Introduction

This assignment examines the strategic relationship between China and Africa. The first section provides statistics that reveal the extent of trade between China and Africa since 2000. The specific statistics center around the amount of natural resources exported to China and compares that to the amount of imports from China.

After gaining insight into the extent of business between the two, one can begin to understand why Africa is so important to China. This importance is discussed in more detail against the backdrop of the historical background of these two regions.

The following section explains the strategy that China has adapted to trade with Africa and introduces the concept of the Chinese Model. This model highlights the driving forces behind Chinas strategic decisions and introduces some controversial arguments around some of the methods that China has adopted. An important part of this discussion is the comparison of Chinas strategy with that of the West (i.e. regions like the United States of America (USA/US) and the European Union (EU). Some interesting statistics reveal that Africa is attracting significant amounts of Foreign Direct Investment (FDI) and is most likely to continue doing so.

1. Analyse and Discuss the Extent of Trade between China and Africa since 2000. (Jones S. 2012; Alessi C. 2012; China Daily.Com 2011; African Development Bank 2011; The Forum on China-Africa Cooperation 2011)

China will overtake the United States of America (USA/US) as the worlds largest trade partner by.2016. (Jones, S. 2012). China is Africas largest foreign trading partner and its trade with Africa is larger than the continents trade with the European Union (EU) and US combined. One of the reasons for this is that China has a population of over 1.3 billion, which is growing at a rate of 9%. Therefore it needs to meet the demands of its rising population for goods and services. As a result they

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have turned to Africa, a virtually untapped market for raw materials and natural resources. The China and Africa trade corridor was formed in the 1950s, however, trade between China and Africa began to peak after The Forum on China-Africa Cooperation (FOCAC) was established in October 2000. The main purpose of its establishment was to strengthen the relationship between China and the nations of Africa (African Development Bank 2011). In 1999 the total Sino-African trade volume was 6.5 billion USD. By the end of 2011 the trade volume had reach just over 155 billion USD. (Alessi C. 2012; PR Newswire 2011) There are close to 1 million Chinese nationals working or living in Africa. There are 2000 Chinese corporations doing business in Africa. They are mostly private companies which invest in improving infrastructures in various sectors such as manufacturing, energy, banking, transportation and telecommunications (China Daily.Com 2011). Africas main imports from China are food and chemical products; consumer electronics; solar and energy saving products; fashion accessories, garments and textiles; baby and childrens products; and hardware and building materials; (PR Newswire United Business Media 2011) while Africas main exports to China are raw materials such as oil, copper, iron, cotton, cobalt and cocoa (African Development Bank 2011)

70% of Africas exports to China come from Angola, South Africa and DRC. This is dominated by raw materials such as oil, copper, cobalt and cotton. 60% of Africas imports from China come from Egypt, Nigeria and Morocco. These imports consist mainly of food, chemical products and manufactured goods. (African Development Bank 2011)

According to the FOCAC, Chinas top 10 African trading partners from 2006 to 2010 were Angola, South Africa(SA) Sudan, Nigeria, Egypt, Algeria, Libya, Democratic
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Republic of Congo (DRC), Morocco and Benin; respectively. These had a total share of 76% of Sino-African trade (FOCAC, 2011). Please see below for table. Economic type Average annual trade, 2006-2010 (US $ million) Angola South Africa Oil export Diversified economy Sudan Nigeria Egypt Oil export Oil export Diversified economy Algeria Libya Republic of the Congo Morocco Diversified economy Benin Agriculture 2,097 2% 76% 2,548 3% Oil export Oil export Oil export 4,155 4,154 3,241 5% 5% 4% 6,445 5,774 5,384 7% 6% 6% 18,627 166,86 21% 18% Share in total China-Africa trade

Weight of top ten trading partners in total China-Africa trade (source: FOCAC,2011)

Angola, Sudan, Nigeria, Algeria and Libya mainly export oil to China whereas Egypt, Morocco and South Africa trade in a various products, goods and services; while Benins trade with China is mainly in agricultural products. Apart from the top 10 countries trading with China, there are a few other countries such as Zambia, Mozambique, Kenya and Namibia, where exports to China are growing. China is exploring copper in Zambia, copper and cobalt in DRC and aluminium in Mozambique and Guinea.

