Real Story. Barry Sautman and Yan Hairong's critique follows, and HRW's response will be in a separate post (technology limitations).

Guestpost:  One Barking Dog Sets the Whole Street a-Barking

Yan Hairong and Barry Sautman

The Human Rights Watch (HRW) report that singles out Chinese state-owned enterprise(SOE) China Non-ferrous Metals Mining Co. (CNMC) as 'the worst´ foreign-investor in Zambia's copper mining industry exemplifies a Chinese proverb:  'one barking dog sets the whole street barking.´ As soon as HRW leveled its accusation,thousands of media sources rephrased it as proof that 'the Chinese´ were the super-exploitersof Africa. That was entirely predictable, as the HRW report had cued such pronouncements by stating that it is 'a useful magnifying lens into Chinese labor practices in Africa´ that³begin[s] to paint a picture of China's broader role in Africa.´ HRW thereby called to mindlongstanding stereotypes of Chinese cruelty and bolstered the anti-Chinese atmosphere beingfostered by Western politicians and media in response to China's rise (See, e.g. 'On Recent Beijing Visit, a Tall Order for Zambia VP,´ Voice of America, Jan. 10, 2012).

Links I Liked: China, Gabon, Forestry Dialogue

photo credit: China Talking Points (2010)

Sometimes I come across China-Africa links that may not have caught many reader's eyes. With a bow to Chris Blattman, I'm going to institute a new practice of "Links I Liked" to bring these to readers' attention, in addition to my own original blog posts and commentaries.

"Dialogue between IFIA and Asian operators in the Congo Basin forestry sector"  (May 22, 2008).

This rather dry sounding title describes a fascinating workshop held in May 2008 in Libreville, Gabon, on responsible forestry activities. The Congo Basin Forestry Partnership and the Inter-African Forest Industries Association met with Asian (mainly Chinese and ethnic Chinese) companies active in the forestry sector.

The Germans sponsored it all, with the intention that "dialogue, of course, should particularly include the new arrivals, not necessarily aware of all of the region’s efforts and progress in promoting sustainable forest management."

The Chinese were interested, particularly in the business realities of certification. Some 80 people attended the workshop, including many "new arrivals" -- people from Beijing but also the local Chinese embassy, Chinese companies CAITEC, TBNI, LGG-Gabon, WWF-China, Sinopec, China Eximbank -- as well as dozens of Gabonese and non-Gabonese environmental associations.

Meet Ms Li Kun, a representative of COFCO, a major Chinese corporation with 850,000 hectares of forestry concessions in Gabon. She describes COFCO's plans to obtain Ecocertifor Véritas certification for their products, their use of MICRO BOIS traceability and exploitation follow-up software. The COFCO Group in Gabon currently employs more than 530 people, 80% of whom are Gabonese nationals.

What happened? Another good follow-up topic for student summer research...

For more on Chinese extractive activities in Gabon and DRC see this excellent report by Swedish scholar Johanna Jansson. H/T to Eric Olander at China Talking Points (and to Johanna).

----
post-script from Johanna, who had trouble posting this comment on the blog:

Deborah,
I am just catching up with your blog and I am amazed at all the new, thoughtful and useful content. Your energy is quite something. Thanks for the blog!
Thanks also for linking to the report. I did some later field work in Gabon in 2010 in collaboration with Brainforest, Cifor and the Swedish Institute of International Affairs on forestry, mining and fisheries, never managed to make much of the data beyond the report for Cifor since I started my PhD shortly afterwards, but I wrote an update for Pambazuka: click here.

DB adds: Some of the Cifor research has been published as part of a series on the impact of Chinese trade and investment on forestry in Africa: See it here.

Africa's New AU Building: How Many Chinese Workers?

A couple of days ago, Yoon Jung Park at Howard University forwarded a very thoughtful article by Howard University grad Chika Ezeanya, reacting to the just-opened $200 million African Union headquarters building in Addis Ababa, a "gift" from the dragon. Her mixture of frustration and disgust at the symbolism of the African Union accepting the donation of this building was almost tangible and very nicely phrased.

