The role of China in the industrialization of Africa 中国在非洲工业化中扮演的角色 by Jun Gao

China’s recent strategy of accelerating industrialization of African is the result of its own economic restructuring and deepening economic ties with its African partners. However, the development of African countries have been impeded by some of the major constrains including governance and human resources. China could not achieve its goal without addressing these constrains, thus its strategy will be put into the tests lay ahead.

A Chinese attendant teaches service manners to African attendants of the newly inaugurated Addis Ababa–Djibouti Railway, from cankaoxiaoxi.com

A Chinese attendant teaches service manners to African attendants of the newly inaugurated Addis Ababa–Djibouti Railway, from cankaoxiaoxi.com

China recently announced its goal to accelerate Africa’s industrialization at the G-20 summit in Hangzhou, a city known as a hotbed for China’s private enterprises. This goal not only tries to show China is taking on global leadership responsibility to promote economic development in late developers, but it also means taking its years of economic engagement with Africa to a new level. Bolstered by the government policy of “Going Out”, China’s economic relationship with African countries developed rapidly after setting up the Forum on China-Africa Cooperation in 2000. Since then, China has surpassed most other countries as a major trade partner of Africa with a total trade volume of US$108 billion in 2015. China’s direct investment in Africa also increased significantly in various sectors, especially mining, infrastructure building and manufacturing. In the end of 2013, China’s ODI (overseas direct investment) reached US$26 billion which exceeds the $22 billion of the U.S.

The pattern of Chinese economic engagement is highlighted by its huge demand for natural resources and heavy investment in infrastructure building. On this note, China has a distinct mechanism of providing development assistance. As China-Africa scholar Deborah Brautigam details in her 2009 book Dragon’s Gift, African countries could receive free or low interest loans for the developmental projects, while they could reimburse the loans with their natural resources. This pattern of interaction emerged in the early 1990s when China changed its economic policy to Africa from pure aid to commercial cooperation. As a result, the large industrial projects operated by the state-owned enterprises are usually part of the developmental aid programs. As described in China’s foreign policy rhetoric, its economic engagement in Africa aims to achieve a “win-win” situation for both China and Africa, which means the relationship between China and African countries is one of equal partnership instead of one between aid donor and receivers. This new type of engagement has mainly produced a favorable view among the Africans, with China seen as a pragmatic and efficient economic partner. The results of Pew Global Attitude Survey in 2015 showed 70% percent of the respondents in Africa view China positively.

China’s economic restructuring and the industrialization opportunity window

 The export of natural resources contributed to a decade of economic booming of African countries—that is, until China’s recent economic slowdown. The Chinese economy experienced a downturn since 2014 when its annual GDP growth rate turned lower than 8 percent for the first time in the past fifteen years, thus also shrinking its demand for African commodities. China’s economic slowdown is mainly a result of its structural reform which aims to upgrade the Chinese economy to a more mid-end manufacturing and service industry-based economy. A consequence is that the low-end and labor-intensive industries are being gradually phased out, as they lose both policy support and competitive edge in the global market. The Chinese government also tried to use macro-economic tools to cool down the over-capacity of domestic industries and over-investment in some industrial sectors such as infrastructure building. The Chinese government planned to channel this industrial over-capacity towards other developing countries through the Asian Infrastructure Investment Bank and the Belt-Road Initiative, which makes Africa an important part of this grand economic strategy.

China’s economic transformation created an opportunity for other developing countries to take over its phased-out industries while each moves up the global value chain. Chinese low-end industries are already transferring to—and transforming—other Asian countries such as Vietnam and Bangladesh. African countries possess abundant natural resources and relatively lower labor costs, and these “comparative advantages” will help draw the low-end and labor-intensive industry to Africa. Justin Lin, a former World Bank chief economist and influential economic policy advisor to the Chinese government, believes a country should implement an industrial policy that suits its given economic endowment structure at a certain stage.[1] He argued successful industrial policy requires concentrating limited national resources on certain sectors that have comparative advantages, which for some African countries, is the textile industry. Especially low-end Chinese manufactured products have competed aggressively with African industries for African domestic market share, with Chinese goods are often cheaper due to China’s lower labor costs and advanced technologies. They have impacted the local industries in countries such as Mauritius and South Africa that can be considered to have even relatively well-developed industries.[2] If those Chinese industries are transferred to African countries, it might facilitate the efficiency of African industries by providing them with new technologies and management skills. However, the economically sound idea faces several challenges for it to be implemented successfully.

