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.
Finally, there is the argument that Chinese foreign direct investment fails to transfer technologies and skills to local businesses — what economists refer to as “positive spillovers.” These can occur, for example, by bringing local businesses into supply chains, or by working with local experts on research and development.
Such spillovers require the investor to be closely integrated into the local economy. China’s manufacturing investments, however, are often located in industrial parks or special economic zones (SEZs). Such arrangements protect the investor from an unstable business environment, but they can also cut investors off from indigenous businesses; and when SEZs offer investors special tax breaks, the country is deprived of potential revenues.
Five SEZs were established in African markets in 2006, and five more were planned the following year. Yet research on the impact of Chinese investment in Africa’s SEZs suggests that ties to local enterprises have been numerous and positive, and that they contribute to broader industrialization of the host economy.
Overall, there is little hard evidence to support a malign view of China’s investments in Africa. Certainly, more can be done to strengthen institutions and ensure sustainable resource management. Moreover, African governments could match China’s “Africa policy” with their own “China policy.” This could encourage investment in a range of higher-value-added sectors, promote positive spillovers and minimize adverse effects.
Only with a long-term strategy can host governments ensure that Chinese (and other) investments become a tool of development, not just a means of generating short-term profit.
Simplice Asongu is lead economist in the research department of the African Governance and Development Institute.
Copyright: Project Syndicate
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry