Ever since the Bandung Conference in 1955, China and several nations in Africa have had a special relationship. The Afro-Asian meeting was one of the first steps toward the anti-colonial Non-Aligned Movement, which Indonesia’s first president Sukarno named the “newly emerging forces.”
Now, let’s fast-forward half a century. “The days of the Non-Aligned Movement that united us after colonialism are gone,” cautions Nigeria’s central bank governor Lamido Sanusi in a recent commentary, which was released before the impending BRICS summit hosted by South Africa. “China is no longer a fellow under-developed economy,” Sanusi added, “it is the world’s second-biggest, capable of the same forms of exploitation as the west.”
What’s going on? The modern Africa-China relations were initiated in the post-war era, following the establishment of the People’s Republic of China in 1949. In China many African nations saw a more equal partner – another developing nation. In turn, African nations have had a special place in Chinese hearts, particularly since Zhou Enlai’s African tour in 1964.
During the era of decolonization, China, unlike the western powers, had close ties with African liberation and anti-apartheid movements, while the support of African nations was vital when China joined the UN in 1971.
When Deng Xiaoping initiated economic reforms and opening-up policies in China, the mainland began its historical catch-up with advanced economies. After the creation of the Forum on China-Africa Cooperation in 2000, China committed to a policy of accelerated engagement. A year later, China joined the World Trade Organization (WTO). Since then, trade between China and Africa has soared 20-fold. Last year, it exceeded $200 billion.
By any measure, the past decade has been a period of dramatic growth, thanks to the Chinese demand for African resources. On the other hand, the critics argue that this boom in commodities, services and consumer spending has coincided with the relative decline of African manufacturing from 12.8 percent to 10.5 percent of regional GDP.
In Nigeria, the bilateral relations also originate from the early 1970s. However, the relationship grew closer in the next three decades. More recently, economic, political and military ties between the two nations have grown extensive. Nigeria has become an important source of oil and petroleum for Beijing. In turn, Lagos has been looking to China for assistance in achieving high economic growth.
In the 1990s, China supported Nigeria’s bid for a seat in the UN Security Council. After President Hu Jintao’s state visits to Nigeria, both nations pledged to establish a strategic partnership. Meanwhile, bilateral trade soared to $3 billion in 2006. early 2012, it topped $10 billion – even amidst global stagnation.
On the Nigerian side, however, cheap Chinese goods, coupled with second-hand European imports, have become a sensitive political issue. Since 2005, unions have alleged that the trade has adversely affected domestic industries, especially in textiles, whereas Nigeria’s minister of trade and industry has attributed the poor state of the textile sector on neglect by past administrations. The status quo, he adds, has been compounded by low export and high influx of cheap textile products.
What the current debate may ignore is the dynamic pace of change. As industrialization is shifting within China – from the 1st and 2nd tier megacities in the coastal regions toward other tiers, inland and the west – Beijing’s new leadership is preparing for a massive growth shift, which has huge implication to China’s trade and investment.
Through the Hu Jintao-Wen Jiabao era, China’s growth model emphasized investment, while the mainland’s integration into the world economy occurred primarily through exports. In the impending Xi Jinping-Li Keq
iang era, China will gradually shift from investment and net exports to consumption, while in its external relations exports will be augmented by foreign direct investment (FDI).
As China is moving higher in the value-added chain, FDI to manufacturing has stagnated in China, while FDI to services is soaring. China is increasingly attracting market-seeking FDI, especially in services. As the global value chains of foreign multinational corporations adjust to this massive shift, their FDI is relocating, within China and into emerging Asia.
Meanwhile, Chinese FDI is refocusing worldwide, shifting from emerging Asia into the developed markets, including the United States and the Eurozone. In 2012, China’s FDI into the United States enjoyed a record year. Chinese firms completed U.S. deals worth $6.5 billion.
In the coming years, Chinese multinationals will seek to sustain their cost efficiencies, not just in Southeast and South Asia, but in Africa. Indeed, the special historical relationships between Africa and China could serve as foundation for new bilateral relations, based on Chinese FDI in manufacturing, and African industrialization.
While the logic of growth trajectories in Africa and China is similar, their timing is very different. In China, the industrial take-off was particularly painful and devastating, due to a “century of humiliation” by the western powers. In Africa, the colonial history was dominated by the same nations. In both China and Africa, the net effect has been decades of arrested development, aborted take-offs, and extraordinary devastation.
In China, economic reforms and opening-up policies ensured accelerated industrial take-off toward the end of the 20th century. In Africa, the growth promise could be realized in the coming decades. Differential timing, however, means different interests in different times.
Today, many African nations hope to achieve their take-off, accelerate growth or diversify their industrial structure, as Nigeria. In China, the more advanced regions are moving closer to living standards that prevail in Europe’s southern periphery. While African nations emphasize investment and industrialization, China’s more advanced areas are shifting toward consumption,
even as industrialization spreads in other areas.
Recently, African leaders and the African Development Bank have urged governments to work with each other to maximize benefits from relations with China, their leading trade partner. While such concerns are understandable, they often ignore the effects of foreign FDI in China
First of all, “Made in China” signifies production location, not necessarily ownership. Even today, 50-60 percent of Chinese exports are products manufactured by foreign multinational corporations in the mainland. Typically, despite cheap prices, only a fraction (less than 5-10 percent) of the final value of Apple’s iPod goes to the Chinese labor. Yet, in the west, Chinese efforts to highlight this inequity or emphasize indigenous innovation are attributed to “assertiveness” rather than fairness. Meanwhile, Chinese SMEs have had to compete against huge, capital-intensive foreign multinationals, which have enjoyed preferential treatment.
Second, while critics acknowledge that the Chinese have set up huge operations and built infrastructure in much of Africa, they argue that Chinese companies have done so using equipment and labor imported from home. In their early internationalization, such practices have been fairly typical to most emerging-country multinationals (and they were much worse with advanced-country MNCs in the past). But things are changing. In China, the most advanced multinationals build long-term relationships and pay increasing attention to local workforce. They know that transferring skills to local communities is vital to good corporate citizens worldwide.
Third, and most importantly, China’s growth shift will refocus Chinese presence in Africa, from trade to investment. In a benign scenario, this FDI has potential to accelerate both African and Nigerian economic growth. In many African nations, including Nigeria, current economic growth relies on commodities. While that is not sustainable, it can provide cushion as Nigerian industrial structure grows more diversified.
Unlike most nations in the West, China has a long-term perspective. It seeks to invest in the long-term and build lasting relationships. The Xi Jinping-Li Keqiang leadership, in particular, will promote cooperation with emerging nations, which share lower GDP per capita ($21,000 in Russia, $12,000 in Brazil, $8,400 in China and $3,600 in India) and with developing nations, in which prosperity levels are lower.
True, Chinese GDP per capita average is higher than that of Nigeria ($2,500), which is closer to that of Laos or Cambodia. On average, however, Chinese living standards are certainly closer to those in Africa and Nigeria rather than to those in the US ($48,000) or the EU ($33,000). Even more importantly, due to unbalanced development, there are huge differences among Chinese administrative regions. Third of them have GDP per capita of $2,500-$4,600 – closer to Nigerian prosperity levels.
It is the relative level of prosperity that unites the large emerging economies; the BRICS nations that will participate in the South African summit later in the month. Due to different historical legacies and growth trajectories, they are different, evolve differently and have different goals.
While they may occasionally idealize and even romanticize their respective histories, they understand each other better than the far wealthier advanced economies. They share similar lifestyles, and comparable dreams. And it is these emerging and developing nations that today drive global growth prospects.