Sunday, October 04, 2009

China expands presence in Africa via trade and aid

Financial Times: Africa-China trade report, 2008, China seeks big stake in Nigerian oil, China tops South Africa’s trade league
New York Times: Uneasy engagement- China spreads aid in Africa, but with a catch

China is putting its vast foreign currency savings to use in the developing world, attempting to establish diplomatic alliances, to stimulate markets for its domestic companies and to obtain access to natural resources. Though Chinese investment occurs across the globe— from Pakistan and Kyrgyzstan, to Senegal and Angola— the Chinese involvement has had a particularly significant impact on the African continent.

In South Africa, China has climbed the ranks to become the country’s largest trading partner. Rising Chinese demand for South African minerals contrasts with a decrease in traditionally more important markets, those harder hit by the financial crisis. Official figures show that South Africa exported R32.4 billion ($4.4 billion) to China during the first seven months of 2009, only slightly less than the export total for the whole of 2008 (R35.9 billion). China is also projected to become South Africa’s largest source of imports, a shift which helped reduce the severity of the recession in the country. The Chinese, eager to develop strong trade connections with emerging markets, value the South African partnership.

Elsewhere on the continent, oil negotiations are underway. A Chinese state-owned oil company hopes to purchase large stakes in Nigeria, acquiring some of the world’s richest oil blocs. The purchase would surpass all of China’s previous efforts to secure overseas crude oil and toss the Chinese company into the ring with the largest western oil groups, including Shell, Chevron, Total and ExxonMobil. This effort to establish traction in Nigeria highlights China’s long-term ambitions to secure economic power and access to energy resources across the globe. The oil deal, if completed, would be far from the country’s first Nigerian investment. Last year’s Nuctech dealings, in which the Chinese provided a sizeable credit line in order to finance new Nigerian trade equipment, were tainted by allegations of money laundering. Three of the Nuctech dealmakers were arrested on suspicion of violating Nigeria’s new anti-corruption law.

Chinese foreign aid to Africa typically arrives in the form of cut-rate loans, sometimes combined with more standard, commercial lines of credit. African leaders have largely embraced the easy credit and the results are hard to ignore. The money has produced striking improvements in infrastructure, including new roads, power plants and telecommunication networks across the continent. Development experts are wary however, arguing that Chinese investment almost always comes with a catch. In virtually all cases, the money must be used to purchase goods or services from Chinese companies, hand-selected by Chinese officials. As developing African nations increase their indebtedness to China, some experts feel concern about China’s increasing power on the continent.

1. Chinese funding is appealing to developing Africa for multiple reasons. The cut-rate loans are often unaccompanied by many of the stipulations that Bretton Woods Institutions (the IMF and World Bank) include, like demands for political reform or economic restructuring. Should we be concerned that these factors are not included in Chinese loan negotiations?
2. Strong Chinese demand helped South Africa weather the financial crisis. How will China’s relationship with other, indebted African nations evolve in the aftermath of the crisis?

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