Thursday, February 22, 2018

Guest Post - China in Africa: Much Ado about Investment - Part 3

This guest post, the third of three, is by Dr. Thierry Pairault, research director at France's Centre National de la Recherche Scientifique (CNRS). [1]

There is another approach in attempting to understand China's FDI in Africa: counting the number of Chinese enterprises. Thus, according to a report by McKinsey published in 2017, Dance of the Lions and Dragons, "there are more than 10,000 Chinese-owned firms operating in Africa today." [2] Maybe yes, maybe not. In any case, the report gives no precise definition of what a Chinese enterprise in Africa is, except that it would be "Chinese-owned" implying a business owned by a Chinese natural or legal person. I doubt that statistical services regard an enterprise as "Chinese" on that sole ground.

I already dealt with this issue when Algeria's administration and press had peremptorily applied the data of the National Registry of Commerce and asserted that there were 790 "Chinese enterprises" in Algeria. This was not the case. [3]

Among the enterprises regarded as "Chinese", we must distinguish several categories.

The overwhelming majority of these enterprises are small and micro businesses that are locally incorporated. Legally and statistically speaking, they are all local enterprises even if they are "Chinese-owned". Most often, these businesses are registered by Chinese migrants who invested the savings they earned locally as employees. Not only is the capital built up small, but also it is not, strictly speaking, Chinese FDI, as it does not result from any financial flow from China to some African country.

Let us see how this works with an example. Qin Jianjun is a Chinese national who, starting from scratch, created two companies both incorporated in Algeria, the first in 2006 in the construction industry, the second in 2014 in real estate development. In order to further boost a business that hires about 1,500 local people on its construction sites, Qin Jianjun decided to "sinicize" both enterprises, i.e. to make them look "more Chinese". This is why they are now introduced as subsidiaries of a company incorporated in China... in 2015. In this case, an "Algerian" company became "Chinese". [4]

At the opposite extreme, we find the African subsidiaries of large enterprises incorporated in China. Strictly speaking, these overseas subsidiaries are the only entities that deserve to be designated as "Chinese enterprises" (i.e. overseas business units with legal personality that are controlled by a group incorporated in China).

These two extreme categories are in stark contrast: generally small businesses vs. large companies; local businesses vs. subsidiaries controlled by a Chinese enterprise; no Chinese government support vs. Chinese support (central or provincial government); private vs. (mostly) public... Merging both categories into a single one is like adding apples and oranges.

Between both extremes, we find a wide variety of situations. Among other formal structures, there are representative offices (daibiaochu), executive offices (banshichu), branch offices (fengongsi)…. These various management units are mostly not legal persons and are therefore rarely registered in the local Registry of Commerce. Furthermore, the presence of many of them is often limited to the duration of one contract, or other operation.

Consider Algeria's "Century Project", the construction project of the East-West Motorway. A consortium formed by China's CITIC corporation and China Railway Construction Engineering Group (CRCC) has won the bid for a motorway. Some thirty companies incorporated in China (including the subsidiaries of some foreign firms) have been participating directly or indirectly in the motorway project (see Figure 1).

Very few had a more formal structure than a command post, and even fewer have registered in the Algerian National Registry of Commerce. Even the Consortium, which was incorporated in the British Virgin Islands, has not completed the registration initiated some years earlier when negotiations were underway.

Whatever the way the number of "Chinese-owned firms" is computed, it can at best testify to the Chinese economic presence but in no way serves to label their precise nature: investors, contractors, small business people...

As my two previous posts also demonstrate, words such as "Chinese investment" have a very specific meaning especially when they are technical, legal, economic or statistical terms. Indulging in unsuitable semantics when analyzing can only lead to approximations that are detrimental to the understanding of the phenomena studied; consequently, such bias can only be prejudicial to the implementation of any strategy, co-operation or opposition.

Figure 1. -  CITIC-CRCC Consortium. Source: Author. For the genesis of this diagram, click here   
Acronym key:
CECC or CCECC: China Civil Engineering Construction Corporation.
CITIC: China International Trust Investment Corporation.
CRCC: China Railway Construction Corporation Limited.
SASAC: State-owned Assets Supervision and Administration Commission.
Xinjiang Prod. And Const. Corps: Xinjiang Production and Construction Corps.




[1] Dr. Thierry Pairault is research director at France's Centre National de la Recherche Scientifique (CNRS - National Center for Scientific Research) and at the Center of Studies on Modern and Contemporary China at the École des Hautes Études en Sciences Sociales (EHESS - School of Advanced Studies in Social Sciences). Please see http://pairault.fr/sinaf/ for more information about his work.
[2] Dance of the lions and dragons. How are Africa and China engaging, and how will the partnership evolve?, June 2017.
[3] Thierry Pairault, "Algérie, quelle présence chinoise ?" published in A. Adel, Th. Pairault et F. Talahite (éd.), Algérie-Chine : approche socio-économiques, Paris, Eska, 2017, p. 34-45.
[4] The whole story is told in a post on my website: "L'entreprise chinoise est en fait algérienne...", https://www.pairault.fr/sinaf/index.php/chine-algerie/919.

1 comment:

  1. Regardless of the magnitude of the investments of #China in Africa, with regard to the first decade of experience in #investing locally, local Africans and their #diaspora have spoken under one common #thread which is that investments are limited to very poor quality. Unless Chinese businesses are deaf, which is likely going to happen for the next half decade, when the breakdown in #communication is ever restored, it’s going to be harder to impossible for Europe and Americas to claim sizable market shares in the confidence building arena whereby historically Bandung conference in April 1955 failed to do with Asian states... China might revive such memories and help close the gaps henceforth... @diasporaonline

    ReplyDelete