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2009 Summer Seminar Series
Back to 2009 Seminar Series
July 22
China in Africa
Presenters: His Excellency, Mr. Ombeni Sefue, Ambassador of Tanzania to the United States
Dr. Deborah Brautigam, Associate Professor, International Development Program, School of International Service, American University
Dr. David Dollar, U.S. Treasury Economic and Financial Emissary to China and former World Bank Country Representative for China and Mongolia
Opening Remarks: Karen Turner, Director, Office of Development Partners, USAID
Welcoming Remarks: Alonzo Fulgham, Acting Administrator, USAID
Moderator: Earl Gast, Deputy Assistant Administrator for Africa, USAID
Seminar Summary | Question and Answer
Seminar Summary
Introduction by Acting Administrator Alonzo Fulgham
Acting Administrator Alonzo Fulgham welcomed His Excellency Ambassador Sefue of Tanzania, Professor Brautigam of the American University, and Dr. David Dollar, U.S. Department of Treasury, Financial and Economic Emissary to China. He thanked them for their participation in this important conversation and for sharing their work in and around China on development policy issues and the study of China’s economic progress and its affect on millions of people around the globe, particularly in Africa. Acting Administrator Fulgham then addressed each attendee in turn, noting the background of each and what each perspectives and insights each brings to the seminar.
The session’s moderator, Earl Gast, introduced Ambassador Sefue’s presentation.
Ambassador Sefue’s Presentation
Tanzania is one of the African countries with a strong bilateral relationship with China that predates China’s
hunt and need for oil, minerals, and other commodities. Although there is a notion in the media that China
is only interested in Africa’s oil or natural resources, most companies prospecting for oil, gas, and minerals
in Tanzania are not Chinese. Europe and the United States are also interested in African resources.
Western countries should not think that because China believes in noninterference in a state’s internal
affairs its presence in Africa will undermine progress in good government. Western countries also should
not think that they are the drivers of good governance in Africa. It is up to Africans to take a leading
role in promoting good governance. We have to be more objective.
China has always invested heavily in cultivating political and diplomatic contact with African countries,
and the gesture has been reciprocated by African leaders. The Chinese are consistent and strategic about this.
Four generations of leaders have taken concrete steps to build on this relationship with each subsequent
Chinese leadership increasing the level, the intensity, and the frequency of high-level visits and contact.
Solidarity lies at the root of Chino-African relations. China reminds everyone that it is still a
developing country in solidarity with other developing countries. In its contact with Africa, China
clearly comes across as sympathetic and empathetic, courteous, respectful, and it encourages African
countries to explore the political economic system suitable to their own conditions. As President
Obama said in Uganda, “Africa’s future is up to Africa.” Some countries see that China treats the
continent as an opportunity for meaningful, long-term strategic and mutually beneficial relations
and partnership.
China is involved in infrastructure in West Africa through projects financed by China through
loans or grants and built by Chinese companies and through projects financed through loans and
grants by international financial institutions or by aid agencies. These projects solve practical,
existing problems identified by African governments while increasing the involvement of China in
Africa. Although there have been quality-of-workmanship issues where Chinese companies are involved,
such problems have also occurred with Western countries. Overall, the quality of work by Chinese
companies has been satisfactory. It is, however, important for African governments to conduct
their due diligence on bidding Chinese companies.
There has been concern about China selling substandard or counterfeit goods to Africa.
More often than not, this was between unscrupulous Chinese exporters and equally unscrupulous
African importers. You can’t blame China alone. Millions of dollars worth of counterfeit
imported goods from China have been destroyed with the full support of the Chinese authority.
And Tanzania continues to do that. The engagement of China in Africa is strategic and built
around institutions and trade.
Dr. David Dollar’s Presentation
Dr. Dollar’s presentation covered the complementarities between China and Africa,
the effect of the economic crisis on this relationship, and how this relates
to China’s macroeconomic situation.
