Chinese Foreign Minister Yang Jiechi and Burundi’s vice president Yves Sahinguru at the construction site of a school in Bujumbura AFP/Getty Images

Chasing the Dragon

By Peter Guest, Editor, This is Africa | Published:  01 October, 2009

Questions of rivalry between the US and China in Africa may represent a Cold War paradigm, but commercially, America is falling behind. Coordinating its interests is going to be a major challenge for the Obama administration

Relaxing in front of the window 50 storeys up, in an airy lounge in Beijing’s Capital Club, Victor Zhikai Gao has an air of the sage about him. “You can ask whatever questions you have in mind,” he says serenely, before launching into a detailed narrative of Chinese corporate and political history, which, Mr Gao explains, led naturally towards Africa.

Mr Gao is a former director of the China National Overseas Oil Company, one of the giant state-owned enterprises that grew out of their parent agencies following China’s market reforms in the 1980s, overseeing the company’s international expansion, including its involvement in upstream oil deals in Africa. Today, he has positioned himself as one of the country’s leading advisors and experts on Sino-African affairs.

This process, led by reformist premier Deng Xiaoping, began at the end of 30 years of international isolation for China. Finally, private companies began to spring up, international investment was permitted and the country began to develop capital markets. Even the major state-owned enterprises restructured into more commercial concerns and sought listings domestically and overseas, either in Hong Kong, New York, or in CNOOC’s case, both.

“It took roughly 20 years for these companies to grow, to reform, to restructure,” Mr Gao says. “Most enterprises were basically building up their muscle domestically – especially the private enterprises, they started from scratch, because there were no private enterprises 30 years ago,” he says. “It was small father-and-son or husband-and-wife noodle shops and barber shops that gradually upscaled. It took 15-20 years to reach economies of scale in their own category.”

The turn of the century was a watershed for Chinese companies. Having survived the brutal competition at home, expanding from their home provinces – each the size and population of a country – many enterprises started to look overseas, not just for capital, but for new markets to enter.

“When they go out of China, then where do they go?” Mr Gao says. “The American market is actually very protected; the Japanese market is very protected; the European markets are very fragmented.” CNOOC itself found out how difficult entering the US through acquisition could be, after its failed bid for Unocal in 2005.

Many Chinese manufactured goods struggled to break into the main developed markets due to their relatively low quality, however, in emerging economies they found a natural fit. Motorcycles from factories in Guangdong and Jiangsu are on sale in Nairobi supermarkets and have replaced Japanese Yamahas as the preferred vehicle of Kampala’s “boda-boda” motorcycle taxis.

In 2000, China-Africa trade was around $10bn. By 2007, it had reached $73bn. In 2008, it surpassed the United States as the continent’s largest trading partner, hitting $107bn. A $940m trade surplus in 2007 turned into a $5bn trade deficit in 2008. To put this down solely to the competitive strength of Chinese enterprise, however, would be an oversimplification. Both private and state-run companies are part of Beijing’s Africa strategy, and it has deployed powerful mechanisms to promote this expansion.

In Freetown, Sierra Leone, Chinese flags fly outside the Bintumani, a former state-run hotel that was destroyed in the country’s civil war. A plaque outside celebrates its reconstruction by the Beijing Urban Construction Company, which now operates it. The highway linking Freetown to Makeni in the north is Chinese-made. The main boulevard in Kinshasa in the Democratic Republic of Congo is being rebuilt and widened by Chinese engineers, just as Zambia’s main arteries were. Infrastructure grants and loans are routinely used by the government in deals which package up private and quasi-private companies’ offerings. Observers in Beijing tell This is Africa that these soft loans and grants often never leave China, with the money being kept in Chinese bank accounts and spent on the recipient governments’ behalf.

Nothing new

Chinese overseas development assistance to Africa is hardly new. The 1,800km long Tanzania-Zambia railway, built in the 1970s, still stands as a testament to that emerging relationship. But the nature of assistance has changed. The mixture of grants, soft loans and commercial-termed loans has shifted towards the latter, with preferential treatment for Chinese companies often part of the package, but virtually no other conditions. This combination has proved compelling, not only in countries where governance is weak, but in some of Africa’s best-run states.

China’s presence in Africa hit the US mainstream consciousness around 2006. Think-tanks in Washington began to pick up on the trend, and articles began appearing in the Wall Street Journal and Time Magazine.

“The China in Africa issue erupted for many reasons that had little to do with Africa, I think,” says Mauro De Lorenzo, vice president at the John Templeton Foundation and a visiting scholar at the American Enterprise Institute, who testified before the China-US Economic and Security Review Commission on the issue. “If you remember at that moment, it was at the nadir of American confidence about the ability to project influence, values, all sorts of soft power things and all sorts of hard power things, because there was no visible exit in Iraq, and that just led to a season of doom-saying,” he says.

“Policy wonks started to say: ‘we have to give all this priority to Africa because all the democratic and institutional gains are going to be erased, because China doesn’t have conditions’.” This appealed strongly to elements on the political left and right, says Mr De Lorenzo. “None of them seem to have any idea how irritating it is to Africans. Underlying any statement of that kind are two unarticulated claims. One is that Africa became more democratic because of us, because of the pressure we put on it and because our conditions worked. There’s a lot of reasons to be sceptical of that theory. The other is that absent our training wheels, Africa will revert back to its ‘natural state’, and the Chinese will enable them to regress.” This, too, does not hold water, he says.

Most of the discussion at that time centred around the notion of influence, a term which seemed roughly to translate into the ability of the US to promote its interests in international forums, such as the UN, and in trade negotiations, including the stalled Doha Round, where South Africa was consistently voting in opposition to America. The idea that African nations – who typically vote as a bloc in the UN – had suddenly split with US thinking due to growing Chinese influence, is questionable. Political links between Beijing and the continent have roots in China’s overtures of newly independent states as part of its drive for international recognition since the 1950s. It was partly African support which saw the People’s Republic of China’s entry to the UN in 1971, displacing Taiwan, and it is through African voting that Taiwan is still unrepresented in institutions such as the World Health Organisation. In 1995, Japan’s desire for a place in an enlarged UN Security Council was thwarted by China’s encouragement of the African bloc to demand representation.