Who is China’s African expansion benefitting?

For many years, whether be-known to the rest of the World or not, China has gradually been flaunting…

For many years, whether be-known to the rest of the World or not, China has gradually been flaunting its economic clout upon Africa; pledging more and more money year upon year, promising to jumpstart the continents development.

By 2014/15, China became the top Economic partner of Africa, having a Goods trade value of more than three times that of Africa’s second biggest partner. The extent of the wide spread of China’s investment was established in a 2017 Mckinsey & Company report which stated that over 10,000 Chinese firms are operating in Africa[1]. These Chinese ‘dragons’ are bringing business experience, capital investment and entrepreneurship in their masses helping to accelerate the progress of this under-developed continent. Capital investment works as a ‘silver bullet’ instigating the positive multiplier effect through its injections into the circular flow of income. This increases the aggregate demand and short run aggregate supply in the economy and in the long run will increase long run aggregate supply, thereby increasing the productive potential of an economy. This would allow individual markets within the country to become more competitive and drive down the prices of goods, benefitting the consumers within Africa.

The Mckinsey report goes to detail how 89% of workers employed are locals, which will have a massive boost on the local economy as, across the whole of Africa, several million more people are employed, which significantly reduces unemployment.  As a result of this, households have more income to invest and grow financially, thus over a long period of time there will be a growth of a middle class. However, only 44% of management is from locals, which means that the local workers are given ‘grunt’ jobs, sometimes unskilled labour, often earning significantly less than their management counterparts. Although, Chinese enterprises train 64% of their local workers and in manufacturing half offer an apprenticeship scheme. 

There has been constant media attention surrounding ‘Debt Traps’, a tactic seemingly employed by China to gain clout over African countries. A debt trap is where a country owes an extremely large or insurmountable amount of debt to another country, usually through high interest rates, and the indebted country exploits power over the country in debt. China has been accused of using debt trap diplomacy to manipulate African countries and using this power to make countries bow to their will, whether it be by using Chinese firms to undertake government contracts or allowing more Chinese firms to operate in their country. China’s debt issuance to African governments has been increasing massively since 2010 with about $5-6billion every year[2]. However, it must be said, only 13%[3] of those Chinese companies in Africa are state run and this decreases the amount of power with which China could potentially sway African countries.

Another hot topic lately, is that regarding the increased Chinese monopoly over rare minerals. These are minerals which are essential for the production of new technology items, such as mobile phones, missile guidance, satellites, lasers, and jets. These are things of the upmost importance in the coming century and with China already having such a foothold in that arena, the United States will struggle to keep up. Ergo, China has a great deal of clout to exude over large economic powers such as the United States, creating trade deals which are greatly beneficial for China. An example of such is the Tantalum mines in DR Congo which are used to for US anti-tank missiles, but the mining and refining process of Tantalum is dominated by China. Most of these reserves are found in Africa and the increased demand for minerals found within Africa should also provide benefits to African citizens from the increased investment. This new rush for precious minerals and metals has been won by China and much more beneficial for China over Africa as they can use these in-demand items to exploit other countries to do their will.

The Sino-African relationship is a complex one which has evolved significantly over recent decades. I argue that there are benefits for both parties, otherwise the relationship would not still exist, however China is the greatest beneficiary. Although, as countries are unwilling to invest the amount China has in Africa due to the high level of risk, Africa is gaining the most it can, as this deal is better than no deal for them. However, the trade deficit with China illustrates the underlying sway favouring China, in particular the growing dependence China holds over these African countries. The supposed debt-trap diplomacy employed by China is a real issue and this has the potential to have dire consequences if China allows it to be so. 

Despite all this I believe that the ‘average African person’ feels the benefits more than the ‘average Chinese person’. This is because a significant proportion of the Chinese beneficiaries are state-owned corporations and large multinationals. Those at the top of these firms benefit a great deal, but few others. As many of the poorer members of Chinese continually point out, this positive relationship fails to trickle down to those in poverty, illustrated by the ever-increasing inequality within China. On the other hand, those in Africa have experienced an influx of new products and jobs. These have led to increases in employment and allowed product differentiation within African markets. Therefore, the results ‘average’ benefits to the Africans have been significantly greater than those to the Chinese.

Finally, China has a serious decision on their hands; whether to continue this focus on expansion into foreign markets, or to focus internally and fix their extreme inequality. However, if the benefits of the Sino-African relationship refuse to present themselves to many within China and if inequalities continue to rise, there is the potential for a conflict internally. This internal conflict would more than likely be as a rich-poor divide with those with minimal power coming up against those with the greatest power in the country. This will ultimately never end well as it is these poorer people who keep the manufacturing core of China going. Alas, a difficult decision needs to be made with regard to the distribution of the benefits and, if China does begin to pull away from their African relationship, then this could have serious consequences for Africa and may lead to another country taking the place of China. These countries are likely to be emerging economies such as Brazil or India. However, if China were to leave, these countries will never be able to operate on the large-scale China has in Africa and this may lead to Africa’s dependence on other countries abruptly stopping.

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