|photo credit: Deborah Brautigam (c)|
(1) Skilled Chinese workers can be effective trainers:
Perched precariously on scaffolding, several Chinese workers showed Indian laborers how to weld the shell of a blast stove at a steel plant construction. Step by step, the Indians absorbed the valuable skills needed to build a large, integrated factory from scratch in record time.... "This factory is a classroom for Indian workers and we will create a benchmark for speed, quality and cost," Singh [the company's director] said.
...The Indian workers are learning a new work ethic from the Chinese and are now more punctual, not stopping work to take frequent tea-breaks or gossip, managers said.(2) While India has a labor surplus, low level workers lack appropriate skills.
"India may be an IT superpower ... But the biggest gap is in the availability of skilled electricians, carpenters, welders, mechanics and masons who can build mega infrastructure projects ... Most of these workers have to be trained on the job. And that often delays the projects and makes them more expensive."(3) The ratio of Chinese to Indian workers: at one factory site (under construction) was 1600 Chinese supervisors, technicians, and other laborers to 5000 Indian workers, or 25:75. This is fairly similar to the 20:80 ratio I've seen, on average, in Africa.
(4) Speed, as well as skill, is the great China advantage.
The Indian workers earn slightly less than the Chinese, whose speed ultimately brings down the cost of the project.... The steel plant is expected to take 18 months, a rare feat in India. ..These details provide one answer to the idea that vocational training may be all that's needed. Sure, it will help in building skills, but maybe not in building work habits. The tone of the article was refreshing: curious, balanced, informative, detailed. A hat tip to DH.
Hi Professor Brautigam... saw this article today and thought it might be of interest to you... though it is also possible that you have already heard of this or that it is a bit of a beat up:
This is only one of many rounds of worldwide checkbook diplomacy by China and Taiwan.
You can have an overview of it in the Wikipedia link below:
Something in this article seems to me of much more importance for the African people:
“Visiting US officials consider Nauru to be little more than an economic disaster, noting that while its "decline from first-world to third-world status" could be attributed to the end of phosphate mining, it was more the consequence of "remarkable profligacy by politicians and government managers"”.
May this be a warning to all African elites who are now selling short the wealth of their country and do not make any provisions for after the end of the commodities boom ...
Any idea how those future generations must realize their economic takeoff in one or two decennies?
Cfr Belgian Congo
1 Skilled Belgian workers were effective trainers
2 While Congo had a labor surplus, low level workers lacked appropriate skills
3 The ratio of Belgian to Congo workers was very low
4 Speed, as well as skill, was the great Belgian advantage
Those 4 caracteristics of the Chinese presence in India/Africa were also true when Congo was still a Belgian colony.
Belgians formed thousands and thousands of Congolese workers and “évolués” for the colonial administration.
The ratio of Belgian/Congolese workers was well below the 20/80 ratio and the majority of the colonial towns, roads, industry and railroads were build in the 15 years between the Second World War and the Congolese independence…
Congo did till now never again reach the GDP level of 1960.
Can we, based on the above, conclude that more Belgian “civilisation work” was the way forward for Congo?
IMHO not, because everything was conceived with the intrest of the Belgian financial groups in mind. None of the railways linked the country with its capital but they were build to send its commodities to Belgium…
Half a century later Congo is still suffering from this exploitation…
And now I see that China is refurbishing those same roads and railways…
And not only in the DRC…
Good comments: what all are saying is the the responsibility for making use of a country's resources (including the productivity of its diplomatic ties!) rests with the local politicians. In the DRC, politicians have asked that roads be built to link the DRC to its neighbors, not simply to the port, and to link parts of the country that have been cut-off, with Kinshasa. See the Le Monde map in my earlier blog post: http://www.chinaafricarealstory.com/2010/07/chinas-roads-in-drc-good-bad-or-ugly.html
DRC, corridors and ports
Rather complex this one ....
The map of LM Diplomatique gives indeed a good overview of the transportation infrastructure included in the Sicomines deal.
It gives us also a typical example of a centrifugal transportation infrastructure.
Unfortunately it does not show the transit problem at the sub-Saharan Africa level.
I suggest using this article as it starts from the economic necessities (and also because it indicates that it is essentially a renovation of the old colonial road / railroad links).
To my knowledge all the logistics for Congo uses the ports of Matadi, Mombasa, Dar Es Salaam, Durban, Walvis Bay or Beira.
This by way of what is conveniently called "corridors" and that can include railways, roads or waterways.
The map below shows the majority of those corridors
You notice that there are multiple names for some sections and even multiple sections within a corridor. So, the North South is a combination of North and South, and it also includes the Tazara ...