But one thing about her article caught my eye: the statement that 90% of the labor on the building was Chinese.

I was in Ethiopia in February and November, and both times, it was clear to me that there were a lot of Ethiopian workers on the site. Other construction projects I visited overwhelmingly conformed to the usual pattern of Chinese managers and Ethiopian workers. But if this figure was firm, I wanted to add it to my collection of anecdotes-into-data on Chinese workers in Africa.

So I asked Chika about her source. She had heard the figure on the radio, but she directed me to two other news reports.

One, from The Global Post, said "Construction began three years ago by the China State Construction Engineering Corporation, using building materials largely brought from China, and a mix of Chinese managers and Ethiopian laborers." That's what I would have expected.

The other, from Voice of America, said the exact opposite: "It was built by the China State Construction Engineering Corporation, largely with Chinese labor." (This article also made the comment that "Industry experts say 70 percent of the continent's oil exports go to China." Ahem. The real figure is closer to 13% of African oil going to China (2009), compared with the US and Europe, each about 33%.) This put a twinge of doubt into my mind about the VOA author's credibility.

Agence France Presse said "Construction began in January 2009 and involved 1,200 Chinese and Ethiopian workers." No break down.

An Al Jazeera story that said it was "all" Chinese labor. (hat tip to Michael Lee for that one).

So, next step. What do Chinese sources say? Tang Xiaoyang did a quick search for me, and found two articles in the Chinese press. A Xinhua story of July 2010 said that there were "nearly 200 Ethiopians and over 200 Chinese" in July 2010, and another report in December 2011 said that 900 workers were hired at the peak, and that "the Chinese trained Ethiopian construction workers in a 1:1 ratio (一比一)."

Back to Michael Lee, who unearthed a China Daily story, which includes an interview with Zeng Huacheng, the Chinese project manager. Zeng said at the peak there were 1500 workers, normally they had around 1100, and that it was 1/2 Chinese and 1/2 Ethiopian. You'll see a lot of each on the video.

Why are there more Chinese working here than the norm I've seen, of about 20 Chinese to 80 Africans, on average? I imagine it has something to do with the political importance of the project, and the fact that it was financed as a grant, not a loan. The Chinese wanted to be sure it was done on time, and that it reflected a high standard of quality. And as it was financed by the Chinese as a donation, the Ethiopians probably waived their normally strict work permit requirements. Finally, as an aid project, it has to reflect "mutual benefit". Using Chinese materials and labor (half) provides some benefit to China ... not to mention the longer benefit of having the AU members meet in a stunning modern building donated by Beijing.

China and Conflict Minerals in the DRC

OK, it's not really all about China, but an excellent analysis, "What's Wrong with Dodd-Frank 1502?" commissioned by the Center for Global Development and written by Laura Sesay, Congo expert, professor, and aka blogger "Texas in Africa" uncovers the pitfalls of (ineptly) trying to legislate good things for the conflict torn eastern Congo. From the abstract:

Although its provisions have yet to be implemented, section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is already having a profound effect on the Congolese mining sector. Nicknamed “Obama’s Law” by the Congolese, section 1502 has created a de facto ban on Congolese mineral exports, put anywhere from tens of thousands up to 2 million Congolese miners out of work in the eastern Congo, and, despite ending most of the trade in Congolese conflict minerals, done little to improve the security situation or the daily lives of most Congolese.

In this working paper, sponsored by Todd Moss, Laura Seay traces the development of section 1502 with respect to the pursuit of a conflict minerals-based strategy by U.S. advocates, examines the effects of the legislation, and recommends new courses of action to move forward in a way that both promotes accountability and transparency and allows Congolese artisanal miners to earn a living.

H/T to Duncan Green, at Oxfam UK's "From Poverty to Power" blog. 

China's Foreign Aid: The Economist still doesn't get it



credit: Derek Bacon for The Economist

The Economist still doesn't get it on China's foreign aid. They merrily mix apples and lychees in a new special report on state capitalism, writing:

"And government bodies such as Eximbank, China’s foreign-aid bank, have made no bones about their enthusiasm for tying foreign aid to commercial advantage. One of China’s favourite tools is oil for infrastructure. China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China’s infrastructure giants) in return for a guaranteed supply of oil or some other raw material. Eximbank supplied a $2 billion low-interest loan to help China’s oil companies build infrastructure in Angola."

What's wrong with this? Nearly all of it.

(1) "...Eximbank, China's foreign-aid bank..."

Eximbank is China's export credit agency, i.e. it finances trade deals like the 2009 deal where my old friend Mort Arntzen's American shipping company OSG bought a handful of Chinese tankers. Yes, China Eximbank also manages China's foreign aid concessional loan program, but this is a small part of Eximbank's total portfolio. Standard & Poor's credit rating review of China Eximbank in 2005 found that the concessional loan portfolio made up only 3% (three percent) of Eximbank's assets. 

(2) "...their enthusiasm for tying foreign aid to commercial advantage..."

Yes, China does tie its official foreign aid, while other countries have moved away from this (the UK led this move, but the US is a laggard here). However, tying export credits to your own country's exports is still the norm. Why else would countries have a government instrument to intervene in trade?

(3) "One of China's favorite tools is oil for infrastructure".

Not really. This kind of tool is relatively rare. If you consider all the transactions financed by Chinese banks in Africa, for example, oil-secured infrastructure loans that are unrelated to developing an oil asset (including refinery/pipeline) seem to be limited to Angola, the Congo-Brazzaville, and (in the works) Ghana.* Latin America has seen more deals like this: at very high interest rates. And coming right after a sentence about foreign aid implies that China's oil-secured infrastructure loans are "foreign aid" -- when they're not, by anyone's official definition.

(4) "China offers to provide poor countries with schools, hospitals and the like (usually financed by soft loans and built by China’s infrastructure giants) in return for a guaranteed supply of oil or some other raw material." 

This isn't quite how it works. This makes it sound as though the Chinese dangle a few hospitals in front of an African president and then say: you can have this if you guarantee us a supply of your oil!

Here's how it really works. The Chinese bank will offer to provide export-secured finance (these exports can be anything -- as I wrote recently in The Guardian, in Ethiopia, all of the country's exports to China were used to secure a loan). I'm not sure what a "soft loan" is technically, but all of these loans have been at market rates. The "guaranteed supply" of whatever export is already going to China is simply the mechanism for ensuring repayment of the loan (the proceeds are deposited into an escrow account). China doesn't dangle promises of schools, hospitals, etc. -- the proposals about what infrastructure to finance with the loan are made by the borrower. They might include schools, but they usually focus on productive infrastructure: roads, rail, electricity production.

(5) "Eximbank supplied a $2 billion low-interest loan to help China’s oil companies build infrastructure in Angola." 

No.  First, China's oil companies were not building infrastructure in Angola. The Chinese have world-class construction companies, and that's who got the business. Second, the loan was not "low-interest" but was made at LIBOR (London Interbank Offered Rate) plus a margin of 1.5% (this changed in later tranches). LIBOR is a market rate, and LIBOR plus 1.5% is actually a higher rate than some western commercial bank oil-secured loans given to Angola, as an excellent study by Global Witness makes clear.

For more detail than you probably want on how China's foreign aid really works, see some of my published papers here.
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* Nigerians proposed using this model, but it apparently never happened. Although there is some evidenced that an early suppliers credit to finance two power plants was secured by oil exports, the loans were never repaid. If this system was used, it broke down. In Sudan, this model was apparently used very early on in the mid-1990s, but I believe it was limited to the construction of a joint-venture oil refinery. In Niger and Chad oil-related construction (refinery /pipeline) is also being financed this way.

