3 July 2007

China Challenges U.S., Europe in African Push: Frederick Kempe

By Frederick Kempe

July 3 (Bloomberg) -- One cannot escape the relentless Chinese economic invasion of Africa even here in the South African bush, where business and political leaders gathered at the Tswalu Kalihari Reserve to track lions, zebras and global trends.

With a ring of crackling fire holding insects at bay inside our boma, a converted nocturnal cattle enclosure, a South African energy executive describes how Chinese competitors undercut his bid for a power project in Namibia by using engineers of similar skill at half the price. Yet Chinese influence can be beneficial as well: He has formed a joint venture with a Chinese partner that is getting close to completing deals of far greater magnitude.

Many in the West view the Chinese in Africa as a strategic threat, but African business leaders I met in South Africa and Nigeria last week see an historic opportunity without equal since the end of the Cold War.

In contrast to the U.S. and Europe, the Chinese are determined investors, willing to take more risks, offer more subsidized loans, pose fewer human rights and democratization conditions, pay more bribes and operate in more remote places. They are also willing to undercut local labor markets and manufacturers by shipping in tens of thousands of their own workers and low-cost goods.

``They are changing the African development model in ways the West has not yet grasped,'' says Greg Mills of South Africa's Brenthurst Foundation, who assembled the group at Tswalu with the Atlantic Council of the U.S.

Next Act

That's only part of the story.

Africa also has become the best place to get a sneak preview of globalization's next act. It is one that will be less American and more Asian, one where rising players challenge established rules and institutions.

The decline in the West's economic and political influence is already clear in Sudan, where only the Chinese have sufficient leverage to change the behavior of a regime the U.S. has charged with complicity in genocide. Beijing has refused to join sanctions and has only belatedly applied political pressure due to its foreign policy of non-intervention and its overriding priority of holding onto 60-percent plus of Sudan's oil reserves.

The Chinese at the same time are challenging the so-called Washington consensus that economic success requires democratic capitalism with a light state hand presiding over privatizing economies. China's expanding aid programs carry a different sort of conditionality: Namely that their partners end diplomatic recognition of Taiwan and enter long-term economic arrangements that commit their resources and spending almost exclusively to China.

Strings Attached

A case in point was last week's start of the first $1 billion phase of the state-owned China Development Bank's much- ballyhooed $5 billion China-Africa Development Fund.

This economic assistance is available to Africans only if invested in Chinese enterprises and their projects. Beijing will require 70 percent of contracts go to approved Chinese companies and the rest to Africa partners, most of whom will be Chinese joint-venture partners. Europe, the U.S. and Japan have had different forms of such conditionality in the past, but they abandoned these approaches because they have been shown to reduce aid's effectiveness by 25 percent or more.

Senior U.S. officials are at pains to deny scaremongers' insistence that Africa has become a strategic battleground. They are right that China isn't the ideological enemy it was in Africa during the Maoist period.

Yet Africa is a front-line of another sort: Chinese competitors working hand-in-glove with the state are already supplanting Western business and reducing Western political leverage. That could in turn slow or even reverse what has been an encouraging democratic evolution.

Held Captive

It's hard to fault Africans for embracing China after 50 years of development help from the West that has left them with just 2 percent of world trade, down from 7.5 percent in 1948. With notable exceptions, Africa remains the captive of poor governance, corruption and fragile economies that fuel war, rebellion and poverty.

China is succeeding on the continent not because its model makes more sense to African business leaders, most of whom still prefer further democratic evolution, but because it is focused and strategic, having defined Africa as a vital interest in a way the U.S. and Europe have not. President Hu Jintao has visited 17 Africa countries in the past 12 months, more than any head of state.

The smart money is betting that China hits its trade target of $100 billion by 2010, a 10-fold increase in a decade and almost double last year's $56 billion. Some 800 Chinese companies have become the continent's most-aggressive investors, with an estimated $6 billion in foreign direct investment through 900 projects.

Aid Package

Africa provides China with some 25 percent of its oil compared with 8 percent for the U.S. Beijing has secured future oil deliveries from Angola, Africa's second-largest producer after Nigeria, in what has become the typical manner -- with a $2 billion package of loans and aid that includes funds for Chinese companies to build schools, railways, hospitals, roads, lay a fiber-optic network and train Angolan telecom workers.

Yet Africans themselves are coming to understand the downsides of China's interests -- an influx of Chinese labor and goods that are undermining their own markets and propping up odious regimes that continue to give Africa a bad name.

In the end, Africa's best approach would be to embrace China's economic carrots but reject its undemocratic and opaque economic model. If they don't do that, the only possible outcome is merely a Chinese twist to Africa's long cycle of bad governance, unpaid debts, rampant corruption and failed hopes.

(Frederick Kempe, president of the Atlantic Council, is a Bloomberg News columnist. The opinions expressed are his own.)

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