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The above mentioned table shows one that the trade between Africa is concentrated within a few countries in Africa, which means that there is an imbalance and therefore only a small percentage of African countries are receiving the benefits of doing business with China. China is investing heavily in raw materials in Africa while Africa is mainly buying manufactured goods and products from China. Africas importing of these goods have the risk of threating local business in that particular country. There are a number of stories and complaints from local business owners. For example, Ethiopian farmers are starting to complain that the Chinese are buying vast tracks of land in their country in order to grow food and send it back home. In Zambia, poultry farmers are complaining that what seemed to be a good investment from China in the beginning is now turning into competition as the same Chinese who came to invest are now selling the chickens themselves. However, the Chinese defend these claims by saying that they are keeping the market healthy. (Cossau,2011). Another controversial issue is China selling military arms to Sudan (a country accused of war crimes) during the crisis in Darfur. Despite the above-mentioned complaints, China has contributed towards the development of infrastructure in Africa in numerous sectors such as health, manufacturing, transport, sports and education. At first glance the trade between Africa and China seems to be balanced and fair, however, upon further scrutiny one can argue that there are discrepancies. China mainly imports raw materials such as cobalt, copper, iron and oil from the continent, while Africa imports mainly manufactured products such as textiles, chemical products and electronic goods. Oil, copper, iron and cobalt are all more valuable than clothing, chemical products and electronic goods. If what China is importing from Africa is more valuable than what Africa is importing from China, it means that China is receiving more rewards than Africa in the Sino-African trade relationship.

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2. WHY IS AFRICA SO IMPORTANT TO CHINA? (Business Day 2 March 2004, p. 12; Shelton 2001; Alden 2005; Zhaoming 2004)

2.1 Historically broad-based relationship

In the 1978 period, Africa was important to China because they shared common qualities. They were both developing countries, lacked well developed transportation infrastructures, and both had suffered the ill-effects of the colonial era.

Even though China was still also developing, it managed to sincerely assist Africa economically, financially and politically.

In the 90s Chinas FDI improved, and they were now competing with the Western countries. This was partly because, as from 1995, private enterprises in China were encouraged to invest abroad. The country assisted its private enterprises with tax rebates and loans when establishing foreign operations. During this period, for China, outward FDI became one of the major key issues to promote Chinas globalisation and in 2000-2005, the country adopted a Go Out policy to promote competitiveness.

In the 90s, unlike other Western countries, China saw many investment opportunities in Africa. During this period, Chinas economic engagement with Africa was for symbolic diplomacy and development assistance which revolved around construction projects, and funding and training programmes. Examples of construction projects are the Tanzam Railroad and construction of stadiums in Mali and Djibouti. Examples of assistance are the direct funding of the civil service in the Central Africa Republic and Liberia. African farmers transferred Chinas experience to Africa through training programmes such as hydro-irrigation and small-scale
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agricultural production. All this played a role in enabling China to secure resources and investments in Africa.

2.2 Resource Security

2.2a) Oil

China is the worlds second largest consumer of oil. It has a dynamic economic growth which fuels an ever-increasing need for energy and strategic minerals. As the world's second largest consumer of oil, and with only limited natural resources, China is attracted to Africa's relatively under exploited petroleum and other natural resources (Alden 2005).

China used a range of economic instruments -financial assistance, prestige construction projects and arms sales -to cement ties with Africas oil-producing states. They have been purchasing equity shares in established oil fields rather than buying rights for future exploration and development. This approach reflects a strategic judgment that greater security can be achieved through vertical integration ownership of production facilities through to transport tankers- and thereby providing oil to Chinese consumers below the international market price (Alden 2005).

2.2b) The BHP Billiton Joint Venture

The Chinese governments efforts to secure sources of vital commodities in Africa extend beyond petroleum and natural gas. An example is the BHP Billiton established joint venture, worth 9 billion USD, with 4 Chinese steel mills to secure 12 million tons of iron ore a year over a 25year period (Business Day, 2 March 2004, p. 12). Industry analysts see the potential for expanding the arrangement into Billitons interests in coking coal and manganese in Africa.
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2.2c) Rising Demand for food.

Except for a high demand for energy in China, food security is also a growing concern. With a projected increase in population, the loss of vital agricultural land to industry and increasing consumption amongst urbanising people, Beijing perceives a need to obtain stable sources of key foodstuffs.

One solution has been the wholesale embrace of genetically modified crops. Another is Chinese investment in agriculture, fisheries and related secondary production facilities. China's Ministry of Foreign Trade and Economic Co-operation (MOFTEC) has sought to encourage Chinese investment in Africa, stating that Chineseinvested companies engaged in the production of farm machinery, agricultural processing and small product trading targeted for the world market, will find immense business potential [in Africa] (Shelton 2001). For example, Chinese investors have set up joint ventures in fish processing in Gabon and Namibia, with some of the richest fisheries in the world, and leased agricultural land in Zambia, Tanzania and Zimbabwe.

2.3 New market and Investment Opportunities.

Africas Political economy is favourable for foreign business because of individualism, democracy and a free market. Another reason for China to establish new markets and investment in Africa is the overall attractiveness of Africa to FDI. Although Africa is a relatively small consumer-goods market, trade with China has had a significant impact in two ways. Firstly, China has been able to find a market for low-value consumer goods (many produced by loss-making State-Owned Enterprises) brought in by Chinese-dominated import companies and sold through a growing informal network of trading posts across urban and rural Africa. In the words of one Chinese trade analyst, Chinese products are well suited to the African
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market. At the moment, China is in a position to manufacture basic products at very low prices and of satisfactory quality.(Zhaoming 2004). For example, South African government law conditions makes it favourable for China to establish their operations. The South African policy framework is largely laissez-faire regarding the entry per se of foreign firms no official approval is required for foreign firms to enter the economy, except in a few sectors such as banking. Foreign investors are subject to the same laws and regulations as domestic investors. Policy interventions affecting corporate behaviour and performance are largely concerned with domestic redistributive aims and do not discriminate between domestic and foreign investors.

According to the Chinese government, over 600 Chinese-funded enterprises have been established in Africa in the last decade. Some examples are:

The investment by Qingdao municipal government in the textile industry in Zambia's newly created Mulungushi Industrial Park in Kabwe, aimed specifically at the African Growth and Opportunity Act (AGOA) provisions.

A joint venture between a Chinese and Zambian company to buy a cotton ginnery in the country's eastern province seems to echo China's vertical integration strategy in the energy sector. Chinese investment in 2004 amounted to 139 million USD, bringing its total investment in Africa since the early 1990s to 625 million USD.

3. The Strategic Approach of China Doing Business with Africa

The Chinese economy has enjoyed a tremendous explosion in the past quarter century. China's economy expanded by 9.2% in 2011 and has seen an average growth rate of about 9% in recent years while many countries, especially the developed countries, of the world struggled to reach a 4% expansion especially in the recent global economic recession climate.

The International Monetary Fund (IMF) in its "China Economic Outlook" paper, published on 6th February 2012, noted that the Chinese economy has, once
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again, shown its resilience in the midst of a difficult external environment, buoyed by robust corporate profitability and rising household incomes. Besides the current outlook, the Chinese economy has been tipped to become larger than the economy of USA by 2050 (IMF 2012).

This explosive growth in the Chinese economy in the past few decades (and as predicted in the future) has in turn created a demand for energy in China that has outpaced its annual economic growth and has made China the second largest consumer of oil behind USA while also creating an insatiable demand for mineral resources to sustain its ever growing industries. Not surprisingly, China would consider oil procurement a matter of national security, using all state resources to satisfy the nations need for energy. (Executive Research Associates 2009). Besides its thirst for energy, oil and mineral resources; is the need for China to build a consumer market for its products. With all the right population, a wealth of mineral resources, a ready supply of oil and mostly consumer-centric states, Africa became the go-to market for China.

