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China's New Scramble for Africa

Wednesday, November 22, 2006

The Chinese are looking at Africa as a business opportunity, not a charity case. America should pay attention.

In 2004, just three years after a peace accord ended Sierra Leone's decade of nightmares, I was walking along Freetown's Lumley Beach toward the Bintumani Hotel. War and neglect had destroyed everything: Freetown, the capital, had no reliable power grid and only a handful of paved roads. Its already struggling population was swelling with those displaced by the fighting. It was a tropical destination whose only visitors were foreign relief workers. And yet, standing there in front of me was a luxury hotel, glowing with the light of its own generators.

Inside, I found a lobby serviced by a Chinese-only staff, decorated with large red lanterns, and completely rebuilt from floor to ceiling with Chinese materials and technology. The hotel was deserted. They could not have been turning a profit. Were they crazy to be here?

"Chinese believe high risk can bring high benefit," the hotel's manager, Yang Zhao, would say in later interviews.

And Chernor Jalloh, Sierra Leone's Tourism Minister, would say, "The early bird catches the worm."

The Chinese have been exercising these philosophies with a vengeance. Earlier this month, Beijing played host to a two-day summit that brought together the heads of state of virtually every country in Africa. Its outcome – $1.9 billion in new business deals, a pledge by President Hu Jintao for $5 billion in aid and loans, and a promise to double aid to Africa by 2009 – leaves no doubt of the pivotal role the Chinese believe Africa will play in their future.

Chinese industrialization, unfolding at an unprecedented speed, is driving a ravenous demand for raw materials and new markets. In this sense, China is pursuing the same trajectory taken by many post-industrial countries at critical moments in their economic history: Europe's colonization of Africa; US imperialism in Latin America; Japan's occupations of China and Korea. China hopes it can help sustain its economic expansion by turning Africa into a sphere of influence.

Chinese industrialization, unfolding at an unprecedented speed, is driving a ravenous demand for raw materials and new markets.

The scale of that influence and the speed at which it has grown have taken many by surprise. Total trade between China and Africa nearly quadrupled over the last six years, from $10.8 billion in 2000 to nearly $40 billion in 2006, making Beijing the continent's third largest trading partner. The Chinese government intends to reach $100 billion by 2010, and Chinese trade and investment are a major factor driving Sub-Saharan Africa's record 5.8% growth rate, the highest since 1974. In 2004, China accounted for $900 million of $15 billion in foreign direct investment (FDI) inflows to the continent. China is signing deals left and right to secure state-owned companies' access to natural resources like oil, wood, aluminum, bauxite, and copper, and negotiating bilateral trade agreements to open African markets to Chinese textiles. China will soon surpass the World Bank as Africa's largest lender.

These numbers are staggering, but Africa's share of China's overall trade, investment, and lending portfolio is still dwarfed by Beijing's engagement with North America, Europe and the rest of Asia.

What makes this story remarkable is that for the first time since the end of colonial rule, a major power sees in Africa not a charity case, a landscape of endless need, but as an exceptional strategic and business opportunity.

Can investing in Africa be profitable? Year after year, statistics show that of any region, Africa offers the highest rate of return on FDI. (Many have pointed out this is likely because in Africa, risk-adverse foreign investors select opportunities with the highest likelihoods of return.) Africa is a high-risk environment, and while the potential rewards are also high, American business has focused almost exclusively on extractive industries, shying away from other sectors due to the perceived risks of corruption and political volatility.

China continues to invest heavily in Sudanese oil, despite the genocide in Darfur.

Chinese investors are not inherently different than Americans—they are bolstered by advantages with which American companies cannot hope to compete. Much of Chinese investment is led by state-owned enterprises that do not have to turn a quick profit, or any profit at all, since they can always be bailed out by the Chinese government. The government measures returns not simply in dollars, but in long-term strategic influence.

American business is also hard-pressed to compete with what China calls its "non-interference policy," an indifference to conducting business with political regimes that might be complicit in torture or mass murder, or simply corrupt.

"Business is business. We try to separate politics from business," Zhou Wenzhong, then Deputy Foreign Minister, now Ambassador to the United States, famously told the New York Times in 2004. "You [the West] have tried to impose a market economy and multiparty democracy on these countries which are not ready for it."

China continues to invest heavily in Sudanese oil, despite the genocide in Darfur. In addition to attempts to resuscitate Zimbabwe's collapsed economy—the result of a disastrous land reform program—with generous aid, China negotiated a $200 million fighter jet deal and shares its technology for jamming radio signals and filtering the internet. China is known for disregarding domestic environmental and anti-graft regulations.

Despite its claims of "separating politics from business," China does, of course, interfere in other countries' internal affairs. In Zambia, where China has major copper mining interests, the Chinese government froze new investment and threatened to pull out of current projects if the pro-Taiwan opposition leader, who was critical of working conditions in Chinese-run mines, won the presidential election.

For their part, Africans on the whole seem less concerned with China's human rights record than the Western media. After decades of stagnation, many Africans have grown disillusioned with the IMF and the World Bank, and look to China for a no strings-attached alternative source of much-needed capital. While Western aid has emphasized food aid, education, health and human rights, China is fulfilling a crucial untapped need for something that, from an economic perspective, may be even more basic: infrastructure. Much of Africa's infrastructure has been left to rot since independence. China's bids for oil and mining rights come with offers of hydroelectric power dams, railroads, roads and fiber-optic cables, which have the potential to benefit ordinary people, no matter how corrupt the regime under which they live.

China's endgame in Africa remains unclear. What is clear is that China will be a force to be reckoned with, and while that will mean more competition for Western countries and international institutions, it does not have to lead to conflict. China sees itself and wants to be seen internationally, as a respectable leader, and in Africa, as a transformative force offering an "alternative" model of development.

If Western countries can be a healthy counterbalance to Chinese influence in Africa, that will, in the long run, be good for Africa and the world. However, that requires looking at Africa and seeing beyond oil, beyond terrorism, beyond the images of famine and conflict. It requires that business look at Africa as it looks at any other market: an opportunity.

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