Saturday, February 27, 2010

Problems with Official Data on Chinese Overseas Investment

The Nigerian press just posted a story on Chinese investment in Nigeria. According to the report, Rong Yanson, China's Economic Counsellor, said that China's stock of investment in Nigeria is $7.24 billion, covering petroleum, iron and steel, manufacturing, agriculture, fisheries and pharmaceuticals. When I saw Rong Yanson in May 2009, he told me that Chinese investment in Nigeria was around $6 billion. Both of these figures are way beyond the statistics reported in China's Bulletin of Overseas Investment. In 2008, the Bulletin reported China's FDI stocks in Nigeria to be $795.91 million. So what's the real story?
I think Rong Yanson is right. FDI statistics coming out of China are notoriously bad. In Latin America, for example, the top two destinations for Chinese FDI are reported to be ... the Cayman Islands and the BVIs!  These two tax havens are obviously where Chinese companies operating overseas park their cash in order to keep it out of the strict exchange control system in China. And yet just the other day I was asked to review an academic paper that used China's official FDI data in cross-national regressions to say something about the driving forces for Chinese investment. Data this poor is not likely to prove anything beyond the truth of GIGO ("Garbage In, Garbage Out").

Billions in Aid?

Here in Washington, it's widely believed that China gives "billions in aid" to Africa. And no wonder. A World Bank report cited a figure of $44 billion for China's total aid to Africa between 1960 and 2006. (I point out in The Dragon's Gift that what the Chinese actually said was 44 billion renminbi (about $5.6 billion) over nearly 50 years.)

Mistakes like this are not too surprising, given the secrecy of China's actual aid figures.  However, up on Capitol Hill, a 2009 report from the Congressional Research Service "China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia," has gone much further and in the process, done a great disservice to efforts to understand this issue.

Why? The simple reason is that that the CRS authors defined Chinese "aid" as all of China's state-sponsored activities: grants, loans, export credits, infrastructure projects and foreign investment. Their argument: "many PRC economic investments abroad can be counted as aid rather than foreign direct investment (FDI) because they are secured by official bilateral agreements, do not impose real financial risks upon the PRC companies involved, or do not result in Chinese ownership of foreign assets." But these factors, even if true (and that is debateable, particularly regarding financial risks), do not come close to making an economic transaction into "aid"!

(They also took their "data" from news reports, but that's another story.)

In 2007, they contend, China provided Africa with $17.962 billion in "aid" (Table 4, p. 8). This compares with estimates by a range of people (myself included) that put Chinese official development aid to Africa in 2007 much closer to $1.4 billion.

Then, having defined "aid" as all of China's state-related economic activities, they argue that "China’s aid to Africa is driven largely by its objective of securing access to oil and minerals for its growing economy" (p. 10).  But this reasoning is entirely circular. Having previously defined "aid" as including investment by China's state-owned companies in oil and minerals, as well as oil-backed, market-rate export credits, how could you come to any other conclusion?

Not surprisingly, this analysis of China's "aid" is now feeding into scholarly journal articles and books (I first noticed the report when an article I was asked to review cited it as the  source for a statement that China had given Africa $17.96 billion in aid in 2007).

Let's try harder to compare apples and apples, not apples and lychees. As a Washington Post article said yesterday, "China is no enemy, but inflating the challenge from China could be just as dangerous as underestimating it."

Wednesday, February 24, 2010

What the Focac?!

What the Focac?! An amusing take on the West's moralizing about Chinese companies "dancing with dictators" in Africa while the West puts its best efforts into protecting the fragile region. I can only imagine the British mercenary Simon Mann (convicted for the quixotic attempt to foment a coup in Equatorial Guinea -- Mann claims that Maggie's son Mark Thatcher recruited him) or Pierre Falcone and Jean-Christophe Mitterrand (convicted in a French court of illegal arms sales, kickbacks, embezzlement in the "Angolagate" case) saying they are shocked, shocked to see what the Chinese are prepared to do.