China's drive in doing business with Africa can thus be said to be motivated by political concerns for National Security and profit, especially with the Chinese government as a major shareholder in most of the business enterprises doing business in China or abroad. This is beside Beijings strong desire to be accepted by the Western nations as an economic super power in the world system and a major stakeholder and decision maker in global politics.

3.1 Africa: The Land of Opportunity

The challenges faced by majority of the states in Africa like poor governance, lack of infrastructure, political instability, poverty and a lack of highly skilled human capital are the major factors that make Africa less attractive for foreign direct investment for the Western nations. However, considering the wealth of mineral resources availability, oil, and a ready and enormous market for its finished products; that is abundant in Africa, China must have seen a continent where Beijings opportunistic model would thrive.

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Considered the largest developing nation, China understands what it is to do business with other developing nations -especially those far behind it (largely found in the African continent) by pushing its own political and economic agent in a continent where majority of the states lacks a national agenda. Thus, in doing business with Africa, China has gone where the Western nations feared or would not go.

3.2 The Chinese Model

In pursuit of its own agenda, China can be said to have introduced a completely new model of doing business. Valerie Niquet , in Chinas African Strategy noted that The impact of Beijings ubiquitous presence, the low cost of its products and services, and a total absence of conditionality are creating a true Chinese Model throughout the African continent, which exchanges raw materials for consumer goods (Niquet V. 2007). Chinas model and strategy in doing business in Africa can be said to be entrenched in a foreign policy to support its domestic policy of ensuring a continuous flow of raw materials and a willing market to sell its finished products. This it has done by encouraging state-controlled companies to seek out exploration and supply contracts with countries that produce oil, gas, and other resources. At the same time, Beijing aggressively courts the governments of those countries with diplomacy, trade deals, debt forgiveness, aid and security packages an effective combination not seen in Western countries (Executive Research Associates 2009). Beijings strategy (through its "Go Out" and buy policy) has been to strengthen its multinational companies by way of providing them with a favourable trading environment in Africa by strengthening its political and economic ties in Africa through a chain of opportunities available to it.

It is therefore safe to infer that the infrastructural problem and the unstable political terrain that characterise most of the African states have become an advantage to China in doing business with Africa. However, it is very important
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to note that Chinas strategy is helping Africa in dealing with its short term needs of creating jobs, building and maintaining a few infrastructures connected to resources and mostly sponsoring of non-people oriented projects.

3.3 Chinese Foreign Direct Investment (FDI) into Africa: What does it really mean? (Mlachila M. and Takebe M. 2011)

The decision by many businesses and governments on the attractiveness of an FDI destination is mostly balanced between the FDI pull and the push factors. Mlachila and Takebe highlight the pull factors as: Abundant natural resources Improving the investment and business climate Better macroeconomic conditions Greater economic liberalisation and deregulation Privatisation Preferential trade schemes

In the same study, Mlachila and Takebe identifies the push factors as: Abundant foreign reserves Increasing natural resource security concerns Greater Chinese government support for outward FDI Rising labour costs in the home country More acceptance of risk

Studies indicate that China has a desire to diversify its accumulating foreign reserves undoubtedly into natural resources; while yielding portfolios appear to be the most obvious driver of the Chinese FDI outflow to Africa.

While the Chinese FDI in Africa could be providing the much needed economic cushioning effect in poor African states, caution should be taken by these states to put in place policies that will bridge the gap being created by the Chinese Model.
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4. Chinas Investment Strategy in Africa Compared to the European Union (EU) and The United States of America (USA/US)

The section below is constructed to create a backdrop against which to demonstrate how the strategies of the US and EU differ from China. The discussions thus far have revealed that Chinas emerging investments in Africa has been a contentious issue not just among other countries of the world but also of academics. On the one hand critics of Chinas FDI into the continent frowns upon them investing in nations that are plagued with unethical corrupt behaviours. These critics claim that China is using their investments as a bargaining tool to exploit raw materials and other resources. A contrary argument that is also prevalent is that China provided Africa with the opportunity to improve their economies in a considerably short space of time. This was made possible through providing aids with limited conditions as opposed to the West (like the US and Europe) who used heavily conditioned aids as a means to fight corruption and improve governance (South African Institute of international Affairs 2011; Africa Economic Outlook 2012; Council on Foreign Relations 2008; Institute of Security Studies 2012).

