Healthy competition
[ By Heribert Dieter ]
China’s growing economic and political relevance is not only evident in its steadily growing share of world trade, but also in the debate on foreign affairs and international development. China’s trade and exchange-rate policies have been lambasted by Western critics for some time, and recently China’s relations with African countries have been criticised.
The wider public became aware of China’s engagement in Africa during President Hu Jintao’s trip to the continent in February. He visited eight nations, including resource-rich countries like Zambia, South Africa and Sudan. Shortly before, in November, his government had held the first China-Africa Summit in Beijing. Forty-eight African nations were represented, 41 of them by their head of state or government.
The Summit highlighted China’s changing relationship with Africa. As one of the big winners from globalisation, China is consolidating its relationship with countries which, so far at least, have not profited from ever-more cross-border transactions and the increase in the international division of labour. It appears that China is turning to Africa as another country endeavouring to help the continent develop. Since the traditional donor countries have not managed to bring about much progress, the newcomer should be welcomed, at least in principle.
Western discomfort
Generally speaking, however, the West’s response to China’s Africa policy is not favourable. Late last year, for example, Philippe Maystadt, the European Investment Bank’s president, bemoaned the budding relevance of Chinese creditors, warning that competition between China and Western development banks – including the World Bank – would undermine Western development efforts (The Financial Times, 29,11,2006). In Maystadt’s view, Western lenders are above all concerned with the well-being of Asian and African countries, strictly enforcing social and environmental standards, whereas Chinese creditors basically have their own commercial interests in mind, ready to crowd out Western lenders. In a similar sense, managers of Western companies are skeptical of China’s engagement, arguing that it is likely to lead to the disregard of environmental and social standards. They fear their companies will lose out to Asian competition.
Critics not only speak of China’s investments, but also of its lending. Hilary Benn, Britain’s secretary for international development, warned the Chinese government that granting unconditional aid and cheap loans to African countries would risk driving back into debt countries which have only just benefited from debt relief (The Guardian, 8.2.2007). In a similar vein, World Bank President Paul Wolfowitz warned in late 2006 that China’s lending policies could become a problem for African countries.
Such warnings are not completely unwarranted, but, on closer examination, they are unconvincing. The real issue at stake is whether Western donors are in any position to criticise with legitimacy China’s involvement, given that their own development efforts have failed in large parts of Africa. Did the West, for example, really always worry about the observance of human rights and the adherence to social standards? And did Western donors refuse to cooperate with highly dubious regimes, such as the one in Zimbabwe?
Another issue is how successful development banks from industrialised countries have performed in Africa. The sobering answer is that, on the whole, their loans have not brought any discernible benefit. William Easterly (2006) is right to refer to the dubious achievements of the World Bank in his reckoning with Western development efforts. A report released recently by the Canadian Senate (2007) comes to a grave conclusion. From 1965 to 2004, per-capita income in sub-Saharan Africa fell from 17.1 % of the global average to 9.7 %. That happened in spite of – or perhaps even because of – development aid to the tune of nearly $ 600 billion since 1960.
Of course it would not make sense to blame African development failures solely on Western aid in general, or on the development banks in particular. Nevertheless, the West would be well advised not to comment too loudly on supposedly destructive competition from Chinese donors.
In fact, Chinese competition starkly reveals the Western shortcomings. Western governments have been preaching greater “ownership” of policy by African countries for years. However, that demand conflicts with the conditions the West’s financial support is tied to. One need not share Easterly’s assessment, according to which that stance reflects postmodern imperialism, to state that Western donors certainly do not act consistently. “Ownership” within narrow, donor-defined limits is no real ownership at all.
Moreover, it seems odd to tell the Chinese government to apply the same lending conditions as the West, as Britain’s Secretary Benn did. Given that the People's Republic is itself accused of breaching human rights, one wonders why its government should want to insist on other countries respecting those rights. In any case, China’s reply goes down well in Africa. According to Beijing, overcoming poverty is the most important contribution to securing human rights in poor countries.
Much criticism of China fails to take into account that the conditions imposed by Western donors are not – and never were – designed only in pursuit of noble causes such as protecting human rights or fighting poverty. In fact, the World Bank and the International Monetary Fund have imposed economic policies of doubtful success on African governments. Just consider the privatisation and liberalisation programmes many countries had to implement.
Lessons from China
In the past, Western conditionalities have only rarely led to sustainable growth in developing countries. In contrast, China demonstrates that disregard for some advice can result in economic success. China did not let its exchange rate float, nor did it liberalise its capital-transactions regime. Consequently, it has not fallen victim to any major financial crisis in the past 25 years. Chinese governments gave the private sector considerable leeway, but they never undermined their own ability to act, blindly reducing government expenditure.
China’s emergence as part of the modern world gives hope to many people in other developing and newly-industrialising countries. Less than 30 years ago, China was still a poor country, known for a barely efficient agriculture and uncompetitive state-owned industries. Today, China is the world’s fourth largest national economy, and it has pushed the former colonial powers of France and Britain from their places. Development is possible after all, and the hierarchy in the global economy does change.
China’s success provides a model, and the country is therefore an attractive partner for many Africans. There is still something left to be done in terms of poverty reduction in China, but progress has been much more successful than most observers had anticipated. China and, increasingly India too, are showing all developing countries that integration into the global economy need not happen to the detriment of the poor.