What do Africans Think About China?

Aubrey Matshiqi/CPS

Today I spoke with a reporter from Al Jazeera who asked me, as many do, what "Africans" think about "China". It's always hard to even begin to give an answer to a broad question like that. I tried to break down "Africans" and "China" into subcategories. I spoke about public opinion polls from the BBC and elsewhere. The truth is, there are many, many different views. Where you stand depends on where you sit, as they say.

Right after we hung up, I received an email from Yoon Jung Park with a link to an interview with Aubrey Matshiqi, a senior research associate at the South African Centre for Policy Studies - an independent policy research institution that produces original studies on South Africa's and the rest of Africa's policies, governance and democratisation challenges.

He spoke about China, and this is what he had to say:

In December, I was part of a discussion during which an American warned that developing countries such as South Africa should be wary of China. He argued that China is a hegemon and that its narrow political and economic interests are the centre of its universe. Well, he did not put it this well, but I am certain you get my drift.

There is nothing original about these warnings. People warn us dim-witted Africans about China all the time.

What I find amusing – I no longer have the energy for anger – is the fact that these words of wisdom always come from Europeans and Americans and South Africans who are part of the Western sphere of influence. There are many ironies that are lost on these people. Because they are too numerous to mention, I will share just a few.

Firstly, it is extremely problematic that, as a man who has spent almost half a cen-tury on this planet, I thought, for most of that time, that the English-speaking parts of the West were the philosophical, cultural and economic centre of the universe. This is a product of centuries of cultural and economic domination which, in many cases, was imposed violently.

Secondly, I did not experience China as a hegemon. It is America and Europe that imposed themselves and their ways on us.

Thirdly, my experience of the hegemony of the West has largely been that of a gap between its liberal democratic aesthetic and the moral content of its relations with the ‘Third World’.

That said, as a democrat, I recognise the gap between China’s economic resurgence and its very deep democratic deficits. This article is, therefore, not about waving the Chinese flag in your face. As I have said before, the global economic crisis and shifts in the global system from West to East constitute an opportunity for us to reconfigure the content of global economic relations and work towards a less unethical or more ethical global cultural, environmental and economic order. If this does not happen, it is highly unlikely that sub- stantive democracy will become a reality for most people on this planet.
 
To continue reading, or to see the video interview, click here. H/T to Yoon Jung Park.

Making Sense of China's Development Finance and Aid

Below is a short article of mine published on Christmas Day when a lot of people were actively reading online, no doubt. It appeared in East Asia Forum (Crawford School, Australia National University), December 25th, 2011. Thanks to Denis Chainey for summarizing this out of a longer chapter.

Chinese Development Finance in Africa

Author: Deborah Brautigam, American University

Chinese development finance in Africa is unusual in that much of the financial flows from China do not constitute official development aid (ODA).

Instead, much of it comes in the form of export credits and strategic lines of credit to Chinese-related companies, among other mechanisms. In this sense, it is very similar to Japanese financial flows to China several decades ago, when Japan began its outward march with a large line of credit to China, which, at the time, was not credit-worthy either. Looking at the nature of Chinese development aid — and non-aid — to Africa provides insights into China’s strategic approach to outward investment and economic diplomacy, even if exact figures and strategies are not easily ascertained.

Chinese development finance in Africa involves two distinct types of financial flow: ODA and ‘other official flows’ (OOF). ODA as defined by the OECD refers to concessionary funding given to developing countries and multilateral institutions primarily for the purpose of promoting welfare and economic development in the recipient country. Funding must be ‘concessional in character’ (i.e. involving government subsidies) and loans must have a grant element of at least 25 per cent, using a 10 per cent discount rate.

While only concessional loans and grants qualify as ODA, governments also offer other official flows: funds for the donor country’s firms to subsidise or guarantee their private investment in recipient countries, military aid and export credits. These funds are reported as OOF. This category includes loans that are not concessionary in character, and official bilateral transactions — whatever their grant element — that are primarily export-facilitating in purpose.