All these corridors are used for the Congolese bulk exports, execpt the 1300 km long line to Lobito Benguela where Sinohydro Corp. has some more years of work to do…
On the other side the links to Lamu, Africa's largest port, beeing built by China Inc. for the Kenyan government, are not yet on the map.
This link gives a map with the complexity of the corridors in the Eastern African Commuinity (but which unfortunately also stops at the Congolese border) but I use it at the same time to show what China has to do in order to win such contracts.
In principle there is within the East African Community an agreement to refurbish the Mombasa-Kampala link and also to modernize the Dar-es-Salaam Corridor and to extend it from Bujumbura and Kigali to Kisangani.
In the Congo the 3 billion USD Chinese credit goes essentially to two axes.
On the one hand a 3,400 km long road between Kinsangani and Kasumbalesa and on the other hand a railway line of 3,200 km between Sakania and Matadi.
Kasumbalesa is the border post with Zambia, where the Congolese transportinfrastructure is conneced to the continental corridors.
It is possibly the most modern customs office for Africa. On both sides, everything is done fully automatic, day and night!
What's going through? Well exports include copper and cobalt and on the import side we find mining equipment, mining inputs such as sulfuric acid, sulfur, coal and fuel as well as construction materials.
And then back to the map and the railway: Sakania is a railway junction where the Congolese connect to the North South corridor, or if you wish to the Tazara and the Benguela line.
And on the other side it goes toward the capital but it ends up at Congo's only port, Matadi.
On the map you can see a dotted missing link of 700 km between Ilabo and Kinshasa.
Well, as always it is a renewal of an existing line, and the juncture in question was enrolled in the 1952 10 years plan of the Belgian colonial government but work was stopped at the independence.
It's a bit ironic that, after 60 years, China Inc.. will complete this line without using any form of a 10-year plan…
But I am confident that now, both the construction and the transit of the commodities, will run faster!
I fully agree that the African leaders are responsible for the agreements they conclude with anybody.
But I come from a country where for many years there is a campaign (under the slogan "Israel colonizes, Dexia funds") against a bank because its Israeli subsidiary gives loans to the municipality of Jerusalem ...
And that makes me think ...
If I go far back into my memory, to the first years of the timid presence of Chinese businessmen in Africa ...
then I remember that they openly admitted that Africa was a pilot area used because they were not ready to compete directly with the local and international competitors in other continents. They lacked the necessary quality of their products and the trading, investment and financial experience.
Africa was and is, by them, but by extension by everyone, seen as the soft underbelly of the global world economy.
And one important reason is the phenomenon of "failed states". On such lists three-quarters of them are always African countries.
And in my years of observation of African affairs, I have the impression that the Chinese government (and later the Chinese private companies and individuals) choose to invest in Africa just because of that weakness of the political leadership and the failing state structures.
This is especially noticeable when you compare their African investments to those in any other continent.
Quite similar to Africa is Latin America, for example, which also offers raw materials and agricultural products for export.
The macro economic figures indicate that Chinese investments there are very successful, but the vast majority of this money goes to the Cayman and Virgin Islands for internal Chinese tax purposes.
In the rest of Latin America, I see mostly Chinese complaining, governments complaining and populations complaining….
It is a difficult business climate for the Chinese for a number of reasons that they do not face in Africa.
In China (and in Africa) politicians have major economic influence, but this is not the case in Latin America where few politicians can influence the business world.
Besides, the cultural and language barière, the Chinese are faced with the fact that there are no deals from state to state or even between SOE’s neither, and this further increases their alienation ....
Furthermore, Latin America has a higher position on the economic value chain, making it even possible to be sometimes a worldwide player.
In the local market there is a struggle between Chinese and local producers, and sometimes that means the death of the local industries, such as textiles, shoes ...
De-industrialization is also caused by the markets for industrial goods in neighboring countries where more and more their place is taken by cheaper Chinese products.
And this struggle is not limited to the country and its neighboring countries, but extends globally, mainly in the battle for the U.S. markets but also in Africa eg.
Something most notably Brazil and Mexcico suffer from.
Hence China has therefore not succeeded to conclude with these larger countries, free trade agreements...
But whether they win or lose this battle, it's always at the expense of their image in the eyes of the locals.
And not only in the eyes of the population but also in those of the left-wing governments. The positive appreciation of Chavez should not do forget that these leaders in general have condemned the Chinese competition in some very strong terms.
All these leaders need to be guardians of human rights, environmental standards, union rights and various social achievements and that makes a big financial difference on the return on your investment.
A strong industry also means strong trade unions and political pressures caused by them to limit the employment of Chinese workers, the possible exploitation or abuse of local workers or even the acquisition of land by foreigners.