It would of course be naïve to consider Beijing’s activities altruistic. China needs access to natural resources. In that sense, its African investments follow the example of the former colonial powers. China is funding roads and other infrastructure projects to secure its own supply of natural resources, and Chinese companies are often in charge of construction. Indeed, one feels reminded of colonial times. However, China is also making loans available to African countries, and Africa definitely did not enjoy enough access to credit recently. Private financial-sector institutions have been giving Africa a wide berth for decades, and loans from governmental donors did not fill the gaping holes.
Because of China’s new role in global politics, the way in which Beijing will exercise its influence in future will be under close scrutiny. Does the current phase in China’s foreign and trade policies reflect an approach to international relations geared towards people living together with equal opportunities? Or is China at a transitional stage, somewhere between developing country and super power, which will lead to a classic power-oriented foreign policy? On the base of what we know today, only speculations are possible on these matters. Obviously, it would be exaggerated to take at face value Beijing’s rhetoric of China’s “harmonious rise”. Once China does rise to the position of a super power, it’s hegemony may well prove less easy-going and benign than professed today.
However, considerations of this kind are of only secondary importance for assessing China’s current policy. What is decisive is how other countries perceive that policy. In this respect, Beijing has been going from one success to another in recent years.
China’s Africa diplomacy stresses cooperative, intergovernmental relations. In this respect, it is no different from China’s foreign policy in the Asia-Pacific region. China emphasises its stance on partners not interfering in one another’s domestic affairs. The government says it relies on mutual respect and trust, respecting African countries’ independent choice of how to develop. Critics see this as a way to justify doing business with abusive governments such as those of Sudan and Zimbabwe. However, many Africans put a different slant on this: China is indicating that it will grant loans without demanding democratic reforms, the implementation of “good governance” and measures directed to alleviate poverty.
While Western donors tend to interfere a great deal in the domestic affairs of African countries – and not always in a coordinated manner – China is offering an alternative, while speaking of “prosperity in cooperative harmony”. The goals of the West are not contentious in themselves, but the combination of aid and conditionalities restricts the ability for self-determination by the recipient countries.
Chinese policy has been successful, not only in Africa today, but in East and South-East Asia previously. Even a decade ago, neighbours looked to the People’s Republic with great skepticism, but the tide has turned. David Shambaugh, an American China expert, pointed out in 2004 that China had become an exporter of “good will and consumer durables instead of revolution and weapons ”.
In the past decade, the Chinese government has systematically and successfully exploited poor decisions made by the USA and Japan, its rich neighbour. During the Asian Crisis of 1997/98, Beijing did not devalue its own currency, and thus helped to bring the crisis to an end. In that crisis, China presented itself as a dependable, selfless neighbour. In contrast, Japan did not come up with any convincing policy, whereas the USA made use of some countries’ weaknesses to achieve long-desired goals, such as making direct investment easier in South Korea.
In Canberra, the change in attitude towards China became clearly evident a few years back. Within two days in October 2003, the presidents of both the United States of America and the People’s Republic of China paid official visits to Australia. The public response to Hu Jintao was friendly, and his vision was one of a common future in harmony and prosperity. George Bush, on the other hand, had to be protected from protests, even during his speech to the Australian parliament. He spoke not of opportunities, but of dangers and enemies. Ten years earlier, such an allocation of roles would have been inconceivable.
Expanding alliances
In effect, what we are experiencing in Africa today is no more than a sequel to what happened earlier in the Asia-Pacific region. China is expanding its alliances, quite skilfully combining the desire of developing countries to be treated respectfully and its own economic interests of securing access to natural resources. China’s foreign trade interests are not missing out either: China is currently pursuing 27 bilateral and regional free trade initiatives in the Asia-Pacific region, although most of them are still under negotiation. The negotiations with the ASEAN group are already well advanced, however, and indicate the ultimate direction. China and the ASEAN countries want to create a free trade zone by 2010, and they have already implemented important steps in some areas. As a result, for example, Thailand’s agricultural exports to China have increased considerably.
Indeed, an important feature of China’s trade policy is that the country is not only increasing its exports, but is also increasing imports substantially. China has become the World’s third largest importer, only behind the USA and Germany. Unlike Japan, China opened up its economy to a great extent in a rather early stage of its development, even in areas such as agriculture, a sector which is always of great political importance. The import regimes of Japan, the European Union and the United States are not as liberal as that of China with regard to agricultural products.
China is thus stimulating competition in international relations. This is particularly so in the case of Africa, and need not be to that continent’s disadvantage. China is contributing to opening up options for countries in Africa and elsewhere.
That said, China’s commitment would be assessed differently had Western aid programmes produced better results. Today, there are indications that China will continue to increase its involvement in the Asia-Pacific region and other regions as well. In February 2007, the government in Beijing announced it was investigating the conditions for setting up an investment fund endowed with at least $ 200 billion (Asia Times, 3.2.2007).
Given the drastic rise in China’s foreign-exchange reserves, which currently amount to 1.2 trillion dollars (excluding Hong Kong), Beijing can make such sums available immediately. The fund is to be named the National Foreign-Exchange Investment Company. It will be controlled directly by the Chinese government and, to begin with, is intended to raise the return from China’s foreign-exchange reserves. An altogether desirable side-effect would be that, with this fund, China will have a presence abroad as a major investor, not least of all in the primary-production and energy sectors. The amount to be invested is many times more than the annual development aid of all OECD nations combined. Competition with China has only just begun.