The previous section makes reference to the Chinese Model, which explains that China operates on the basis of their domestic goals. The South African Institute of International Affairs, presented the following model (see map of model below) that illustrates the domestic goals of the country. Considering that energy security and political influence play an important role in the grand strategy, it helps one understand that these factors are going to drive the strategic decisions around securing energy products and creating appropriate alliance with key regions.

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Source: SAIIA report on Chinas Development Policy in Africa. p 11.

This model explains that Africa plays an important role in China achieving its economic and political goals. Investments in Africas natural resources and emerging consumer markets, will give China a fair amount of leverage in international business transactions and negotiations. In fact it is for this reason that China adopted two specific strategies to secure oil and other mineral resources in particular. The first of the two pronged strategy is to pursue exploration and production deals in smaller, low visibility countries such as Gabon, Guinea, and Congo. Secondly they went after the largest oil producers by offering integrated packages for aid (Council on Foreign Relations 2011). This two pronged strategy in some ways can be considered a niche strategy, especially when one considers that China targeted economies with difficult circumstances because they saw the instability as symptoms of possible future economic opportunities, rather than a possible threat (South African Institute of International Affairs 2011). A major strength on Chinas part that facilitated this
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strategy was the fact that China used their state-owned Chinese companies to enter these regions because these companies were in a better position to engage in business with more risky unstable African regions.

There are several reasons for this, some of which are listed below: State-owned companies have the backing of the government as well as highly influential Chinese businessmen and can therefore afford to operate in more risky conditions that the West tend to be more cautious of (South African Institute of international Affairs 2011). The implications of this comparative advantage enables China to be a monopoly in some sectors within Africa. Due to Chinese businesses being well established over long periods, there is less pressure for short term profits. This is often not the case with Western multinationals who require a return on their investments over a shorter period of time. Another major comparative advantage that China has, is that they were familiar with some of the unstable conditions experienced by various African countries. (The Economist 2012) To conclude this section on Chinas investment strategy in Africa, the diagrams below provide further evidence of Africa being the target destination for the Chinas foreign direct investment dominating the outward investment with 30.3 % and increasing from about 3 billion USD in 1995 to just under 70 billion USD dollars in 2010. This amount is sure to increase, given the recent formation of BRICS, an international political organisation of leading emerging economies (consisting of Brazil, Russia, India and China with South Africa joining the group in 2010). One of the main goals of the organisation is to increase transaction and other engagements between these countries.

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Source: The Economists (2012) http://www.economist.com/blogs/dailychart/2011/04/chinese_africa

4.1 Europes Investment Strategy in Africa Over the period of 2004 -2009 trade in goods with Africa (specifically Libya, Angola and Nigeria) reached a near trade balance, where the amount of exports from the EU was almost equal to the amount of imports from Africa to the EU (European Commission 2011). This was a clear indication that the EUs method and intentions of investing in Africa has not been as aggressive and intensive as the Chinese. The EUs prime regions of interest included regions exporting energy products. The diagram below reveals that 58% of the EUs imports from Africa consisted of mineral resources, whereas Chinas imports from Africa consisted of 81% being mineral resources. It is interesting to note is that, the EU also has a fair amount of interests in other sectors, like agriculture (11% in 2009) and 22% in manufactured goods. This is another area of the EUs investments strategy which differs from China. Analysts have interpreted this as the EU using trade agreements to facilitate fair governance and promote ethical transactions within Africa.

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EU s imports from Africa 2009

Chinas imports from Africa 2008 220082202009

Source: European Commision <http://epp.eurostat.ec.europa.eu/statistics_explained/in dex.php/Africa-EU__economic_indicators,_trade_and_investment>

Source: East Asia Forum <http://www.eastasiaforum.org/2010/02/17/china-andafrica-friends-with-benefits/>

Where Chinas strategy is to empower the African economy by establishing businesses in emerging (and sometimes unstable) regions, EU has chosen to focus on the gateway to bussiness in Africa, namely South Africa. The EU has established the European Investment Bank which is based in Pretoria, South Africa and has been pumping funds into various sectors of the South African economy. (European Investment Bank, 2012) The diagram below depicts the break down of investments in the various sectors.

