China Power

Debunking the Myths of Chinese Investment in Africa

Some of the assumptions about China’s presence in Africa appear unfounded.

Debunking the Myths of Chinese Investment in Africa

Forum on China-Africa Cooperation (FOCAC) Business Summit, December 4, 2015

Credit: GovernmentZA

China’s overseas investment has long worried Western observers. From the constant updates on the soon-to-be operational Asian Infrastructure Investment Bank (AIIB), to the rather more nebulous One Belt One Road initiative, China’s trade and economic influence is spreading on multiple fronts. This has fed into broader anxieties in the West, who feel that important allies and opportunities are slipping into the orbit of a regime that does not play by Western rules. Chinese investment in Africa is perhaps one of the most pertinent examples of these fears.

Coming onto the international investment scene in the early 2000s, China has committed over $90 billion in total financing to African states between 2000 and 2013. With more than a million Chinese migrants on the continent, Chinese state and private enterprise have invested in everything from mining and construction, to technology and education. However, accurate investment figures and detailed case studies of these investments are hard to come by. This has given rise to varying shades of a familiar narrative in the West – namely that the Chinese are concerned only with extracting Africa’s abundant natural resources, often at the expense of the local population.

While there is much to support this claim, commentary ranges from reasonable criticism to conspiracy theorist-type accusations. Low labor standards and environmental degradation can be easily believed from a country facing the same issues at home. However, claims of a coordinated effort by the Communist Party to lock up large tracts of arable land on the continent to harvest food for its 1.3 billion population have been exposed as greatly exaggerated.

As vast as China’s investment in Africa certainly is, speculation has steered the conversation onto a misleading, and perhaps antagonistic tangent. Recent findings suggest that Chinese investment in Africa is more nuanced than commonly believed.

Popular Myths

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Deborah Brautigam, a senior professor at the John Hopkins School of Advanced International Studies, has been trying to counterbalance the prevailing narrative.

Brautigam doesn’t deny the preponderance of investments in the commodities sector, but highlights the diversity of Chinese investment. In 2014 alone, she states, Chinese companies signed over $70 billion in construction contracts for vital infrastructure projects such as hospitals, pipelines and airports, with positive downstream benefits for African economies. This is corroborated by a recent study from the Brookings Institute, which finds that the majority of small and medium Chinese private enterprises in Africa are involved in the services sector, with a fair number also in manufacturing.

The telecoms sector is a prime example. Chinese firms are evidently playing a key role in Africa’s much vaunted mobile revolution, which is slated to unlock significant economic and innovation potential. Chinese cell phone maker Huawei has penetrated almost every telecoms market on the continent, as well as opening seven training centers and an R&D facility, signaling the company’s long-term stake in a highly competitive, value-driven sector.

Claims that Chinese firms employ only expat workers also seem to be misguided. A newly published survey by Hong Kong-based academics find that while senior positions are held by Chinese citizens, more than 80 percent of workers were local. The Economist also notes systemic changes in corporate culture, such as “investing in corporate social responsibility programmes, hiring African managers and doing scrupulous due diligence.”

While these findings certainly shouldn’t lessen the credibility of opposing claims, they call for a nuanced approach based on fact and evidence over hearsay.

Development Aid

Commercial investments aside, China’s contributions in development aid have also come in for some sharp criticism.

Researchers from the University of Sussex allege that Chinese aid comes with “no strings attached” Development aid offered by the West is typically conditional on the host country’s progress on specified criteria such as democracy, governance and human rights. By offering unconditional financing, as the story goes, Chinese aid gravitates mainly towards corrupt regimes in exchange for natural resources. They also assert a direct correlation between the level of Chinese aid in a recipient country, and the consequent level of violence, human rights abuses and “patronage politics.”

However, a recent study commissioned by AidData, an organization specializing in global development aid research, finds scant evidence for this conventional wisdom. Far from favoring rogue states with abundant oil reserves, they claim Chinese aid is strongly oriented towards poorer countries. Moreover, their findings attest to a diverse portfolio of development initiatives to include health, educational, agricultural, as well as infrastructural projects. Brautigam’s research also chimes in to say there is little evidence behind the claim that China offers more aid to poorly governed, autocratic regimes over democracies.

AidData concludes that Chinese aid strategy and implementation, is in fact, highly comparable to their Western counterparts. The group also suggests that the common misperception of Chinese aid arises from its unscrupulous equation with commercial investments, which indeed display a greater tendency towards natural resources.

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So What?

As China’s trade and economic influence continues to grow, a clearer understanding of its initiatives is needed. Indeed, the West has good reason to accommodate, rather than fear or limit China’s role in Africa or other developing regions.

As intimidating as Chinese investments may appear, AidData recently published a survey of policymakers in the developing world, in which it asked about the quality of foreign development and investment advice. It found that advice proffered by Chinese banks and embassies scored at the markedly lower range of credibility, whereas the World Bank and IMF ranked highly. Brautigam and others also note the increasing degrees of difficulty and failure that Chinese enterprise are facing in Africa, indicating that easy financing is fast losing its allure.

Western nations have a far longer history of involvement with developing nations, and should share their experience and expertise with the Chinese. The AIIB, while seen as a direct rival to Western-led institutions, is nonetheless a multilateral initiative which calls for collective international leadership. Indeed, the stark divisions in the West over accession to the bank show how China’s economic forays can be perceived as much as an opportunity as a threat.

By dispelling popular myths of Chinese investments, the researchers at AidData suggest that “as Western donors and China realize that their similarities are greater than their differences, they may find it easier to work toward a common aim.”

Jonathan Dove is a student at the University of Law in London. He has completed traineeships with the EU Delegation to China and the German Marshall Fund in Brussels.