China provides the equivalent of ODA through three instruments: grants, zero-interest loans and concessional (you hui dai kuan, or fixed-rate, low-interest) loans. These instruments finance Chinese government scholarships for African students; Chinese medical teams; ‘turn-key’ construction of stadiums, government buildings, telecommunications networks and other infrastructure; technical assistance teams in agriculture and other sectors; short-term training programs; youth volunteers; and material aid (the export of Chinese goods).

Grants and zero-interest loans were the primary instruments of China’s ODA until 1995, when concessional loans were introduced. According to the Chinese white paper on aid released in April this year, approximately 40 per cent of China’s aid is financed through grants. Zero-interest loans are also a mainstay of China’s aid. The debt-relief program launched by Beijing in 2000 targeted overdue zero-interest loans for cancellation, with RMB25.58 billion worth (US$3.76 billion) cancelled, and of this, RMB18.96 billion (US$2.79 billion) was cancelled in Africa.

Only large projects with a value of at least US$2.4 million, and that make a minimum 50 per cent use of Chinese goods and services, may be funded with concessional loans. China’s concessional-loan program in Africa has grown rapidly. At the end of 2005, China Export-Import Bank had cumulatively funded only about US$800 million in concessional loans in Africa, for 55 projects. Two years later, the number of African projects had risen to 87, and the cumulative value was about US$1.5 billion. And the government recently pledged US$10 billion in concessional /preferential credits for Africa, to be committed by 2012.

China also supplies other official funds that do not qualify as ODA. Three categories of loans are relevant here: export buyers’ credits, including preferential buyers’ credits (you hui mai fan xin dai) and commercial-rate, export commodity-secured or ‘mutual-benefit’ credits (hu hui dai kuan); official loans at commercial rates; and strategic lines of credit to Chinese companies.

For Africa, the OOF category provided by OECD members has normally been well below the level of funds provided on ODA terms. But this is not the case for China. China’s government-provided finance to Africa falls primarily into the OOF category, rather than ODA. As noted above, China’s official finance in Africa consists of grants, zero-interest loans, debt relief and concessional loans (which would all qualify as ODA), as well as preferential export credits, market-rate export buyers’ credits and commercial loans from Chinese banks (none of which would qualify as ODA).

In Africa, as elsewhere, Chinese aid agreements seem to follow diplomatic ties. China’s ODA does not appear to be given in larger amounts to resource-rich countries, as can be seen in flows to Nigeria and the Democratic Republic of Congo. Grants and zero-interest loans are distributed fairly evenly around the continent, while concessional loans fit a country’s ability to pay, either because it is middle income or because it will finance an income-generating project.

China’s economic push to ‘go global’ is coordinated by many policy instruments, including development aid. In this way, China’s strategy resembles Japan’s outward march more than it resembles the experience of other OECD countries. Chinese banks have developed instruments they believe can link Africa’s riches — its natural resources — to its development. Because they regard these resources as a source of wealth, they generally do not offer mutual-benefit loans (hu hui dai kuan) at concessional rates. And to the Chinese, even resource-poor countries like Ethiopia — whose balance sheets might not look good — sometimes have untapped capacity to service a future debt, if borrowed funds go toward productive projects. It remains to be seen whether fears about the sustainability of this debt are borne out.

Deborah Brautigam is Professor at the School of International Service, American University, and Adjunct Professor at the Department of Comparative Politics, University of Bergen. Professor Brautigam’s research was presented at China Update 2011. The annual China Update conference is hosted by the China Economy Program, in collaboration with the East Asia Forum, at the ANU in July. This article is a digest of a Professor Brautigam’s chapter ‘Chinese Development Aid in Africa’, in Jane Golley and Ligang Song (eds.) Rising China: Global Challenges and Opportunities. This book is the latest publication in the China Update Book Series, launched at the China Update conference every year.