Source: European Investment Bank (2012) http://www.eib.org/a ttachments/country/ sa_en.pdf

An important point to highlight is that the largest amount of funding is allocated to the Municipal Infrasturucture, which consists of housing, general infrastructure. EUR 60 million was invested to this sector in 2009 and EUR 60 million in the development of SMEs in South Africa. A furhter EUR 40 million was invested with First Rand Bank
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to support clean energy investments in South Africa. This is a list of but a few investments made by the European Investment Bank. To conclude this section of Europes investment in Africa, given the information above it is safe to say that where both China and Europe have an invested interest in the continents mineral wealth, Europe has chosen to focus its FDI on South Africa.

4.2 USAs Investment Strategy in Africa For a long time, Africa has been seen as a dark continent to the US, plagued with political unrest, disease and poverty (Institute of Security Studies 2011). Soon after 1994, President Clinton instituted numerous measures to help the region by increasing US trade and investment in Africa (Congressional Research Service Report 2008). As a result various agreements emerged some of whichh included: A partnership for economic growth and opportunity in Africa and African growth and opportunity acts. Although these agreements offered (as in the case of EU aid) trade preferences and other ecomonic benefits, the aid came with many restrictive conditions. Similar to the EU, the US focused its trade and investments on the SubSaharan African countries like Nigeria and Angola with natural resources being the dominant import product from Africa to the US (Congressional Research Service Report 2008). These countries showed the most promising signs of a good return on investments. Other regions where the economy was particuly unstable and operated with questionable standards and unethical behaviours, the US and EU left alone. If one has to sum up US trade in Africa , one can conclude from the diagram below that their key import interest is in energy products. The US also sees Sub-Saharan Africa as a good market for many of their consumer products. The two diagrams below illustrates this point.

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Imports from Sub-Saharan Africa 2007

1% 9% 2% 7%
Textiles and Apparel Minerals and metal other Agriculture

81%
Source: Congressional Research Service Report on US Trade, 2008, p13

Exports to Sub-Saharan Africa 2007

28%

25%

Machinary Medical Equipment Energy Products Transportation Equipment 22%

4% 8% 3% 6% 4%

Electronics Chemical Products Cereals Other

22%

Source: Congressional Research Service Report on US Trade, 2008, p13

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Conclusion

The trade relationship between China and Africa has grown exponentially in the last decade from 6.5 billion USD in 1999 to155 billion USD in 2011and is growing steadily. From a symbiotic and common interest shared by China and Africa till the early 1990s, against the subtle imperial dominance of the USA, the EU and the West; their relationship has evolved. The growth in this relationship needs to be put into proper context with a clear definition of the benefits to both parties.

During the past decade Africa has largely dealt with and continued to trade with China as an alternative to the US and the West. Some of the reasons for this is to avoid the dictates of the West in African politics and a revolt to against Western imperialism. China seems to have moved on in its trade with Africa from a comrade relationship to a more pragmatic approach to sustaining its economy. Though plagued with lack of infrastructure, poverty and an unstable political climate among many other challenges that make FDI into Africa from the USA and the West very low compared to the developing world, Africa has a large percentage of the worlds oil reserves, mineral resources and an attractive population to sell cheap consumer products which makes it very important to China.

Our study has identified a lack of clear, genuine and sincere national agenda in most of the African states as one of the reasons why Chinas relationship with Africa appears more beneficial to China especially in the long term. For example, it is important to understand that the massive killings, poverty and trouble in Darfur cannot be isolated from Chinas interests in the oil reserves in Sudan. Although the USA, EU and the West have dealt with Africa based on their own agendas they have at least done this with a positive perspective on environmental, human rights and bi-lateral growth issues. It is important for Africa to check its relationship with China and see it as an additional trading partner rather than a better alternative to the West.

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