Moreover, there is everywhere a comprehensive state (with the associated bureaucracy) that take its time to look at each investment dossier, if only to protect themselves against the biting criticism of an independent press.
"We do not want to be China's next Africa" is a feeling that lives in different countries.
And just because of this they want to have their own development at all costs in their own hands.
That's why you will never encounter infrastructure for commodities deals in Latin America.
Across Latin America every one wants to see the Chinese cash, and then there is always the danger of overpricing, something that Japan not so long ago experienced in the U.S..
As everyone in Latin America knows that energy, commodities and agricultural products are high on China's wish list ....
In essence China believed that it could tackle Latin America in the same way as Africa, but that was not so.
So China imports from Latin America are for 87% raw materials and only 13% manufactured goods. This is indeed similar to the situation in Africa.
On the other hand, for the U.S. imports from Latin America, the proportions are exactly the opposite, 60% of manufactured products and 40 % for raw materials.
Furthermore Latin America has now a more positive view of the US investments that create value chains such as in the automotive industry in Mexico ....
Reuters reported that at least once a week Dilma Rousseff meets with her trusted advisers to try to solve an intractable problem: China.
This week will be no different now that Cosco has managed to block the unloading of Vale's Chinamax iron ore ships in Dalian because they can no longer compete with the Brazilian company ...
Would it not be better that the African leaders also did this in an anticipative way, rather than to be obliged to renegotiate very often on their knees in Beijing their win / win deals? And as this request always comes from Africa isn’t it sufficient evidence that the strongest party is always sufficiently covered in those African deals?
I think what you said above to Africa and Latin America also can be said to United States, China export industrial goods and import agriculture goods.
That is true, but the U.S. agricultural products exports to China are part of a more balanced mix of export products and are sold at world market prices.
If I mention Africa and Latin America those definitions are generalizations.
I have no problem with trade in anything and between any state.
I mentionned here many times the Democratic Republic of Congo and never Ruanda.
China is one of the largest countries in the world, Ruanda one of the smallest.
Ruanda's trade relations with China are of a completely different order than those of Congo. Kagame, a non democratic head of government, appreciates China's contribution to the development of his country very highly.
And I am not in the least worried about any contract he has signed with China, he will have made a point of it that those contracts be true win/win deals, and will therefore often have relied on external, even foreign, expertise.
Congo, however, has a history of what the Congolese themselves call "contracts leonins". Coming from the "leonine clause" that makes such contracts almost legally invalide, and for witch "unconscionable contracts" was the best translation I could find ...
Such kind of contracts happen very often in “failed” states…
Aren't African and Latin American countries' goods sold to China in market prices?
”No!”, and this is primarily a polemic but also a theoretical answer for arguments sake ...
The real fact is that China (from the smallest private cmpany to the largest SOE) does everything to prevent a transparent price setting. Seems suspicious in itself, and illegal in many Western countries ...
No one can give a good estimate of the price of the Sicomines deal in the DRC.
But I've never seen an analysis that claimed that Congo will have more benefits than China. Just because China could negociate from a much stronger position (and part of it was that they have a much greater expertise in this area). But the bottom line was that Kabila had no plan B and China Inc.did have many….
My "no" is possibly an even greater generalization than the use of the words "African" or "Asia".
There are many exceptions like the example I quoted from Ruanda.
Another example is how Venezuela sold oil to Chinese oil companies at probably only 5% of the world price (about 100 USD a barill at that time).
At their turn those shipments were sold on the international market at their real market price…
Your question refers to the "market price", and that goes to the heart of the exchanges business (stock, commodities and their derivatives exchanges included).
Oh God, here I am now defending the interests of world exchanges, doesen’t that merrit some fee?
Contrary to popular belief, the added value of the exchanges is not about buying or selling all kinds of stuff.
No, that can be done by anyone (including institutional investors), and is done more efficiently via the Internet (“excluding the middleman!” you can call it…).
You can sell me a Ming vase for € 1000, and this can be a win / win deal.
But if you are a professional Chinese antique seller and if I, as a buyer who has no idea of prices, this wil be very unlikely.
Exchanges are in the business of “price fixing” or "price discovery", a product that costs money to realize this and that is especially important for all market participants, including the very large dealers who do not use exchanges!
This price discovery can only be realized if a sufficient number of diverse market participants continue using the exchanges so that a representative market price can be fixed…
Within the capitalist system this is a universal truth, and also in China.
Once it is deemed that sufficient liquidity will be there an exhange is established for each product (from gold and petroleum to the most sofisticated financial products and also for all their derivatives).