China is a resource-poor country on a per capita basis, but Chinese
companies have a demonstrated ability to produce high quality infrastructure at
low cost, and China has become a major manufacturing platform. On a per capita basis,
Africa is a much more resource-rich country than China, but by most indicators Africa
has lagging infrastructure and has underdeveloped manufacturing. In particular, there
is a good economic foundation for deals in which Africa exports natural resources and
China builds infrastructure. Chinese has a very aggressive infrastructure cost-recovery
practice. This is a useful lesson for Africa. As China becomes a more important financer
of infrastructure in Africa, hopefully African countries will not only receive some
financial benefit, but will be able to look at some policy lessons that lie behind
China’s infrastructure success.
The second topic is the effect of the economic crisis on this relationship. In theory, the effect of
the crisis could go either way, slowing down the development of the China-Africa partnership or
accelerating it. The economic crisis did have a very serious effect on China. And there are a lot
fewer commercial investment opportunities in China right now than there were a couple years ago.
But because the fundamental basis of the relationship in complementarities hasn’t gone away, the
economic crisis may actually accelerate the economic partnership. There may be more economic
impetus for Chinese companies to invest in Africa, Latin America, and around the world.
The third thing is how this relates to China’s macro situation. China is a country with a
large savings rate. So China has been a big net exporter of capital. Most of that capital
was exported to the United States. The United States borrowed most of that money during this
long boom period that was driven by U.S. consumption. Now, we know that that boom period has
ended. We are likely to see a retrenchment by American households building up their net wealth
again, which creates an interesting situation where China has a large amount of savings to
invest globally. It’s mostly invested in the United States, but on a net basis that opportunity
is not going to be there on the same scale. It is in this context that we hear about China
investing more in other developing countries, and it is potentially a positive use of
Chinese savings to invest in Africa and Latin America.
China has something of a macroeconomic management problem, and it is in China’s interest to stimulate
more consumption and try to reduce the extent of excess savings that it has. There still should be a
healthy amount of savings that China could put into Africa and other countries, but it is unlikely from
a macroeconomic point of view to expect that the developing world can absorb trade surplus in China of,
say, 10 percent of GDP. How these macroeconomic imbalances get worked out will have an important
ramification for how China grows and how its economic relationships with Africa and the rest of
the world develop.
Dr. Brautigam’s Presentation
In late 2007, A Financial Times editorial on a large infrastructure resource-backed package
that the Chinese had just signed with the Democratic Republic of Congo said that “Beijing
has thrown down the most direct challenge yet to the West’s architecture for aiding African development.”
What does that actually mean? What is the nature of this challenge? This presentation touched on
three areas: background, engagement, three myths about Chinese engagement, and four challenges.
By way of background, in November 2006 there was a huge summit in Beijing, the Forum on China-Africa
Cooperation. In that summit the Chinese made a number of pledges. This was the first time many people
became aware that Chinese engagement in Africa was ratcheting up. There is a lot of misunderstanding
about which of these activities are aid and which of these activities are something else. There are an
overarching set of activities called economic cooperation, some of which are financed by the Chinese
foreign aid program, and a larger subset are financed out of infrastructure-backed nonconcessional loans.
These are not foreign aid. There is difficulty doing research on what the Chinese are doing in Africa.
Foreign aid figures are secret and unpublished. So it is hard for people to figure out what is
going on. Consequently, rumors are repeated. Chinese development finance is like what we do in
the west, but theirs is more concentrated in the government. Very little of the money floating
around is what would actually qualify under OECD development assistance committee guidelines.
Alright, so that said, the truth of engagement. They’re big. They’re increasing. And we expect them
to continue to increase. Between 2003 and 2007, trade has increased. Foreign direct investment has
increased. Economic cooperation, those activities which are mostly not aid, increased.
What about myths? The first myth is that China is a new donor. This is wrong. China’s been around for
a long time. The second myth is that Chinese aid is huge. According to Chinese figures, their cumulative
aid at the end of 2006 was about $6 billion dollars from 1956 to 2006. But they don’t use OECD descriptions
or definitions for their aid, and the Chinese definitions for aid are different in part because their budget
for external assistance includes military aid, aid to investments that are joint ventures. It does not
include scholarships or debt relief. The third myth is that China only gives aid to resource-rich rogue
regimes. This idea may have arisen in part because one of the first public areas of engagement was
China’s first resource-backed loan in Angola in 2004. The loan was part of an interesting model
ometimes called Angola model. The loan finances infrastructure projects and is then repaid out of oil.
