For many developing countries, foreign direct investment is viewed as something very positive. International companies can bring cash, skills, technology and high ethical standards to a host country. However, others do not always regard such investors favorably: Many stand accused of political meddling, polluting the environment, labor abuses, and other unscrupulous practices. This debate is particularly animated with respect to Chinese investment in Africa — a continent with a long history of political, economic and commercial exploitation by foreign powers.
The so-called “neocolonialist school,” popular among China skeptics, considers China’s economic relationship with Africa as essentially imperial. It is, they claim, focused exclusively on extracting maximum, short-term profit, with little regard for governance standards, let alone host countries’ longer-term development goals.
Others consider the relationship less a matter of exploitation than a simple function of capitalism’s free-market principles, according to which those without a strong negotiating position must accept tough terms. Still others hold a more benign view: Sino-African relations constitute a partnership, in line with the New Partnership of Africa’s Development, a pan-African organization that seeks to empower African states in their international relations.
Who is right? Any assessment must address several common accusations about Sino-African relations.
The first is that China’s trade-and-aid strategy targets only states with abundant natural resources and weak — and thus easily influenced — governments. This assertion does not withstand scrutiny. China supports almost all sub-Saharan states (except those that do not accept its “one China” policy and continue, for example, to recognize Taiwan as an independent country). Indeed, China is no more interested in the continent’s natural resources than are firms from any developed country.
Another widespread claim is that Chinese companies prefer to employ their own nationals rather than locals. This is a serious accusation given that one of the big attractions of foreign direct investment is local job creation. However, Chinese firms say that few local workers have the necessary skills; if they do, African governments can dictate some employment terms, including the proportion of local recruits on a project, as the Democratic Republic of the Congo and Angola have done.
Critics have also highlighted the poor living conditions provided for Chinese workers, especially when compared to those offered to Western expatriates. Again, this seems unfair, as Western employees tend to be hired for senior managerial or technical posts, which are more difficult and more expensive to fill.
One must also recognize that low labor costs are an essential component of China’s competitive advantage. Tighter margins, low-cost financing and cheaper materials allow Chinese firms to compete for projects with tenders for as little as half the price sought by their Western competitors.
Skeptics might add that China’s cost advantage also includes circumventing environmental and social regulations, but this point appears to be based more on anecdotes than serious research. And Western multinationals are hardly immune from charges of such abuses in Africa (often stretching back many years). Insofar as some Chinese firms do lag behind Western standards, they are becoming increasingly sensitive to foreign criticism and are learning fast.