And with success. Alreddy the copper futures contract on the Shanghai Futures Exchange is used as a reference for global prices and together with the Dalian Commodity Exchange and Zhengzhou Commodity Exchange this exchange is on the list of the 10 largest of the world.
And for a Westerner, it seems even an absurd competition: so makes Tianjin, just 150 km from Beijing, an attemp to compete with Beijing….
This year a rare earth exchange is established in China, the country where the most rare earth mines are, and that seems logical.
Now we have only to wait for China to promote commodity exchanges in each comodity exporting country...
All this is happening in China and is in the interest of the Chinese economic development ...
Internationally, but still in the interest of China, China uses every opportunity to shortcut those exchanges and marketprices through direct investments in foreign mines or traders by SOEs, private companies, joint ventures, or simply long-term tradingcontracts..
More neutral that can be called "to secure its econmical supplies”.
It goes without saying that this is primarily the prerogative of the powerful countries in the world, and in practice is limited to the G2.
Any other country, and every other consumer, will then be obliged to pay the "market price" which will actually be “the retail price” and as you as consumer know this price is always higher than the wholesale price (obtained by the most powerful countries or companies) ...
And those cheapest wholesale prices are by definition offred by states who are,for various reasons, the weakest in the world ...
And here I make one of my biggest generalization ever; I speak about "China" or "China Inc". And this is wrong, but unfortunately I can not prove it for China. Researchers in China will one day have to do this...
I can only offer you an analogy; how it was done in "Belgium" and by "Belgium Inc."
In the mid 50 fifties shareholders of Belgian colonial companies received annual dividends in the range of 40 to 50% of the value of their shares.
Now these companies are long gone, but I can indicate you the Belgian families who, this way, became fabulously rich, and by extension powerful, and how till now, they still have a great influence on the Belgian political, economic and financial landscape.
Similar studies exist for many other Western countries and I see no reason why this will be different in China…
Or do you?
"But I've never seen an analysis that claimed that Congo will have more benefits than China. Just because China could negociate from a much stronger position (and part of it was that they have a much greater expertise in this area). But the bottom line was that Kabila had no plan B and China Inc.did have many…."
Granted China benefits more than Congo is not fair, I guess it is logical to you that when Congo gets more is fair? Better negotiating expertise along with plan B are all learned business skills that China is still learning from the west, albeit getting better. Are you saying that the west has not been getting more out of China unilaterally, since 1978 and continue to do so in a number of key areas due to the aforementioned reasons mentioned by you? How many times when you go out buy product in the market find the price is fair? Frankly I think German and French products in general are unfair and over priced, as they often mart up over 50-100 times. I don’t know why people just won’t stop buying from them. Another case in point, we all know American military equipments are over priced, but they are hot, aren’t they?
I do not remember when China demanded Mattel, GM, Goldman Saks, and etc to donate money or raise wages for Chinese workers. Mattel pays under the costs every time their toys are shipped. Did you hear anyone complains about it? When American airliners fix prices worldwide, how many times did you find them get caught? Are you telling me that you honestly believe that Microsoft or any other major company, due to the skills that you mentioned is not fixing their prices at every step of the way? How fair is fair to you anyway?
China is there to do business, not for charity or any other reasons, which is what they have been taught and practiced by the west. Isn’t funny when one does not like it, he calls it mercantilism, when he likes it, he calls it capitalism? China is a developing country; she is still struggling to feed a ton of people who are still living just as poor as Africans. She does it all it can for her people and I guess this is not acceptable to you? If anything, China is dong exactly what they have been taught and mentored by the west for the last 30 years. If they are not doing the right things, then you’d better point finger at someone else first. What’s more is that is what made China prosperous today and she is modeling all that to the other countries. I am not sure what’s wrong with that?
What have the west done to affect the average Africans positively? It is Africans or any other people’s free choice to do business with China. If they want it, take it. If not, leave it. I know many Chinese love western companies in China, however I can tell just as many who hate them. I don’t know the big fuss about it. Human rights or good governance is not what China claims to do, why impose ideas that even the west can not do?
This interestingly complements an analysis that we undertook, which found that 71% of our clients in the Asia/Pacific region chose India as the top APAC region manufacturing location outside of China. When asked, "Where in Asia would you be most likely to expand your manufacturing capacity?" 53% chose India.
However, China is probably investing so heavily in Indian infrastructure because it doesn't see its own comparative advantage going away. "The reality is that China has scale advantage," says a Frontier Strategy Group supply chain expert, "and that is not going away any time soon."
mlangley (at) frontierstrategygroup (dot) com
Frontier Strategy Group
I guess it is logical to you that when Congo gets more is fair? Better negotiating expertise along with plan B are all learned business skills that China is still learning from the west, albeit getting better.
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