 The constrains of China-led industrialization in Africa

Chinese enterprises have already opened textile manufacturing factories in some African countries such as Ethiopia and Tanzania, but they achieved only limited business success. Those manufacturing industrial projects are also far from generating positive spillover effects on the local industries. Chinese businessmen generally believe there are obstacles for African countries to accommodate to the pace of the China model of development.[3] Historically speaking, insufficiently planned policy and implementation of African governments often led to the failure of industrial projects. These are not new challenges to foreign companies, but the question is whether China has its solution to these problems in order to implement its ambitious initiative.

 As Justin Lin suggested, the China-led industrialization initiative will transfer the Chinese experience of industrialization to Africa. However, the China model of industrialization is embedded in a strong developmental state, a term coined by Chalmers Johnson to explain the success of the East Asian Tigers. A development state has a relatively autonomous and efficient bureaucratic system which can implement policy largely insulated from interference of political and social interests. For example, the Chinese state can conduct economic experiments and stimulate competition between its different administrative areas. It also has an unique assessment mechanism based on the economic achievements for its government officials.

 On the contrary, few African countries feature what can be considered a modern developmental state, let alone possess an assessment mechanism that is similar to the Chinese one. Botswana may have been worthy of the developmental state label since the early 1970s, but many other African countries resemble predatory states such as Zimbabwe or somewhere in between. Professor Tang Xiao Yang, who is one of the top scholars on Sino-African relations, believes only Ethiopia today has a governance system similar to China’s. To improve policy effectiveness of African countries, China may need to export its governance system to African partners, but the system whose “Chinese characteristics” are by definition unique, may not be viable in many African countries. The wave of Special Economic Zones (SEZs) set up in African countries in the past two decades largely mimic the SEZ model from China and other Asian exporters, but their spillover effect on the governance effectiveness of local countries is insignificant.

 Another major challenge is African local labor and the lack of human capital. African countries have various law requirements for foreign companies to hire certain number of local labors, thus creating employment pressure for Chinese companies investing in Africa. Most African laborers end up employed in low-skilled positions due to their relative lack of education, and this also strains the transfer of technologies necessary for industrialization. As economist David Dollar noted in his latest book, human resources development will be an increasingly urgent issue for Chinese engagement in Africa. He argued the success of industrial cooperation requires the investment of education programs targeted towards local populations. China has set up some professional training programs in countries including Kenya and Ethiopia, but obviously there is still a large gap to be filled in terms of education investment. China knows this kind of work could not be done by itself, but requires the cooperation of the economic powers of the G-20 countries.


China-led industrialization to be tested

 Despite the numerous obstacles, China has already made prominent achievements in areas such as infrastructure building, which has significantly reduced transportation costs for landlocked African countries and improved industrial production conditions such as electricity supply. China has already become the largest infrastructure provider for Africa, and its investment in African infrastructure is more than the whole World Bank’s investment combined. As currency devaluation and debt crisis are threatening various African economies, China’s state banks and the China-Africa Development Fund are continually expanding its lending of low interest rate loans to the African industrial projects. What China did and intends to do in Africa reflected its consistent rhetoric about reciprocity, and gives the country a significant leverage on its further engagement into the industrialization process of Africa. However, the constrains will continue to challenge China’s capability of engaging Africa, and there is still a long road for its model to win the hearts and minds of African population.


Jun GaoJun Gao is a Research Assistant at USC Center on Public Diplomacy, and is the founder of an independent think tank Political Economy Strategy. His research covers regions of Africa, Middle East and Latin America with a focus on comparative political economy and Chinese foreign policy engagement in those regions. Email address: gaoj [at] usc.edu

 


[1] Justin Lin,. Ha-Joon Chang. (2009). Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha-Joon Chang. Development Policy Review, Volume 27, Issue, Pages 483–502. See also Justin Yifu Lin. (2012). New Structural Economics: A Framework for Rethinking Development and Policy. Washington DC: The World Bank.

[2]Hannah, Edinger,. Ron, Sandrey. (2013). Is China bad for Africa’s industrialization?Bridges Africa, Volume2, Number 6, Available at: http://www.ictsd.org/bridges-news/bridges-africa/news/is-china-bad-for-africa%E2%80%99s-industrialisation

[3]Tang Xiao Yang. (2014). The China-African interaction in the industrialization of Africa. Carnegie_Tsinghua Center on Global Policy. Available at: http://carnegietsinghua.org/publications/?fa=57082

 

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