The Chinese tie these oil-backed loans to infrastructure. So some of it actually gets used for development,
whereas for the west and the western banks, the oil comes out, the loan goes in, and there is no tie to any
kind of development activity. This kind of deal was replicated in the Democratic Republic of Congo with a twist.
The money would come in, it would be backed by a resource, and it would actually finance the development of a
new and increased supply of that resource, which would repay the infrastructure loan. This kind of
resource-backed loan is not common.
The four challenges are in the areas of debt management, conditionality, standards, and content and
different work modes. The debt-management challenge comes from debt relief. The west has built up
infrastructure and rules for how we give debt relief to poor countries. When the Chinese give debt
relief, they just give it. So that presents a challenge to the number of conditions that we put on
relief. Another challenge is in a norm that the World Bank and IMF should be preferred creditors in
each country so that whenever a country has a lot of debt, the first ones they pay off have to be
the World Bank and IMF. But the Chinese loans to Angola or the DRC make the Chinese into preferred
creditors. This goes against that norm, and that’s partly what underlies the concern that the IMF,
in particular, has about some of these deals. So, the IMF and World Bank set up a debt sustainability
framework, but the Chinese say that the debt sustainability framework is too static. The next
challenge is conditionality. The Chinese have a set of understandings about how change happens in Africa.
And that change is and should be African driven. They also don’t have social and environmental
conditionality. There are a lot of different and largely voluntary standards that are recent but
increasingly applied to aid and development finance coming from the west. Chinese companies are not
yet joining into these. A lot of China’s engagement seems experimental. They are constantly trying to
find out what might work. One of the things that they are experimenting with is overseas special
economic zones to help Chinese companies invest in Africa, where at least seven official zones have
been approved. This is an unusual model of assistance.
Much of the conventional wisdom that you read in the newspapers about what China is doing in Africa
is actually wrong. Read these stories with a more critical eye. China is not a huge donor in Africa.
They are not using all Chinese workers. It’s about 80% to 90% on average African workers on any kind
of project. They are not transferring huge sums of money to African leaders. Social, environmental,
labor standards are a big problem, but in general this is a relationship that offers a lot of opportunity.
The Chinese see Africa as a hopeful place, not the failed continent. There are a lot of young Chinese
excited to be in Africa. Look at this again with an open mind to figure out what is really going on
there and to look at the possibilities it presents as well as the threats.
Question and Answer
[Questions & responses in this summary have been abridged.]
Question #1: Are there lessons to be learned for Africa from the Chinese experience in agriculture?
Answer #1:
Ambassador Sefue: You are absolutely right. Their experience is very recent. It is not very high tech.
China has the appropriate technology that can quickly be applied across Africa to impact agricultural
activity and agricultural systems. This is one area where it’s possible the U.S. and China can find a
way to work together in Africa and have a huge impact.
Dr. Brautigam: What the Chinese are particularly good at is irrigated rice. There are
many areas where irrigated rice is underdeveloped in Africa, and there are many areas that import
a lot of rice. For example, in Mozambique they import about 500 million tons of rice a year. Yet
they have huge areas that are fallow right now and that could be put back into production for rice.
Another area of interest is the export of their agricultural technology. And this involves not just
implements and hoes but small scale tractors. They look at this as a very big market. Concessional
loans for agro machinery and equipment is a big and growing area. I understand from other researchers
that the Chinese supply about a quarter of all the eggs in the market in Zambia. So, in terms of food
security, there is potential to expand. But this comes with risk.
Question #2: Recently in the media there have been reports of billion dollar loans to Zimbabwe, platinum backed. People were saying that the local platinum mines are valued at $40 billion dollars and it is a billion dollar loan, and China’s stealing resources. So I’d like some clarification on the details and the conditions on that loan or whether there are any.
Answer #2:
Dr. Brautigam: This is a very recent development, so I don’t have any further inside information
about that loan. But I can say a few things about it. One is that this package has been in the works
since 2004, so it has been under discussion for at least five years. And the Chinese have not moved
forward on it because of the economic instability. So the fact that we’re seeing it start to become
more concrete now because they see that things are calming down in Zimbabwe and commercial might be a
better prospect. Now if this is in the nature of other deals that have been done, it is a loan that
will come in partly to develop that platinum resource. I don’t know the details again. I doubt very
much that it is an accurate way to portray it as $1 billion dollars coming into a loan and $40
billion dollars going to China to repay the loan. It wouldn’t happen like that. I can’t really say
anything more about it.
Question #3: I’ve never seen anybody give a perspective about what anybody can learn from Africans, so my question is are there examples that you have seen of collaboration where the Chinese are trying to learn from Africans?
Answer #3:
Ambassador Sefue: I don’t think I can have a clear answer to that because there’s a lot
that’s happening over the last few years in terms of Chinese investments in Africa. But, the Chinese
are willing to try anything they think can help their engagement with Africa. And so I wouldn’t be
surprised that when they see an opportunity like that, they would like to try it. I know they are
open-minded about these things, but I don’t have examples.
Dr. Dollar: One of the last things I was doing before I left the World Bank is
we were doing quite a bit of work with China, helping them organize technical exchange with Africa.
We organized a number of sort of study programs and field trips focused on particular projects in
China that have been supported by the World Bank. And in a number of cases I know that the
Chinese-side reaction at the end was that they had learned a lot from the Africans. So I was
left with the feeling that the Chinese were quite sincere about pursuing the learning agenda
because there were a lot of things about Africa that they don’t know about because of lack of experience.
Dr. Brautigam: Malaria is a huge problem in Africa, and the Chinese are working on a prospective
remedy for malaria, they are trying to see if it grows well in Tanzania. The factory that they set up
to produce it in Tanzania is a joint venture with the Tanzanian government.
Question #4: I was wondering about Tanzania’s due diligence process because they are the only country that we’ve found that has really investigated the cost of these companies being contracted. My second question is what is the level of coordination on the Chinese side of these different loans and infrastructure projects? Is it more top-down driven or are the banks driven by commercial or profit incentives?
Answer #4:
Ambassador Sefue: It’s extremely important for African governments to do their own diligence on
Chinese companies because regardless of this excellent bilateral relationship that we have at the
political level. They must build the capacity to do due diligence and, where warranted, to take action
against those Chinese companies. We have had cases where Chinese companies have had their contracts
cancelled. This is the responsibility of African governments.
Dr. Brautigam: I know that the study that your group has funded appears to be a very helpful
study. It’s largely centering on a group of Hong Kong state companies that have ties with leaders in China.
But there’s still a lot we don’t understand about those companies. I don’t think there is a lot of necessarily
direct direction from Beijing on these activities. The Chinese have separated out their banks that are supposed
to operate on commercial principles and those supposed to operate as policy arms of the government. The Chinese
Development Bank is increasingly interested in engaging in Angola. This bank is supposed to be commercialized.
So they are supposed to be making their own decisions on a commercial basis. From what I can see that is
exactly what they are doing. China Development Bank and China Ex-Im Bank often are rivals. So they compete
against each other. So, in terms of it all being part of a coordinated game plan, I don’t think that that’s
actually the case. The China Concession Bank was set up in Africa 10 years ago to provide working capital to
Chinese construction firms that are bidding on projects. So the Chinese Concession Bank’s activities are
different yet again from those other two banks.
Question #5: I was wondering if you think, in the short or long term, that Chinese corporations will join already existing standard systems?
Answer #5:
Dr. Brautigam: They are already experimenting. For example, the Chinese Ex-Im Bank and
the Chinese Development Bank have all been engaging in the World Bank International Finance Corporation
to get training on the [equator principle]. And they are extending that, not necessarily applying it to
their lending, but they want to learn about it so they are ready and positioned for the time when they
are going to have to start pushing those companies that they finance to operate by those principles.
But it took a long time for these principles to be applied in the west, and I don’t think that we can
expect that China, just because it is very big and has a lot of money to do these things, to suddenly
be applying the same principles that developed very gradually for our own companies and banks.
Previous USAID Summer Seminars
Notes, Q&A transcripts, handouts, and slides from previous USAID Summer Seminar are available for the following years: 2008, 2006, 2005, 2004 and 2003.
How to Contact Us
Any questions concerning the Summer Seminars should be directed to the 2009 Summer Seminar Planning Team at ksc@usaid.gov
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